<PAGE>1
Form 10 -QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For The Quarterly Period Ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
Commission File Number 33-2775-A
TECHNICAL VENTURES INC.
_____________________________________________________________________________
(Exact Name of small business issuer as specified in its charter)
New York 13-3296819
_____________________________________________________________________________
(State or other jurisdiction of (I.R.S Employer
incorporation of organization) identification No.)
3411 McNicoll Avenue, Unit 11, Scarborough, Ontario, Canada M1V 2V6
____________________________________________________________________________
(Address of Principal Executive Offices, Zip Code)
Issuer's Telephone Number, Including Area Code (416) 299-9280
______________________________________________________________________________
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of December 31, 1998.
21,948,011 shares of common stock, $.01 par value
______________________________________________________________________________
Page 1 of 15 Pages
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TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
DECEMBER 31
1998
(UNAUDITED)
CURRENT ASSETS
Accounts Receivable $77,538
Inventory (Note 2) 49,639
Other Current Assets
Advances 57,357
Deposits 11,542
Total Current Assets 196,076
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation of $456,684 154,912
INTANGIBLE ASSETS, net of accumulated amortization of
$5,049 769
$351,757
LIABILITIES & SHAREHOLDERS DEFICIENCY
CURRENT LIABILITIES
Bank Overdraft $8,460
Notes Payable (Note 4) $107,394
Current Portion of long term debt: (Note 3)
Capital lease obligations 77,051
Other 326,099
Loans & advances:
Private lenders 82,760
Shareholders 165,985
Accounts payable and accrued expenses 311,669
Total Current Liabilities 1,079,419
LONG-TERM DEBT, net of current portion: (Note 3)
Shareholders 302,817
Other 35,398
MINORITY INTEREST 0
SHAREHOLDERS' DEFICIENCY:
Common stock, $.01 par value, 50,000,000 shares authorized:
Issued and outstanding, 21,948,011 shares 219,480
Additional Paid In Capital 4,165,410
Deficit (5,798,907)
Foreign currency translation adjustment 348,140
Total Shareholders' deficiency (1,065,877)
$351,757
See notes to condensed consolidated financial statements.
(2)
<PAGE>3
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
1998 1997
SALES $505,078 $671,949
COST OF SALES 356,402 578,839
GROSS MARGIN 148,676 93,110
GENERAL EXPENSE
Administration 70,017 66,575
Financial
-Interest & Other 37,142 63,247
Research & Development 44,883 57,529
Selling 41,661 36,884
193,703 224,235
LOSS BEFORE INCOME TAX RECOVERY (45,027) (131,125)
OTHER INCOME
R&d Tax Recovery 5,658 14,000
NET LOSS ($39,369) ($117,125)
NET INCOME [LOSS] PER COMMON SHARE $0.00 ($0.01)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 18,430,790 14,711,341
See notes to condensed consolidated financial statements.
(3)
<PAGE>4
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
1998 1997
SALES $264,088 $277,024
COST OF SALES 170,013 227,777
GROSS MARGIN 94,075 49,247
GENERAL EXPENSE
Administration 30,927 30,958
Financial
-Interest & Other 16,448 30,353
Research & Development 22,948 29,863
Selling 24,466 19,094
94,789 110,268
LOSS BEFORE INCOME TAX RECOVERY ($714) ($61,021)
OTHER INCOME
R&D Tax Recovery 5,443 10,548
NET INCOME [LOSS] $4,729 ($50,473)
NET INCOME [LOSS] PER COMMON SHARE $0.00 $0.00
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 21,348,554 14,711,341
See notes to condensed consolidated financial statements.
(4)
Page>5
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
1998 1997
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss ($39,369) ($117,125)
Adjustments to reconcile net Income (Loss) to
net cash provided (Used) by operating activities:
Depreciation and amortization 15,213 6,959
Gain on disposition of property & equipment (3,301)
Issue of Restricted Common Stock for Services 20,201 8,999
Net Change in non-cash operating assets
and liabilities (48,448) 68,993
Net Cash Used by Operating Activities (55,703) (32,174)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property & Equipment Acquisition (484) (3,322)
Proceeds from sale of property & equipment 3,301
Net Cash Provided(Used) By Investing Activities 2,817 (3,322)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) loans,
notes and advances:
Bank Overdraft 8,460
Line of Credit (33,755) (11,429)
Long Term Debt (12,333) 30,221
Shareholders 53,071 (14,865)
Bank Note (13,144) (2,186)
Private Lenders (38,310) 20,080
Issue of Restricted Common Stock 72,812
Net Cash Provided by Financing Activities 36,802 21,821
EFFECT OF EXCHANGE RATE ON CASH (1,521) 23
CHANGE IN CASH BALANCE FOR THE PERIOD (17,605) (13,652)
CASH, BEGINING OF PERIOD 17,605 23,772
CASH, END OF PERIOD $0 $10,120
See notes to condensed consolidated financial statements.
(5)
<PAGE>6
TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
1998 1997
NON CASH FINANCING ACTIVITIES:
Issue of Restricted Common Shares Reducing Debt
Liabilities:
Private Lenders 62,600
Shareholders 25,420
$88,020
PAYMENTS MADE FOR INTEREST $10,685 $3,643
NET CHANGE IN NON-CASH OPERATING ASSETS
AND LIABILITIES:
Decreases (increases) in operating assets
and increases (decreases) in operating
liabilities:
Accounts Receivable $35,440 $21,463
Inventory (16,491) (7,688)
Other assets (8,810) (6,182)
Accounts Payable and accrued expenses (58,587) 61,400
($48,448) $68,993
See notes to condensed consolidated financial statements.
(6)
<PAGE>7
TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION :
The accompanying condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-QSB and Regulation S-B. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been
included. Operating results for the six months ended December 31,1998
are not necessarily indicative of the results that may be expected for
the year ended June 30, 1999. For further information refer to the
financial statements and footnotes thereto included in the Company's
annual report on form 10-KSB for the year ended June 30, 1998.
NOTE 2: INVENTORY:
Inventory is comprised of the following:
December 31,
1998
Raw Materials $49,639
NOTE 3: LONG TERM DEBT:
At December 31 1998 the Company was in default on it's notes
payable to I.O.C. and it's lease payable to FBX Holdings Inc. .
Although the respective creditors have not called the obligations,
payments are due on demand and accordingly the balances are reflected
on the December 31, 1998 balance sheet as current liabilities.
(7)
<PAGE>8
NOTE 4: In July 1997 the Company had tentatively refinanced it's note payable
due to Cooper Financial Corp.. This obligation, is guaranteed by a
shareholder of the Company. A refinancing charge was assessed,
increasing the principal owed to $143,000 US. At September 30, 1998
the Company was current with the new loan provisions; with a payable
balance of $107,394 US. The Company has been maintaining monthly
payments of $3,150 US. Interest charged is 10% per annum calculated
over a period of 57 months. The term of the obligation, however, is
twenty four months with a balloon payment of $91,208 US, due
June 30, 1999.
NOTE 5: During the first six months of fiscal 1999, the Company issued
7,236,670 Restricted Common Shares. These issuances were made in
consideration of the following: For Services Rendered, $20,201 US;
For reduction of Private Lender's debts, $62,600 US; For reduction
of existing shareholder debts, $25,420 US; Existing shareholders
private placement purchase of shares, $58,919 US and an additional
private placement of restricted common shares, $13,892 US.
(8)
<PAGE>9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
Continued operating losses and monthly debt service requirements leave the
Company in a position where it is unable to meet its monthly cash flow
requirements. Cash flows resulting from the issue of restricted common stock
and shareholders loans enabled the Company to remain current on the debt
repayments, on past due balances to vendors and current payments to vendors.
During the first six months of fiscal 1999 the company issued Restricted
Common stock in consideration of current debt and services in the amount of
$108,221. Additionally, through Private Placement of Restricted Common stock
an infusion of $72,811 capital was effected.
The Company received during October 1998, $8,373 (Canadian) representing the
Ontario portion of the 1997 R&D tax claim. A claim for fiscal 1998 of
approximately $35,000 (Canadian) will be submitted. The federal tax
department intent is to audit all such claims.
Two of the Company's long term debt financing arrangements [Note 3] are
currently in arrears. The debtors have verbally agreed to a moratorium on
principal repayments until the Company is in a financial position to make a
payment[s]. I.O.C. financing arrangements [Note 3] have been technically in
default since Jan. 1, 1996; as such these debt's have been reflected as
current liabilities on the December 31/98 balance sheet. I.O.C. has not
notified the Company of it's default and it is expected that a mutual
understanding of the Company's financial circumstances will preclude any
negative action by either of the principals. Additionally, negotiations are
continuing with I.O.C. to eliminate the debt; either by repayment in full,
including accrued interest or by exchanging the aggregate debt and interest
for an equity position in the Company. If these negotiations are successful
it would eliminate a $326,099 US current liability, however, there can be no
assurances that the Company will be successful in this endeavour.
Present financing arrangements are not considered a long-term solution to the
Company's financial needs. A change in the Company's capital structure had
become necessary as a then existing authorized issue of fifteen million
(9)
<PAGE>10
common shares was almost complete, therefore, to enable the Company to
raise additional funds through private or public issuance's in the future,
an amendment to it's Certificate of Incorporation was completed in late
July 1998. The Company's capital structure was modified to increase the
number of authorized common shares from fifteen million to fifty million
shares.
In this regard the Company concluded in late January 1999, a Private Offering
under Regulation D of the Securities Act of 1933. The offering consisting of
8% Convertible Debentures in the aggregate of $230,000 US; additionally as
part thereof, Non RedeemableWarrants of a three[3] year term, allowing the
investor to purchase shares of the Corporation's Common Stock. In addition
the offering provided for a subscription agreement and registration agreement.
Accordingly the Company will set aside the appropriate number of shares from
the authorized and unissued shares of Common Stock for issuance (i) upon
conversion of the Debentures and exercise of the Warrants issued in
connection with the offering; a further issuance of 50,000 shares of
restricted common stock in consideration for legal services rendered and 50,000
shares of restricted common stock for services rendered in relation to the
private offering.
Additionally the Company will prepare and file with the Securities Exchange
Commission, a Registration Statement on Form SB-2 to register the shares of
the Corporation's common stock underlying the Debentures, Warrants and the
shares of common stock issued for legal services rendered and for services
rendered in relation to the private offering.
Conversion price of the debenture will be equal to 75% of the "Market Price".
"Market Price" being defined as the average of the closing bid prices of the
Common Stock during the 10 trading days immediately preceding conversion, but
not more than the "Fixed Conversion Price" which is defined as the 100% of
the average of the closing bid price during the 10 trading days prior to the
closing date ("Closing Price").
The Non Redeemable Warrants [ three year term] will allow the investor to
acquire a number of shares equal to the total investment amount divided by
the closing price multiplied by 10%; with an exercise price equal to the
Fixed Conversion Price.
(10)
<PAGE>11
Additional expenses associated with this transaction are as follows; finder's
fee equal to 8% of gross proceeds raised or $18,400, legal expenses for
both finder and the company of approximately $15,000., payable on closing.
Should the Registration Statement, to be filed by the Company, relative to
this offering not be effective within 120 days from the closing the Company
would be obliged to pay the investor 2% of the principal amount of the
Debenture for each 30 day period thereafter [prorated for partial periods]
until the registration statement is effective.
Cash flow resulting from the debenture offering will be used to reduce
current trade payables and sustain on going operating expenses.
The company will continue to assess and investigate all avenues in respect of
it's financial requirements. If it is deemed to be in the best interest of
the Company and its stockholders, serious consideration will be given to
raising additional funds through private or public issuance's in the future.
No significant capital expenditures are anticipated during the 3rd quarter of
this fiscal year, however, if the market develops to the extent indicated by
initial introduction of the Company's new product "Morfoam" to various
potential customers, it will necessitate immediate expansion of existing
warehouse facilities by approximately 30% and consideration of acquiring
additional manufacturing equipment necessary to performing a relative
manufacturing function in house rather than contracting the work to an
outside firm.
"Morfoam", is a product for the plastics and rubber industry, is a chemical
foaming agent and processing aid, providing significant cost reductions by
reducing the amount of plastic consumed, but also provides many other
advantages to the industry, such as improved surface finishes, physical
properties and sink mark elimination, lower part weight and shorter cycle
times. Morfoam is a concentrate encapsulated in an olefin binder, presented
in pellet form to be easily blended or metered into the users formulations.
The product improves cell structure and reduces voids when nitrogen is used
as the primary foaming agent.
(11)
<PAGE>12
Results of Operations:
Sales revenues for the first six months of fiscal 1999 decreased 25 %, when
compared to those for the corresponding periods of the previous year. A
larger percentage of this period revenues were for processing services where
the materials used in production are provided by the customer. Accordingly,
the current year decrease in revenues was offset by a corresponding decrease
in material costs. Comparative gross margins, however, improved substantially
due to the change in pricing arrangements and mix of business. The Company
continues to pursue an ISO 9000 rating which has become an important
requirement necessary to secure new customers and also maintain existing
customers. The Company is endeavouring to reach this goal as soon as
possible. It is hoped that the rating can be achieved during the current
financial year, however there can be no assurances of this.
The Company continues to develop and market the specialty compounding, with
this segment representing 93 % of revenue during the first six months of
fiscal 1999 and continues to pursue additional specialty compounding
possibilities. Technical Ventures Inc. through its subsidiary Mortile
Industries' agreement with a customer to provide specialty compounding
services to meet the customers entire North American requirements continues;
volumes, although not as great as originally forecast, are steadily growing.
The development of this agreement is the result of two and a half years of
joint product development by both parties. In order to meet indicated
production demands of this agreement and additionally with the very positive
reception of the Company's new product Morfoam, it is anticipated that the
Company's present production facilities will be operating near capacity by
the end of the current financial year.
Under their agreement, the customer has indicated increased production
requirements in calendar year 1999. With this possibility and the growth of
Morfoam, it is anticipated a second manufacturing facility to be located in
North Carolina and partially funded by the customer, could be operational
late in the current fiscal year.
The Company continues to assess additional opportunities in it's expertise
of specialty compounding. Metal composites, used in the munitions market,
have become active again, having produced 13,000 Lbs. in the 1st quarter.
In October 1998, 55,000 Lbs. of material was produced and a further 55,000
(12)
<PAGE>13
Lbs. has been produced in January 1999. The customer has now ordered an
additional 64,000 lbs of product for delivery in February 1999. Another
order of 55,000 lbs is expected in the fourth quarter of fiscal 1999.
The preceding volumes from this customer represent a 100% increase when
compared to the previous years corresponding periods. Indications are that
this customer has begun to make long anticipated sales. The Company has also
been advised by this customer that they anticipate sales to continue at a
strong pace.
Administrative expenses increased 5 % for the six month period ending
December 31, 1998 when compared to those for the corresponding period of the
previous year. This increase due in part to the quest for financing and legal
expense relative to modification of the Company's Certificate of
Incorporation.
Interest and other financing costs decreased substantially when compared to
those for the corresponding six month period of the previous year, primarily
the result of the agreement which eliminated the Dow debts in the fourth
quarter of fiscal 1998 and the resultant decline in related interest expense.
R&D expenses decreased 22%, when compared to those of the corresponding six
month period for the previous fiscal year, due to resources being redirected
to sales expense. Selling expenses increased 28% as efforts are stepped up
to introduce the new product Morfoam, to potential customers.
The Company, however, continues to take measures to contain all areas of
expense.
Forward Looking Statements:
This Form 10-QSB contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21B of the Securities
Exchange Act of 1934. The Company's actual results could differ materially
from those set forth in the forward looking statements.
(13)
<PAGE>14
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 K
(a) Exhibits - none
(b) Reports on Form 8-K - none
(14)
<PAGE>15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorised.
TECHNICAL VENTURES INC.
Date: February 5,1998 BY:/s/ Frank Mortimer
Frank Mortimer, President and
Chief Executive Officer
Date: February 5,1998 BY:/s/ Larry Leverton
Larry Leverton
Chief Financial Officer
(15)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AND INCOME STATEMENT INCLUDED IN PART I, ITEM 1 OF
THE REGISTRANT'S QUARTERLY REPORT ON FORM 10-QSB FOR THE PERIOD ENDED
DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 77,538
<ALLOWANCES> 0
<INVENTORY> 49,639
<CURRENT-ASSETS> 196,076
<PP&E> 611,596
<DEPRECIATION> 456,684
<TOTAL-ASSETS> 351,757
<CURRENT-LIABILITIES> 1,079,419
<BONDS> 0
<COMMON> 219,480
0
0
<OTHER-SE> (1,065,877)
<TOTAL-LIABILITY-AND-EQUITY> 351,757
<SALES> 505,078
<TOTAL-REVENUES> 505,078
<CGS> 148,676
<TOTAL-COSTS> 146,676
<OTHER-EXPENSES> 156,561
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,142
<INCOME-PRETAX> (45,027)
<INCOME-TAX> 0
<INCOME-CONTINUING> (45,027)
<DISCONTINUED> 0
<EXTRAORDINARY> 5,658
<CHANGES> 0
<NET-INCOME> (39,369)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
