AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON ^ DECEMBER 30, 1999
Registration No. 333-75901
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
AMENDMENT NO. ^ 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------
TECHNICAL VENTURES INC.
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
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<CAPTION>
<S> <C> <C>
New York 13-3296819 1700
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER) (PRIMARY STANDARD Industrial
incorporation or organization) Classification Code Number)
</TABLE>
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3411 MCNICOLL AVENUE
UNIT 11
SCARBOROUGH, ONTARIO
CANADA M1V 2V6
(416) 299-9280
(Address and telephone number of principal executive offices)
---------
FRANK MORTIMER, PRESIDENT
3411 MCNICOLL AVENUE
UNIT 11
SCARBOROUGH, ONTARIO
CANADA M1V 2V6
(416) 299-9280
(Name, address and telephone number of agent for service)
---------
Copies of all communications to:
GREGORY SICHENZIA, ESQ.
RICHARD A. FRIEDMAN, ESQ.
SICHENZIA ROSS & FRIEDMAN, LLP
135 WEST 50TH STREET
NEW YORK, NEW YORK 10022
TELEPHONE NO.: (212) 664-1200
FACSIMILE NO.: (212) 664-7329
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check
<PAGE>
the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. o
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. o
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH OFFERING AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED SECURITY(1)(2) PRICE(1) FEE
<S> <C> <C> <C> <C> <C>
COMMON STOCK, $0.01 PAR VALUE ^ 7,263,728 $.14 $1,016,921 $373.35*
</TABLE>
*Previously paid.
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
(2) Represents the closing sale price for the registrant's common stock on
^ December 28, 1999.
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
TECHNICAL VENTURES INC.
Cross Reference Sheet
<TABLE>
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FORM SB-2 ITEM NUMBER AND CAPTION CAPTIONS IN PROSPECTUS
<S> <C>
1. Front of Registration Statement and Outside Front Cover of Prospectus..................... Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus................................... Cover Page, Inside Cover Page,
Outside Back Page
3. Summary Information and Risk Factors...................................................... Prospectus Summary, Risk Factors
4. Use of Proceeds........................................................................... Use of Proceeds
*
5. Determination of Offering Price...........................................................
6. Dilution.................................................................................. Dilution
7. Selling Securityholders................................................................... Selling Shareholders, Plan of
Distribution
8. Plan of Distribution...................................................................... Prospectus Summary, Selling
Securityholders
9. Legal Proceedings......................................................................... Business
10. Directors, Executive Officers, Promoters and Control Persons.............................. Management, Principal
Stockholders
11. Security Ownership of Certain Beneficial Owners and Management............................ Principal Stockholders
12. Description of Securities................................................................. Description of Securities
13. Interest of Named Experts and Counsel..................................................... Legal Matters
14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities....... Management
15. Organization Within Last Five Years...................................................... *
16. Description of Business................................................................... Prospectus Summary, Business
17. Management's Discussion and Analysis or Plan of Operation................................. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
18. Description of Property................................................................... Business
19. Certain Relationships and Related Transactions............................................ Certain Transactions
20. Market for Common Equity and Related Shareholder Matters.................................. Front Cover Page, Description of
Securities
21. Executive Compensation.................................................................... Management
22. Financial Statements...................................................................... Financial Statements
*
23. Changes in and Disagreements with Accounts on Accounting and Financial Disclosure.........
</TABLE>
*Not Applicable
<PAGE>
SUBJECT TO COMPLETION
Prospectus
______, 1999
TECHNICAL VENTURES INC.
^ 7,263,728 SHARES OF COMMON STOCK
<TABLE>
<CAPTION>
TECHNICAL VENTURES INC.: THE OFFERING:
<S> <C> <C> <C>
O We are engaged in the design, development, o This prospectus is prepared in connection
and ^ manufacturing of ^ proprietary with the sale to the public of shares of our
thermoplastic compounds (plastics mixed common stock. The selling shareholders
with other solid materials) and composite are offering all of the ^ 7,263,728 shares of
compounds (compositions of plastics with common stock.
other powdered materials). We also o There is no underwriter or coordinating
develop specialty compounds that we broker acting in connection with this
produce by mixing and pelletizing offering.
proprietary formulations specified by our o We will not receive any proceeds from the
customers. our applications for our shares sold by the selling shareholders.
products ^ expand into every area of
plastics.
o Technical Ventures Inc.
3411 McNicoll Avenue
Scarborough, Ontario, Canada M1V 2V6
o Over-the-counter Bulletin Board
Symbol: TEVT
</TABLE>
Investing in our common stock involves risk. See "Risk Factors" beginning
on page ^ 6.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS ^ DECEMBER 30, 1999
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED . WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AND
OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
Prospectus Summary................................................................................
Risk Factors......................................................................................
Special Note About Forward-Looking Statements.....................................................
Use of Proceeds...................................................................................
Dividends.........................................................................................
Dilution..........................................................................................
Capitalization....................................................................................
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................................
Business..........................................................................................
Management........................................................................................
Principal Stockholders............................................................................
Certain Related Transactions......................................................................
Description of Our Securities.....................................................................
Shares Eligible for Future Sale...................................................................
Selling Shareholders.............................................................................
.................................................................................................
Plan of Distribution..............................................................................
Legal Matters.....................................................................................
Experts...........................................................................................
Where You Can Find More Information...............................................................
Index to Financial Statements..................................................................... F-1
-------------------------
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER
BEFORE DECODING TO INVEST IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE RISK FACTORS SECTION, FINANCIAL STATEMENTS
AND NOTES THERETO.
REFERENCES IN THIS PROSPECTUS TO "TECHNICAL VENTURES,""WE,""OUR," AND "US,"
REFER TO TECHNICAL VENTURES INC. TOGETHER WITH ITS SUBSIDIARY.
TECHNICAL VENTURES INC.
We are a corporation organized under the laws of the State of New York.
We were formed for the purpose of acquiring businesses which, in our opinion,
demonstrate long-term growth potential. Since our formation, we have only
acquired one business, Mortile Industries Ltd., which we presently have a 70%
interest. Mortile is a corporation organized under the federal laws of Canada.
Through Mortile, we are engaged in the design, development ^, and manufacturing
of
^ o proprietary thermoplastic compounds (plastics mixed with other
solid materials);
o composite compounds (compositions of plastics with other powdered
materials); and
o specialty compounds that we produce by mixing and pelletizing
proprietary formulations specified by our customers.
Our applications for our products expand into every area of plastics.
We have entered into a unique market niche that allows us to specialize
in the production of our products to meet our client needs and provide technical
support that may be needed. We have the capacity to tailor our production for
each customer's requirement. Working closely with our clients in order to
maintain good customer relations and help satisfy their needs, we set ourselves
apart from the others in the industry due to out technical support staff and
direct distribution of our products.
Since inception, we have expended a significant portion of our
resources in the development of our products. As a result, we have sustain
significant operating losses and there substantial doubt as to our ability to
continue as a going concern. however, we are poised to fully penetrate the
market. Further we have laid the foundation to perform this goal. due to our
technology, products, management's expertise, customer support, future planing
strategies and financial backing, we are ready for rapid growth.
4
<PAGE>
THE OFFERING
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<S> <C>
COMMON STOCK OFFERED........................ ^ 7,263,728 shares
Common Stock Outstanding Before
THIS OFFERING......................... ^ 23,248,011 shares(1)
Common Stock Outstanding After this
OFFERING.............................. ^ 29,911,739 shares(2)
Use of Proceeds.............................. We will not receive any proceeds from the shares sold by the selling
shareholders. Any money we receive upon the exercise of warrants
will be used to pay for the expenses of this offering. See "Use of
Proceeds."
RISK FACTORS................................ YOU SHOULD READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE ^ 6,
as well as other cautionary statements throughout the entire
prospectus, to ensure you understand the risks associated with an
investment in our stock.
Over-the-Counter Bulletin Board
Symbol...................................... TEVT
</TABLE>
The ^ 7,263,728 shares being offered includes: 1) ^ 127,840 shares of
common stock issuable upon the exercise of warrants we previously issued; 2) ^
6,535,888 shares of common stock issuable upon the conversion of debentures; and
3) ^ 600,000 shares of common stock being offered by the selling shareholders.
--------------------
(1) Excludes (a) 50,000 shares of common stock issuable upon the conversion of
promissory notes outstanding, and (b) 50,000 shares of common stock issuable
upon exercise of outstanding options.
(2) Assumes (a) the debentures are converted into ^ 6,535,888 shares of common
stock and all of the outstanding warrants to purchase ^ 127,840 shares of common
stock are exercised ^.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following is a summary of our financial information for the ^ three
months ended ^ September 30, 1999 and 1998 and fiscal years ended June 30, 1999,
1998, and ^ 1997. You should also read our financial statements and notes to
those statements which begin at the end of this prospectus, beginning on page
F-1.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
^ YEAR ENDED JUNE 30, SEPTEMBER 30
- ---- ----- ---- --- --------- --
1997 1998 1999 1998 1999
---- ---- ---- ---- ----
(Unaudited) ^
<S> <C> <C> <C> <C> <C>
Net Sales............................... $ ^ $ ^
1,414,062 $ 1,185,091 1,131,279 $ 240,990 $ 288,411
Gross Profit............................ ^ 184,160 200,192 ^ 367,358 54,601 50,857
Income (loss) from operations........... ^(216,843) (216,576) ^(118,928) (44,313) (65,953)
Net Income (loss)....................... ^(196,322)(1) 519,594(2) (628,590) (370,928) (320,644)
Earnings (loss) per share............... ^(0.01) ^ 0.04 ^(0.03) (0.02) (0.01)
Weighted average number of
common stock outstanding............. ^14,586,341 14,711,341 ^ 22,198,011 19,798,011 23,248,011
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
^ AS AT JUNE 30, ^ AS AT SEPTEMBER 30,
1997 1998 1999 1999
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Working capital ................... $ ^(1,703,297) $ (1,044,393) ^(781,300) (895,530)
Total assets....................... ^ 505,776 411,440 ^ 431,351 417,556
Total liabilities.................. ^ 2,368,206 1,660,550 ^ 1,581,717 1,698,797
Stockholders' equity
^(deficiency)...................... (1,862,431) (1,249,110) ^(929,876) (1,281,241)
</TABLE>
- ---------------------------------
(1) Reflects income tax recovery of $20,521.
^(2) Reflects gain from transfer of technology rights of ^ $477,193 and
income tax recovery of ^ $42,401.
^
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER EACH OF THE FOLLOWING RISKS AND ALL OF
THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN
SHARES OF OUR COMMON STOCK. SOME OF THE FOLLOWING RISKS RELATE PRINCIPALLY TO
OUR BUSINESS IN GENERAL AND THE INDUSTRY IN WHICH WE OPERATE. OTHER RISKS RELATE
PRINCIPALLY TO THE SECURITIES MARKETS AND OWNERSHIP OF OUR STOCK. ^
IF ANY OF THE FOLLOWING RISKS AND UNCERTAINTIES DEVELOP INTO ACTUAL
EVENTS, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE
MATERIALLY ADVERSELY AFFECTED. IN SUCH A CASE, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISK FACTORS RELATING TO OUR BUSINESS
OUR BUSINESS IS SUBJECT TO THE FOLLOWING RISKS, WHICH INCLUDE RISKS
RELATING TO THE INDUSTRY IN WHICH WE OPERATE.
WE HAVE HAD A HISTORY OF NET LOSSES, HAVE EXPERIENCED CASH FLOW
DEFICIENCIES, AND HAVE, AT TIMES, BEEN UNABLE TO PAY MANY OF OUR OBLIGATIONS AS
THEY BECAME DUE.
For fiscal year ended June 30, 1998, we incurred net losses of $216,576
before accounting for an income tax recovery and a gain on a transfer of
technology. For fiscal year ended June 30, 1997, we incurred net losses of
$216,843. At June 30, 1998, we had an accumulated deficit of $5,759,533. At
times, our cash shortages have caused us to be delinquent in paying ^ our
suppliers, and have impaired our ability to purchase raw materials, causing
production delays that resulted in back orders and lost sales. further, two of
our long term debt financing arrangements are currently in arrears. The
aggregate amount of principal payments currently in arrears and outstanding,
$418,796. Cash shortages have hindered our existing operations and, thus,
prevented any expansion. As a result, our auditors have noted in their report
that we have experienced significant operating losses and have an accumulated
deficit which raise substantial doubt about our ability to continue as a going
concern. If we do not generate substantial revenues from our products or achieve
profitability and make payments to creditors we may have to seek protection
under the bankruptcy laws and investors will lose their investments.
WE MAY BE UNABLE TO CONTINUE OPERATIONS IF WE ARE UNABLE TO FIND
ADDITIONAL FINANCING.
We ^ will not receive any proceeds from the shares sold by the selling
shareholderS. We intend to seek funding through public or private equity or debt
financinG. We cannot assure you that ^ financing will be available on acceptable
terms, or at all. If we are required to sell equity to raise additional funds,
our existing shareholders may incur substantial dilution to the value of their
shares, and any shares so issued may have rights, preferences and privileges
superior to the rights, preferences and privileges of our outstanding common
stock. Insufficient funds may require us to delay, scale back or eliminate some
or all of our activities or to obtain funds through arrangements with third
parties that may require us to relinquish rights to certain of its technologies,
product candidates or products that we would otherwise seek to develop or
commercialize.
ACCEPTANCE AND USE OF OUR PRODUCTS IN THE MARKETPLACE IS UNCERTAIN.
Part of our business is to develop innovative products which will
improve the manufacture of plastics and plastic products. To be successful, our
products must have a price-value relationship that is competitive with
alternative products and technologies. We cannot assure you that we will not
experience
7
<PAGE>
unforseen problems with our technology or products. Nor can we provide you with
assurance that our products or technology will be commercially accepted.
OUR REVENUES ARE DEPENDENT ON THE CONTINUED OPERATION OF OUR
MANUFACTURING FACILITIES.
The operation of manufacturing facilities involves risk. Our
manufacturing equipment may break down, fail to operate or perform at
substandard levels. We may be effected by natural disasters which may make the
operation of our facilities impossible. Also, our manufacturing facilities must
comply with directives of government agencies. Any reduction or suspension of
manufacturing operations from any of the events listed above is likely to have a
material adverse effect on our productivity and profitability.
WE MAY BE UNABLE TO COMPETE FAVORABLY IN THIS HIGHLY COMPETITIVE
INDUSTRY.
Each of the industries in which we compete is highly competitive. We
compete with other companies primarily on the basis of price, service, product
quality and performance. We compete with some of the world's largest chemical
companies, such as Exxon Corp., E.I. DuPont De Nemours & Co., Union Carbide
Corp., and Raychem Corp. Our competitors have significantly greater financial,
technical and human resources. We cannot provide you with assurances that our
competitors will not develop products or technologies that are more effective
than any we have developed or are developing, or that our competitors will
render our products or technologies obsolete and noncompetitive. Our competitors
may succeed in obtaining market acceptance for products more rapidly than us.
Furthermore, even if our products are accepted by the marketplace, we will
compete with respect to volume manufacturing efficiency and marketing
capabilities; areas in which we have limited or no experience.
WE ARE DEPENDENT ON OUR KEY PERSONNEL FOR OUR FUTURE SUCCESS.
Our future success partly depends upon key personnel and upon our
ability to continue to attract and retain such highly talented individuals.
Competition for qualified personnel is intense in our industry. We are dependent
upon the efforts and abilities of Frank Mortimer, our President, Bryan Carter,
our Vice President, and Larry Leverton, our Secretary and Treasurer. We are not
presently engaged in employment agreements with Messrs. Mortimer, Carter and
Leverton. Also, we do not maintain key man life insurance policies on any of
these individuals. The loss of the services of any of the above individuals
could adversely affect our business. We cannot assure you that we will retain
our key employees or that we will attract or assimilate such employees in the
future.
IF THE PROTECTION OF OUR PATENTS AND PROPRIETARY TECHNOLOGY IS
INADEQUATE, OUR BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED.
Our future success will partly depend on our ability to maintain
protection for our products and manufacturing processes under United States and
foreign patent laws, to preserve its trade secrets and to operate without
infringing the proprietary rights of third parties. We currently hold patents
and trademark registrations for various products and plan to continue to
establish and protect their proprietary rights with respect to new products we
develop. U.S. patent applications are maintained in secrecy until patents issue.
Since publication of inventions in technical or patent literature tend to lag
behind inventions by several months, we cannot be certain that we are the first
creator of inventions covered by our issued patents or pending patent
applications, or that we were the first to file patent applications for such
inventions.
We also rely on trade secrets and proprietary know-how, which we seek
to protect, in part, by confidentiality agreements with our research partners,
employees, consultants, advisors and others.
8
<PAGE>
However, actions taken to establish and protect proprietary rights may be
inadequate to prevent imitation of such products by others or to prevent others
from claiming violations of their proprietary rights by our company. In
addition, others may assert rights in our proprietary products and processes and
other proprietary rights.
WE ARE DEPENDENT ON MAINTAINING OUR SUPPLY OF RAW MATERIALS.
If we are unable to obtain a supply of raw materials, and we are unable
to develop alternative sources of supply quickly and on a cost-effective basis,
our ability to manufacture and deliver our products would be materially
impaired. Should demand for our products substantially exceed current
expectations, or if we experience supply problems we cannot assure you that we
would be able to obtain sufficient quantities of raw materials from our current
sources, or that alternate sources could be found without disrupting our
manufacturing process.
OUR PRODUCTS MAY BE SUBJECT TO GOVERNMENT REGULATION.
Certain end products into which our products are to be incorporated are
subject to extensive government regulation in the United States by federal,
state and local agencies including the EPA and the Food and Drug Administration.
Similar regulatory agencies exist worldwide. Our customers who incorporate our
products into consumer products will bear primary responsibility for obtaining
any required regulatory approvals. The process of obtaining and maintaining FDA
and any other required regulatory approvals for products is lengthy, expensive
and uncertain, and regulatory authorities may delay or prevent product
introductions or require additional tests prior to introduction. We cannot
assure you that changes in existing regulations or the adoption of new
regulations will not occur, which could prevent us or our customers from
obtaining approval or delay the approval of various products could adversely
affect market demand for our products.S
WE ARE SUBJECT TO MANY FOREIGN AND DOMESTIC LAWS AND REGULATIONS
RELATING TO THE PROTECTION OF HUMAN HEALTH AND THE ENVIRONMENT.
These laws and regulations govern areas such as emissions to the air,
discharges to land and water and the generation, handling, storage,
transportation, treatment and disposal of waste.
We believe that our business, operations and facilities are being
operated in compliance with environmental laws and regulations. However, we are
exposed to risks relating to accidental discharges of hazardous materials,
personal injury, property damage and environmental damage. Furthermore,
environmental laws and regulations provide for substantial fines and criminal
sanctions in the event we do not comply. As such, we cannot provide you with
assurance that our ongoing operations will not be effected by material costs or
liabilities resulting from such risks.
Additionally, we believe that, in the future, environmental and health
and safety laws and regulations, including the enforcement of such laws and
regulations, will become more strict. Increased regulation of our operating
activities could involve material expenditures with respect to our handling,
manufacture, use or disposal of substances, waste or pollutants at our
facilities. To meet changing regulatory standards, we may be required to
significantly modify our operations or manufacturing sites. Such modifications
may involve substantial expenditures and reductions or suspensions of certain
operations.
9
<PAGE>
WE ARE CURRENTLY IN LITIGATION WITH ENDEX POLYMER ADDITIVES INC. A FORMER
CUSTOMER.
We are named as a defendant, together with dow chemical company, in a
litigation brought in the ontario superior court of justice on June 4, 1999 by
Endex Polymer Additives Inc., Endex Polymer Additives Inc. (USA), Endex
International Limited and G. Mooney and Associates (collectively "Endex"). Endex
alleges breach of secrecy agreements and fiduciary duty and the misuse of Endex
confidential information. Endex is seeking CND.$10 million in compensatory
damages, CND.$1 million in punitive damages, and a permanent injunction. we have
retained a law firm specializing in intellectual property law and are vigorously
defending the action. There can be no assurances that we will be successful in
defending ourselves against these claims. If we were to lose this litigation it
would have a materially adverse effect on us and our ability to continue
operations.
WE COULD BE LIABLE FOR DAMAGES IN CONNECTION WITH PRODUCT LIABILITY
CLAIMS.
Product liability claims may be asserted against us in the event that
the use of our products, or products which incorporate our products, are alleged
to have caused injury or other adverse effects. Such claims may involve large
amounts of alleged damages and significant defense costs. We do not maintain
product liability insurance. If we do obtain product liability insurance in the
future, we cannot assure you that the liability limits, or the scope of such
insurance policy, would be adequate to protect against such potential claims.
Additionally, we may not be able to obtain product liability insurance. Whether
or not we obtain such insurance, a successful claim against us could materially
affect our financial stability. In addition, our reputation could be adversely
affected by product liability claims, regardless of such claim's merit or
eventual outcome.
OUR BUSINESS MAY BE AFFECTED BY PROBLEMS ASSOCIATED WITH THE YEAR 2000
ISSUE.
Many existing computer programs use only a two digit suffix to identify
a year in the date field with an assumed prefix of "19". Consequently, this
limits those systems to dates between 1900 and 1999. If not corrected, many
computer systems and applications could fail or create erroneous results at or
in connection with applications after the year 2000.
We have assessed the potential impact of the Year 2000 issue to our
internal operations. Such assessment included a review of the impact of the
issue in primarily four areas: products, manufacturing systems, business systems
and miscellaneous/other areas. Based on the results of that initial review, we
do not anticipate that the Year 2000 issue will impact operations or operating
results. We cannot assure you, however, that our review efforts, when completed,
will not result in a different conclusion or that the inability of third parties
on which we rely (such as suppliers) to implement corrective actions would not
materially adversely affect our operations or operating results.
OUR REVENUES ARE DEPENDENT ON SEVERAL KEY CUSTOMERS.
We have several key customers which presently account for more than ^
77% of our total revenues. For the fiscal year end ^ 1999, Shaw Industries
accounted for ^ 43%, MLPC International accounted for ^ 22% and SNC Industrial
Technologies accounted for 12% of our total revenues. For the ^ three month
period ended ^ September 30, 1999, Shaw Industries accounted for ^ 52%, MLPC
International accounted for ^ 30%. Many of our customers operate in cyclical
industries and, as a result, their order levels have varied significantly from
period to period in the past and may vary significantly in the future. Such
customer orders are dependent upon their markets and customers and may be
subject to delays or cancellations. The loss of one or more of such customers,
or a declining market in which such customers reduce orders or
10
<PAGE>
request reduced prices, could have a material adverse effect on our operations
or financial condition.
WE DO NOT EXPECT TO PAY DIVIDENDS ON OUR COMMON STOCK.
To date, we have paid no dividends on our common stock. The payment of
any future dividends will be at the sole discretion of the board of directors.
We intend to retain earnings to finance the expansion of our business and do not
anticipate paying dividends on our common stock in the foreseeable future.
RISK FACTORS RELATING TO SECURITIES MARKETS
THERE ARE RISKS RELATING TO THE SECURITIES MARKET THAT YOU SHOULD
CONSIDER IN CONNECTION WITH YOUR INVESTMENT IN AND OWNERSHIP OF OUR STOCK.
OUR POSSIBLE FAILURE TO COMPLY WITH RECENT OVER-THE-COUNTER BULLETIN
BOARD LISTING QUALIFICATIONS MAY AFFECT THE TRADING OF OUR COMMON STOCK.
NASD Regulation, Inc. has enacted rules to limit quotations on the
Over-the-Counter Bulletin Board to the securities of issuers that make current
filings pursuant to the Securities Exchange Act of 1934. Furthermore, NASD
Regulation, Inc. has enacted rules which require members to review current
issuer financial statements prior to recommending a transaction to a customer in
an Over-the-Counter Bulletin Board security and to deliver a disclosure
statement to a customer prior to an initial purchase of an Over-the-Counter
equity security. If we are unable to satisfy reporting requirements our common
stock may be de-listed from the Over-the-Counter Bulletin Board and/or may
severely limit the trading activity of our securities.
SHARES OF OUR COMMON STOCK THAT ARE ELIGIBLE FOR FUTURE SALE COULD
ADVERSELY AFFECT ITS MARKET PRICE.
Our common stock presently trades on the Over-the-Counter Bulletin
Board. Sales of substantial amounts of our common stock in the public market or
the prospect of such sales by existing shareholders, and holders of our
warrants, could materially reduce the market price of our common stock. As of
the date hereof, we had outstanding ^ 23,248,011 shares of common stock. This
number does not take into account shares of common stock issuable upon
conversion of the debentures or exercise of the warrants. Virtually all of our
outstanding shares of common stock are either registered, and therefore freely
tradable, or may be transferred pursuant to Rule 144(k) under the Securities
Act, unless held by our "affiliates" as that term is defined in Rule 144 under
the Securities Act.
OUR COMMON STOCK IS CURRENTLY SUBJECT TO PENNY STOCK RULES WHICH MAY
AFFECT ITS MARKETABILITY.
Trading in the Over-the-Counter Bulletin Board allows market makers to
enter quotes and trade securities that do not meet listing requirements of the
Nasdaq SmallCap Market or any regional exchange. In such case, sales of our
common stock will be subject to the penny stock rules promulgated by the
Securities and Exchange Commission. The SEC's regulations generally define a
penny stock as any equity security that has a market price (as defined) of less
than $5.00 per share. The rules impose various sales practice requirements on
broker-dealers who sell securities governed by the rules to persons other than
established customers and certain accredited investors. For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. The rules further require the delivery by the
broker-dealer of a disclosure schedule prescribed by the SEC relating to the
penny stock market. Disclosure must also be made about all
11
<PAGE>
commissions and about current quotations for the securities. Finally, monthly
statements must be furnished to the SEC disclosing recent price information for
the penny stock held in the account and information on the limited market in
penny stocks.
Although the regulations provide several exceptions to, or exemptions
from, the penny stock rules based on, for example, specified minimum revenues or
asset-value, we currently do not fall within any of the stated exceptions. Thus,
a transaction in our securities would subject the broker-dealer to sales
practice and disclosure requirements that make trading of the stock more
cumbersome which could materially adversely affect the marketability of the
stock.
OUR COMMON STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN
SUBSTANTIAL LOSSES FOR INVESTORS.
The market price of our securities may be highly volatile, as has been
the case with the securities of other companies engaged in high technology
research and development. Any announcements we or our competitors make
concerning technological innovations, new commercial products or procedures,
proposed government regulations and developments, disputes relating to patents
or proprietary rights, operating results, market conditions and economic factors
may have a significant impact on the market price of our common stock. Investors
may be unable to resell their shares of our common stock at or above the
offering price.
12
<PAGE>
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus may contain forward-looking
statement. Such statement can be identified by the use of forward-looking
terminology such as "may", "will", "expect", "anticipate","estimate","continue";
or other similar words. These statements discuss future expectations, contain
projections of results of operations or financial condition or state other
"forward-looking" information. A number of important factors could cause actual
results to differ materially from those in the forward-looking statements. Some
factors include inflation, government regulations, and economic conditions and
competition in the geographic areas in which we conduct our operations. For a
discussion of factors that could cause actual results to differ please see the
discussion under "Risk Factors" contained in this prospectus generally, and in
other factors noted throughout this prospectus.
USE OF PROCEEDS
The only proceeds we expect to receive will be from the exercise of the
warrants. However, pursuant to the terms of the warrants, the holders of the
warrants have a cashless exercise option. The cashless exercise option permits
the holders of the warrants to exercise the warrants without paying to us the
exercise price of the warrant. Instead, the holders of the warrants would
receive an amount of common stock with a dollar value that is equal to the
difference between the market price of the common stock less the exercise price
of the warrant multiplied by the number of warrants owned by the holder thereof.
In such a case, we would not receive any funds. In the event the holders of all
the outstanding warrants elect to exercise the warrants by paying the exercise
price of the warrants, we will receive a maximum of $22,500. Any proceeds
received by us will be applied towards the expenses of this offering which we
estimate to be $30,000.
DIVIDENDS
To date, we have paid no dividends on our common stock and our board of
directors has no present intention to pay dividends on its common stock in the
foreseeable future. See "Description of Securities." The payment of dividends in
the future, if any, rests solely within the discretion of our board of
directors. Our future dividend policy will depend upon, among other things, our
earnings, capital requirements and financial condition, as well as other factors
deemed relevant by our board of directors. Although we are not limited to pay
dividends by any agreements, we anticipate that future agreements, if any, with
institutional lenders or others may limit our ability to pay dividends.
13
<PAGE>
DILUTION
Our present shareholders have acquired their shares of common stock and
a controlling interest in us, at a cost that is substantially less than which
you may purchase shares. Net tangible book value represents the amount of our
tangible assets, reduced by the amount of our liabilities, and it is a means to
determine the dollar value of our common stock. At ^ September 30, 1999, our net
tangible book value ^(deficit) was ^($1281,804), or ^($.06) per share based on ^
23,248,011 shares of common stock outstanding. When our net tangible book value
per share is adjusted to take into account the ^ conversion of debentures in the
amount of $220,490 and the receipt of $22,500 of proceeds from the exercise of ^
127,840 warrants, our net tangible book value (deficit) as of ^ September 30,
1999 would be approximately ^($1,038,814), or ($.03) per share. This means that
you will experience an immediate dilution (the difference between the offering
price of the shares and the net tangible book value per share after the
offering) per share of approximately ^ $.17 (or ^ 121%).
The following table illustrates the per share dilution:
<TABLE>
<CAPTION>
PER SHARE OF
COMMON STOCK
<S> <C> <C>
Assumed public offering price ^ $0.14
net tangible book value at ^ September 30, ^ $(0.06)
1999
Increase in net tangible book value attributable
to new investors ^ $0.03
Net tangible book value after this offering $0.03
-----
Dilution of net tangible book value to new ^ $0.17
=====
investors
</TABLE>
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of ^ September 30,
1999 and as adjusted to reflect:
o ^ the conversion of such debentures into ^ 6,535,888 shares of common stock
o the receipt of $22,500 upon the exercise of warrants into ^ 127,840 shares
of common stock
^
This table should be reviewed in conjunction with our financial statements which
begin at the end of this prospectus on page F-1.
<TABLE>
<CAPTION>
^ SEPTEMBER 30, 1999
ACTUAL AS ADJUSTED
<S> <C> <C> <C> <C>
Long-term debt, less current maturities...................... $ ^ 615,695 $ ^ 395,205
Shareholders' equity:
Common stock, $.01 par value, ^ 23,248,011
issued and outstanding; ^ 29,911,739 issued
and outstanding, as adjusted......................... ^ 232,480 ^ 299,117
Additional paid-in-capital................................... ^ 4,881,294 5,057,647
Foreign currency translation adjustment...................... ^ 313,757 313,757
Deficit...................................................... (6,708,772)
-----------
^(6,708,772)
Total shareholders' equity.......................... ^(1,281,241) (1,038,251)
------------ -----------
Total capitalization....................... $ $
^(665,546) ^(643,046)
==================== ===================
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and notes thereto included at the end of this prospectus beginning on
page F-1. This discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include but are not limited to those discussed in "Risk Factors."
RESULTS OF OPERATIONS
^ THREE MONTHS ENDED ^ SEPTEMBER 30, 1999 COMPARED TO ^ THREE MONTHS ENDED
^ SEPTEMBER 30, 1998
SALES. Total sales ^ increased 20% to $288,411 for the ^ three months
ended ^ September 30, 1999, ^ as compared to $240,990 for the ^ three months
ended ^ September 30, 1998. This ^ increase in sales was attributable to ^ an
increase in orders from two of our major customers.
Gross Margins. GrOss margins, as a percentage of net sales, ^ decreased
17% during the three months ended September 30, 1999, as compared to 23% for the
three months ended September 30, 1998. this decrease was due to a change in the
mix of orders and related pricing from customers. as a result, we have undertook
and have been successful in negotiating an increase in prices from some of our
customers.
Financial and Interest Expense. Financial and Interest Expense ^
increased 5.8% to $21,904 for the three months ended September 30, 1999 as
compared to $20,694 for the three months ended September 30, 1998.
Administrative Expense. Administrative Expense increased 12.1% to ^
$43,838 for the ^ three months ended ^ September 30, 1999, as compared to ^
$39,090 for the ^ three months ended ^ September 30, 1998. this increase is
attributable in part to expenditures on seeking financing and legal expense
relating to ^ the current lawsuit with Endex.
Research and Development ^. Research and Development expenses decreased
^ 20% to ^ $17,104 for the ^ three months ended ^ September 30, 1999^ as
compared to ^ $21,936 for the ^ three months ended ^ September 30, 1999. this
decrease ^ is primarily due to our resources being redirected to manufacturing
and sales ^.
Selling Expenses. Selling expenses increased ^ 97% to ^ $33,963 for the
^ three months ended ^ September 30, 1999 as compared to ^ $17,194 for the ^
three months ended ^ September 30, 1998. this increase is ^ due to our increased
efforts to introduce and market our new product Morfoam. This has included an
increase in market activity in Canada and the United States.
FISCAL YEAR ENDED JUNE 30, ^ 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, ^ 1998
Sales. Total Sales Decreased ^ 4.5% TO $1,131,279 for fiscal year ended
1999 as compared to $1,185,091 for fiscal year ended 1998 ^. sales during fiscal
^ 1999, particularly sales of proprietary products, were significantly less than
we anticipateD. ^ Furthermore, while our products were widely accepted for use
in the manufacturing of our customer's products, acceptance in the marketplace
by end-users of our customers products was slow^.
16
<PAGE>
Sales by geographic area for fiscal years ended 1999 and 1998 ^ are as
follows:
<TABLE>
<CAPTION>
Geographic Area 1999 1998
- ---------- ---- ---- ----
<S> <C> <C>
^ United States $ 120,456 $ 33,277 ^
Ontario, Canada 908,750 1,104,222
^ Quebec, Canada 102,073 47,560
-------------------- -------------------
$^ 1,185,091
Sales by product line for fiscal years ended 1999 and 1998 ^ are as
follows:
Product Line 1999 1998
- ------- ---- ---- ----
^Specialty Compounding $ $ 1,135,971
(including Composite^)
Polymer Technology 50,307 18,681
Miscellaneous 34,510 30,439
-------------------- -------------------
^ $ ^ $ ^ 1,185,091
1,131,279
==================== ===================
</TABLE>
Gross Margins. Gross Margins, as a percentage of net sales, increased
to ^ 32% during fiscal year ended june 30, ^ 1999, as compared to 17% for the
fiscal year ended June ^ 30, 1998. this increase was due, in part, to a shift in
pricing arrangements with some of our customers. For example, a number of our
customers will purchase and provide us with the raw materials necessary to make
the compounds ordered. As such, the purchase of raw materials is not included in
invoiced sales, thus, costs of sales are reduced and gross margins have
increased. additionally, order volumes increased, improving efficiency in the
manufacturing process.
Financial and Interest Expense. Financial and interest expense
decreased ^ 39.4%, to $64,689, for the fiscal year ended ^ June 30, 1999 as
compared to $106,801 for the fiscal year ended June 30, 1998. decreases in our
average indebtedness outstanding was the primary contributing factor; however,
less favorable foreign currency exchange between the Canadian and U.S. dollars
diluted the effect of decreased average indebtedness.
Administrative Expense. Administrative expense increased 19.5% to ^
$175,352 for fiscal year ended June 30, 1998, as compared to ^ $146,789 for
fiscal year ended June 30, ^ 1998. this increase ^ is attributable to our
increased efforts to seek financing and legal expenses required to amend our
certificate of incorporation.
Research and Development ^. Research and development expenses ^
decreased 15.1% to $80,498 for the fiscal year ended June 30 ^, 1999 as compared
to ^ $94,874 for fiscal year ended June 30^ 1998. This decrease is primarily
attributable to our resourcers being diverted to the manufacturing and sales
effoprt required for our new product Morfoam.
Selling Expenses. Selling expenses increased ^ 26.4% to ^ $90,746 for
the fiscal year ended June 30 ^, 1999, as compared to ^ $71,790 for the fiscal
year ended June 30, ^ 1998. This increase is primarily attributed to the
marketing of our new product Morfoam and our endeavors to introduce the product
to the market.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
^ During the year ended June 30, 1999, our operating loss was funded
primarily by working capital provided by a Canadian tax refund, debt financing,
equity capital and subscribed capital. We have reduced a portion of past due
balances to vendors and creditors. however, the continued operating losses and
monthly debt service requirements continue to leave us in a position where we
are unable to meet our monthly cash flow requirements.
^
Our long term debt financing arrangements with ^ Innovation Ontario
Corporation and FBX Holdings are ^ currently in arrears. the aggregate amount of
principal payments currently in arrears and outstanding on this debt is ^
$418,796. Both of these creditors have verbally agreed to allow a moratorium on
principal repayments until we are in a financial position to make payment(s) or
alternate arrangements can be completed. We have entered into negotiations with
^ Innovation Ontario to eliminate all debt, plus accrued and unpaid interest,
which totals ^ $409,216 in exchange for shares of common stock, however,
negotiations are presently stagnant. We cannot assure you that we will be
successful in reaching an agreement with ^ Innovation Ontario Corporation;
however, ^ Innovation Ontario Corporation has indicated it's willingness to
negotiate an equitable settlement. ^ in ^ the event that either one of these
creditors elect to call due their respective debt, we may have to seek
protection under the bankruptcy laws.
In June 1998, we finalized a transfer of technology in exchange for
debt agreement with Dow Chemical Canada Inc. and The Dow Chemical Company (
collectively "Dow"). We transferred to Dow title and ownership in our existing
intellectual property rights (including all proprietary knowledge, patents and
patent applications) relating to halogen free, flame retardant thermoplastic
composition technology and smelt filler technology. Dow granted us a
non-exclusive, non transferable, royalty free world-wide license for use of the
technology, pursuant to which, Dow has access on, at least, a non-exclusive
basis to improvements we make in the technology. Dow, in turn, released Mortile
from its CND$767,499.68 debt obligations to Dow, plus CND$284,873.81 accrued and
unpaid interest owed on the debt. Dow also released us and Frank Mortimer, our
President, from guarantees made by both in connection to such debt. As a result
of the transfer of technology to Dow, we realized a net gain of $693,415, which
is reflected in our financial statements for fiscal year ended June 30, 1998.
In August 1999, we refinanced our note payable to cooper financial
corp. this obligation, is guaranteed by a shareholder of the Company. A
refinancing charge was assessed, increasing the principal owed to $95,999. At
September 30, 1999, we were current with the new loan provisions with a payable
balance of $91,280. We have been maintaining monthly payments of $3,150 with a
10% per annum interest charge calculated over a 35 month period.
We have submitted a tax claim for fiscal 1998 amounting to CDN.$35,000.
Additionally, a claim of CDN.$35,00 will be filed for fiscal 1999. During fiscal
1998, we received a Canadian research and development tax refund from fiscal
year ended 1996 in the amount of CDN.$19,680. We also submitted a claim for
fiscal 1997 amounting to approximately CDN.$34,000, for which we received a
refund of CDN.$26,000. This refund was recognized in the fiscal year ended June
30, 1998. We received an additional provincial refund of approximately
CDN.$8,000 during the first financial quarter of fiscal 1999 in connection with
our 1997 tax filing. Additionally, we will file a claim for fiscal 1998 of
approximately CDN.$35,000. Revenue Canada, the Canadian federal tax authority,
has notified us of its intent to audit all submitted claims.
18
<PAGE>
We do not consider these funds (assuming the refund claims listed above
are accepted) to be a long-term solution to our financial needs. We are making
efforts to find additional financing; however, our financial condition has
hindered us in our pursuit of acceptable financing arrangements. We will give
serious consideration to raising additional funds through private or public
equity issuances in the future if we deem that it is in our best interest and
that such financing is in the best interest of our stockholders.
In late July 1998, by amendment to our certificate of incorporation,
our capital structure was modified to increase the number of authorized common
shares from fifteen million to fifty million. ^
On January 11, 1999, we entered into an advisory agreement with Coleman
Capital Partners Ltd., whereby Coleman agreed to advise and assist us with,
among other things, raising capital, arranging road shows and other formal
presentations to the investing community and listing our common stock on NASDAQ
or a major stock exchange in the United States and Europe. For the services
Coleman will perform, Coleman will receive $5,000 per month, an aggregate of
550,000 shares of common stock, of which ^ all shares have been issued, plus a
cash fee of eight percent of the total gross proceeds raised in any capital
raising transaction for our benefit. The term of the advisory agreement is for
one year and it can be renewed or restructures with the written consent of both
parties. The advisory agreement can be terminated by either party at the
following intervals:
on day 91 following the date of the advisory agreement;
on day 121 following the date of the advisory agreement;
on day 151 following the date of the advisory agreement;
on day 181 following the date of the advisory agreement;
or on day 271 following the date of the advisory agreement.
On February 5, 1999, we completed a private offering of 8% convertible
debentures and common stock purchase warrants. pursuant to the offering, we sold
an aggregate of $225,000 of debentures and common stock purchase warrants. The
conversion price of the debentures will be equal to 75% of the market price. The
market price being defined as the average of the closing bid prices of the
common stock during the 10 trading days 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 warrants will allow the investor to acquire a number of shares
equal to the total investment divided by the closing price multiplied by 10%.
the aggregate gross proceeds from the offering was $225,000, of which we
received $191,520, after deducting the expenses of the offering. The net
proceeds of the offering was used for working capital purposes.
Accordingly, we have set aside the appropriate number of shares from
the authorized and unissued shares of common stock for issuance upon conversion
of the above-mentioned debentures and exercise of the above-mentioned warrants
in connection with such private offering. Further, we have issued 50,000 shares
of restricted common stock for legal services rendered and 50,000 shares of
restricted common stock for capital advisory services rendered in relation to
such private offering.
To date, we do not have any planned material capital expenditures in
the next twelve months.
OPERATING TRENDS AND UNCERTAINTY
Our ability to attain a profitable level of operations is dependent
upon expansion of sales volume, both domestically and internationally, and
continued development of new, advanced products. We believe
19
<PAGE>
that we will increase sales with the continued release of new products, market
expansion, and the addition of new customers.
As previously discussed, we have developed a number of component
products, used in the manufacture of end-use products, that are alternatives to
hazardous component materials, such as lead. We have developed such products in
anticipation of legislation, including environmental regulations, that will ban
the use of these hazardous materials. A number of our products are poised for
tremendous success should certain legislation be enacted. For example, there are
several projects within the realm of the metal technology that we are currently
assessing which could represent major sources of revenue. One such project is
the supply of a composition to be used in the production of a metal filled
laminated sheet. The laminated sheet is being considered in the manufacture of
visual display boards, which, by applying the metal technology would allow the
use of magnetized items on the surface of the display. Other potential uses for
this product are light weight x-ray blankets, self lubricating bearings and
bushings, components for the toy industry and any lead replacement industry.
Although some of our products are more costly than more hazardous
alternatives, some manufacturers of end-use products have elected to use our
materials in the manufacture of their products. For example, Lucent Technologies
Corp. has specified our flame retardant material for use in their fiber optic
products and we presently manufacture a product for a munitions manufacturer
that is used in lieu of lead. We believe that there are indications that there
has been a recent increase in public pressure to ban the use of certain
hazardous materials, particularly lead. However, in the absence of specific
legislation banning the use of such materials, the growth in sales of certain of
our products may be slow or certain of our products may never achieve market
acceptance.
Specialty (Contract) Compounding represented 98% of our revenues during
1998. We continue to submit bids and quotes on further contract work, and we
actively look for suitable applications for our compounding technologies. We
expect an increase in future sales of masterbatch powders and plastics. See the
section "Business-Specialty Compounding" for a discussion of masterbatch powders
and plastics.
We have worked very closely for over two years with a few major
customers, includinG ^ MLPC International, on the development of technology
relating to the compounding of masterbatch powders and plastics. Each of these
customers has appointed us as the compounder in connection with their
masterbatch compounding needs. We expect substantial orders over a long period
in connection with our efforts. We have entered into a three year contract with
^ MLPC for the supply of masterbatch compounds. We commenced manufacturing for ^
mlpc in early march 1998. should specialty compounding sales to ^ MLPC increase
substantially, we will need to expand our manufacturing facilities.
EFFECT OF THE DECLINING VALUE OF THE CANADIAN DOLLAR ON OUR BUSINESS
We do not anticipate that recent declines in the value of the Canadian
dollar, as compared to the U.S. dollar, will have a material adverse effect on
our business operations or financial results. Nearly all of our raw materials
and operating costs are realized in Canada, and nearly all of our sales are to
customers in Canada. Should we be required to purchase raw materials in the
United States or other foreign countries, we incorporate any price increase into
invoiced sales.
EFFECT OF THE YEAR 2000 ISSUE ON THE OUR OPERATIONS
Many existing computer programs use only a two digit suffix to identify
a year in the date field with
20
<PAGE>
an assumed prefix of "19". Consequently, this limits those systems to dates
between 1900 and 1999. If not corrected, many computer systems and applications
could fail or create erroneous results at or in connection with applications
after the year 2000.
We undertaken to review the potential impact of the Year 2000 issue to
our internal operations. Such assessment has included a review of the impact of
the issue in primarily four areas: products, manufacturing systems, business
systems and miscellaneous/other areas. Based on the results of our review, we do
not anticipate that the Year 2000 issue will impact operations or operating
results. We have determined that all of our systems are currently Year 2000
compliant.
We rely on our customers, suppliers, utility service providers,
financial institutions and other partners in order to continue normal business
operations. We have been advised by most, if not all, of our external vendors,
business associates and associated financial institutions that they are now Year
2000 compliant. However, at this time, it is impossible to assess the impact of
the Year 2000 issue on each of these organizations. There can be no guarantee
that the systems of other unrelated entities on which we will be corrected on a
timely basis and will not have a material adverse effect on us. Our task force
has identified the other organizations which are critical to our continued
operations.
21
<PAGE>
BUSINESS
INTRODUCTION
We were formed on June 14, 1985 in the state of New York. Our primary
purpose was to search for a business which, in the opinion of management,
demonstrated long-term growth potential that would warrant involvement.
Presently, our only operating subsidiary is Mortile Industries Ltd., a Canadian
corporation which we have a 70% interest. Our present operations, assets and
employees are primarily those of Mortile.
Through Mortile,we are engaged in the design, development ^, and
manufacturing of proprietary thermoplastic compounds (plastics mixed with other
solid materials) and composite compounds (compositions of plastics with other
powdered materials). We also develop specialty compounds that we produce by
mixing and pelletizing proprietary formulations specified by our customers. Our
applications for our products expand into every area of plastics. We focus on
niche markets and applications for which we can provide our customers
application-specific product solutions based on our polymer based materials
technology, engineering expertise and production technology. Our products and
technologies are sold to manufacturers and industrial aftermarket equipment and
maintenance providers in the industrial equipment, transportation, electronics,
munitions and process industries markets.
Our business is comprised of three distinct industrial units:
o Specialty compounding
o Polymer technologies
o Composite technology
SPECIALTY COMPOUNDING
Over 98% of our revenues for fiscal year end 1998, and the majority of
our efforts, to date, have been concentrated on specialty compounding. In this
business unit, our customers retain us to enhance and compound its proprietary
formulations into a pellet form. To complete the compounding process, a customer
would designate the mix components it requires. With the assistance of our
customer, we formulate the most effective and efficient method to mix the
components. Once a method for mixing is determined, we physically mix the
components. The end-product of mixed components is called a masterbatch, and in
certain cases, we convert the masterbatch into a pelletized form. Typical
masterbatches are: foaming agents, sulphur, zinc oxide, flame retardants, curing
agents, processing aids, antioxidant stabilizers and slip and anti block agents.
Customers who retain us for specialty compounding are, typically,
manufacturers of plastics and plastic products. Generally, it is not necessary
for manufacturers of these products to compound component materials into a
pelletized form prior to manufacturing end-products. However, an increase number
of manufacturers prefer this process because it provides for a more perfect
dispersion of component materials which are often in powder form. Specialty
compounding is particularly useful when manufacturing components are reactive.
Reactive components are used in the curing or cross-linking of rubber or
plastic. Additionally, because powder components are difficult to work with,
manufactures prefer to work with masterbatches as there are less environmental
risks when working with components in a pelletized form.
22
<PAGE>
During fiscal year 1998, we worked closely with three customers
developing compounding methodology for each customer's proprietary component
formulations. We provided compounding services for Shaw Industries Ltd. in
connection with Shaw's formulation for a variety of proprietary formulations for
industrial pipe wrap and coating. We provide compounding services for MLPC
International in connection with MLPC's formulation for various proprietary
rubber curing compounds, and for FinProject in connection with FinProject's
proprietary formulation for the footwear industry. For the six month period
ended December 31, 1998, we continued to provide compounding services for these
customers.
The following table lists amount of revenues in Canadian dollars
generated by each of these customers, and the revenues as a percentage of our
total revenues for the ^ three month period ended ^ September 30, 1999 and for
fiscal year ended June 30, ^ 1999:
<TABLE>
<CAPTION>
^ THREE MONTHS ENDED Fiscal Year Ended
CUSTOMER ^ SEPTEMBER 30, 1999 JUNE 30, ^ 1999
- -------- - --------- --- ---- ---- --- - ----
<S> <C> <C>
Shaw Industries ^ 52% 43%
MLPC International ^ 30% 22%
SNC Industrial ^ 0% 12%
Technologies
^
</TABLE>
COMPOSITE TECHNOLOGY
We are also engaged in sale of products that are developed and
manufactured using composite technology. The object of composite technology is
to mix plastic binders with fine granulated material, such as fine metal
powders. The end result is a material that is both strong and durable, yet has
flexible design options as 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.
Using composite technology, we have successfully produced metal/plastic
compounds that can be used in many applications as a replacement for lead. We
presently supply this product for use in munitions, fishing sinkers and lures,
and for bushings in copiers and fax machines. We also expect to market lead
replacement compounds in the automotive, construction and additional areas of
the firearms markets. ^
POLYMER TECHNOLOGIES
^
A polymer consists of chains of chemicals, called monomers, that
combine or polymerize (normally with help from a catalyst) to form large
molecular structures. Polymers are very versatile materials. They can be cast
into molds to create intricate structures, extruded through a spinneret to make
fibers, blended with liquids including water to make coatings, adhesives and
thickeners and generally bonded to other materials or each other with adhesives.
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, 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,
23
<PAGE>
collectively, are referred to as plastics.
Thermoplastics are the most common synthetic polymers. They are
relatively inexpensive, light and durable, but not particularly strong.
Thermoplastics can be melted at relatively low temperatures and recrystallized,
thus making them recyclable. They are used in structural applications where
exposure to high stresses and heat are concerns. Common thermoplastics include
polyethylene, polypropylene, polystyrene, polyvinyl chloride and most polyester.
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 polyurethanes, unsaturated polyester, melamine and phenolics. Thermosets,
however, cannot be remelted or recycled.
In light of growing environmental pollution concerns, we expect that
the plastics industry will be forced by legislation to develop and manufacture
plastics that are recyclable. The plastics industry has undertaken extensive
research to develop cost-effective thermoplastic products which are both durable
and flame retardant; particularly for applications in the wire cable and
construction industries.
Flame resistant polymer compositions have been available for many
years. However, such compositions relied on the presence of halogens to yield
flame retardancy. Halogens are gases which, on combustion, emit toxins,
including cyanide, bromide, sulphur and phosphoric gas. Concerns by
environmentalists world-wide have resulted in increased pressure on
manufacturers of polymer-based products to eliminate plastics with such
potential dangers.
We develop, manufacture and sell a flame retardant, non-toxic,
thermoplastic compound that is corrosion resistant, minimizes the hazards of
fire and can be easily processed into end-use products. We have conducted
extensive research and testing with regard to the use of this product in the
construction and transportation industries, because of their greater ease of use
in fabrication and their ability to be recycled, and trimmed into scrap. In
addition, we have researched and tested this compound and for use in
applications such as wire cable, fiber optics, injection and rotational molding,
and petrochemical containment.
Our performance test results have concluded that our thermoplastic
products, when burned, emit none of the aforementioned toxins. Additionally, our
products possess anticombustion, low toxicity and anticorrosive attributes
considered to be superior to other products presently available. Although the
sale of our thermoplastic products has not represented a significant portion of
our revenues to date, we believe that these products have significant market
potential.
In June 1998, we entered into an agreement with Dow Chemical Canada and
Dow Chemical to transfer the rights to the technology we developed with regard
to the production of flame retardant thermoplastics and smelt fillers in
exchange for satisfaction of a debt we owed to Dow. However, pursuant to this
agreement, we continue to enhance, manufacture and market this technology,
royalty free. See the section "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page __, and the section
"Certain Transactions" for a discuss relating to our agreement with Dow.
MORFOAM. During the fourth quarter of fiscal 1998, we commenced supplying
samples of our new
24
<PAGE>
product MORFOAM. MORFOAM is a chemical foaming agent, pigment extender and a
nucleating agent which reacts with process temperatures to produce a fine cell
structure in extrusion molded parts. This product technology combines chemical
foaming and a nucleating agent in to one easy to use masterbatch concentrate
which is encapsulated in an olefin binder, presented in pellet form to be easily
blended or metered in to various polymers. MORFOAM's fine particle size acts as
a nucleating agent to form fine cell structures in polymers. The product
improves cell structure and reduces voids when nitrogen is used as the primary
foaming agent. This provides for improved surface finishes, physical properties,
and sink mark elimination, lower part weight and shorter cycle times.
The product was developed for use in the following applications:
o Injection Molding
o Structural Foam Molding
o Blow Molding
o Extrusion (film, sheet, profiles)
RESEARCH AND DEVELOPMENT
Since inception, we have expended $3,005,100 in the development of our
products. During fiscal year ended June 30, 1999, we expended $94,874 on
research and development. Our research and development efforts have led to the
development and manufacture of our composite and polymer related products, and
the development of our specialty compounding technologies. We maintain
continuous dialogue with our customers and technology partners to ensure that
our products and technologies incorporate features that are essential for our
customers' rapidly evolving requirements.
LICENSES
In June 1998, The Dow Chemical Company has granted us a non-exclusive,
non transferable, royalty free world-wide license for use of technology,
pursuant to which, Dow has access on, at least, a non-exclusive basis to
improvements we make relating to halogen free, flame retardant thermoplastic
composition technology and smelt filler technology for an indefinite period.
This license was granted to us in connection with our agreement to transfer this
technology to Dow in exchange for being release from certain debts owed by us to
Dow. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page __ .
EMPLOYEES
As of ^ September 30, 1999, we employed thirteen full time employees of
which seven were engaged in manufacturing and quality control, three in general
administration and executive activities and two in engineering and research and
development. We are not a party to any collective bargaining agreement and
consider our relationships with our employees to be good.
ENVIRONMENTAL CONSIDERATION
Technical ^ Ventuires has not incurred any significant environmental
compliance cost, and
25
<PAGE>
compliance with environmental regulation has not had a material effect in our
operation of financial condition. Our primary waste products are non-toxic and
non-corrosive and are disposed of by a private sanitation company in accordance
with all appropriate regulations.
COMPETITION IN OUR INDUSTRY
We compete with some of the world's largest chemical companies, such as
Exxon Corp., E.I. DuPont De Nemours & Co., Union Carbide Corp., and Raychem
Corp. Our competitors are substantially larger than us in terms of financial,
marketing, and research and development resources.
26
<PAGE>
OUR COMPETITIVE ADVANTAGES
POLYMER TECHNOLOGY. Dow Chemical and Lucent Technologies, have licensed
our technology after subjecting our product to a five year rating program, has
assigned our product the highest quality rating based on their internal rating
procedures. The application of our polymer technology in wallboard is still the
only plastic in its field to pass certain fire codes for high rise buildings.
COMPOSITE TECHNOLOGY. We have achieved the highest filler levels to
obtain maximum specific gravity and have no competition. Our composite for
bushings for copiers and fax machines is extremely difficult, if not impossible,
to reverse engineer.
SPECIALTY COMPOUNDING. We believe we have three distinct advantages,
equipment, personnel and size. Our equipment was selected to allow for superior
dispersion in connection with proprietary polymer technology and composite
technology. The Our personnel and our associations with consulting scientists
and chemist enables us to work closely and co-operatively with our customers to
meet their needs. Our size allows us to direct immediate attention to existing
and potential customers in a cost effective and timely manner. We direct our
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 and
excellent dispersion of powders into the resins and nitrogen blankets for
cooling in high humidity.
PROPERTY
We lease our headquarters, an 8,500 square foot office space and
production facility, located at 3411 McNicoll Avenue, Scarborough, Ontario,
Canada. In July 1997, we leased an additional 8,800 square feet OF ^ SPACE for
storage of raw materials. We pay monthly rent of CDN.$6,397, exclusive of real
estate tax escalations. The lease on the 8,500 square foot facility expires on
March 31, 1999, and the lease on the additional 8,800 square foot facility
expires on June 30, 1999.
LEGAL PROCEEDINGS
A legal action has been commenced against Technical Ventures, 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
(Commercial List); by a former customer, Endex Polymer Additives Inc., Endex
Polymer Additives Inc. (USA), Endex International Limited and G. Mooney And
Associates.
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.
^ On September 16-17, 1999, at the hearing of interlocutory injuntion
motion, the parties agreed, on consent, to adjourn the motion until trial. the
parties agreed to expedite the matter to trial with a trial date of about
December 1999.
Based on prior written legal opinion from its patent attorneys that the
allegations are without merit, Technical Ventures has retained a law firm
specializing in Intellectual Property Law and is vigorously defending the
action.
27
<PAGE>
ADDRESS
Our principal executive offices are located at 3411 McNicoll Avenue,
Unit 11, Scarborough, Ontario, Canada M1V 2V6.
28
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding our
executive officers and directors. There are no family relationships among our
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Frank Mortimer 60 President and Director
Bryan Carter 78 Vice President and Director
Larry Leverton 60 Secretary, Treasurer and Director
</TABLE>
FRANK MORTIMER has been President and a Director since April 1986. He
is also President of Fam Tile Restoration Services Ltd., a company specializing
in the restoration of acoustical ceilings. FAM is one of Mortile's wholly owned
subsidiaries and is presently inactive. From 1967 to 1982, Mr. Mortimer managed
several export companies in South Africa. Mr. Mortimer is an associate member of
the Institute of Materials Handling (London UK).
BRYAN CARTER has been a Director 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 businesses. 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 molding 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 molding industry in North America and in 1982 served as
the International President of Rotational Moulders.
LARRY LEVERTON has been Secretary and Treasurer since April 1986. Since
1983, he has been President of L.R. Leverton Enterprises Inc., a transportation
consulting firm which is currently inactive. In 1982, he was Vice-President of
Newman Harbour Terminals and Transportation.
Directors serve until the next annual meeting of stockholders or until
their successors are elected and qualified. Officers serve at the discretion of
the board of directors. Directors do not currently receive fees for their
services as directors, but are reimbursed for travel expenses.
29
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth summary information with respect to the
compensation paid Frank Mortimer, our President, for services rendered in all
capacities to us for the fiscal years ended June 30, 1998, 1997 and 1996. Other
than as listed below, we had no executive officers whose total annual salary and
bonus exceeded $100,000 for that fiscal year:
<TABLE>
<CAPTION>
Long Term
Name and Compensation
Principal Other Annual All Other Awards/
Position Year Salary Compensation Bonus Compensation Option
<S> <C> <C> <C> <C> <C> <C>
Frank Mortimer, 1998 $63,450 - - - -
President 1997 $66,000 - - - -
1996 $66,000 - - - -
</TABLE>
EMPLOYMENT ARRANGEMENTS
Presently, none of our officers or directors are employed pursuant to
an employment agreement.
30
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the
beneficial ownership of our outstanding common stock known by us as of ^
September 30, 1999 after giving effect to:
o the sale of 50,000 shares of common stock upon exercise of options which are
outstanding
o the sale of 50,000 shares of common stock upon the conversion of debt which is
outstanding
o the sale of the our common stock offered.
Also, the following table sets forth the information with respect to:
o each person or entity known by us to be the beneficial owner of more than 5%
of our common stock
o each of our directors who owns any shares of our common stock
o each of our named executive officers set forth in the Executive Compensation
table above who beneficially owns any shares of our common stock
o all of our directors and named executive officers as a group.
Except as otherwise indicated, the persons listed below have sole voting and
investment power with respect to all shares of our common stock owned by them,
except to the extent such power may be shared with a spouse.
<TABLE>
<CAPTION>
Approximate
Number of Shares Percentage of
Name Beneficially Owned Common Stock
- ---- ------------------ ------------
<S> <C> <C> <C>
Frank Mortimer (1) ^ 2,199,773 7.2%
Larry Leverton (2) 591,448 ^ 1.9%
Bryan Carter 165,000 ^ 0.5%
All Officers and
Directors as a group ^ 2,956,221 ^ 9.6%
(3)
</TABLE>
- ------------------
Except as noted above, the address for the above identified officers
and directors is care of Technical Ventures Inc., 3411 McNicoll Avenue, Unit 11,
Scarborough, Ontario, Canada M1V 2V6.
(1) Includes 453,020 shares owned by Mr. Mortimer's wife and 200,000 shares
owned by Mr. Mortimer's son.
(2) All shares are owned in the name of L.R. Leverton Enterprises Inc., a
corporation owned and controlled by Larry Leverton.
(3) Presently, none of our officers or directors own options, warrants or
other securities which are convertible into the common stock, nor do we
have a plan for the issuance of options or securities to purchase
shares of our common stock.
31
<PAGE>
^ RELATED TRANSACTIONS
In June 1998, we finalized a transfer of technology in exchange for
debt agreement with Dow Chemical Canada Inc. and The Dow Chemical Company. We
transferred to Dow title and ownership in our existing intellectual property
rights (including all proprietary knowledge, patents and patent applications)
relating to halogen free, flame retardant thermoplastic composition technology
and smelt filler technology. Dow granted us a non-exclusive, non transferable,
royalty free world-wide license for use of the technology, pursuant to which,
Dow has access on, at least, a non-exclusive basis to improvements we make in
the technology. Dow, in turn, released Mortile from its CND$767,499.68 debt
obligations to Dow, plus CND$284,873.81 accrued and unpaid interest owed on the
debt. Dow also released us and Frank Mortimer, our President, from guarantees
made by both in connection with this debt.
This transaction was not made on terms less favorable to Technical
Ventures than those from third parties.
DESCRIPTION OF OUR SECURITIES
The following description of our securities and selected provisions of
our certificate of incorporation and bylaws is a summary and is qualified in its
entirety by reference to such documents and New York Law.
COMMON STOCK
Our authorized capital stock consists of 50,000,000 shares of common
stock, $.01 par value per share. As of the date of this prospectus, ^ 23,248,011
shares of our common stock are issued and outstanding. Holders of our common
stock will have the right to cast one vote for each share held of record on all
matters submitted to a vote of our stockholders, including the election of
directors. There is no right to cumulate votes for the election of directors.
Stockholders holding a majority of the voting power of the capital stock issued
and outstanding and entitled to vote, represented in person or by proxy, are
necessary to constitute a quorum at any meeting of our stockholders, and the
vote by the holders of a majority of such outstanding shares is required to
effect certain fundamental corporate changes such as liquidation, merger or
amendment of our Certificate of Incorporation.
Holders of our common stock are entitled to receive dividends pro rata
based on the number of shares held, when, as and if declared by our board of
directors, from funds legally available therefor. In the event of the
liquidation, dissolution or winding up of our affairs, all of our assets and
funds remaining after the payment of all debts and other liabilities, shall be
distributed, pro rata, among holders of our common stock. Holders of our common
stock are not entitled to preemptive or subscription or conversion rights, and
there are no redemption or sinking fund provisions applicable to our common
stock. All outstanding shares of our common stock are, and the shares of our
common stock offered hereby will be when issued, fully paid and non-assessable.
WARRANTS
On January 27, 1999, we issued warrants representing the right to
purchase shares of our common Stock. There will be ^ 127,840 shares of common
stock underlying the warrants at an exercise price of $.176 per share. The
expiration date of the warrants is January 31, 2002. All of the shares of common
stock underlying the warrants are being registered pursuant to the registration
statement filed in connection with
32
<PAGE>
this prospectus.
The exercise prices of the warrants were determined by negotiation and
should not be construed to imply that any price increases in our securities will
occur. We have reserved from its authorized but unissued shares a sufficient
number of shares of our common stock for issuance upon the exercise of the
warrants. Upon notice to the warrant holders, we have the right to reduce the
exercise price or extend the expiration date of the warrants.
The warrants do not confer upon the warrant holder any voting or other
rights of a stockholder of our company. The warrants provide for customary
anti-dilution provisions in the event of certain events which may include
mergers, consolidations, reorganizations, recapitalizations, stock dividends,
stock splits and other changes in our capital structure.
The foregoing is a summary of the terms generally applicable to the
warrants as of the date of this prospectus. The terms of the individual warrants
may vary according to negotiation between us and the various warrant holders.
OPTIONS
Presently, there are options outstanding to purchase 50,000 shares of
our common stock at an exercise price of $.50 per share. All of such options are
presently exercisable and there is no termination date on the options.
DEBENTURES
On January 27, 1999, we issued an aggregate of $225,000 principal
amount in 8% convertible debentures. Interest on the debentures is payable
quarterly and the principal on the debentures is due on January 31, 2002. From
and after the time that such principal amount on the debentures shall have
become due and payable (whether at maturity or by acceleration), interest shall
be payable, to the extent permitted by law, at the rate equal to the lesser of
(i) eighteen percent (18%) per annum or (ii) the maximum rate permitted by law,
on the entire unpaid principal amount of this debenture.
Unpaid principal plus all accrued and unpaid interest and penalties on
the debentures is convertible at a conversion price that is the lesser of $.176
per share or 75% of the average closing bid price of our common stock on the 10
days prior to when a debenture is presented for conversion.^ In the event the
registration statement (for which this prospectus forms a part) covering the
shares of common issuable upon conversion of the debentures is not declared
effective by June 8, 1999, we shall pay to the holders of the debentures a
penalty of one-fifteenth of one percent of the principal amount of the notes for
each day beyond such date until such registration statement is declared
effective.
CONVERTIBLE PROMISSORY NOTES
We have 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 our common
stock.
33
<PAGE>
TRADING INFORMATION
Our common stock is publicly traded on the Over-the-Counter Bulletin
Board, a regulated quotation service that captures and displays real-time quotes
and/or indications of interest in securities not listed on the NASDAQ stock
market or any U.S. exchange. As of December ^ 28, 1999, the closing price for
our common stock was ^ $0.12 and the 52 week high and low prices were ^ $.52 and
$0.08, respectively. Information as to trading volumes, and bid and asked
prices, for our common stock may be obtained directly from the Over-the-Counter
Electronic Bulletin Board.
The following table sets forth the high and low bid (price which a
market maker is willing to pay for our common stock) quotations for our common
stock, as reported to us by the Over-the-Counter Bulletin Board. These
quotations are between dealers, do not include retail mark-ups, markdowns or
other fees and commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
QUARTER LOW HIGH
BID BID
<S> <C> <C> <C> <C>
September 30, 1996................................. $0.125 $0.070
December 31, 1996.................................. $0.045 $0.070
March 31, 1997..................................... $0.060 $0.070
June 30, 1997...................................... $0.165 $0.210
September 30, 1997................................. $0.200 $0.230
December 31, 1997.................................. $0.250 $0.280
March 31, 1998..................................... $0.150 $0.190
June 30, 1998...................................... $0.300 $0.380
September 30, 1998................................. ^ $0.493
$0.110
December 31, 1998.................................. ^ $0.342
$0.080
March 31, 1999..................................... ^ $0.300
$0.150
June 30, 1999...................................... $0.105 $0.330
September 30, 1999................................. $0.125 $0.330
</TABLE>
As of ^ June 30, 1999, there were ^ 1000 holders of our common
Stock.
SHARES ELIGIBLE FOR FUTURE SALE
If we sell all ^ 7,263,731 shares offered under this prospectus, ^
29,911,739 shares of our common stock will be outstanding, all of which will be
freely tradable without restriction or further registration under the Securities
Act, unless purchased or held by our "affiliates," as defined in Rule 144 of the
Securities Act ("Rule 144").
34
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the holders of our common stock who are
offering their shares of common stock pursuant to this prospectus, and the
number of shares of common stock being offered by each person:
<TABLE>
<CAPTION>
Shares Owned Prior to Shares Owned
the offering after the offering
Number of
SELLING STOCKHOLDERS Shares
Offered Number Percent Number Percent
<S> <C> <C> <C> <C> <C>
Gene Howland......................... ^ 5,664,437(1) 18.6% --- ---%
5,664,437(1)
William Hoops........................ ^ 871,451(2) 871,451(2) 2.9% --- ---
Coleman Capital Partners
LTD.................................. 550,000(3) 550,000(3) 1.9% --- ^---
Sichenzia, Ross &
Friedman LLP......................... ^ 50,000(4) ^ 50,000(4) * --- ---
</TABLE>
* Indicates less than one percent of the total outstanding common stock.
- -----------------------
(1) On January 27, 1999, Gene Howland purchased an 8% convertible debenture
which is convertible into an estimated ^ 5,664,437 shares of common stock.
Additionally, Mr. Howland was issued warrants to purchase 110,795 shares of
common stock at an exercise price of $.176 per share.
(2) On January 27, 1999, William Hoops purchased an 8% convertible debenture
which is convertible into an estimated ^ 871,451 shares of common stock.
Additionally, Mr. Hoops was issued warrants to purchase 17,045 shares of common
stock at an exercise price of $.176 per share.
(3) Represents ^ 550,000 shares of common stock issued to Coleman Capital
Partners LTD., ^ pursuant to its advisory agreement with us, dated January 11,
1999, in consideration for consulting services rendered.
^(4) Represents shares of common stock issued to Sichenzia, Ross & Friedman LLP,
our counsel in the United States, in consideration for legal services rendered
on our behalf.
35
<PAGE>
PLAN OF DISTRIBUTION
Each stockholder selling securities pursuant to this offering is free
to offer and sell his or her shares of common stock at such times, in such
manner and at such prices as he or she shall determine. Such common shares may
be offered by selling stockholders in one or more types of transactions, which
may or may not involve brokers, dealers or cash transactions. The selling
stockholders may also use Rule 144 under the Securities Act, to sell such
securities, if they meet the criteria and conform to the requirements of such
Rule.
There is no underwriter or coordinating broker acting in connection
with the proposed sale of common stock by the selling stockholders. The selling
stockholders have advised us that sales of common stock may be effected from
time to time in by the following events:
o transactions in the Over-the-Counter Bulletin Board, including block
transactions
o negotiated transactions o through the writing of options on the common
stock
o a combination of such methods of sale at fixed prices which may be
changed, at market prices prevailing at the time of sale, or at
negotiated prices
The selling stockholders may effect such transactions by selling
common stock directly to purchasers or to or through broker/dealers which may
act as agents or principals. Such broker/dealers may receive compensation in the
form of discounts, concessions, or commissions from the selling stockholders .
The selling stockholders and any broker/dealers that act in connection
with the sale of the common stock might be deemed to be "underwriters" within
them meaning of Section 2(11) of the Securities Act, and any commissions
received by them and any profit on the resale of the common stock as principal
might be deemed to be underwriting discounts and commissions under the
Securities Act. The selling stockholders may agree to indemnify any agent,
dealer or broker/dealer that participates in transactions involving sales of the
shares against certain liabilities, including liabilities arising under the
Securities Act. Because selling stockholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities, they will be subject to
prospectus delivery requirements under the Securities Act.
Furthermore, in the event of a distribution of his or her common
stock, any selling stockholder, any selling broker/dealer and any affiliated
purchasers may be subject to Regulation M which prohibits any "stabilizing bid"
or "stabilizing purchase" for the purpose of pegging, fixing or stabilizing the
price of the common stock in connection with the offering.
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed
upon for us by our counsel, Sichenzia, Ross & Friedman LLP, 135 West 50th
Street, 20th Floor, New York, New York, 10020. Sichenzia, Ross & Friedman LLP
owns 50,000 shares of common stock of Technical Ventures, Inc.
EXPERTS
Our financial statements for each of the ^ three fiscal years in the
period ended June 30, 1999, 1998 and 1997, appearing in this prospectus have
been audited by Schwartz Levitsky Feldman, Chartered Accountants, to the extent
and for the periods set forth in their reports appearing elsewhere herein and in
the Registration Statement and are included in reliance upon such reports given
upon the authority of said firm
36
<PAGE>
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement with the SEC on Form SB-2 relating
to the shares offered in this prospectus. This prospectus does not contain all
of the information included in the registration statement. For further
information about us and the shares we are offering in this prospectus, refer to
the registration statement and its exhibits. The statements we make in this
prospectus regarding the content of any contract or other document are
necessarily not complete, and you may examine the copy of the contract or other
document that we filed as an exhibit to the registration statement. All our
statements about those contracts or other documents are qualified in their
entirety by referring you to the exhibits to the registration statement.
You should rely only on the information contained in this document or
that we have referred you to. We have not authorized anyone to provide you with
information that is different. The information contained in this document is
current as of the date this document was filed with the SEC. If any material
changes occur after such date, then we will notify you of the changes by an
amendment to this document. We are not offering to sell you securities if you
live in a jurisdiction where such an offer would be unlawful.
After the effective date of this offering, we intend to furnish to our
stockholders annual reports containing audited financial statements and interim
reports. We currently file annual, quarterly and special reports, proxy
statements and other information with the SEC. Such reports, proxy statements
and other information can be inspected and copied at the public reference
facility of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained by
mail from the Public Reference Section of the SEC at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Our common
stock is traded in the over-the-counter market and is quoted on the
Over-the-Counter Bulletin Board and such reports, proxy statements and other
information concerning us may be inspected and copied at the offices of the
National Association of Securities Dealers, Inc., 9801 Washingtonian Boulevard,
Gaithersburg, Maryland 20878. In addition, we are required to file electronic
versions of these documents with the SEC through the SEC's Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system. The SEC maintains a World
Wide Web site at http://www.sec.gov that contains reports, proxy statements and
other information regarding registrants that file electronically with the SEC.
37
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
6,893,141 SHARES
OF COMMON STOCK
TECHNICAL VENTURES INC.
---------------
PROSPECTUS
---------------
Until _______, 1999 (25 days after
the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether
or not participating in this distribution, may be __________, 1999
required to deliver a Prospectus. This is in
addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Seventh of our certificate of incorporation provide that
Technical Ventures may indemnify directors and officers of Technical Ventures to
the fullest extent permitted by Section 721 through 726 of the Business
Corporation Law of New York.
See Number 4. of Item 28 below for information regarding the position
of the Securities and Exchange Commission with respect to the effect of any
indemnification for liabilities arising under the Securities Act of 1933, as
amended.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the securities offered hereby.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee............................................................... $373.35
NASD registration fee.............................................................. 0.00
Printing and engraving............................................................. $5,000.00
Accountants' fees and expenses..................................................... $5,000.00
Legal fees......................................................................... $10,000.00
Transfer agent's fees and expenses................................................. 0.00
Blue Sky fees and expenses......................................................... 0.00
Miscellaneous...................................................................... $9,626.65
Total..................................................................... $30,000.00
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In the past three years the Registrant has issued securities to a
limited number of persons as described below. Except as indicated, there were no
underwriters involved in the transactions and there were no underwriting
discounts or commissions paid in connection therewith.
In ^ January 1999, the Registrant sold to two investors, Gene Howland
and William Hoops, an aggregate of $225,000 principal amount of 8% convertible
debentures ^, and common stock purchase warrants to purchase 127,840 shares of
common stock. This sale of securities was exempt from registration pursuant to
Rule 506 under Section 4(2) of the Act.
In February 1999, the Registrant issued to Coleman Capital Partners
Ltd. 50,000 shares of common stock in consideration for consulting services
rendered pursuant to an advisory agreement between the Registrant and Coleman,
dated January 11, 1999. The transaction was exempt from registration under
Section 4(2) of the Act.
<PAGE>
In July 1998, the Registrant issued to Sichenzia, Ross & Friedman LLP
("SRF"), United States legal counsel to the Registrant, in consideration of
certain legal services performed by SRF for the benefit of the Registrant. The
issuance of securities was exempt from registration pursuant to Section 4(2) of
the Act. The Registrant has valued these 50,000 shares of stock at $10,000.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
3.1 Certificate of Incorporation, as amended to date**
3.2 By-Laws**
4.1 Form of Common Stock Certificate**
4.2 Form of 8%Convertible Debenture issued to Messrs. Howland and Hoops*
4.3 Form of Warrant issued to Messrs. Howland and Hoops**
5.1 Opinion of Sichenzia, Ross & Friedman, LLP**
10.1 Lease of premises located at 3411 McNicoll Ave, Unit 11, Scarborough, Ontario,
Canada**
10.2 Advisory Agreement, dated January 11, 1999, between the
Registrant and Coleman Capital Partners Ltd.**
21.1 Subsidiaries of the Registrant*
24.1 Consent of Schwartz Levitsky Feldman, Chartered Accountants, the Registrant's
Independent Auditors
24.2 Consent of Sichenzia, Ross & Friedman, LLP (Included in Exhibit
5.1).
25.1 Powers of Attorney (see Page II-5)
27.1 Financial Data Schedule*
</TABLE>
- --------------------------
* Previously filed.
** To be filed by amendment.
ITEM 28. UNDERTAKINGS
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
a. To include any prospectus required by Section 10(a)(3) of the Securities
Act;
b. To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
c. To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
2. For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
<PAGE>
3. To remove from the registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
4. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons of the
registrant, pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
5. For determining any liability under the Securities Act, to treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the issuer under Rule 424(b)(1), or (4) or 497(h) under the
Securities Act as part of this registration statement as of the time the
Commission declared it effective.
6. For determining any liability under the Securities Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe it meets all the
requirements of filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
PROVINCE OF ONTARIO, CANADA, ^ DECEMBER 30, 1999.
TECHNICAL VENTURES INC.
By: /s/ Larry Leverton
-------------------------------------------------
Larry Leverton, Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Larry Leverton his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits and schedules thereto, and
all other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully ratifying and confirming all that said attorney-in-fact and
agent or their substitutes or substitute may lawfully do or cause to be done by
virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on ^ December 30, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/S/ FRANK MORTIMER
Frank Mortimer President (Principal
Executive Officer) and
Director
/S/ LARRY LEVERTON Secretary and Treasurer
Larry Leverton (Principal Financial and
Accounting Officer) and
Director
^/S/ BRYAN CARTER
BRYAN CARTER Vice President and
Director
</TABLE>
<PAGE>
TECHNICAL VENTURES INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
REVISED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
TOGETHER WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
TECHNICAL VENTURES INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
REVISED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
TOGETHER WITH REPORT OF INDEPENDENT AUDITORS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors F - 2
Revised Consolidated Balance Sheets at June 30, 1999 and 1998 F - 3
and at September 30, 1999 and 1998
Revised Consolidated Statements of Operation for the years ended June 30, 1999,
1998 and 1997 and for the three-month periods ended September 30, 1999
and 1998 F - 4
Revised Consolidated Statements of Changes in Stockholders' Equity (Deficiency)
for the years ended June 30, 1999, 1998 and 1997 and for the three-month
periods ended September 30, 1999 and 1998 F - 5- F - 6
Revised Consolidated Statements of Cash Flows for the years ended June 30, 1999,
1998 and 1997 and for the three-month periods ended September 30, 1999
and 1998 F - 7 - F - 8
Notes to Revised Consolidated financial statements F - 9 - F - 35
</TABLE>
F - 1
<PAGE>
SCHWARTZ LEVITSKY FELDMAN LLP
CHARTERED ACCOUNTANTS
TORONTO, MONTREAL, OTTAWA
1167 Caledonia Road
Toronto, Ontario M6A 2X1
Tel: 416 785 5353
Fax: 416 785 5663
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Technical Ventures, Inc.
We have audited the accompanying revised consolidated balance sheets of
Technical Venture Inc. (incorporated in New York State) as of June 30,
1999 and 1998 and the related revised consolidated statements of income,
cash flows and changes in stockholders' equity (deficiency) for each of
the years ended June 30, 1999, 1998 and 1997. These revised consolidated
financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these revised 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 required 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,
revised as described in note 1, present fairly, in all material respects,
the financial position of Technical Ventures, Inc. as of June 30, 1999
and 1998 and the results of its operations and its cash flows for each of
the years ended June 30, 1999, 1998 and 1997 in conformity with generally
accepted accounting principles in the United States of America.
The company has sustained significant operating losses since its
inception as indicated in Note 2. There is substantial doubt as to the
company's ability to continue as a going concern if additional financing
is not obtained. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Toronto, Ontario
October 12, 1999, Chartered Accountants
except for note 1 as to
which the date is October 26, 1999
F - 2
<PAGE>
TECHNICAL VENTURES INC.
REVISED CONSOLIDATED BALANCE SHEETS (NOTE 1)
AS OF JUNE 30 AND SEPTEMBER 30
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
September 30, September 30, June 30, June 30,
1999 1998 1999 1998
$ $ $ $
(Unaudited) (Unaudited)
ASSETS
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash - 10,368 13,883 17,605
Accounts receivable (note 4) 146,590 65,680 124,435 118,140
Inventory (note 5) 40,982 37,510 45,143 34,663
------- ------- ------- -------
187,572 113,558 183,461 170,409
DEPOSITS 19,954 11,606 29,415 26,931
ADVANCES TO STOCKHOLDERS (note 6) 62,319 36,407 62,392 35,904
PROPERTY AND EQUIPMENT (note 7) 147,148 162,496 155,437 177,231
INTANGIBLE ASSETS (note 8) 563 847 646 965
------- ------- ------- -------
417,556 324,914 431,351 411,440
======= ======= ======= =======
</TABLE>
APPROVED ON BEHALF OF THE BOARD
Director
Director
<PAGE>
TECHNICAL VENTURES INC.
REVISED CONSOLIDATED BALANCE SHEETS (NOTE 1)
AS OF JUNE 30 AND SEPTEMBER 30
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
September 30, September 30, June 30, June 30,
1999 1998 1999 1998
$ $ $ $
(Unaudited) (Unaudited)
LIABILITIES
CURRENT LIABILITIES
<S> <C> <C> <C> <C>
Bank overdraft 5,527 - - -
Accounts payable and accrued expenses
(note 9) 384,003 286,275 283,965 384,889
Current portion of notes payable (note 10) 370,773 440,597 371,278 496,834
Capital lease obligations (note 11) 77,052 77,052 77,046 77,594
Loans from private lenders (note 12) 61,824 101,339 61,859 138,458
Current portion of loans from shareholders,
unsecured, interest free
(note 13) 183,923 172,745 170,793 179,863
------- ------- ------- -------
1,083,102 1,078,008 964,941 1,277,637
------- ------- ------- -------
LONG-TERM DEBT, net of current portion
Convertible debentures (note 16 (h)) 220,490 - 220,490 -
Notes payable (note 10) 61,256 - 64,049 -
Shareholders (note 13) 307,232 299,304 305,442 330,022
Other (note 14) 26,717 47,692 26,795 52,891
------- ------- ------- -------
615,695 346,996 616,776 382,913
------- ------- ------- -------
MINORITY INTEREST (note 15) - - - -
------- ------- ------- -------
STOCKHOLDERS' DEFICIENCY
CAPITAL STOCK (note 16) 232,480 197,980 221,980 147,113
ADDITIONAL PAID IN CAPITAL (note 16) 4,881,294 4,485,140 4,702,463 4,056,744
ACCUMULATED OTHER COMPREHENSIVE
INCOME (note 17) 313,757 347,256 313,319 306,571
DEFICIT (6,708,772) (6,130,466) (6,388,128) (5,759,538)
------- ------- ------- -------
(1,281,241) (1,100,090) (1,150,366) (1,249,110)
------- ------- ------- -------
417,556 324,914 431,351 411,440
======= ======= ======= =======
</TABLE>
See notes to revised consolidated financial statements.
F - 3
<PAGE>
TECHNICAL VENTURES INC.
REVISED CONSOLIDATED STATEMENT OF OPERATIONS (NOTE 1)
FOR THE YEARS ENDED JUNE 30 AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Three months ended Year ended
SEPTEMBER 30 JUNE 30
--------------------------- ----------------------------------------------------
1999 1998 1999 1998 1997
$ $ $ $ $
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES 288,411 240,990 1,131,279 1,185,091 1,414,062
COST OF SALES 237,554 186,389 763,922 984,899 1,229,902
-------- -------- --------- --------- ---------
GROSS MARGIN 50,857 54,601 367,358 200,192 184,160
-------- -------- --------- --------- ---------
EXPENSES
Administration 43,838 39,090 175,352 146,789 137,373
Interest and other 21,904 20,694 139,689 106,801 119,456
Research and development 17,104 21,936 80,498 94,874 82,225
Selling 33,964 17,194 90,746 71,790 61,949
Gain from disposal - - - (3,486) -
-------- -------- --------- --------- ---------
116,810 98,914 486,286 416,768 401,003
-------- -------- --------- --------- ---------
LOSS BEFORE THE
UNDERNOTED (65,953) (44,313) (118,928) (216,576) (216,843)
Compensation and finance
charges (note 18) 180,338 326,830 515,320 - -
Contingent related legal
expenses 74,353 - - - -
-------- -------- --------- --------- ---------
LOSS BEFORE INCOME TAX
RECOVERY AND
EXTRAORDINARY ITEM (320,644) (371,143) (634,248) (216,576) (216,843)
Income tax recovery (note 19) - 215 5,658 258,977 20,521
-------- -------- --------- --------- ---------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (320,644) (370,928) (628,590) 42,401 (196,322)
Gain from transfer of technology
rights (note 10(i)) - - - 477,193 -
-------- -------- --------- --------- ---------
NET INCOME (LOSS) (320,644) (370,928) (628,590) 519,594 (196,322)
======== ======== ========= ========= =========
BASIC INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM PER
COMMON SHARE (note 20) (0.01) (0.02) (0.03) 0.00 (0.01)
======== ======== ========= ========= =========
BASIC INCOME (LOSS) PER
COMMON SHARE
(note 20) (0.01) (0.02) (0.03) 0.04 (0.01)
======== ======== ========= ========= =========
FULLY DILUTED INCOME
(LOSS) PER COMMON
SHARE (note 20) (0.01) (0.02) (0.03) 0.04 (0.01)
======== ======== ========= ========= =========
</TABLE>
See notes to revised consolidated financial statements.
F - 4
<PAGE>
TECHNICAL VENTURES INC.
REVISED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
(NOTE 1)
FOR THE YEARS ENDED JUNE 30 AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Common
Stock
Issued and
Outstanding Additional Cumulative
Number of Paid in Translation
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENTS
$ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996 14,586,341 145,863 4,048,994 (6,082,810) 199,256
Net loss - - - (196,322) -
Cumulative translation
adjustment - - - - 22,588
---------- -------- --------- ----------- -------
Balance, June 30, 1997 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, June 30, 1998 14,711,341 147,113 4,056,744 (5,759,538) 306,571
Issued in exchange
for services 5,250,000 52,500 420,913 - -
Issued for cash 116,670 1,167 13,833 - -
Issued for debt reduction 2,120,000 21,200 189,240 - -
Issuance of warrants
(note 16) - - 21,733 - -
Net loss - - - (628,590) -
Cumulative translation
adjustment - - - - 6,748
---------- -------- --------- ----------- -------
Balance, June 30, 1999 22,198,011 221,980 4,702,463 (6,388,128) 313,319
========== ======== ========= =========== =======
</TABLE>
See notes to revised consolidated financial statements.
F - 5
<PAGE>
TECHNICAL VENTURES INC.
REVISED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
(NOTE 1)
FOR THE YEARS ENDED JUNE 30 AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Common
Stock
Issued and
Outstanding Additional Cumulative
Number of Paid in Translation
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENTS
$ $ $ $
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 14,711,341 147,113 4,056,744 (5,759,538) 306,571
Issued in exchange for services 2,900,000 29,000 229,823 - -
Issued for cash 66,670 667 9,333 - -
Issued for debt reduction 2,120,000 21,200 189,240 - -
Net loss - - - (370,928) -
Cumulative translation
adjustment - - - 40,685
---------- ------- --------- ----------- -------
Balance, September 30, 1998 19,798,011 197,980 4,485,140 (6,130,466) 347,256
========== ======= ========= =========== =======
Balance, June 30, 1999 22,198,011 221,980 4,702,463 (6,388,128) 313,319
Issued in exchange for services 1,050,000 10,500 180,338 - -
Additional costs for the issuance
of convertible debentures and warrants - - (1,507) - -
Net loss - - - (320,644) -
Cumulative translation adjustment - - - - 438
---------- ------- --------- ----------- -------
Balance, September 30, 1999 23,248,011 232,480 4,881,294 (6.708.772) 313,757
========== ======= ========= =========== =======
</TABLE>
F - 6
<PAGE>
TECHNICAL VENTURES INC.
REVISED CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 1)
FOR THE YEARS ENDED JUNE 30 AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Three months ended Year ended
SEPTEMBER 30 JUNE 30
--------------------------- ----------------------------------------------------
1999 1998 1999 1998 1997
$ $ $ $ $
(Unaudited) (Unaudited)
CASH FLOW FROM
OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net income (loss) (320,644) (370,928) (628,590) 519,594 (196,322)
Adjustments to reconcile
net income (loss) to net
cash used by operating
activities:
Depreciation and
amortization 8,259 7,785 30,079 10,874 33,832
Gain on disposition of
property and equipment - - (1,373) - -
Discounts on convertible
debentures (note 16 (h)) - - 75,000 - -
Compensation and finance
charges (note 18) 180,338 326,830 515,320 - -
Gain on transfer of
Technology Rights - - - (682,278) -
Issue of Common Stock
for Services 10,500 20,201 22,701 9,000 -
(Increase) decrease in
accounts receivable (22,520) 47,454 (6,035) 38,765 (57,025)
(Increase) decrease in
inventory 4,029 (4,316) (10,404) (610) 34,940
Increase (decrease) in
accounts payable and
accrued expenses 100,862 (84,421) (101,661) (75,427) 135,968
-------- -------- --------- --------- --------
(39,176) (57,395) (104,963) (180,082) (48,607)
-------- -------- --------- --------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Increase in deposits 9,377 14,184 (2,472) (19,471) (849)
(Increase) decrease in advances
to stockholders (110) (2,024) (26,363) 2,994 (5,964)
Property and equipment
acquisition - 484 (9,565) (8,035) (2,586)
Proceeds from sale of
property and equipment - - 3,321 - -
-------- -------- --------- --------- --------
9,267 11,675 (35,079) (24,512) (9,399)
-------- -------- --------- --------- --------
</TABLE>
See notes to revised consolidated financial statements.
F - 7
<PAGE>
TECHNICAL VENTURES INC.
REVISED CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 1)
FOR THE YEARS ENDED JUNE 30 AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30 JUNE 30
--------------------------- ----------------------------------------------------
1999 1998 1999 1998 1997
$ $ $ $ $
(Unaudited) (Unaudited)
CASH FLOW FROM FINANCING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Increase in bank overdraft 5,527 - - - -
Repayments of note payable
to Cooper Financial Crop. (2,298) (6,490) (26,960) (14,692) (5,152)
Proceeds from (repayments of)
note payable to Dow
Chemical Canada - (33,801) (35,375) 14,555 6,217
Proceeds from (repayments of)
capital lease obligations 232 - (718) 2,164 (19,592)
Proceeds from (repayments of)
other loans payable - (211) (26,212) 4,706 -
Proceeds from (repayments of)
private lenders - - (14,061) 66,820 -
Proceeds from (repayments of)
stockholders' loans 16,315 33,277 (9,352) 135,962 87,835
Proceeds from issue of common
stock - 46,812 72,812 - -
Proceeds from issue of convertible
debentures and warrants, net of
issuance costs (1,507) - 167,223 - -
------- ------- ------- ------- ------
18,269 39,587 127,357 209,515 69,308
------- ------- ------- ------- ------
EFFECT OF EXCHANGE
RATE ON CASH 2,242 (1,104) 8,963 (11,089) 4,918
NET INCREASE (DECREASE) IN
CASH BALANCE FOR THE
PERIOD (13,883) 17,605 (3,722) (6,168) 16,220
Cash balance, beginning
of period 13,883 (7,238) 17,605 23,772 7,552
------- ------- ------- ------- ------
Cash, end of period - 10,368 13,883 17,605 23,772
======= ======= ======= ======= ======
PAYMENTS MADE DURING THE
PERIOD FOR INTEREST 4,175 5,720 19,745 15,203 19,751
======= ======= ======= ======= ======
INCOME TAXES PAID - - - - -
======= ======= ======= ======= ======
</TABLE>
See notes to revised consolidated financial statements.
F - 8
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
1. REVISIONS TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as at June 30, 1999 have been
revised in order to:
i) provide additional information to readers;
ii) reclassify financial statement amounts to provide more precise information
and better comparison with prior years. iii) reflect the issuance of common
shares at fair market value; iv) recognize discounts given by the company in
relation to the issuance of convertible debentures; v) segregate the gain from
the transfer of technology rights as an extraordinary item.
2. 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. No adjustment has been made to the value of the
Company's assets in consideration of its financial condition.
The Company continues to assess completing a private or public stock
offering. In order for the Company to raise significant funds through
the sale of common stock, stock purchase warrants or convertible
securities, the number of authorized common shares must be increased.
Therefore a special meeting of shareholders was held July 22, 1998
for the purpose of amending the Corporation's New York State
Certificate of Incorporation. All of the amendments passed; one of
which increased the authorized issue of shares from fifteen million
to fifty million common shares. This amendment will enable the
Corporation to act on obtaining funding through private or public
stock offering[s].
F - 9
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Principles 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.
b) 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 common stock of Mortile. The Company's other
two subsidiaries, Fam Tile Restoration Services Ltd. and MPI Perlite
Ltd. are currently inactive.
c) Revenue Recognition
Sales are recognized when goods and services are delivered.
d) Inventory
Inventory is stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
e) 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. The estimated useful
lives for property and equipment range from 5 to 8 years.
f) Investment Tax Credits
Refundable foreign investment tax credits related to research and
development activities are recognized as income in the year they are
received.
g) 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.
F - 10
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
h) Intangible Assets
Cost of intangible assets is being amortized using the
straight-line method over periods ranging from 5 to 17 years.
i) Income taxes
The company accounts for income tax under the provisions of
Statement of Financial Accounting Standards No. 109, which requires
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Deferred income taxes are
provided using the liability method. Under the liability method,
deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets
and liabilities.
j) Net Income Per Share
Basic income per share is computed based on the average number of
common shares outstanding during the year.
Diluted income 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 income of the
company. Such securities or contracts are not considered in the
calculation of diluted income per share if the effect of their
exercise or conversion would be antidilutive.
k) Stock Based Compensation
In December 1995, SFAS No. 123, Accounting for Stock-Based
Compensation, was issued. It introduced the use of a fair value-based
method of accounting for stock-based compensation. It encourages, but
does not require, companies to recognize compensation expense for
stock-based compensation to employees based on the new fair value
accounting rules. Companies that choose not to adopt the new rules
will continue to apply the existing accounting rules contained in
Accounting Principles Board Opinion No. 25, Accounting for Stock
issued to employees. However, SFAS No. 123 requires companies that
choose not to adopt the new fair value accounting rules to disclose
pro-forma net income and earnings per share under the new method. SFAS
No. 123 is effective for financial statements for fiscal years
beginning after December 15, 1995. The company has adopted the
disclosure provisions of SFAS No. 123.
F - 11
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
l) Foreign Currency Translation
Mortile maintains its books and records in Canadian dollars.
Foreign currency transactions are reflected using the temporal method.
Under this method, all monetary items are translated into Canadian
funds at the rate of exchange prevailing at balance sheet date.
Non-monetary items are translated at historical rates. Income and
expenses are translated at the rate in effect on the transaction
dates. Transaction gains and losses are included in the determination
of earnings for the year.
The translation of the financial statements of this wholly-owned
subsidiary from Canadian dollars into United States dollars is
performed for the convenience of the reader. Balance sheet accounts
are translated using closing exchange rates in effect at the balance
sheet date and income and expense accounts are translated using an
average exchange rate prevailing during each reporting period. No
representation is made that the Canadian dollar amounts could have
been or could be realized at the conversion rates. Adjustments
resulting from the translation are included in the accumulated other
comprehensive income in stockholders' deficiency.
m) 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.
n) 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.
0) Unaudited Comparatives
The financial statements and related notes thereto as of
September 30, 1999 and for the three-month periods ended September 30,
1999 and 1998 are unaudited. Though they have been prepared on the
same basis as the audited financial statements included herein, they
do not form part thereof as no audit opinion has been expressed
thereon. In the opinion of management, such unaudited financial
statements include all adjustments necessary to present fairly the
information set forth herein. The interim results are not necessary
indicative of the results for any future period.
F - 12
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
4. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
September 30, September 30, June 30, June 30,
1999 1998 1999 1998
$ $ $ $
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Accounts receivable 146,590 65,680 124,435 118,140
Less: Allowance for doubtful accounts - - - -
------- ------ ------- -------
Accounts receivable, net 146,590 65,680 124,435 118,140
======= ====== ======= =======
</TABLE>
5. INVENTORY
Inventory at June 30, 1999 and 1998 and at September 30, 1999 and
1998 are comprised entirely of raw materials.
6. ADVANCES TO STOCKHOLDERS
The advances to stockholders are unsecured, are non-interest
bearing, are not subject to specified terms of repayments.
7. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1999 and 1998 are comprises as
follows:
<TABLE>
<CAPTION>
September 30, September 30, June 30, June 30,
1999 1998 1999 1998
$ $ $ $
(Unaudited) (Unaudited)
Equipment under capitalized
<S> <C> <C> <C> <C>
leasing arrangements 229,686 220,113 230,360 204,981
Equipment 374,711 354,454 375,811 442,819
Furniture and fixtures 37,392 33,843 37,502 35,341
Leasehold improvements 4,205 4,030 4,217 4,208
------- ------- ------- -------
645,994 612,440 647,890 687,349
------- ------- ------- -------
Less accumulated depreciation and
amortization 498,846 449,944 492,453 510,118
------- ------- ------- -------
147,148 162,496 155,437 177,231
======= ======= ======= =======
</TABLE>
F - 13
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
8. INTANGIBLES
<TABLE>
<CAPTION>
September 30, September 30, June 30, June 30,
1999 1998 1999 1998
$ $ $ $
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Patents, at cost 6,080 5,826 6,098 6,084
Less: Accumulated amortization 5,517 4,979 5,452 5,119
------- ------- ------- -------
563 847 646 965
======= ======= ======= =======
</TABLE>
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
September 30, September 30, June 30, June 30,
1999 1998 1999 1998
$ $ $ $
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Trade payable 154,912 86,041 57,946 189,833
Accrued expenses 229,091 200,234 226,019 195,056
------- ------- ------- -------
384,003 286,275 283,965 384,889
======= ======= ======= =======
</TABLE>
F - 14
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
10. NOTES PAYABLE
<TABLE>
<CAPTION>
September 30, September 30, June 30, June 30,
1999 1998 1999 1998
$ $ $ $
(Unaudited) (Unaudited)
Notes payable consist of the followings:
<S> <C> <C> <C> <C>
Dow Chemical Canada, Inc. (Dow),
re-capitalization of line of credit and
accrued interest to April 30, 1996.
Payable in monthly instalments of
$4,100 including interest at a rate
of 10.75% (i) - - - 35,297
Innovation Ontario Corp. (I.O.C.)
outstanding balance of $341,749,
repayable in quarterly instalments
of $20,675 including interest at 8%.
The Company is in default and the
entire balance is past due (ii) 340,749 326,549 341,749 340,999
Cooper Financial Corp.'s note, repayable
$3,150 monthly plus interest at 10%,
due August, 2002 (iii) 91,280 114,048 93,578 120,538
--------- --------- --------- ---------
432,029 440,597 435,327 496,836
Less: Current portion (370,773) (440,597) (371,278) (496,834)
--------- --------- --------- ---------
61,256 - 64,049 -
========= ========= ========= =========
</TABLE>
F - 15
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
10. NOTES PAYABLE (cont'd)
i) In March 1998, the company reached an agreement with Dow to
settle the company's certain indebtedness to Dow by the transfer
of technology rights to Dow. The agreement transferred to Dow,
the title and ownership of the patents and intellectual rights
which relate to the halogen free, flame retardant thermoplastic
composition technology. In turn, Dow would provide Mortile with
a non-exclusive, non-transferable and royalty free world-wide
license for Mortile's use of the said technology. The company
recorded the transaction as follows:
<TABLE>
<CAPTION>
<S> <C>
Note payable to Dow settled $ 531,570
Accrued interest on note payable settled 197,304
Less: net book value of patents and intellectual rights (24,681)
--------
Gain on transfer before income taxes 704,193
Less: income taxes 227,000
--------
Gain on transfer, net of income taxes $ 477,193
========
</TABLE>
In June, 1998 the Company reached an agreement with Dow Chemical
of Canada to repay the outstanding principal of $35,297 on the
Company's line of credit; the obligation in regard of the
outstanding line of credit was fulfilled in August 1998.
ii) In accordance with the I.O.C. loan provisions, I.O.C. acquired a
15% interest in Mortile in March 1995 and an additional 15%
interest in July 1995. Mortile had previously been a wholly
owned subsidiary of the Company. I.O.C. investment in Mortile is
reflected in the financial statements as a minority interest.
The Company has been unable to meet payments in respect of this
loan. Accordingly the outstanding balance 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.
F - 16
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
10. NOTES PAYABLE (cont'd)
iii) In June 1997 the Company had received agreement from Cooper
Financial Corp. of its willingness to refinance the promissory
note. The new payment schedule of the note is based on 57 months
at a fixed interest rate of 10%. A re-financing charge was
assessed increasing the principal to $143,000 at July 1, 1997.
The term of the new promissory note is 24 months with a balloon
payment of $91,208 due June 30, 1999.
At June 30, 1998 the Company had a note payable balance of
$120,538 due on demand to Cooper Financial Corp. This
obligation, which had previously been payable to the Federal
Deposit Insurance Corporation as receiver for another financial
institution, is guaranteed by a shareholder of the Company.
The note is shown as a current liability on the Company's
balance sheet at June 30, 1998. The Company is current with its
obligation under this new agreement.
In August 1999, the company refinanced its obligation to Cooper
Financial Corp. A refinancing charge was assessed, increasing
the then outstanding principal balance of $91,208 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.
Notes payable mature as follows:
2000 $371,278
2001 32,621
2002 31,428
$435,327
F - 17
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
11. CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
September 30, September 30, June 30, June 30,
1999 1998 1999 1998
$ $ $ $
(Unaudited) (Unaudited)
Capital lease obligations consist of the following:
<S> <C> <C> <C> <C>
Obligations under capitalized leasing
arrangements payable
in monthly instalments of $9,981 net
of amount representing
interest of $2,790 at June 30; the
company is in default and the entire
balance is past due 77,052 77,052 77,046 76,993
Others - - - 601
------ ------ ------ ------
77,052 77,052 77,046 77,594
====== ====== ====== ======
</TABLE>
At June 30, 1999 accrued interest of $60,647 (1998 - $60,647) was
outstanding.
12. LOANS FROM PRIVATE LENDERS
<TABLE>
<CAPTION>
September 30, September 30, June 30, June 30,
1999 1998 1999 1998
$ $ $ $
(Unaudited) (Unaudited)
Loans from private lenders are due on
demand and consist of the following:
<S> <C> <C> <C> <C> <C>
Private investors:
Equipment financing - interest at 10% 11,824 11,331 11,859 11,833
Unsecured demand loans:
Interest free 25,000 25,000 25,000 85,000
Interest at 10%, convertible into
50,000 shares of common stock 25,000 25,000 25,000 25,000
Interest at 15% - 40,008 - 16,625
------ ------- ------ -------
61,824 101,339 61,859 138,458
====== ======= ====== =======
</TABLE>
F - 18
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
13. LOANS FROM SHAREHOLDERS
<TABLE>
<CAPTION>
Current Non-Current Total
$ $ $
Loans from shareholders as at June 30, 1999
and 1998 consist of the following:
a) June 30, 1999
Unsecured shareholders notes, loans and other payable balances:
<S> <C> <C> <C>
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. - 10,253 10,253
Interest free - Notes and loans 170,793 17,250 188,043
Accrued interest - 99,150 99,150
Accrued compensation - 155,394 155,394
------- ------- -------
170,793 305,442 476,235
======= ======= =======
b) June 30, 1998
Unsecured shareholders notes, loans and
other payable balances:
Subordinate to notes payable to Cooper
Financial Corp. interest at the greater
of prime or 10 % - 23,870 23,870
Subordinate to note payable, I.O.C. - 10,230 10,230
Interest free - Notes and loans 179,863 52,200 232,063
Accrued interest - 88,668 88,668
Accrued compensation - 155,054 155,054
------- ------- -------
179,863 330,022 509,885
======= ======= =======
</TABLE>
F - 19
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
13. LOANS FROM SHAREHOLDERS (cont'd)
<TABLE>
<CAPTION>
Current Non-Current Total
$ $ $
(unaudited) (unaudited) (unaudited)
Loans from shareholders as at September 30, 1999
and 1998 consist of the following:
c) September 30, 1999
<S> <C> <C> <C>
Unsecured shareholders notes, loans and
other payable balances:
Subordinate to notes payable to Cooper
Financial Corp. interest at the greater
of prime or 10 % - 23,326 23,326
Subordinate to note payable, I.O.C. - 10,223 10,223
Interest free - Notes and loans 183,923 17,199 201,122
Accrued interest - 101,545 101,545
Accrued compensation - 154,939 154,939
------- ------- -------
183,923 307,232 491,155
======= ======= =======
d) September 30, 1998
Unsecured shareholders notes, loans and other payable balances:
Subordinate to notes payable to Cooper
Financial Corp. interest at the greater
of prime or 10 % - 22,859 22,859
Subordinate to note payable, I.O.C. - 9,797 9,797
Interest free - Notes and loans 172,745 30,710 203,455
Accrued interest - 87,456 87,456
Accrued compensation - 148,482 148,482
------- ------- -------
172,745 299,304 472,049
======= ======= =======
</TABLE>
As at June 30, 1999, loans from shareholders mature as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 $ 170,793
2001 -
2002 -
2003 -
After 2004 305,442
$ 476,235
</TABLE>
F - 20
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
14. OTHER LOANS
<TABLE>
<CAPTION>
September 30, September 30, June 30, June 30,
1999 1998 1999 1998
$ $ $ $
(Unaudited) (Unaudited)
Other loans consist of the following:
<S> <C> <C> <C> <C>
Unsecured loans, private investor,
interest at 10%,
not subject to specified terms
of repayments 26,717 25,603 26,795 26,736
Note payable customer, interest at prime
plus 1%, repayment based on
volume of materials processed by the
company on behalf of the customer - 22,089 - 26,155
------ ------ ------ ------
26,717 47,692 26,795 52,891
</TABLE>
15. MINORITY INTEREST
Innovation Ontario Corp. has a 30% interest in Mortile (see note 10).
As Mortile was in a capital deficiency position as at June 30, 1999
and 1998, and as at September 30, 1999 and 1998, the minority
interest was $nil as at June 30, 1999 and 1998, and as at September
30, 1999 and 1998.
16. CAPITAL STOCK
a) Authorized
50,000,000 Common stock
$0.01 par value (note 16 (b))
<TABLE>
<CAPTION>
Issued Shares Amount
$
<S> <C> <C> <C> <C>
September 30, 1999 (unaudited) 23,248,011 232,480
September 30, 1998 (unaudited) 19,798,011 197,980
June 30, 1999 22,198,011 221,980
June 30, 1998 14,711,341 147,113
</TABLE>
F - 21
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
16. CAPITAL STOCK (cont'd)
b) On July 22, 1998, stockholders of the company approved an
amendment increasing the authorized common shares from
15,000,000 to 50,000,000.
c) Common shares issued during the years ended June 30, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
Additional
Capital paid in
NUMBER STOCK CAPITAL
$ $
<S> <C> <C> <C>
i. During the year ended June 30, 1998,
125,000 common shares were issued
for services rendered 125,000 1,250 7,750
========= ====== =======
ii. During the year ended June 30, 1999,
5,250,000 common shares were issued
for services rendered 5,250,000 52,500 420,913
During the year ended June 30, 1999,
116,670 common shares were issued
for cash 116,670 1,167 13,833
During the year ended June 30, 1999,
2,120,000 common shares were issued
in exchange for repayment of loans
from private lenders of $62,600 and
loans from shareholders of $25,420 2,120,000 21,200 189,240
During the year ended June 30, 1999,
warrants were issued as described in
note16 (i) - - 21,733
--------- ------ -------
7,486,670 74,867 645,719
========= ====== =======
</TABLE>
iii. These shares issued were recorded at
their fair market values on the dates
of issuance.
iv. The company does not have a formal
stock-based compensation plan.
Stock-based compensation was negotiated
on an individual basis.
F - 22
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
16. CAPITAL STOCK (cont'd)
d) 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 [see note 16 (h) (ii)]; additionally
as part thereof, Non-Redeemable Warrants of a three year
term [see note 16 (i)] allowing the investor to purchase
shares of the Corporation's Common Stock.
Accordingly the company has set aside the appropriate number
of shares from the authorized and unissued shares of common
stock for issuance upon conversion of the Debentures and
exercise of the Warrants issued in connection with the
offering.
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 8, 1999, additional
comments from S.E.C. which must be responded to and will
require a further amendment to the SB-2 Registration.
e) The numbers of common shares reserved for convertible debt,
stock purchase options and warrants are as follows:
<TABLE>
<CAPTION>
June, 30 June, 30
1999 1998
<S> <C> <C>
For convertible debt 50,000 50,000
For common stock purchase options 50,000 50,000
For convertible debentures 6,535,888 -
For warrants 127,840 -
--------- -------
6,763,728 100,000
========= =======
</TABLE>
F - 23
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
16. CAPITAL STOCK (cont'd)
f) Stock Purchase Option
In January, 1990, the company granted a stock purchase option to
a convertible debtholder, which would allow the debtholder to
purchase 50,000 shares of the company's common stock at an
exercise price at the then fair market value of $0.50 per share.
There is no termination date on the options.
The company does not have a formal stock purchase option plan
other than the above.
g) Convertible Debt
Since January 27, 1990, 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 at the then fair market value of $0.50
per share.
h) Convertible Debentures
On February 8, 1999, the company issued an aggregate of $225,000
of 8% convertible debentures. Interest on the debentures is
payable quarterly and the principal on the debentures is due on
January 31, 2002. From and after the time that such principal
amount on the debentures shall have become due and payable
(whether at maturity or by acceleration), interest shall be
payable, to the extent permitted by law, at the rate equal to
the lesser of (I) eighteen percent (18%) per annum or (ii) the
maximum rate permitted by law, on the entire unpaid principal
amount of this debenture. Unpaid principal plus all accrued and
unpaid interest and penalties on the debentures is convertible
at a conversion price that is the lesser of $.176 per share or
75% of the average closing bid price of the common stock on the
10 days prior to when a debenture is presented for conversion.
Thus, the debentures are convertible into a minimum of 1,704,545
shares of common stock. In the event the registration statement
covering the shares of common issuable upon conversion of the
debentures is not declared effective by June 8, 1999, the
company shall pay to the holders of the debentures a penalty of
one-fifteenth of one percent of the principal amount of the
notes for each day beyond such date until such registration
statement is declared effective.
As the conversion feature of the convertible debentures
represented a minimum of $75,000 discounts to the
debentureholders, the company had recorded the transaction as
follows:
<TABLE>
<CAPTION>
<S> <C>
Face value of debentures $ 225,000
Discounts 75,000
Less: value assigned to warrants (see note 16 (i)) (21,733)
Less: issuance costs (57,777)
----------
$ 220,490
==========
</TABLE>
The discounts were expensed in the year.
F - 24
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
16. CAPITAL STOCK (cont'd)
i) Warrants
On February 8, 1999, the company issued warrants representing
the right to purchase common stock. There will be 127,840 shares
of common stock underlying the warrants at an exercise price of
$.176 per share. The expiration date of the warrants is January
31, 2002. Using the Black-Scholes method, the company has
calculated and assigned a value of $21,733 to the warrants.
The company has reserved from its authorized but unissued shares
a sufficient number of shares of our common stock for issuance.
The exercise price of the warrants were determined by
negotiation and, upon notice to warrant holders, the company has
the right to reduce the exercise price or extend the expiration
date of the warrants. The warrants do not confer upon the
warrant holder any voting or other rights of a stockholder of
the company. The warrants provide for customary anti-dilution
provisions in the event of certain events which may include
mergers, consolidations, reorganizations, recapitalizations,
stock dividends, stock splits and other changes in our capital
structure.
j) Common shares issued during the three-month periods ended
September 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Additional
Capital paid in
NUMBER STOCK CAPITAL
$ $
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
i) During the three-month periods ended
September 30,1998, 2,900,000 common
shares were issued for services rendered 2,900,000 29,000 229,823
During the three-month period ended
September 30, 1998, 66,670 common
shares were issued for cash 66,670 667 9,333
During the three-month period ended
September 30, 1998, 2,120,000 common
shares were issued for debt reduction 2,120,000 21,200 189,240
--------- ------ -------
5,086,670 50,867 428,396
========= ====== =======
</TABLE>
F - 25
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
16. CAPITAL STOCK (cont'd)
<TABLE>
<CAPTION>
Additional
Capital paid in
NUMBER STOCK CAPITAL
$ $
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
ii) During the three-month period ended
September 30, 1999, 1,050,000 common
shares were issued for services rendered 1,050,000 10,5000 180,338
</TABLE>
17. COMPREHENSIVE INCOME (LOSS)
The company has adopted Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" as of January 1, 1998 which
requires standards for reporting and display of comprehensive income
and its components in the financial statements. However, it does not
affect net income (loss) or total stockholders' deficiency. The
components of comprehensive income are as follows:
<TABLE>
<CAPTION>
September 30, September 30, June 30, June 30,
1999 1998 1999 1998
$ $ $ $
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income (loss) (320,644) 370,928) (628,590) 519,594
Other comprehensive income:
foreign currency translation
adjustments 438 40,685 6,748 84,727
--------- --------- --------- -------
Comprehensive income (loss) (320,206) (330,243) (621,842) 604,321
========= ========= ========= =======
</TABLE>
F - 26
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
17. COMPREHENSIVE INCOME (LOSS) (cont'd)
The components of accumulated
other comprehensive income as at
June 30, 1997, 1998 and 1999 are
as follows:
<S> <C> <C> <C>
Accumulated other comprehensive
income, June 30, 1996 $ 199,256
Foreign currency translation adjustments
for the year ended June 30, 1997 22,588
-------
Accumulated other comprehensive income,
June 30, 1997 221,844
Foreign currency translation adjustments
for the year ended June 30, 1998 84,727
-------
Accumulated other comprehensive income,
June 30, 1998 306,571
Foreign currency translation adjustments
for the year ended June 30, 1999 6,748
-------
Accumulated other comprehensive income,
June 30, 1999 $ 313,319
=======
</TABLE>
The components of accumulated other comprehensive income as at September
30, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
$ $
(unaudited) (unaudited)
<S> <C> <C> <C>
Accumulated other comprehensive income, June 30 313,319 306,571
Foreign currency translation adjustments for the
three-month periods ended September30 438 40,685
------- -------
Accumulated other comprehensive income, September 30 313,757 347,256
======= =======
</TABLE>
The foreign currency translation adjustments are not currently
adjusted for income taxes since the company is situated in Canada and
the adjustments relate to the translation of the financial statements
from Canadian dollars into United States dollars is done only for the
convenience of the reader as disclosed in note 3 (l).
F - 27
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
18. COMPENSATION AND FINANCE CHARGES
The company has issued common shares in consideration of compensation
and finance charges. The excess of the fair market value over the
amount received for the common shares issued has been expensed.
19. INCOME TAXES
During the year ended June 30, 1999, the Company received $5,930
resulting from research and development refundable tax credits claims
filed for the year ended June 30, 1997. A claim for approximately
$24,000 has been submitted for 1998. The Company having received
notice from the tax department that the claim had been approved and
the amount would be remitted shortly. A claim for approximately
$24,000 will be filed for 1999. It is anticipated that the claim for
1999 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 amount.
Recovery of income taxes for the year then 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.
<TABLE>
<CAPTION>
U.S. State &
Federal Local Foreign
AT 34% AT 9% AT 43%
------------- ------------- -------------
$ $ $
<S> <C> <C> <C>
Loss carry forwards 531,000 140,000 276,403
Credit carry forwards:
Non-refundable credits - - 6,201
Refundable credits - - 23,923
Valuation allowance (531,000) (140,000) (306,527)
--------- --------- ---------
- - -
========= ========= =========
</TABLE>
F - 28
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
19. INCOME TAXES (cont'd)
Aggregate net operating loss carry forwards and tax credit carry
forwards and their expirations are summarized as follows:
<TABLE>
<CAPTION>
NET OPERATING LOSS CARRY FORWARD
Foreign
Research &
Expiring Development
JUNE 30, US FEDERAL STATE & LOCAL FOREIGN TAX CREDITS
$ $ $ $
<S> <C> <C> <C> <C>
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 1,165,000 1,162,000 - -
--------- --------- ------- -----
TOTAL 1,564,000 1,561,000 642,798 6,201
========= ========= ======= =====
</TABLE>
F - 29
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
20. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per share has been calculated as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1999 1998 1999 1998 1997
------------------ --------------------------------
$ $ $ $ $
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Basic income (loss) before
extraordinary item per share:
Income (loss) before
extraordinary item (320,644) (370,928) (628,590) 42,401 (196,322)
---------- ---------- ---------- ---------- -----------
Weighted average number
of common shares
outstanding 22,734,424 15,512,864 20,237,097 14,678,752 14,586,341
---------- ---------- ---------- ---------- -----------
Income (loss) before
extraordinary item
per common share (0.01) (0.02) (0.03) 0.00 (0.01)
========== ========== ========== ========== ===========
Basic income (loss) per share:
Net income (loss) per
common stock (320,644) (370,928) (628,590) 519,594 (196,322)
---------- ---------- ---------- ---------- -----------
Weighted average number
of common shares
outstanding 22,734,424 15,512,864 20,237,097 14,678,752 14,586,341
---------- ---------- ---------- ---------- -----------
Net income (loss)
per common share (0.01) (0.02) (0.03) 0.04 (0.01)
========== ========== ========== ========== ===========
</TABLE>
F - 30
<PAGE>
TECHNICAL VENTURES INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
20. NET INCOME (LOSS) PER COMMON SHARE (cont'd)
Net income (loss) per share has been calculated as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1999 1998 1999 1998 1997
------------------ --------------------------------
$ $ $ $ $
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Diluted income (loss) per share:
Net income (loss) per
common share (320,644) (370,928) (628,590) 519,594 (196,322)
Interest on dilutive
convertible debt - - - - -
Interest on dilutive
stock purchase options - - - - -
Interest on dilutive
convertible debentures - - - - -
Interest on dilutive
warrants - - - - -
Net income (loss)
attributable to common
stock assuming dilution (320,644) (370,928) (628,590) 519,594 (196,322)
Weighted average
number of common
shares outstanding 22,734,424 15,512,864 20,237,097 14,678,752 14,586,341
Assumed conversion of
dilutive convertible debt - - - - -
Assumed conversion of
dilutive stock purchase
options - - - - -
Assumed conversion of
dilutive convertible
debentures - - - - -
Assumed exercise of
dilutive warrants - - - - -
Weighted average number
of common shares
outstanding, assuming
dilution 22,734,424 15,512,864 20,237,097 14,678,752 14,586,341
Net income (loss) per common
share assuming dilution (0.01) (0.02) (0.03) 0.04 (0.01)
</TABLE>
F - 31
<PAGE>
TECHNICAL VENTURES, INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
21. FOREIGN OPERATIONS
The following table summarizes certain information regarding the
company's US and Canadian operations for the years ended June 30,
1998, 1998 and 1997:
<TABLE>
<CAPTION>
US CANADIAN CONSOLIDATED
$ $ $
Year ended June 30, 1999
<S> <C> <C> <C>
Revenue from unaffiliated customers - 1,131,279 1,131,279
========= ========== =========
Income (loss) from operations (663,381) 34,791 (628,590)
========= ========== =========
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) 565,814 519,594
========= ========== =========
Identifiable assets at end of year - 411,440 411,440
========= ========== =========
Year ended June 30, 1997 - 1,414,062 1,414,062
========= ========== =========
Loss from operations (40,178) (156,144) (196,322)
========= ========== =========
Identifiable assets at end of year - 505,776 505,776
========= ========== =========
</TABLE>
F - 32
<PAGE>
TECHNICAL VENTURES, INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
21. FOREIGN OPERATIONS (cont'd)
The following table summarizes certain information regarding the
company's US and Canadian operations for the three-month periods
ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
US CANADIAN CONSOLIDATED
$ $ $
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Three-month period ended September 30, 1999
Revenue from unaffiliated customers - 288,411 288,411
========= ========== =========
Loss from operations (201,522) (119,122) (320,644)
========= ========== =========
Identifiable assets at end of period - 417,556 417,556
========= ========== =========
Three-month period ended September 30, 1998
Revenue from unaffiliated customers - 240,990 240,990
========= ========== =========
Loss from operations (339,381) (31,547) (370,928)
========= ========== =========
Identifiable assets at end of period - 324,914 324,914
========= ========== =========
</TABLE>
F - 33
<PAGE>
TECHNICAL VENTURES, INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
22. MAJOR CUSTOMERS
One customer accounted for 40% and 41% of the Company's consolidated
revenues for fiscal 1999 and 1998, respectively; another customer,
with whom the company is currently involved in a lawsuit (see note
23), accounted for 21% and 18% of consolidated revenues for these
respectively periods. A new customer accounted for 13% of
consolidated revenues for fiscal 1999.
Two customers accounted for 82% and 72% of the company's consolidated
revenue for the three months ended September 30, 1999 and 1998,
respectively.
The loss of one or more of these customers would have a detrimental
effect on the Company's operating results.
23. CONTINGENT LIABILITY
The company is contingently liable under a breach secrecy agreements,
fiduciary duty and misuse of confidential information lawsuit by one
of its major customers (see note 22). Management of the company is of
the opinion that this legal action would not have significant adverse
effect on the company's future sales. 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.
24. RELATED PARTY TRANSACTIONS
For the year ended June 30, 1999, 3,850,000 and 1,600,000 common
shares were issued to the company's stockholders for services
rendered and debt reduction respectively. In addition, for the year
ended June 30, 1999, 300,000 (1998 - 100,000) common shares were
issued to an employee, related to a stockholder of the company, for
services rendered.
For the three months ended September 30, 1999, 350,000 (1998 -
2,400,000) and NIL (1998 - 1,600,000) common shares were issued to
the company's stockholders for services rendered and debt reduction
respectively. In addition, for the three months ended September 30,
1999, NIL(1998 - 300,000) common shares were issued to an employee,
related to a stockholder of the company, for services rendered.
The company has recorded these shares at fair market value with a
corresponding charge to expenses for the difference between the fair
market value and the issuance price.
F - 34
<PAGE>
TECHNICAL VENTURES, INC.
NOTES TO REVISED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
25. LEASES
At June 30, 1999, under a real property lease classified as an
operating lease which expires in March, 2002, the company's future
annual minimum rental payments (excluding real estate taxes) are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 $ 64,228
2001 65,219
2002 49,640
$ 179,087
</TABLE>
Rent expense was $49,965, $58,061 and $46,833 for 1999, 1998 and 1997
respectively.
26. 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.
27. COMPARATIVE FIGURES
Certain figures in the June 30, 1998 and 1997 revised consolidated
financial statements have been reclassified to conform with the basis
of presentation used in 1999.
F - 35
EXHIBIT 5.1
LETTERHEAD OF SICHENZIA, ROSS & FRIEDMAN LLP
Technical Ventures Inc.
3411 McNicoll Avenue
Unit 11
Scarborough, Ontario
Canada M1V 2V6
RE: REGISTRATION STATEMENT ON FORM SB-2/REGISTRATION NO. 333-75901
Dear Sirs:
We refer to the above-captioned registration statement on Form SB-2
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), filed by Technical Ventures Inc., a New York corporation (the
"Company"), with the Securities and Exchange Commission.
We have examined the originals, photocopies, certified copies or other
evidence of such records of the Company, certificates of officers of the Company
and public officials, and other documents as we have deemed relevant and
necessary as a basis for the opinion hereinafter expressed. In such examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as certified copies or photocopies and the
authenticity of the originals of such latter documents.
Based on our examination mentioned above, we are of the opinion that
the securities being registered pursuant to the Registration Statement are duly
authorized, legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under ?Legal Matters? in
the related Prospectus. In giving the foregoing consent, we do not hereby admit
that we are in the category of persons whose consent is required under Section 7
of the Act, or the rules and regulations of the Securities and Exchange
Commission.
Very truly yours,
EXHIBIT - 24.1 CONSENT OF SCHWARTZ LEVITSKY FELDMAN, CHARTERED ACCOUNTANTS,
THE REGISTRANT'S INDEPENDENT AUDITORS
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated ^ October 12, 1999, except as to Note 1 as to which
the date is October 26, 1999 in the Registration Statement on Form SB-2 and
related prospectus of Technical Ventures Inc. for the registration of 7,263,728
shares of common stock.
/S/SCHWARZ LEVITSKY FELDMAN
Schwartz Levitsky Feldman
Chartered Accountants
Toronto, Ontario, Canada
^ December 29, 1999
1
