<PAGE>1
Form 10 -QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
Commission File Number 33-2775-A
TECHNICAL VENTURES INC.
_____________________________________________________________________________
(Exact Name of small business issuer as specified in its charter)
New York 13-3296819
_____________________________________________________________________________
(State or other jurisdiction of (I.R.S Employer
incorporation of organization) identification No.)
3411 McNicoll Avenue, Unit 11, Scarborough, Ontario, Canada M1V 2V6
____________________________________________________________________________
(Address of Principal Executive Offices, Zip Code)
Issuer's Telephone Number, Including Area Code (416) 299-9280
______________________________________________________________________________
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of September 30, 1998.
19,798,011 shares of common stock, $.01 par value
______________________________________________________________________________
Page 1 of 12 Pages
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TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
SEPTEMBER 30
1998
(UNAUDITED)
CURRENT ASSETS
Cash $10,368
Accounts Receivable 65,680
Inventory (Note 2) 37,510
Other Current Assets
Advances 36,407
Deposits 11,606
Total Current Assets 161,570
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation of $449,943 162,496
INTANGIBLE ASSETS, net of accumulated amortization of
$4,979 847
$324,914
LIABILITIES & SHAREHOLDERS DEFICIENCY
CURRENT LIABILITIES
Notes Payable (Note 4) $114,048
Current Portion of long term debt: (Note 3)
Capital lease obligations 77,052
Other 326,549
Loans & advances:
Private lenders 101,339
Shareholders 172,745
Accounts payable and accrued expenses 286,276
Total Current Liabilities 1,078,008
LONG-TERM DEBT, net of current portion: (Note 3)
Shareholders 299,304
Other 47,692
MINORITY INTEREST 0
SHAREHOLDERS' DEFICIENCY:
Common stock, $.01 par value, 50,000,000 shares authorized:
Issued and outstanding, 19,798,011 shares 197,780
Additional Paid In Capital 4,158,510
Deficit (5,803,636)
Foreign currency translation adjustment 347,256
Total Shareholders' deficiency (1,100,090)
$324,914
See notes to condensed consolidated financial statements.
(2)
<PAGE>3
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
SALES $240,990 $394,926
COST OF SALES 186,389 351,062
GROSS MARGIN 54,601 43,864
GENERAL EXPENSE
Administration 39,090 35,617
Financial
-Interest & Other 20,694 32,894
Research & Development 21,936 27,666
Selling 17,194 17,790
98,914 113,967
LOSS BEFORE INCOME TAX RECOVERY (44,313) (70,103)
OTHER INCOME
Income Tax Recovery 215 3,451
NET LOSS ($44,098) ($66,652)
NET INCOME [LOSS] PER COMMON SHARE $0.00 $0.00
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 15,512,864 14,711,341
See notes to condensed consolidated financial statements.
(3)
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TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss ($44,098) ($66,652)
Adjustments to reconcile net Income (Loss) to
net cash provided (Used) by operating activities:
Depreciation and amortization after
Effect of Disposal of Asset 7,785 7,990
Issue of Restricted Common Stock for Services 20,201
Net Change in non-cash operating assets
and liabilities (29,124) 73,651
Net Cash Provided (Used) by operating activities (45,237) 14,989
CASH FLOWS FROM INVESTING ACTIVITIES:
Property & Equipment Acquisition (484) (15,068)
Net Cash Provided(Used) By Investing Activities (484) (15,068)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) loans,
notes and advances:
Line of Credit (33,801) (7,856)
Long Term Debt (211) 8,899
Shareholders 55,710 (5,025)
Bank Note (6,490) 3,857
Private Lenders (22,433) (2,258)
Issue of Restricted Common Stock 46,812
Net Cash (Used) Provided by Financing Activities 39,587 (2,403)
EFFECT OF EXCHANGE RATE ON CASH (1,104) 330
CHANGE IN CASH BALANCE FOR THE PERIOD (7,238) (2,152)
CASH, BEGINING OF PERIOD 17,605 23,772
CASH, END OF PERIOD $10,368 $21,620
See notes to condensed consolidated financial statements.
(4)
<PAGE>5
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
NON CASH FINANCING ACTIVITIES:
Issue of Restricted Common Shares Reducing Debt
Liabilities:
Private Lenders 60,000
Shareholders 25,420
$85,420
PAYMENTS MADE FOR INTEREST $5,720 $3,643
NET CHANGE IN NON-CASH OPERATING ASSETS
AND LIABILITIES:
Decreases (increases) in operating assets
and increases (decreases) in operating
liabilities:
Accounts Receivable $47,454 $38,088
Inventory (4,316) 8,408
Other assets 12,160 (6,122)
Accounts Payable and accrued expenses (84,422) (33,277)
($29,124) $73,651
See notes to condensed consolidated financial statements.
(5)
<PAGE>6
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION :
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 three months ended
September 30,1998 are not necessarily indicative of the results that
may be expected for the year ended June 30, 1999. For further
information refer to the financial statements and footnotes thereto
included in the Company's annual report on form 10-KSB for the year
ended June 30, 1998.
NOTE 2: INVENTORY:
Inventory is comprised of the following:
September 30,
1998
Raw Materials $37,510
NOTE 3: LONG TERM DEBT:
At September 30, 1998 the Company was in default on it's notes
payable to I.O.C. and it's lease payable to FBX Holdings Inc. .
Although the respective creditors have not called the obligations,
payments are due on demand and accordingly the balances are reflected
on the September 30, 1998 balance sheet as current liabilities.
(6)
<PAGE>7
NOTE 4: In July 1997, during the 1st quarter of fiscal 1998 the Company had
tentatively refinanced it's note payable due to Cooper Financial Corp.
This obligation, is guaranteed by a shareholder of the Company.
A refinancing charge was assessed, increasing the principal owed to
$143,000 US. At September 30, 1998 the Company was current with the
new loan provisions; with a payable balance of $114,048 US. The
Company has been maintaining monthly payments of $3,150 US. Interest
charged is 10% per annum calculated over a period of 57 months. The
term of the obligation, however, is twenty four months with a balloon
payment of $91,208 US, due June 30, 1999.
NOTE 5: During the first quarter of fiscal 1999, ending September 30, 1998
the Company issued 5,086,670 Restricted Common Shares. These
issuances were made in consideration of the following: For Services
Rendered, $20,201 US; For reduction of Private Lender's debts,
$60,000 US; For reduction of existing shareholder debts, $25,420 US;
Existing shareholders private placement purchase of shares, $32,919 US
and an additional private placement of restricted common shares,
$13,892 US.
(7)
<PAGE>8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources:
Continued operating losses and monthly debt service requirements leave the
Company in a position where it is unable to meet its monthly cash flow
requirements. Cash flows resulting from the issue of restricted common stock
and shareholders loans enabled the Company to remain current on the debt
repayments, on past due balances to vendors and current payments to vendors.
During the first financial quarter of fiscal 1999 the company issued
Restricted Common stock in consideration of current debt and services in the
amount of $105,621. Additionally, through Private Placement of Restricted
Common stock an infusion of $46,812 capital was effected.
The Company received during October 1998, $8,373 (Canadian) representing the
Ontario portion of the 1997 R&D tax claim. A claim for fiscal 1998 of
approximately $35,000 (Canadian) will be submitted. The federal tax
department intent is to audit all such claims.
Two of the Company's long term debt financing arrangements [Note 3] are
currently in arrears. The debtors have verbally agreed to a moratorium on
principal repayments until the Company is in a financial position to make a
payment[s]. I.O.C. financing arrangements [Note 3] have been technically in
default since Jan. 1, 1996; as such these debt's have been reflected as
current liabilities on the September 30/98 balance sheet. I.O.C. has not
notified the Company of it's default and it is expected that a mutual
understanding of the Company's financial circumstances will preclude any
negative action by either of the principals. Additionally, negotiations are
continuing with I.O.C. to eliminate the debt; either by repayment in full,
including accrued interest or by exchanging the aggregate debt and interest
for an equity position in the Company. If these negotiations are successful
it would eliminate a $382,614 US current liability, however, there can be no
assurances that the Company will be successful in this endeavour.
Present financing arrangements are not considered a long-term solution to the
Company's financial needs. The Company continues to assess and investigate
all avenues in respect of it's financial requirements. If it is deemed to be
in the best interest
(8)
<PAGE>9
of the Company and its stockholders, serious consideration will be given to
raising additional funds through private or public issuance's in the future.
A change in the Company's capital structure had become necessary as a then
existing authorized issue of fifteen million common shares was almost
complete, therefore, to enable the Company to raise additional funds through
private or public issuance's in the future, an amendment to it's Certificate
of Incorporation was completed in late July 1998. The Company's capital
structure was modified to increase the number of authorized common shares
from fifteen million to fifty million shares.
No significant capital expenditures are anticipated during the 2nd quarter of
this fiscal year, however, if the market develops to the extent indicated by
initial introduction of the Company's new product Morfoam to various potential
customers, it will necessitate immediate expansion of existing warehouse
facilities by approximately 30%.
"Morfoam", is a product for the plastics and rubber industry, is a chemical
foaming agent and provides 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.
Results of Operations:
Sales revenues for the first quarter of fiscal 1999 decreased 39% when
compared to those for the corresponding period of the previous year. A
larger percentage of current period revenues were for processing services
where the materials used in production are provided by the customer.
Accordingly, the current year decrease in revenues was offset by a
corresponding decrease in material costs. Comparative gross margins, however,
improved substantially due to the change in pricing arrangements and mix of
business. The Company continues to pursue an ISO 9000 rating which has
become an important requirement necessary to secure new customers and also
maintain existing customers. The Company is endeavouring to reach this goal
as soon as possible but was unable to achieve a September 1998 target date.
(9)
<PAGE>10
It is hoped that the rating can be achieved during the current financial year.
The Company continues to develop and market the specialty compounding, with
this segment representing 99 % of revenue during the first three months of
fiscal 1999 and continues to pursue additional specialty compounding
possibilities. Technical Ventures Inc. through its subsidiary Mortile
Industries' agreement with a customer to provide specialty compounding
services to meet the customers entire North American requirements continues;
volumes, although not as great as originally forecast, are steadily growing.
The development of this agreement is the result of two and a half years of
joint product development by both parties. In order to meet indicated
production demands of this agreement and additionally with the very positive
reception of the Company's new product Morfoam, it is anticipated that the
Company's present production facilities will be operating near capacity in
the third or fourth quarter of the current financial year.
Under their agreement, the customer has indicated increased production
requirements in calendar year 1999. With this possibility and the growth of
Morfoam, it is anticipated a second manufacturing facility to be located in
North Carolina and partially funded by the customer, could be operational late
in the current fiscal year.
The Company continues to assess additional opportunities in it's expertise of
specialty compounding. Metal composites, used in the munitions market, have
become active again, having produced 13,000 Lbs. in the 1st quarter. In
October 1998, 55,000 Lbs. of material is being produced and a further 55,000
Lbs. is scheduled for production during December 1998 or January 1999.
The preceding volumes from this customer represent a 100% increase when
compared to the previous years corresponding period. It is also expected an
additional 25,000 Lb. order will be placed in the fourth quarter of the
current fiscal year. Indications are that this customer has begun to make
long anticipated sales. The Company has also been advised by this customer
that they anticipate sales to continue.
Administrative expenses increased 10% for the three month period ending
September 30, 1998 when compared to those for the corresponding period of the
previous year. This increase due in part to the quest for financing and
legal expense relative to modification of the Company's Certificate of
Incorporation.
(10)
<PAGE>11
Interest and other financing costs decreased substantially when compared to
those for the corresponding period of the previous year, primarily the result
of the agreement which eliminated the Dow debts in the fourth quarter of
fiscal 1998 and the resultant decline in related interest expense.
R&D expenses decreased, when compared to those of the corresponding period
for the previous fiscal year, due to resources being redirected to
manufacturing. Selling expenses remained stable, however, the Company
anticipates increased expense for the remainder of the current fiscal year as
efforts are stepped up to introduce the new product Morfoam, to potential
customers.
The Company, however, continues to take measures to contain all areas of
expense.
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 21B of the Securities
Exchange Act of 1934. The Company's actual results could differ materially
from those set forth in the forward looking statements.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 K
(a) Exhibits - none
(b) Reports on Form 8-K - none
(11)
<PAGE>12
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 authorised.
TECHNICAL VENTURES INC.
Date: November 12,1998 BY:/s/ Frank Mortimer
Frank Mortimer, President and
Chief Executive Officer
Date: November 12,1998 BY:/s/ Larry Leverton
Larry Leverton
Chief Financial Officer
(12)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AND INCOME STATEMENT INCLUDED IN PART I, ITEM 1 OF
THE REGISTRANT'S QUARTERLY REPORT ON FORM 10-QSB FOR THE PERIOD ENDED
SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 10,368
<SECURITIES> 0
<RECEIVABLES> 65,680
<ALLOWANCES> 0
<INVENTORY> 37,510
<CURRENT-ASSETS> 161,570
<PP&E> 612,439
<DEPRECIATION> 449,943
<TOTAL-ASSETS> 324,914
<CURRENT-LIABILITIES> 1,078,008
<BONDS> 0
<COMMON> 197,780
0
0
<OTHER-SE> (1,100,090)
<TOTAL-LIABILITY-AND-EQUITY> 324,914
<SALES> 240,990
<TOTAL-REVENUES> 240,990
<CGS> 186,389
<TOTAL-COSTS> 186,389
<OTHER-EXPENSES> 98,914
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,694
<INCOME-PRETAX> (44,098)
<INCOME-TAX> 0
<INCOME-CONTINUING> (44,098)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44,098)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
