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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, 1999
[ ] 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, $1,131,279
The appropriate aggregate market value of the voting stock of the Registrant
held by non-affiliates of the Registrant as of September 30, 1998 (based upon
the average bid and asked prices as reported by the National Association of
Securities Dealers Automatic Quotation System) was approximately $4,261,000.
The number of shares outstanding of the Registrant's common stock, as of Sept
ember 30, 1999 is 23,248,011.
Exhibit index is located on page 16 of this Annual Report on Form 10-KSB.
Page 1 of 41
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FORM 10-KSB
Fiscal Year Ended June 30, 1999
ITEM Table of Contents PAGE
PART I
Item 1. Business 3-11
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrants Common Equity and Related
Stockholder Matters. 13
Item 6. Management's Discussions and Analysis of Financial
Conditions and Results of Operations. 14-17
Item 7. Financial Statements and Supplementary Data 17
Item 8. Changes in Disagreements with Accountants on
Accounting and Financial Disclosure. 17
PART III
Item 9. Directors and Executive Officers of the Registrant 18
Item 10. Executive Compensation 18
Item 11. Security Ownership of Certain Beneficial Owners
and Management 19
Item 12. Certain Relationships and Related Transactions 20
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports
on Form 8 K 21
Signatures 22
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Item 1. Business
Introduction:
Technical Ventures Inc. (the Company) is a New York corporation formed on
June 14, 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.
Prior to April 1992 the Company had been considered to be in its development
stage.
The market in which Technical Ventures operates has had increased demand for
products that meet certain requirements whether by companies or government
legislation. These demands are met with TVI's products and services.
The Company has entered into a unique market niche that allows them to
specialize in the production of the products to meet their clients needs and
provide the technical support that may be needed. TVI has the capacity to
tailor their production for each customers' requirements. Working closely
with its client base in order to maintain good customer relations and help
fully satisfy their needs, the Company is set apart from the others in the
industry due to the technical support staff and direct distribution of the
products.
Technical Ventures Inc.'s subsidiary Mortile Industries Ltd., deals in the
design, development, and manufacturing of proprietary polymer, composite and
specialty compounds; additionally Mortile compounds proprietary formulations
of the customer.
The applications for TVI's products expand into every area of plastics.
Repeat business is also high, due to the technical complexity of their
products and the loyalty to TVI by it's customers.
Since inception, the Company has expended $3,081,550 US in the development of
it's products, including $76,850 in 1999, $94,874 during fiscal 1998 and
$76,400 during fiscal 1997.
The Company's present operations, assets and employees are primarily those of
Mortile. At June 30, 1999 the Company has fourteen full time employees, all
being employees of Mortile.
Technical Ventures and its subsidiary Mortile Industries, Ltd., are poised to
fully penetrate the market and the Company has built the background to
perform this goal. Due to its technology, products, management's expertise,
customer support, future planning strategies and financial backing, the
company is ready for rapid growth.
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Product & Service Description:
The Company has developed, manufactured, and sold a wide range of specialty
resin materials for applications to many large multinational firms across the
globe. TVI 's products have the means to lower their client's cost of raw
materials while maintaining the product's performance. This has led to several
reputable firms taking notice of the Company's achievements.
The Company's subsidiary, Mortile Industries Ltd., deals in proprietary
polymer/thermoplastic compounds, composite compounds (a composition of plastic
with other powdered materials), and specialty compounds which the company
produces by mixing and pelletizing proprietary formulations specified by its
customers. It is engaged in the design, development and manufacture of highly
engineered specially formulated, high performance polymer materials. The
Company's products and services are sold to end-use manufacturers in the
industrial equipment, transportation, electronics, munitions and process
industries markets.
Some of the Company's keys to success are:
Success rate and performance of the Company's products
Technical expertise and background of scientists and engineers
Technical support provided for customers
Global patents and licenses on the technologies
Strategic alliances with large multinational firms
Timing in a market where change is needed.
The development of the products and service by TVI has been a lengthy process.
However, with the massive amounts of stringent tests on products and the very
promising results, the management believes the market potential of the products
will justify the time and costs.
Technologies:
Technical Ventures Inc. has focused its efforts on the development of
proprietary thermoplastic compounds (plastics mixed with other solid materials)
and specialty compounding which the Company produces by compounding and
pelletizing proprietary formulations specified by its customers.
Polymer Technologies
A polymer consists of chains of molecules, called monomers, that combine or
polymerize (normally with help from a catalyst) to form large molecular
structures. Polymers are very versatile materials. For example, they can be
cast into molds to create intricate structures, extruded through a spinneret
to make fibers, or blended with liquids - including water - to make coatings,
adhesives and thickeners. As a result, polymers have replaced, and continue
to replace, natural products such as metal, wood, paper, cotton and glass in
a broad range of applications. Moreover, the substitution is not driven
primarily by cost, but by the increasing desirability of polymers based on
their versatility and performance characteristics. Two common types of
polymers are thermoplastics and thermosets which, collectively, are referred
to as plastics.
Thermoplastics are the most common synthetic polymers. They are relatively
inexpensive, light and durable, but not particularly strong.
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Thermoplastics can be remelted at relatively low temperatures, thus making
them recyclable. They are used in structural applications where exposure to
high stress and heat are not concerns Common thermoplastics include
polyethylene, polypropylene, polystyrene and polyvinyl chloride. Other
thermoplastics such as engineering resins, which typically have higher
strength and performance, include nylons and polycarbonates.
Thermosets polymerize at relatively high temperatures, normally through
mixing with an initiation compound. During polymerization they are
cross-linked, a process that increases their strength and durability relative
to thermoplastics. They are generally stronger, more heat resistant and more
difficult to process than thermoplastics. Common thermosets include epoxies
most polyurethane's, unsaturated polyester, melamine and phenolics.
Thermosets, however, cannot be re-melted or recycled.
In light of growing environmental pollution concerns, It is expected that the
plastics industry will be forced by legislation to develop and manufacture
plastics that are recyclable or to include recycled content. The plastics
industry has undertaken extensive research to develop cost-effective
thermoplastic products that are both durable and flame-retardant, particularly
for applications in the wire, cable, transportation and construction
industries.
Flame resistant polymer compositions have been available for many years.
However,many such compositions relied on the presence of halogen based
compounds to yield flame-retardancy. Halogen based compounds, on combustion,
emit toxins including gaseous chlorine and bromine compounds. Other
retardants can emit hazardous sulfur, cyanide and phosphorus gaseous
compounds. Concerns by environmentalists worldwide have resulted in increased
pressure on manufacturers of polymer-based products to eliminate plastics with
such potential dangers.
TVI is working toward eliminating the halogens in certain polymer technologies
while maintaining the same degree of flame-retardancy. In addition, the
recycling of some plastics will be easier with the added polymer technologies
of TVI. As the industry becomes more and more legislated by governments with
regard to the environment, TVI plans to further explore the development of their
substitute products to the industry. TVl's polymer compounds meet the current
requirements of customers while adhering to the laws of the government.
Composite Technology:
The object of composite technology Is to mix plastic binders with powder
materials of choice, and to prove specified strength and durability designed
for use In a variety of plastics and foaming processes including injection,
molding and extruding. The end result is a material that is both strong and
durable, yet has flexible design options so it can be used in injection
molding applications.
Injection molding is a process by which a compound is heated to a fluid state
and injected into a cavity mold in the shape or form and density required. The
fluid compound flows to the shape of the mold and is cooled to a solid state
and then removed. Injection molding is a significantly less expensive
alternative to machining and die casting.
This process reduces the cost of machining and die casting significantly. By
applying existing technology to new ideas, TVI can successfully produce, for
example, metal/plastic compounds suited to meet demand for the replacement of
lead and other metals in many applications.
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Opportunities to market these compounds exist in a variety of industries
including automotive and munitions.
Specialty Compounds Technology:
Specialty compounding may be defined as the compounding and enhancement of
the customer's proprietary formulation(s) into pellet form, which is a
semi-manufactured form. This process involves the customer's presentation of
required mix components, the physical mixing of the components, and then
pelletizing the compound. Component raw materials for this process may be
supplied by the customer or purchased by the Company on behalf of the
customer .
Practical and technological expertise was gained from the use of the
compounding and mixing machinery purchased in 1989. Laboratory and test
facilities, which have now been put in place, have allowed the Company to
secure major customers in their market.
One aspect of this service is what is known as master batches. This is the
pre-dispersion of highly concentrated powders, which are to be mixed and
diluted by "letdown" with resins in the final stages of manufacture.
The predisposed powders are added to the resins at the end-user extruder or
molder. Typical master batches are: foaming agents, sulfur, zinc oxide, flame
retardants, curing agents, processing aids, antioxidant stabilizers and slip
and anti block agents.
A large portion of TVI's revenue for fiscal year end 1999, and the majority
of the Company's efforts, have been concentrated on specialty compounding.
In this business unit, the customers retain the Company to enhance and
compound their proprietary formulations into a pellet form. With the
assistance of the customer, TVI formulates the most effective and efficient
method to mix the components.
Customers who retain TVI for specialty compounding are manufacturers of
end-use plastics and plastic products. Generally, many manufacturers of these
products do not compound component materials into a pelletized form themselves
prior to manufacturing end products. However, an increasing number of
manufacturers prefer this process because it provides for a more perfect
dispersion of component materials which are often in powder form and
streamlines their thermoforming systems.
Specialty compounding is particularly useful when manufacturing components
are reactive. For example, reactive components are used In the curing or
cross-Inking of rubber or plastic. Additionally, because powder components
are difficult to work with, manufacturers prefer to work with pelletized
master batches, as there are less environmental risks. TVI is fully capable
of providing their customers with this pelletized form for ease of use and
safety.
Research and Development
The research and development of the aforementioned technologies is targeted
to establish as much technical and test data information needed to provide
the technical sales staff and potential customers with the technical sales
information. Product technical sales brochures are developed in order to
inform potential customers and employees of the comparative benefits of TVI
products.
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Future development of products will focus on specific problems experienced
in the marketplace and attempt to solve these problems with potential
customers. There are thousands of injection molders and extruders operating
with many different polymer and die configurations. The trained technical
staff will be called upon to satisfy the customers' needs. Research and
development will also continue to add additional products to meet the market
requirements.
Patents
A U.S. 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
(which include the countries of Austria, BelgIum, France, Germany, Great
Britain, Holland, Italy, Spain, Sweden, and Switzerland). Another patent In
Australia was granted effective March 1989 and official notice being receIved
in January of 1993. The Canadian patent has been accepted and is pending.
Patent applications in other fields of technology have also been filed.
The Company sold this and other significant proprietary technologies to the
Dow Chemical Company in 1998, but retained certain licenses and rights to use
these. It also has developed other proprietary technology and trade secrets.
Since all manufacturing is "in-house" , the Company is able to protect its
technology and quality while continually improving the product to maintain
the customer loyalty.
Products
Technical Ventures, Inc. is very close to its customers and their needs, which
allows it to identify areas of opportunity that may be exploited. The Company
has developed a range of materials, having broad applications such as fillers,
foaming agents, and pigment extenders. This product group delivers unique user
benefits, such as smaller consistent cell size, which produces a stronger
product and/or higher foaming capability . This translates into a lower raw
material cost, which in turn reduces cost for the end-use manufacturer. The
market for the product is large with a potentially large application in the
automotive and construction market worldwide. Presently, a large
multinational company in the automotive sector is testing the materials for
application to their product lines.
Polymer Compounds:
TVI has developed, manufactured and sold one type of flame regardant,
nontoxic, thermoplastic compound. It minimizes the hazards of fire and can be
easily processed into end-use products. The Company has conducted extensive
research and testing with regard to the use of this product in the
construction and transportation industries.
The performance test results have concluded that TVl's thermoplastic products,
when burned, emit none of the toxins discussed earlier. Additionally, the
products possess anti-combustion, low toxicity attributes and are considered
to be superior to other products presently available. Although the sale of
TVI's thermoplastic products has not represented a significant portion of
revenues to date, it is believed that these products have significant market
potential.
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Product roll out of these polymer compounds should increase with the expansion
of manufacturing facilities.
Composite Compounds:
Using composite compounds, TVI has successfully produced metal/plastic
materials that can be used in many applications as a replacement for lead and
other metals. Presently, the Company supplies this product for use in
munitions, fishing sinkers and lures, and for bushings in copiers and fax
machines. Also, the Company is expected to market metal replacement compounds
in the automotive, construction and firearms markets.
Many laws constraining use of lead are currently being reviewed by governments
around the globe. A replacement will be needed for lead in munitions, fishing
sinkers and lures, and various other lead based products. TVI can provide
this replacement material with their composite compounds with none of the
hazards that lead poses to the environment.
Specialty Compounds:
TVI has been selling a reinforcing agent used to increase the stiffness of
plastics used for crates and component parts. The product has been thoroughly
tested in incubator trays for the poultry industry and will now be offered to
the industry at large.
The largest potential product of the Company is a specialty compound called
Morfoam. It acts as a chemical foaming agent, nucleating agent and processing
aid which undergoes an endothermic chemical reaction at processing temperatures.
This reaction produces a gas resulting in fine cell structures in extrusion
and molded parts. The Morfoam technology combines a chemical foaming agent,
nucleating agent and processing aid into one easy to use master batch. Morfoam
is a multi-component chemical concentrate encapsulated in a polyolefin carrier.
Morfoam is produced in pellet form in order for customers to easily blend or
meter into a wide range of polymer products.
As a foaming agent Morfoam produces a uniform cell structure that can reduce
part densities by 40% or more. The fine foam structure also increases opacity,
which allows for lower titanium dioxide levels in film and sheet The inherent
fine particles in Morfoam also act as an efficient nucleating agent generating
large quantities of fine closed cells. Morfoam also improves cell structures
and reduces voids when nitrogen is used as the primary foaming agent. Morfoam
can be used as a processing aid in extrusion and injection molding for improved
output rates, reduced cycle times and enhanced surface appearance. Morfoam
also reduces part stresses, sink marks, pinholes and furthermore acts as an
efficient purging/cleaning agent.
During fiscal year 1999, the Company worked closely with three customers
developing all types of compounding methodology for each customer's
proprietary component formulations. TVI provided compounding services for
Shaw Industries, Ltd.'s formulation for an industrial pipe wrap and coating.
Compounding services for MLPC International's formulation for various
proprietary rubber curing compounds were provided. Additonally, Fin Project's
proprietary formulation for the footwear industry was also on the list of
TVl's customers.
Because TVI retains these and other large multinational firms as current
clients, and with their large demand for the Company's material, TVI plans on
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steadily increasing supply of the Company's products to them as capacity
allows, thereby increasing revenues and profits. The reputations of these
clients provide valuable references for obtaining new customers as well.
Revenues As A Percentage of Consolidated Contract Revenues [CND]
CUSTOMER 1999 1998 1997
Endex Polymer Additives ** $18,431 - 1 % $312,576 - 18 % $535,635 - 44%
MLPC International $341,794 - 22 % $277,980 - 16 %
Shaw Industries Ltd. $705,282 - 43 % $698,583 - 41 % $622,097 - 51%
SNC Industrial Technologies $200,005 - 12 % $19,395 - 4 %
**Note Item 3 - Legal Proceedings
Pricing
The pricing structure of existing competitors has been evaluated and the
products and compounding services are priced at the median. Since the Company's
products do not form a major part in the pricing of the finished goods, the
Company feels that the performance and product support will contribute most
in the buying decision. TVI has more to offer their customers with respect to
product performance and the technical support staff that can assist customers
applications.
Warranties & Service Contracts
The product is supplied with a certificate of analysis confirming that it
meets the required specifications, which is one mandatory requirement of
ISO 9000 companies. No warranties are attached since TVI cannot monitor the
processing conditions of use. There are no service contracts necessary,
however, the Company's technical staff will assist customers if requested
to do so.
Marketing
Market Niche
TVI has positioned itself to pursue niche markets where the following standards
are essential:
1. The ability to achieve superior dispersion of powders into the
resins.
2. Use of air-cooled heads for moisture sensitive materials.
3. Use of nitrogen blankets for cooling in high humidity .
4. Fast turn around of small orders.
5. Equipment designed for ease of cleaning with minimum downtime
and wastage.
In this market the Company has three distinct advantages: equipment, personnel,
and size. The equipment was selected to achieve good dispersion in the
proprietary polymer and composite technology. The Company's personnel,
consulting scientists and chemists enable it to work closely and cooperatively
with customers to meet their specific needs. The Company's size allows it to
direct immediate attention to existing and potential customers in a
cost-effective and timely manner.
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Market Research
Market research has been concentrated on the endothermic foaming agents
business and it was established that this represented the fastest growing
segment of the market. Further marketing research pertaining to customer
needs and competition is discussed later in this section.
The Company has identified over 400 potential customers from trade sources.
Further, over 500 potential users have been located in a specific region of
the United States. All of these are potential clients, and TVI has been
aggressively seeking business through the introduction of their products to
these users. Initial responses from these companies have been favorable and
will lead to a larger customer base.
The results of our pre-marketing survey established that the market was not
well served. This information was obtained by test marketing reports and
meetings with potential customers. This has convinced TVI that their timing
in this market is opportune.
Research was also conducted on product performance with specific attention
pertaining to competition. TVI and their products out perform the competitors
in most aspects. These factors give TVI the ability to leap the barriers to
entry and penetrate this market. TVl's customer base will grow with direct
proportion to the rate the company can grow to suit the needs of those
customers.
Market Growth
Market review indicates that growth in plastic consumption is solid over the
five years researched. The market size data shows the diversity of the market
potential as well as the size of the opportunity.
Competition
Many competitive products have been evaluated in our laboratory and in the
field by potential customers, and TVI's performance surpassed the competition's.
TVI's products will have the competitive edge of performance and price, with
special attention being paid to our technical support program, which builds
brand equity among the customers.
The research and development effort has been geared toward a superior product
at a competitive price. The Company's own manufacturing controls the
processing cost. Therefore, as the business becomes further developed, lower
overheads and less costly distribution channels are anticipated for TVI.
Furthermore, during test marketing it was found that the large competitors
were relying on distributors and agents that had limited technical experience
in plastics. Once again, TVI will have the advantage over the competitors
building long-term relationships and customers directly.
Competative Advantages
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. Dow Chemical purchased
some of TVI's technology in 1998. Lucent Technologies has assigned
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the product the highest quality rating, after subjecting the product to a five
year rating program. The application of the polymer technology in wallboard
is still the only plastic in its field to pass certain fire codes for high
rise buildings. Additionally, in other applications where the product is
being tested, customers observed that TVI's polymer 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 does the Company.
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.
Backlog Information:
At June 30, 1999 the Company had a backlog of orders totalling
$(to be inserted) .
Item 2. Properties
The Company currently leases 17,300 square feet of office and production
facilities at 3411 McNicoll Avenue, Scarborough, Ontario. In July 1997 the
Company increased its space to 17,300 square feet with a total monthly base
rent of $7,776 (Canadian) exclusive of real estate tax escalations.
The current leases expire on March 31, 2002. This requirement was necessitated
by the Company having been successful in acquiring the Specialty Compounding
work for a French company and their need of a major portion of this increased
space for the storage of raw materials required for their production orders.
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Item 3. 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 CND $10 Million
compensatory damages, further punitive damages of CND $1 Million and
interlocutory and permanent injunctions.
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 a target date of
about December 1999.
Based on prior written legal opinion from its patent attorneys that the
allegations are without merit, the Corporation has retained a law firm
specializing in Intellectual Property Law and is vigorously defending the
action.
Item 4. Submission of Matters to a Vote of Security Holders
None
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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. 1997 $0.200 $0.230
Dec. 1997 0.250 0.280
Mar. 1998 0.150 0.190
June 1998 0.300 0.380
Sept. 1998 0.110 0.900
Dec. 1998 0.080 0.250
Mar. 1999 0.150 0.300
June 1999 0.105 0.330
Sept. 1999 0.125 0.330
These prices do not reflect retail mark-up, mark down or commissions and may not
represent actual transactions.
Holders:
As of June 30, 1999, there were approximately 1,000 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.
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
During the year ended June 30, 1999, the Company's operating loss was funded
primarily by working capital provided by a Canadian Tax refund, debt
financing, equity capital and subscribed capital. The Company has reduced a
portion of past due balances due to vendors and creditors. However, continued
operating losses and monthly debt service requirements continue to leave the
Company in a position where it is unable to meet its monthly cash flow
requirements.
Two of the Company's long term debt financing arrangements are currently in
arrears. The aggregate amount of principal payments currently in arrears and
outstanding, $418,796 [US]. 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) or alternate arrangements can be
completed. There can be no assurances that the Company will be successful
in this endeavor, however, the debtors have indicated willingness to
negotiate equitable settlements in good faith.
During the fiscal year the Company issued Restricted Common stock in
consideration of current debt, and services in the amount of $110,721.
Additionally through Private Placement of Restricted Common Stock an
infusion of $72,811.
A Canadian tax refund for the financial year 1997 was received during fiscal
1999 in the amount of $8,000 (Canadian), representing the Ontario portion of
a total refund of $35,000 CND for the fiscal year 1997. The Company has also
submitted a claim for fiscal 1998 amounting to approximately $35,000
(Canadian). Additionally, a claim for fiscal 1999 of approximately $35,000
(Canadian) will be filed. The tax department has notified the Company of
their intent to audit all such claims submitted.
Management does not consider these sources of funds (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 debt or equity financing.
The Company continues to explore all opportunities with major investment
banking providers in respect of financial requirements. Additionally 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.
In this regard the Company concluded in late January 1999, a Private Offering
under Regulation D of the Securities Act of 1933. The offering consisting of
8% Convertible Debentures in the aggregate of $225,000 US; additionally as
part thereof, Non RedeemableWarrants of a three[3] year term, allowing the
investor to purchase shares of the Corporation's Common Stock. In addition
the offering provided for a subscription agreement and registration agreement.
Accordingly the Company has set aside the appropriate number of shares from
the authorized and unissued shares of Common Stock for issuance (i) upon
conversion of the Debentures and exercise of the Warrants issued in connection
with the offering; a further issuance of 50,000 shares of restricted common
stock in consideration for legal services rendered has been completed and
50,000 shares of restricted common stock for capital advisory services rendered
in relation to the private offering.
-14-
<PAGE>15
The Company has prepared and filed with the Securities Exchange Commission,
a Registration Statement on Form SB-2 to register the shares of the
Corporation's common stock underlying the Debentures, Warrants and the shares
of common stock issued for legal services rendered and for services rendered
in relation to the private offering.
Conversion price of the debenture will be equal to 75% of the "Market Price".
"Market Price" being defined as the average of the closing bid prices of the
Common Stock during the 10 trading days immediately preceding conversion, but
not more than the "Fixed Conversion Price" which is defined as the 100% of the
average of the closing bid price during the 10 trading days prior to the
closing date ("Closing Price").
The Non Redeemable Warrants [ three year term] will allow the investor to
acquire a number of shares equal to the total investment amount divided by the
closing price multiplied by 10%; with an exercise price equal to the Fixed
Conversion Price.
Additional expenses associated with this transaction are as follows; finder's
fee equal to 8% of gross proceeds raised or $18,400, legal expenses for both
finder and the company of approximately $15,000., payable on closing.
Should the Registration Statement, to be filed by the Company, relative to
this offering not be effective within 120 days from the closing the Company
would be obliged to pay the investor 2% of the principal amount of the
Debenture for each 30 day period thereafter [prorated for partial periods]
until the registration statement is effective.
Cash flow resulting from the debenture offering was used to reduce current
trade payables and sustain on going operating expenses.
In that regard the Company prepared and filed, in accordance with the Private
Offering, with the Securities Exchange Commission, on April 8, 1999, a
Registration Statement on Form SB-2. Subsequent to receipt of Comments by
the S.E.C. the Company prepared and filed response to comments received and
Amendment 1 to Registration Statement Form SB-2, this amended filing was
completed on September 5, 1999. In total an aggregate of 6,893,141 shares
have been registered to be sold to the public by our shareholders and
purchasers of our debentures which are convertible into our common stock and
which, additionally, bear warrants to purchase our common stock. On October 8,
1999 further comments were received from the S.E.C. and which will require an
additional amendment and response.
No significant capital expenditures are anticipated during fiscal 2000,
however, if the market develops to the extent indicated by introduction of the
Company's new product "Morfoam" to many various potential customers, it will
necessitate immediate expansion of existing warehouse facilities by
approximately 30% and consideration of acquiring additional manufacturing
equipment necessary to performing a relative manufacturing function in house
rather than contracting the work to an outside firm.
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.
Based on projections provided by existing customers, management expects
increased sales in all areas of it's expertise, during fiscal 2000.
-15-
<PAGE>16
Results of Operations - Comparison of Fiscal 1999 To Fiscal 1998:
For the fiscal year ending June 30, 1998, the Company had gross sales of $1.131
million, of which approximately $1.05 million was generated from specialty
[contract] compounding work.
Gross margins as a percentage of net sales increased to 32 % from 17 % for
the year ended June 30, 1998. This increase was due in part as the result of
a shift in pricing arrangements with some of the Company's customers, e.g.
non provision or provision of raw materials when processing the customer's
orders and price increases on those orders which require the Company to
provide raw materials within the pricing structure. Additionally, order
volumes increased, improving efficiency in the manufacturing process.
Financial and Interest Expense decreased $42,112 in fiscal 1999. Decreases
in the average outstanding indebtedness being the primary contributing factor.
Administrative expense increased $28,563 during fiscal 1999 relative to legal
expenses required to amend the Company's Certificate of Incorporation and
capital structure and in the quest for financing. R&D Expenses decreased
$14,375 as resources were diverted to the manufacturing and sales effort
required for the Company's new product "Morfoam". Selling expenses increased
by $18,950 in fiscal 1999 as the Company pursued marketing of its new product
"Morfoam" and endeavors to introduce the product to the market.
Revenues for fiscal 1999 decreased 4.5 % over the preceding year, however,
gross margins improved dramatically due in part to a shift in pricing
arrangements with some customers, increase pricing with other customers;
additionally, order volumes increased thereby improving the efficiency in the
manufacturing process. Sales were significantly below anticipated levels, in
particular, sales of proprietary products. Furthermore, while these Company
materials have been accepted by its customers for use in their manufacturing,
acceptance of the finished products by the end users continue to be slow, but
improved over the previous year due to minimal sales of the Company's new
product "Morfoam".
Customer 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. However, there can be no assurance in
this regard.
During fiscal 1999 sales to several newer customers of specialty compounding
materials were lower than levels which they had expected and had indicated to
Company management. However, a customer's anticipated significant increases
in sales of munitions products were subsequently achieved during fiscal 1999.
In regard of other products manufactured using a composite of metal and
plastic materials, manufactured by the Company as a substitute for lead, the
customers 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.
The sales launch of the new product for the rubber and plastic industry
commenced in early June of 1998 and response to the product exceeded all
expectations. This product provides not only significant cost reductions by
reducing the amount of plastic consumed but also provided many other
advantages to the Industry. The market is not only significant in terms of
potential revenues and profits in North America but will open many export
potentials in Europe. Although there has been widely accepted response to
the product, actual sales have been minimal but the Company enters its fiscal
-16-
<PAGE>17
year with some confidence, that the technological advantage obtained over the
past years will enable it to obtain a significant market share for its
products at satisfactory selling prices, thereby enabling the Company to grow
and meet the anticipated demand for its products, although there can be no
assurance of this.
Forward Looking Statements:
This Form 10 KSB contains forward looking statements within the meaning of
Section 27A of the Securities Exchange 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.
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
-17-
<PAGE>18
-PART III-
Item 9. Directors and Executive Officers of the Registrant
The directors and officers of the Company at June 30, 1999 are as follows:
Name Age Position with Company
Frank Mortimer 60 Director, President
Bryan Carter 78 Director, Vice President
Larry Leverton 60 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.
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.
Item 10 Executive Compensation
Frank Mortimer, the Company's Principal Executive Officer, received salary
of $61,615, $63,450 and $66,000, for the years ended June 30, 1999, 1998 and
1997, 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 excess of $100,000 during any of the three year
period ended June 30, 1999.
-18-
<PAGE>19
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, 1999, 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 2,199,773 (2) 10.00 %
L.R. Leverton Enterprises 591,448 (3) 2.67 %
Bryan Carter 165,000 0.9 %
All Officers & Directors
As A Group 2,956,221 13.4 % (4)
(1) Unless otherwise indicated, each such beneficial owner holds the sole
voting power and investment power over the shares beneficially owned.
(2) Includes 453,020 shares owned by Mr. Mortimer's wife, Anne Mortimer and
200,000 shares owned by Mr. Mortimer's son, Roger Mortimer.
(3) L.R. Leverton Entprs.' Inc., is a corporation owned and controlled by
Larry Leverton, Secretary, Treasurer and Director of the Registrant.
(4) Excludes the effects on total outstanding shares which would result
from exercise of stock purchase options and conversion of debt.
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, 1999. 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.
-19-
<PAGE>20
Item 12. Certain Relationships and Related Transactions
For the fiscal year ended June 30, 1999, the following material transactions
between the Company and its officers, directors and/or beneficial owners
took place:
The following Restricted Common shares of the Company were purchased by
officers and directors of the Company at par value:
Frank Mortimer, Director & President 1,450,000 Restricted Common Shares
Bryan Carter, Director & Vice President 50,000 Restricted Common Shares
L.R. Leverton Enterprises Inc. 250,000 Restricted Common Shares
Restricted Common Shares purchased by employees (beneficial owners)
of the Company shares, at par value:
Employees (2) 350,000 Restricted Common Shares
Restricted Common Shares purchased by existing shareholders
(beneficial owners) of the Company shares, at par value:
Beneficial Owners (8) 3,950,000 Restricted Common Shares
Transactions at par value, with directors, officers and employees, in
consideration that no salary increases have taken place since 1991, except in
promotional circumstances, and in recognition of long term employment and
support of the Company.
Transactions with existing beneficial shareholders at par value, in
consideration for their long term personal financial assistance and support
of the Company.
-20-
<PAGE>21
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
-21-
<PAGE>22
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: October 13, 1999 By:/s/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: October 13, 1999 By:/s/Frank Mortimer
Frank Mortimer, President,
Principal Executive Officer
and Director
Dated: October 13, 1999 By:/s/Bryan Carter
Bryan Carter, Vice President
Director
Dated: October 13, 1999 By:/s/Larry Leverton
Larry Leverton, Secretary
Treasurer and Principal
Accounting Officer, Director
-22-
<PAGE>23
TECHNICAL VENTURES INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1999
<PAGE>24
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:
Years ended June 30, 1999 and 1998 F-3
Statement of Operations:
Years ended June 30,1999 and 1998 F-4
Statement of Changes in Shareholders' Deficiency:
Years ended June 30,1999 and 1998 F-5
Statement of Cash Flows:
Years ended June 30,1999 and 1998 F-6 & F-7
Notes to Consolidated Financial Statements F-8 - F-19
F-1
<PAGE>25
Schwartz Levitsky Feldman
Chartered Accountants
Toronto, Ottawa, Montreal
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Technical Ventures Inc.
We have audited the accompanying consolidated balance sheets of Technical
Ventures Inc. (Incorporated in New York State) as of June 30, 1999 and
June 30, 1998 and the related consolidated statements of income, cash flows
and changes in stockholders' equity for the years ended June 30, 1999 and
June 30, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly in all material respects, the financial position of Technical
Ventures Inc. as of June 30,1999 and June 30, 1998 and the results of its
operations and its cash flows for the years ended June 30, 1999 and
June 30, 1998, in conformity with generally accepted accounting principles
in the United States of America.
The company has sustained significant operating loss since its inception as
indicated in note 7. There is substantial doubt as to the company's
ability to continue as a going concern if additional financing is not
obtained.
Toronto, Ontario /s/Schwartz Levitsky Feldman
October 12,1999 Chartered Accountants
1167 Caledonia Road
Toronto, Ontario, Canada
M6A 2X1
Tel: 416 785 5353
Fax: 416 785 5663
F-2
<PAGE>26
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
1999 1998
ASSETS
CURRENT ASSETS
Cash $13,883 $17,605
Accounts Receivable 124,435 118,140
Inventory (Note 2) 45,143 34,663
TOTAL CURRENT ASSETS 183,461 170,408
Other Assets
Advances To Shareholders 62,392 35,904
Deposits 13,647 26,247
Prepaid Expenses 15,769 685
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation of $492,453 at
June 30,1999 and $510,118 at June 30,1998
June 30,1998 (Note 3,6,10) 155,437 177,231
INTANGIBLE ASSETS, net of accumulated
amortization of $5,452 at June 30,1999
and $5,119 at June 30,1998 646 965
TOTAL ASSETS $431,351 $411,440
LIABILITIES AND STOCK HOLDERS DEFICIENCY
CURRENT LIABILITIES
Current Portion of long term debt (Note 6):
Notes Payable (Note 11) $29,529 $120,538
Capital lease obligations 77,046 77,594
Other 341,749 376,296
Loans & advances:
Private Lenders (Note 10) 61,859 170,668
Shareholders, unsecured interest free 170,793 147,653
Accounts payable and accrued expenses 283,965 384,889
TOTAL CURRENT LIABILITIES 964,941 1,277,637
LONG-TERM DEBT, net of current portion:
Notes Payable (Note 11) 64,049
Shareholder (Note 6) 305,442 330,022
Other (Note 6) 26,795 52,891
MINORITY INTEREST (Note 6) 0 0
COMMITMENTS AND CONTINGENCIES (Note 5,7,9)
SHAREHOLDERS' DEFICIENCY: (NOTE 8)
Common stock, $.01 par value, 50,000,000 shares
authorized:
Issued and outstanding, 22,198,011 shares at
June 30,1999 and 14,711,341 at June 30, 1998 $221,980 $147,113
Additional Paid in capital: 4,165,410 4,056,744
Paid In Capital for Subscribed Common Stock 167,233
Deficit (5,797,808) (5,759,538)
Foreign currency translation adjustment 313,319 306,571
Total Shareholders' deficiency (929,876) (1,249,110)
TOTAL LIABILITIES $431,351 $411,440
See notes to consolidated financial statements.
F-4
<PAGE>27
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended June 30,
1999 1998
NET SALES $1,131,279 $1,185,091
COST OF SALES 763,922 984,899
GROSS MARGIN 367,358 200,192
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Administration 175,352 146,789
Financial
Interest & Other 64,689 106,801
Research & Development 80,498 94,874
Selling 90,746 71,790
Gain From Disposal (3,486)
411,286 416,768
LOSS BEFORE INCOME TAX RECOVERY & GAIN
ON TRANSFER OF TECHNOLOGY RIGHTS (43,928) (216,576)
Gain From Transfer of Technology Rights 693,415
INCOME AFTER GAIN ON TRANSFER OF TECHNOLOGY RIGHTS (43,928) 476,839
R&D Investment Tax Credit Refund 5,658 42,755
NET INCOME [LOSS] ($38,270) $519,594
NET INCOME [LOSS] PER COMMON SHARE ($0.00) $0.04
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 20,237,097 14,676,752
See notes to consolidated financial statements.
F-4
<PAGE>28
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
<S> <C> <C> <C> <C> <C> <C>
Common Stock Additional Subscribed Cumulative
Issued and Outstanding Paid In Paid In Translation
Shares Amount Capital Capital Deficit Adjustment
Year Ended June 30, 1998:
Balance, beginning of year 14,586,341 $145,863 $4,048,994 ($6,279,132) $221,844
Issued In Exchange For Services 125,000 1,250 7,750
Net Income $519,594
Cumulative Translation Adjustment $84,727
Balance, end of year 14,711,341 $147,113 $4,056,744 ($5,759,538) $306,571
Year Ended June 30, 1999
Issued In Exchange For Services 550,000 5,500 17,201
Issued In Private Placements 4,900,003 49,000 23,812
Issued In Debt Reduction 2,036,667 20,367 67,653
Subscribed Paid In Capital
(Net of Related Expenses) $167,233
Net Income ($38,270)
Cumulative Translation Adjustment $6,748
Balance, end of year 22,198,011 $221,980 $4,165,410 $167,233 ($5,797,808) $313,319
See notes to consolidated financial statements
F-5
</TABLE>
<PAGE>29
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended June 30, 1988 1997
1999 1998
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income [Loss] ($38,270) $519,594
Adjustment to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 30,079 10,874
Gain On Disposition of Property & Equipment (1,373)
Gain On Transfer of Technology Rights (682,278)
Issue of Stock For Services 22,701 8,999
Net Change in non-cash operating assets
and liabilities (146,935) (53,749)
Net Cash used by operating activities (133,798) (196,560)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property & Equipment Acquisition (9,565) (8,035)
Proceeds From Sales of Property & Equipment 3,321
Net cash used by Investing Activities (6,244) (8,035)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) loans,
notes and advances:
Bank Note (26,960) (14,692)
Line of Credit (35,375) (11,150)
Long-term debt (26,929) 32,576
Private lenders (62,747) 81,298
Shareholders 39,333 121,483
Issue of Restricted Common Stock 72,811
Issue of Converible Debenture 167,223
Net Cash Provided by Financing Activities 127,357 209,515
EFFECT OF EXCHANGE RATE ON CASH 8,963 (11,088)
Change in Cash Balance for the year ($3,722) ($6,168)
Cash Balance:
Beginning of year 17,605 23,772
End of Year $13,883 $17,605
See notes to condensed consolidated financial statements.
F-6
<PAGE>30
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SUPPLEMENTARY CASH FLOW INFORMATION
Year Ended June 30,
1999 1998
Non-Cash Financing and Investing Activities:
Issue of Restricted Common Shares Reducing
Debt Liabilities
Private Lenders 62,800
Shareholders 25,420
$88,220
STOCK SUBSCRIBED UPON CONVERSION $167,223
PAYMENTS MADE DURING THE YEAR FOR INTEREST $19,745 $15,203
Net change in non-cash operating assets and liabilities:
Decreases (increases) in operating assets
and increases (decreases) in operating
liabilities:
Accounts Receivable ($6,035) $38,765
Inventory (10,404) (610)
Other assets (28,835) (16,477)
Accounts Payable and accrued expenses (101,661) (75,427)
($146,935) ($53,749)
$107,070 ($118,131)
See notes to condensed consolidated financial statements.
F-7
<PAGE>31
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.
Earnings [Loss] Per Share:
Basic earnings per share is computed based on the average number of
common shares outstanding during the period.
Diluted earnings per share reflects the potential dilution that could
occur if securities, or other contracts to issue common stock, were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the Company. Such
securities or contracts are not considered in the calculation of diluted
earnings per share if the effect of their exercise or conversion would be
antidilutive.
Intangible Assets:
Cost of intangible assets are being amortized using the straight-line
method over periods ranging from 5 to 17 years.
F-8
<PAGE>32
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, June 30, 1999 at $0.6835US and June 30, 1998 at
$0.6820.
(b) Revenues and expenses at the average exchange rate during the period,
July 1, 1998 through June 30, 1999 at $0.6790 US and June 30, 1998 at
$0.7056.
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.
Contingent Liability Costs
The Company reflects legal costs incurred for any contingencies as a
charge to operations of the year in which the expenditures are determined.
Fair Value Presentation
The Company has financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all
financial instruments at June 30, 1999, 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 by the Company 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 the Company could realize in a current
market exchange.
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
F-9
<PAGE>33
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 15, 1995. The Company has adopted the disclosure provisions of
SFAS No. 123.
Note 2 - Inventory:
Inventory at June 30, 1999 is comprised entirely of raw materials
inventory.
Note 3 - Property and Equipment:
Property and equipment at June 30,1999 is comprised as follows:
Equipment:
Under Capitalized Leasing Arrangements $230,360
Other 375,811
Furniture & Fixtures 37,502
Leasehold Improvements 4,217
647,890
Less Accumulated Depreciation
& Amortization 492,453
$155,437
Note 4 - Foreign Operations:
The following table summarises certain information regarding the Company's
US. and Canadian operations:
US Canadian Consolidated
Year Ended June 30, 1999
Revenue from unaffiliated customers $ 1,131,279 $ 1,131,279
Income (Loss) From Operations $ ($73,061) $ 34,791 $ (38,270)
Identifiable assets at end of year $431,351 $431,351
Year Ended June 30, 1998
Revenue from unaffiliated customers $ 1,185,091 $ 1,185,091
Income (Loss) From Operations $ (46,220) $ 565,814 $ 519,814
Identifiable assets at end of year $ 411,440 $ 411,440
F-10
<PAGE>34
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Income Taxes:
During the year ended June 30, 1999, the Company received an additional
$8,720 (Canadian) resulting from research and development refundable tax
credit claims, filed for the year ended June 30, 1997; having reported in
fiscal 1998, $26,282 (Canadian) of the 1997 claim. A claim for approximately
$35,000 (Canadian) has been submitted for fiscal 1998. It is anticipated that
this 1998 claim 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. Additionally the Company will file
a claim for approximately $35,000 (Canadian) for fiscal 1999.
Recovery of Income taxes for the year ended June 30, 1999 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, 1999:
US Federal State & Local Foreign(1)
Loss Carry Forwards $331,000 $87,000 $276,403
Credit Carry Forwards:
Non Refundable Credits 6,201
Refundable Credits 23,923
Depreciation & Amortization
Valuation Allowance (331,000) (87,000) (306,527)
$0 $0 $0
Aggregate net operating loss carry forwards and tax credit carry forwards and
their expirations are summarised as follows:
Net Operating Loss Carry Forward
Expiring
June 30, US Federal State & Local Foreign (1) Foreign
Research &
Development
Tax
Credits(1)
2000 $244,115 $3,294
2001 3,000 3,000 260,898
2002 225,000 225,000 1,018
2003 21,000 21,000 44,550 1,889
2004 150,000 150,000 93,235
Thereafter 575,000 572,000
TOTAL $974,000 $971,000 $642,798 $6,201
(1) Converted to US dollars based on conversion rate at June 30, 1999
F-11
<PAGE>35
Note 6 - Long Term Debt:
At June 30, 1999, 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. interest at the greater
of prime or 10% $23,395 $23,395
Subordinate to note payable, I.O.C. :
Interest 15 % 17,250 17,250
Interest free:
Notes and loans 170,793 10,253 181,046
Accrued Interest 99,150 99,150
Accrued compensation 155,394 155,394
$170,793 $305,442 $476,235
Other:
Innovation Ontario Corp. (I.O.C.),
outstanding balance of $499,999
(Canadian) Payable in quarterly
instalments of $30,315 (Canadian),
including interest at 8%. At June 30,
1999 the Company was in default and
the entire balance past due(1); 341,749 341,749
Liabilities Subordinate to I.O.C.
Note Payable:
Unsecured loans, private investor,
interest at 10% 26,795 26,795
Cooper Financial Corp.'s note,
outstanding balance of $93,578 at
June 30, 1999 was renegotiated resulting
in a 35 month term note at a fixed rate
of interest of 10%, with monthly
instalments of $3,150. (2) 29,529 64,049 93,578
$371,278 $90,844 $462,122
Leasing Liabilities:
Obligations under capitalised leasing
arrangements payable in monthly
instalments of: $9,981 net of amount
representing interest of $2,790. at
June 30th the Company was in default
and the entire balance past due (3); $77,046 $77,046
$77,046 $77,046
F-12
<PAGE>36
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Long Term Debt: (continued)
(1) In accordance with the I.O.C. loan provisions, I.O.C. acquired a 30%
interest in Mortile in 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 had the option
to repurchase the shares, the Company failed to exercise this option.
The Company has been unable to meet payments in respect of this loan.
Accordingly the outstanding balance at June 30, 1999 is reflected as a
current liability in these financial statements. The I.O.C. note is
collateralized by all previously unsecured assets of the Company. At
June 30, 1999 the outstanding principal balance was $499,999 (CND.)
and accrued interest of $98,708(CND).
During fiscal 1998 the Company attempted, through negotiations with I.O.C.
to eliminate the debt and regain the 30 % equity position in Mortile.
The Company suggested one of two methods to I.O.C.
(a) Finding an alternative source of funds thereby enabling it to
purchase the debt, earned interest and simultaneously regain I.O.C.'s 30%
equity position in the company's subsidiary Mortile Industries.
(b) Alternatively the Company suggested that I.O.C. exchange the debt
and equity position in Mortile Industries for an equity position in Technical
Ventures Inc.. The investment value would be based on the outstanding
principal and earned interest due I.O.C. but would also give consideration
to and reflect the price of the Company's shares in the market, at the time
of exchange of debt for equity.
It was determined that I.O.C. preferred (b), an equity position in the Company,
however during negotiations the extent of I.O.C.'s equity position in
Technical Ventures became a point of contention and negotiations became
stagnated. However, I.O.C. continues to monitor the performance of company
and remains open to continuing discussions towards a negotiated settlement.
I.O.C. has not indicated any intent to exercise remedies.
(2) In August 1999 the Company refinanced its obligation to Cooper Financial
Corp.. A refinancing charge was assessed, increasing the then outstanding
principal balance of $91,207 to $95,999. The terms of the refinancing
require 35 monthly payments of $3,150 and a final payment of $954.
Interest is at 10%.
This obligation is included in the balance sheet with long-term debt under
the terms of the refinancing arrangement.
F-13
<PAGE>37
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Long-term debt: (continued)
(3) At June 30, 1999, 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, the lease is payable on demand. Accordingly the outstanding
principal balance at June 30, 1999, is reflected in these financial
statements as a current liability, as is accrued interest.
This lease commenced in September of 1989. It was extended in January 1993
for a period of twenty four [24] months. The lessor, having had a business
relationship with the Company for many years and therefore being aware of the
financial difficulties experienced by the company, has agreed to accept
payments when the company can make a payment[s] and additionally not invoke
terms of default. At June 30, 1999 the principal balance due is $77,046 and
accrued interest of $60,645 .
Long-Term debt matures as follows:
Year Ending June 30, Shareholders Other Total
2000 $170,793 $371,278 $542,071
2001 32,621 32,621
2002 31,428 31,428
2003
After 2004 305,442 26,795 332,237
$476,235 $462,122 $938,357
The Company's obligations under capitalized leasing arrangements are payable
in fiscal 2000.
Payments of long-term debt and capitalised lease obligations under agreements
expressed in Canadian dollars, have been converted to US dollars based on the
exchange rate at June 30, 1999.
F-14
<PAGE>38
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 substantial 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 $35,000 (Canadian) has been
submitted for fiscal year 1998 and will also submitt a claim of approximately
$35,000 (Canadian) for fiscal year 1999. Even if the 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 offerings.
F-15
<PAGE>39
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
Additionally the Company concluded in late January 1999, a Private Offering
under Regulation D of the Securities Act of 1933. The offering consisting
of 8% Convertible Debentures in the aggregate of $225,000 US; additionally
as part thereof, Non RedeemableWarrants of a three[3] 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 (i) upon
conversion of the Debentures and exercise of the Warrants issued in
connection with the offering.
The Company prepared and filed, in accordance with the Private Offering,
with the Securities Exchange Commission, on April 8, 1999, a Registration
Statement on Form SB-2. In total an aggregate of 6,893,141 shares of the
company's common stock are being registered and sold to the public by certain
shareholders and purchasers of our debentures which are convertible into our
common stock and which, additionally, bear warrants to purchase our common
stock.
This SB 2 Registration filed in April has received comments from the S.E.C.
and requires an amended filing; therefore the SB 2 Registration has not been
declared effective. The Company filed the amendment early in September 1999
and has subsequently received, on October 8th, 1999, additional comments from
S.E.C. which must be responded to and will require a further amendment to the
SB 2 Registration.
Restricted Common shares were issued during the year in consideration of
services rendered to the Company, the conversion of debt and cash received on
a private placement. The transactions were recorded at the trading value of
the shares at the time of issue, net of a discount for restricted shares. The
excess of the transaction price over the stated capital is reflected as paid
in capital.
F-16
<PAGE>40
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Leases:
At June 30, 1999, under a real property lease classified as an
operating lease, the Company leases a total of 17,300 Sq. Ft. of space.
This lease expires on March 31, 2002. The minimum rental payments which are
in Canadian currency, have been converted into US dollars using the exchange
rate at June 30, 1999.
Therefore the Company's future minimum rental payments (excluding real estate
taxes) for the full three year term of the lease total $179,087; as follows:
fiscal 2000, $64,228; 2001, $65,219; 2002 to the term of lease, $49,580.
Rent expense was $49,965 and $58,061 for 1999 and 1998 respectively.
Note 10 - Loans and Advances At June 30, 1999:
Private Investors:
Equipment financing:
Interest at 10% $11,859
Unsecured Demand Loans:
Interest Free 25,000
Interest at 10%, convertible
in 50,000 shares of common stock 25,000
$ 61,859
F-17
<PAGE>41
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Earnings per share:
Earnings per share has been calculated as follows:
Year Ended
June 30,
1999 1998
Basic earnings per share:
Net income (loss) attributable to
common stock ($38,270) $519,594
Weighted average number of common shares
outstanding 20,237,097 14,678,752
Net income (loss) per common share ($0.00) $0.04
Diluted earnings per share:
Net income (loss) per common share ($38,270) $519,594
Interest on dilutive convertible debt --- 2,500
Interest on dilutive debentures
Net Income (loss) attributable to
common stock assuming dilution ($38,270) $522,094
Weighted average number of common
shares outstanding 20,237,097 14,678,752
Assumed conversion of dilutive
convertible debt (a) --- 50,000
Assumed conversion of dilutive stock
purchase options (b) --- 50,000
Assumed conversion of dilutive warrants(c)
Assumed conversion of dilutive debentures(d)
Weighted average number of common
shares outstanding, assuming dilution 20,237,097 14,778,752
Net income (loss) per common share
assuming dilution ($0.00) $0.04
(a) Stock purchase options
There are options outstanding to purchase 50,000 shares of the Company's
common stock at an exercise price of $0.50 per share.
All such options are exercisable and there is no termination date on the
options, (Note 8).
(b) Convertible Debt
The Company has outstanding a $25,000 principal amount promissory note
which is payable upon demand of the holder thereof. Such note is
convertible, at any time, at the option of the holder thereof, into
50,000 shares of the company's common stock, (Note 8).
(c) Warrants
See Note 8
(d) Debentures
See Note 8
Diluted earnings per share has not been calculated, as each of the above, on
an individual basis, has an anti-dilutive effect on earnings per share.
F-18
<PAGE>42
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Major Customers:
One customer accounted for 40% and 41 % of the Company's consolidated
revenues for fiscal 1999 and 1998, respectively. Another customer accounted
for 21 % and 19 % of consolidated revenues for fiscal 1999 and 1998
respectively. Another customer accounted for 13% of consolidated revenues
for fiscal 1999. The loss of one or more of these customers would have a
detrimental effect on the Company's operating results.
Note 13 - Forward Looking Statements:
This Form 10-KSB 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.
Note 14 - Contingent Liability:
The Company is contingently liable under a breach secrecy agreements,
fiduciary duty and misuse of confidential information lawsuit. The
Company's attorneys are of the opinion that the Company'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.
Note 15 - Uncertainty Due To The Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise
in some systems which use certain dates in 1999 to represent something other
than a date. The effects of The Year 2000 Issue may be experienced before,on
or after January 1, 2000, and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could affect a company's ability to conduct normal business operations.
It is not possible to be certain that all aspects of The Year 2000 Issue
affecting the Company, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
F-19
<PAGE>43
<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, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 13,883
<SECURITIES> 0
<RECEIVABLES> 124,435
<ALLOWANCES> 0
<INVENTORY> 45,143
<CURRENT-ASSETS> 183,461
<PP&E> 647,890
<DEPRECIATION> 492,453
<TOTAL-ASSETS> 431,351
<CURRENT-LIABILITIES> 964,941
<BONDS> 0
<COMMON> 221,980
0
0
<OTHER-SE> (929,876)
<TOTAL-LIABILITY-AND-EQUITY> 431,351
<SALES> 1,131,279
<TOTAL-REVENUES> 1,131,279
<CGS> 763,922
<TOTAL-COSTS> 763,922
<OTHER-EXPENSES> 411,286
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,689
<INCOME-PRETAX> (43,928)
<INCOME-TAX> 5,658
<INCOME-CONTINUING> (38,270)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38,270)
<EPS-BASIC> (.00)
<EPS-DILUTED> (.00)
</TABLE>
