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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.. 20549
FORM 10-KSB A1
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
[ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 33-2775-A
TECHNICAL VENTURES INC.
(Exact name of registrant as specified in its charter)
New York State 13-3296819
(State or other Jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
3411 McNicoll Avenue, Unit 11
Scarborough, Ontario, Canada M1V 2V6
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (416) 299-9280
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB [ ]
State Issuer's revenues for its most recent fiscal year, $1,367,450.
The appropriate aggregate market value of the voting stock of the Registrant
held by non-affiliates of the Registrant as of September 30, 2000 (based upon
the average bid and asked prices as reported by the National Association of
Securities Dealers Automatic Quotation System) was approximately $5,659,442.
The number of shares outstanding of the Registrant's common stock, as of
September 30, 2000 is 26,238,006
Exhibit index is located on page 22 of this Annual Report on Form 10-KSB.
Page 1 of 51
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TECHNICAL VENTUES INC.
FORM 10-KSB A
Fiscal Year Ended June 30, 2000
ITEM Table of Contents PAGE
PART I
Item 1. Business 3-11
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrants Common Equity and Related
Stockholder Matters. 13
Item 6. Management's Discussions and Analysis of Financial
Conditions and Results of Operations. 14-17
Item 7. Financial Statements and Supplementary Data 17
Item 8. Changes in Disagreements with Accountants on
Accounting and Financial Disclosure. 17
PART III
Item 9. Directors and Executive Officers of the Registrant 18
Item 10. Executive Compensation 18
Item 11. Security Ownership of Certain Beneficial Owners
and Management 19
Item 12. Certain Relationships and Related Transactions 20
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports
on Form 8 K 22
Signatures 23
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Item 1. Business
Introduction:
Technical Ventures Inc. (the Company) is a New York corporation formed on
June 14, 1985 to raise capital for the purpose of seeking business
acquisition possibilities throughout North America. The primary objective
of the Company was to search for a business which in the opinion of its
management, demonstrated long-term growth potential that would warrant
involvement. On April 14, 1986, the Company acquired all the issued and
outstanding shares of common stock of Mortile Industries Ltd. (Mortile)
a Canadian corporation. Prior to April 1992, the Company had been considered
to be in its development stage.
The market in which Technical Ventures operates has had increased demand for
products that meet certain requirements whether by companies or government
legislation. These demands are met with TVI's products and services. The
Company has entered into a unique market niche that allows them to specialize
in the production of the products to meet their clients needs and provide the
technical support that may be needed. TVI has the capacity to tailor their
production for each customers' requirements. Working closely with its client
base in order to maintain good customer relations and help fully satisfy
their needs, the Company is set apart from the others in the industry due to
the technical support staff and direct distribution of the products.
Technical Ventures Inc.'s subsidiary Mortile Industries Ltd., deals in the
design, development, and manufacturing of proprietary polymer, composite and
specialty compounds; additionally Mortile compounds proprietary formulations
of the customer.
The applications for TVI's products expand into every area of plastics.
Repeat business is also high, due to the technical complexity of their
products and the loyalty to TVI by it's customers.
Since inception, the Company has expended $ 3,155,603 US in the development
of it's products, including $74,053 in fiscal 2000, $76,850 in 1999 and
$94,874 during fiscal 1998.
The Company's present operations, assets and employees are primarily those
of Mortile. At June 30, 2000 the Company has fourteen full time employees,
all being employees of Mortile.
Technical Ventures and its subsidiary Mortile Industries, Ltd., are poised
to fully penetrate the market and the Company has built the background to
perform this goal. Due to its technology, products, management's expertise,
customer support, future planning strategies and financial backing, the
company is ready for rapid growth.
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Product & Service Description:
The Company has developed, manufactured, and sold a wide range of specialty
resin materials for applications to many large multinational firms across the
globe. TVI 's products have the means to lower their client's cost of raw
materials while maintaining the product's performance. This has led to several
reputable firms taking notice of the Company's achievements.
The Company's subsidiary, Mortile Industries Ltd., deals in proprietary
polymer/thermoplastic compounds, composite compounds (a composition of plastic
with other powdered materials), and specialty compounds which the company
produces by mixing and pelletizing proprietary formulations specified by its
customers. It is engaged in the design, development and manufacture of highly
engineered specially formulated, high performance polymer materials. The
Company's products and services are sold to end-use manufacturers in the indus
trial equipment, transportation, electronics, munitions and process industries
markets.
Some of the Company's keys to success are:
Success rate and performance of the Company's products
Technical expertise and background of scientists and engineers
Technical support provided for customers
Global patents and licenses on the technologies
Strategic alliances with large multinational firms
Timing in a market where change is needed.
The development of the products and service by TVI has been a lengthy process.
However, with the massive amounts of stringent tests on products and the very
promising results, the management believes the market potential of the
products will justify the time and costs.
Technologies:
Technical Ventures Inc. has focused its efforts on the development of
proprietary thermoplastic compounds (plastics mixed with other solid
materials) and specialty compounding which the Company produces by compounding
and pelletizing proprietary formulations specified by its customers.
Polymer Technologies
A polymer consists of chains of molecules, called monomers, that combine or
polymerize (normally with help from a catalyst) to form large molecular
structures. Polymers are very versatile materials. For example, they can be
cast into molds to create intricate structures, extruded through a spinneret
to make fibers, or blended with liquids - including water - to make coatings,
adhesives and thickeners. As a result, polymers have replaced, and continue to
replace, natural products such as metal, wood, paper, cotton and glass in a
broad range of applications. Moreover, the substitution is not driven
primarily by cost, but by the increasing desirability of polymers based on
their versatility and performance characteristics. Two common types of
polymers are thermoplastics and thermosets which, collectively, are referred
to as plastics.
Thermoplastics are the most common synthetic polymers. They are relatively
inexpensive, light and durable, but not particularly strong.
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Thermoplastics can be remelted at relatively low temperatures, thus making
them recyclable. They are used in structural applications where exposure to
high stress and heat are not concerns Common thermoplastics include
polyethylene, polypropylene, polystyrene and polyvinyl chloride. Other
thermoplastics such as engineering resins, which typically have higher
strength and performance, include nylons and polycarbonates.
Thermosets polymerize at relatively high temperatures, normally through mixing
with an initiation compound. During polymerization they are cross-linked, a
process that increases their strength and durability relative to
thermoplastics. They are generally stronger, more heat resistant and more
difficult to process than thermoplastics. Common thermosets include epoxies
most polyurethane's, unsaturated polyester, melamine and phenolics.
Thermosets, however, cannot be re-melted or recycled.
In light of growing environmental pollution concerns, It is expected that the
plastics industry will be forced by legislation to develop and manufacture
plastics that are recyclable or to include recycled content. The plastics
industry has undertaken extensive research to develop cost-effective
thermoplastic products that are both durable and flame-retardant, particularly
for applications in the wire, cable, transportation and construction
industries.
Flame resistant polymer compositions have been available for many years.
However, many such compositions relied on the presence of halogen based
compounds to yield flame-retardancy. Halogen based compounds, on combustion,
emit toxins including gaseous chlorine and bromine compounds. Other retardants
can emit hazardous sulfur, cyanide and phosphorus gaseous compounds. Concerns
by environmentalists worldwide have resulted in increased pressure on
manufacturers of polymer-based products to eliminate plastics with such
potential dangers.
TVI is working toward eliminating the halogens in certain polymer technologies
while maintaining the same degree of flame-retardancy . In addition, the
recycling of some plastics will be easier with the added polymer technologies
of TVI. As the industry becomes more and more legislated by governments with
regard to the environment, TVI plans to further explore the development of
their substitute products to the industry. TVl's polymer compounds meet the
current requirements of customers while adhering to the laws of the
government.
Composite Technology:
The object of composite technology is to mix plastic binders with powder
materials of choice, and to prove specified strength and durability designed f
or use In a variety of plastics and foaming processes including injection,
molding and extruding. The end result is a material that is both strong and
durable, yet has flexible design options so it can be used in injection
molding applications.
Injection molding is a process by which a compound is heated to a fluid state
and injected into a cavity mold in the shape or form and density required. The
fluid compound flows to the shape of the mold and is cooled to a solid state
and then removed. Injection molding is a significantly less expensive
alternative to machining and die casting.
This process reduces the cost of machining and die casting significantly . By
applying existing technology to new ideas, TVI can successfully produce, for
example, metal/plastic compounds suited to meet demand for the replacement of
lead and other metals in many applications. Opportunities to market these
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compounds exist in a variety of industries including automotive and munitions.
Specialty Compounds Technology:
Specialty compounding may be defined as the compounding and enhancement of the
customer's proprietary formulation(s) into pellet form, which is a semi-
manufactured form. This process involves the customer's presentation of
required mix components, the physical mixing of the components, and then
pelletizing the compound. Component raw materials for this process may be
supplied by the customer or purchased by the Company on behalf of the customer.
Practical and technological expertise was gained from the use of the
compounding and mixing machinery purchased in 1989. Laboratory and test
facilities, which have now been put in place, have allowed the Company to
secure major customers in their market.
One aspect of this service is what is known as master batches. This is the pre-
dispersion of highly concentrated powders, which are to be mixed and diluted
by "letdown" with resins in the final stages of manufacture. The predisposed
powders are added to the resins at the end-user extruder or molder. Typical
master batches are: foaming agents, sulfur, zinc oxide, flame retardants,
curing agents, processing aids, antioxidant stabilizers and slip and anti
block agents.
A large portion of TVI's revenue for fiscal year end 2000, and the majority of
the Company's efforts, have been concentrated on specialty compounding. In
this business unit, the customers retain the Company to enhance and compound
their proprietary formulations into a pellet form. With the assistance of the
customer, TVI formulates the most effective and efficient method to mix the
components.
Customers who retain TVI for specialty compounding are manufacturers of
end-use plastics and plastic products. Generally, many manufacturers of these
products do not compound component materials into a pelletized form themselves
prior to manufacturing end products. However, an increasing number of
manufacturers prefer this process because it provides for a more perfect
dispersion of component materials which are often in powder form and
streamlines their thermoforming systems.
Specialty compounding is particularly useful when manufacturing components are
reactive. For example, reactive components are used In the curing or
cross-Inking of rubber or plastic. Additionally , because powder components
are difficult to work with, manufacturers prefer to work with pelletized
master batches, as there are less environmental risks. TVI is fully capable of
providing their customers with this pelletized form for ease of use and safety.
Research and Development
The research and development of the aforementioned technologies is targeted to
establish as much technical and test data information needed to provide the
technical sales staff and potential customers with the technical sales
information. Product technical sales brochures are developed in order to
inform potential customers and employees of the comparative benefits of TVI
products.
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Future development of products will focus on specific problems experienced in
the marketplace and attempt to solve these problems with potential customers.
There are thousands of injection molders and extruders operating with many
different polymer and die configurations. The trained technical staff will be
called upon to satisfy the customers' needs. Research and development will
also continue to add additional products to meet the market requirements.
Patents
A U.S. patent was issued to the Company for its flame-retardant material in
May 1991. The continuation in part of this same patent was issued in
June 1993. Patents have since been granted by the European Communities
Organization (which include the countries of Austria, BelgIum, France,
Germany, Great Britain, Holland, Italy, Spain, Sweden, and Switzerland).
Another patent In Australia was granted effective March 1989 and official
notice being receIved in January of 1993. The Canadian patent has been
accepted and is pending. Patent applications in other fields of technology
have also been filed.
The Company sold this and other significant proprietary technologies to the
Dow Chemical Company in 1998, but retained certain licenses and rights to use
these. It also has developed other proprietary technology and trade secrets.
Since all manufacturing is "in-house" , the Company is able to protect its
technology and quality while continually improving the product to maintain the
customer loyalty.
Products
Technical Ventures, Inc. is very close to its customers and their needs, which
allows it to identify areas of opportunity that may be exploited. The Company
has developed a range of materials, having broad applications such as fillers,
foaming agents, and pigment extenders. This product group delivers unique user
benefits, such as smaller consistent cell size, which produces a stronger
product and/or higher foaming capability . This translates into a lower raw
material cost, which in turn reduces cost for the end-use manufacturer. The
market for the product is large with a potentially large application in the
automotive and construction market worldwide. Presently , a large
multinational company in the automotive sector is testing the materials for
application to their product lines.
Polymer Compounds:
TVI has developed, manufactured and sold one type of flame retardant,
nontoxic, thermoplastic compound. It minimizes the hazards of fire and can be
easily processed into end-use products. The Company has conducted extensive re
search and testing with regard to the use of this product in the construction
and transportation industries.
The performance test results have concluded that TVl's thermoplastic products,
when burned, emit none of the toxins discussed earlier. Additionally, the
products possess anti-combustion, low toxicity attributes and are considered
to be superior to other products presently available. Although the sale of
TVI's thermoplastic products has not represented a significant portion of
revenues to date, it is believed that these products have significant market
potential.
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Product roll out of these polymer compounds should increase with the expansion
of manufacturing facilities.
Composite Compounds:
Using composite compounds, TVI has successfully produced metal/plastic
materials that can be used in many applications as a replacement for lead and
other metals. Presently, the Company supplies this product for use in
munitions, fishing sinkers and lures, and for bushings in copiers and fax
machines. Also, the Company is expected to market metal replacement compounds
in the automotive, construction and firearms markets.
Many laws constraining use of lead are currently being reviewed by governments
around the globe. A replacement will be needed for lead in munitions, fishing
sinkers and lures, and various other lead based products. TVI can provide this
replacement material with their composite compounds with none of the hazards
that lead poses to the environment.
Specialty Compounds:
TVI has been selling a reinforcing agent used to increase the stiffness of
plastics used for crates and component parts. The product has been thoroughly
tested in incubator trays for the poultry industry and will now be offered to
the industry at large.
The largest potential product of the Company is a specialty compound called
Morfoam. It acts as a chemical foaming agent, nucleating agent and processing
aid which undergoes an endothermic chemical reaction at processing
temperatures. This reaction produces a gas resulting in fine cell structures
in extrusion and molded parts. The Morfoam technology combines a chemical
foaming agent, nucleating agent and processing aid into one easy to use master
batch. Morfoam is a multi-component chemical concentrate encapsulated in a
polyolefin carrier. Morfoam is produced in pellet form in order for customers
to easily blend or meter into a wide range of polymer products.
As a foaming agent Morfoam produces a uniform cell structure that can reduce
part densities by 40% or more. The fine foam structure also increases opacity,
which allows for lower titanium dioxide levels in film and sheet The inherent
fine particles in Morfoam also act as an efficient nucleating agent generating
large quantities of fine closed cells. Morfoam also improves cell structures
and reduces voids when nitrogen is used as the primary foaming agent. Morfoam
can be used as a processing aid in extrusion and injection molding for
improved output rates, reduced cycle times and enhanced surface appearance.
Morfoam also reduces part stresses, sink marks, pinholes and furthermore acts
as an efficient purging/cleaning agent.
During fiscal year 2000, the Company continued to workclosely with three
customers developing all types of compounding methodology for each customer's
proprietary component formulations. TVI provided compounding services for Shaw
Industries, Ltd.'s formulation for an industrial pipe wrap and coating.
Compounding services for MLPC International's formulation for various
proprietary rubber curing compounds were provided. Additonally, Fin Project's
proprietary formulation for the footwear industry was also on the list of
TVl's customers.
Because TVI retains these and other large multinational firms as current
clients, and with their large demand for the Company's material, TVI plans on
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steadily increasing supply of the Company's products to them as capacity
allows, thereby increasing revenues and profits. The reputations of these
clients provide valuable references for obtaining new customers as well.
Revenues And As percentage of Consolidated Contract Revenues
CUSTOMER 2000 1999 1998
Endex Polymer Additives ** 0 - 0 % $18,431 - 1 % $312,576 - 18 %
MLPC International $334,694 - 25 % $341,794 - 22 % $277,980 - 16 %
Shaw Industries Ltd. $749,713 - 56 % $705,282 - 43 % $698,583 - 41 %
SNC Industrial
Technologies - - $200,005 - 12 % $19,395 - 4 %
**Note Item 3 - Legal Proceedings
Pricing
The pricing structure of existing competitors has been evaluated and the
products and compounding services are priced at the median. Since the
Company's products do not form a major part in the pricing of the finished
goods, the Company feels that the performance and product support will
contribute most in the buying decision. TVI has more to offer their customers
with respect to product performance and the technical support staff that can
assist customers applications.
Warranties & Service Contracts
The product is supplied with a certificate of analysis confirming that it
meets the required specifications, which is one mandatory requirement of ISO
9000 companies. No warranties are attached since TVI cannot monitor the
processing conditions of use. There are no service contracts necessary,
however, the Company's technical staff will assist customers if requested to
do so.
Marketing
Market Niche
TVI has positioned itself to pursue niche markets where the following
standards are essential:
1. The ability to achieve superior dispersion of powders into the resins.
2. Use of air-cooled heads for moisture sensitive materials.
3. Use of nitrogen blankets for cooling in high humidity .
4. Fast turn around of small orders.
5. Equipment designed for ease of cleaning with minimum downtime and
wastage.
In this market the Company has three distinct advantages: equipment,
personnel, and size. The equipment was selected to achieve good dispersion in
the proprietary polymer and composite technology. The Company's personnel,
consulting scientists and chemists enable it to work closely and cooperatively
with customers to meet their specific needs. The Company's size allows it to
direct immediate attention to existing and potential customers in a cost-
effective and timely manner.
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Market Research
Market research has been concentrated on the endothermic foaming agents
business and it was established that this represented the fastest growing
segment of the market. Further marketing research pertaining to customer needs
and competition is discussed later in this section.
The Company has identified over 400 potential customers from trade sources.
Further, over 500 potential users have been located in a specific region of
the United States. All of these are potential clients, and TVI has been
aggressively seeking business through the introduction of their products to
these users. Initial responses from these companies have been favorable and
will lead to a larger customer base.
The results of our pre-marketing survey established that the market was not
well served. This information was obtained by test marketing reports and
meetings with potential customers. This has convinced TVI that their timing in
this market is opportune.
Research was also conducted on product performance with specific attention
pertaining to competition. TVI and their products out perform the competitors
in most aspects. These factors give TVI the ability to leap the barriers to en
try and penetrate this market. TVl's customer base will grow with direct
proportion to the rate the company can grow to suit the needs of those
customers.
Market Growth
Market review indicates that growth in plastic consumption is solid over the
five years researched. The market size data shows the diversity of the market
potential as well as the size of the opportunity.
Competition
Many competitive products have been evaluated in our laboratory and in the
field by potential customers, and TVI's performance surpassed the
competition's. TVI's products will have the competitive edge of performance
and price, with special attention being paid to our technical support program,
which builds brand equity among the customers.
The research and development effort has been geared toward a superior product
at a competitive price. The Company's own manufacturing controls the
processing cost. Therefore, as the business becomes further developed, lower
overheads and less costly distribution channels are anticipated for TVI.
Furthermore, during test marketing it was found that the large competitors
were relying on distributors and agents that had limited technical experience
in plastics. Once again, TVI will have the advantage over the competitors
building long-term relationships and customers directly.
Competative Advantages
Corporations such as Exxon, DuPont, Union Carbide, Raychem and Megalon re
present the most widely recognized competition with our polymer technology;
all are substantially larger than the Company in terms of financial, marketing
and research and development resources. Dow Chemical purchased some of TVI's
technology in 1998. Lucent Technologies has assigned the product the highest
quality rating, after subjecting the product to a five year rating program.
The application of the polymer technology in wallboard is still the only
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plastic in its field to pass certain fire codes for high rise buildings.
Additionally, in other applications where the product is being tested,
customers observed that TVI's polymer technology out performs the competition.
In regard of composite technology; the Company has been able to achieve the
highest filler levels to obtain maximum specific gravity and has no
competition. The Company has patent protection through a licensing agreement
with DuPont Canada, as it pertains to fishing sinkers and lures. The
Company's composite for bushings for copiers and fax machines provides the
scenario that is extremely difficult if not impossible to reverse engineer.
However, as the product becomes more technical compounders such as L&P and
others exist and continue to develop, as does the Company.
Compounding, Specialty (Contract); in this market the Company has three
distinct advantages, equipment, personnel and size. The equipment was
selected to affect good dispersion in the proprietary polymer technology and
composite technology. The Company's personnel and associations with
consulting scientists and chemist enables it to work closely and
co-operatively with customers to meet their needs. The Company's size allows
it to direct immediate attention to existing and potential customers in a cost
effective and timely manner. The Company directs efforts to "niche" markets w
here the following criterion is essential: fast turn around of small orders,
equipment designed for ease of cleaning at minimum downtime and wastage, air
cooled die heads for moisture sensitive materials, excellent dispersion of
powders into the resins and nitrogen blankets for cooling in high humidity.
Backlog Information:
At June 30, 2000 the Company had a backlog of orders totalling $106,100 US.
Item 2. Properties
The Company currently leases 17,300 square feet of office and production
facilities at 3411 McNicoll Avenue, Scarborough, Ontario. With a total monthly
base rent of $7,830 (Canadian) exclusive of real estate tax escalations. The
current leases [2] expire on March 31, 2002.
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Item 3. Legal Proceedings
A legal action was commenced against the Corporation, its subsidiary , Mortile
Industries Ltd., their President, Frank Mortimer and the Dow Chemical Company,
on June 4,1999 in the Ontario Superior Court of Justice (Commerical List); by a
former customer, Endex Polymer Additives Inc., Endex Polymer Additives Inc.
(USA), Endex International Limited and G. Mooney And Associates. The Dow
Chemical Company is defending separately.
The claims allege breach of secrecy agreements, fiduciary duty and misuse of
Endex confidential information. The Plaintiffs are seeking CND $10 Million
compensatory damages, further punitive damages of CND $1 Million and
interlocutory and permanent injunctions.
Based on prior written legal opinions from its patent attorneys that the
allegations are without merit, the Corporation retained a law firm
specializing in Intellectual Property Law and is vigorously defending the
action.
After submission of the Defendants' evidence, the Plaintiffs abandoned their
claim for an interim injunction. The Defendants have moved for an expeditious
trial. The Court has ordered the parties to combine the examinations for
injunction proceedings with those for the preparation for trial.
On September 16-17, 1999, at the hearing of the interlocutory injunction
motion, the parties agreed, on consent, to adjourn the motion until trial.
The parties agreed to expedite the matter to trial with an original target
date of about December 1999.
At June 30, 2000 no further direction had been received by the company's
counsel as to when the matter might proceed to trial nor had any direction
been received at the date of filing this report.
Item 4. Submission of Matters to a Vote of Security Holders
None
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders
Matters
Market Information:
The Company's common stock has been publicly traded since March 21, 1986 on
the over-the- counter market. The following table sets forth the quarterly
high and low bid quotations as reported by the National Quotation Bureau
Incorporated, a registered securities association:
Quarter Low High
Sept. 1998 $0.110 $0.900
Dec. 1998 0.080 0.250
Mar. 1999 0.150 0.300
June 1999 0.105 0.330
Sept. 1999 0.125 0.330
Dec. 1999 0.115 0.250
Mar. 2000 0.130 0.840
June 2000 0.200 1.070
Sept. 2000 0.180 0.300
These prices do not reflect retail mark-up, mark down or commissions and may
not represent actual transactions.
Holders:
As of June 30, 2000, there were approximately 1,000 shareholders of record.
Dividends:
To date the Company has paid no dividends to its shareholders. The Board of
Directors of the Company will consider the payment of dividends when it deems
it appropriate to do so, taking into account current and potential Federal and
State regulatory restrictions, the Company's income and financial condition,
economic conditions and other factors. However, no assurance can be given
that dividends will ever be paid to shareholders.
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
GOING CONCERN (Note 1), 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, in
that regard;
During the year ended June 30, 2000, the Company's operating loss was funded
primarily by working capital provided by a Canadian Tax Refund and an increase
in accounts payable and accrued expenses. Continued operating losses and
monthly debt service requirements continue to leave the Company in a position
where it is unable to meet its monthly cash flow requirements.
During fiscal 2000 the company received a $25,055 tax refund. A claim for
fiscal 1999 of approximately $23,000 has been filed. The tax department has
notified the Company of their intent to audit all such claims submitted. It
is anticipated that a claim of approximately $25,000 will also be submitted
for fiscal 2000.
Two of the Company's long term debt financing arrangements are currently in
arrears. The aggregate amount of principal and accrued interest currently in
arrears and outstanding, $545,560. The debtors, however, fully appreciate
the Comany's financial position and have verbally agreed to allow a moratorium
on repayments until the Company is in a financial position to make payment(s)
or alternate arrangements can be completed.
Management does not consider these sources of funds (assuming the above refund
claims are accepted) to be a long-term solution to the Company's financial
needs and efforts are being made to complement these funds with additional
debt or equity financing.
During the fiscal year the Company issued Restricted Common stock in
consideration of current debt, and services in the amount of $79,842. A
total of 599,020 Restricted common shares were issued at an average price per
share of $0.133. Average market price at the time of consideration was $0.21
per share.
The Company continues to explore all opportunities with major investment
banking providers in respect of financial requirements. Additionally if it
is deemed to be in the best interest of the Company and its stockholders,
serious consideration will be given to raising additional funds through
private or public equity issuance's in the future.
In this regard the Company concluded in late January 1999, a Private Offering
under Regulation D of the Securities Act of 1933. The offering consisting of
8% Convertible Debentures in the aggregate of $225,000 US; additionally as
part thereof, Non RedeemableWarrants of a three[3] year term, allowing the
investor to purchase shares of the Corporation's Common Stock. In addition the
offering provided for a subscription agreement and registration agreement.
Cash flow resulting from the debenture offering was used to reduce current
trade payables and sustain on going operating expenses.
Accordingly the Company has set aside the appropriate number of shares from
the authorized and unissued shares of Common Stock for issuance (i) upon
conversion of the Debentures and exercise of the Warrants issued in connection
-14-
<PAGE>15
with the offering; a further issuance of 50,000 shares of restricted common
stock in consideration for legal services rendered has been completed and
50,000 shares of restricted common stock for capital advisory services
rendered in relation to the private offering.
The Company has prepared and filed with the Securities Exchange Commission, a
Registration Statement on Form SB-2 to register the shares of the
Corporation's common stock underlying the Debentures, Warrants and the shares
of common stock issued for legal services rendered and for services rendered
in relation to the private offering.
Conversion price of the debenture will be equal to 75% of the "Market Price".
"Market Price" being defined as the average of the closing bid prices of the
Common Stock during the 10 trading days immediately preceding conversion, but
not more than the "Fixed Conversion Price" which is defined as the 100% of the
average of the closing bid price during the 10 trading days prior to the
closing date ("Closing Price").
The Non Redeemable Warrants [ three year term] will allow the investor to
acquire a number of shares equal to the total investment amount divided by the
closing price multiplied by 10%; with an exercise price equal to the Fixed
Conversion Price.
Additional expenses associated with this transaction are as follows; finder's
fee equal to 8% of gross proceeds raised or $18,400, legal expenses for both
finder and the company of approximately $15,000., payable on closing.
Should the Registration Statement, to be filed by the Company, relative to
this offering not be effective within 120 days from the closing the Company
would be obliged to pay the investor 2% of the principal amount of the
Debenture for each 30 day period thereafter [prorated for partial periods]
until the registration statement is effective.
In that regard the Company prepared and filed, in accordance with the Private
Offering, with the Securities Exchange Commission, on April 8, 1999, a
Registration Statement on Form SB-2. The Company has responded and filed in
aggregate 3 amendments to the Registration Statement Form SB-2, the last
amended filing and response being made in April 2000 with S.E.C. comments
regarding that filing being received in June 2000. At the date of this
report no further amendments or responses have been filed and therefore the
registration statement has not become effective. In aggregate of 8,625,512
shares were to have been registered to be sold to the public by our
shareholders and purchasers of our debentures which are convertible into our
common stock and which, additionally, bear warrants to purchase our common
stock.
During fiscal year 2000, the Company issued 2,050,000 Restricted Common Shares
in exchange for Consulting - Financial & Public Relations Services to the
company, expensing $359,838 for the service, at an overall value per share of
$0.176 .
During fiscal 2000 the company issued 504,020 Restricted Common Shares to a
shareholder of the company in exchange for a debt due the shareholder in the
amount of $55,442, a price per share of $0.11.
Additionally, during fiscal 2000, the company issued 50,000 Restricted Common
Shares to it's Securities Counsel's firm for legal expense related to the on
-15-
<PAGE>16
going SB 2 registration, at a value of $10,000 or $0.20 per share; also
45,000 Restricted Common Shares in consideration of consulting work relative
to product development at a value of $14,400 or $0.32 per share.
No significant capital expenditures are anticipated during fiscal 2001,
however, if the market develops to the extent indicated by introduction of the
Company's new product "Morfoam" to many various potential customers, it will
necessitate immediate expansion of existing warehouse facilities by
approximately 30% and consideration of acquiring additional manufacturing
equipment necessary to performing a relative manufacturing function in house
rather than contracting the work to an outside firm.
Significant property and equipment purchases and/or expansion of facilities
will only be considered if demand for Company products warrant such expansion
and the financing of such expansion would not adversely effect the Company's
financial condition.
Based on projections provided by existing customers, management expects
increased sales in all areas of it's expertise, during fiscal 2001.
Additionally, on September 19, 2000 the company reached agreement in principal
to acquire control of Multi-Web Lamination Inc. a Canadian corporation
located in Woodbridge, Ontario, Canada; in consideration of certain
commitments, to take place over the next 30 - 60 days, one of which being a
Definitive Agreement to be concluded by no later than November 1, 2000.
Multi-Web Lamination will survive as a corporation, as a wholly owned
subsidiary of the company. Multi-Web currently has annual sales of $1 Million
CND and is forecasting sales of $2 Million CND during the current financial
year. A Letter of Intent was signed on October 1, 2000 outlining the basic
agreement, subject to the purchase being effected in accordance with a
negotiated definitive agreement containing representations and other terms, in
which the company will acquire control of all outstanding shares of Multi-Web
Laminations Inc. in exchange for 2,125,000 Restricted Common Shares of
Technical Ventures Inc.
Results of Operations - Comparison of Fiscal 2000 To Fiscal 1999:
For the fiscal year ending June 30, 2000, the Company incurred a loss of
($783,413) on net sales of $1,367,450 million, of which approximately 95%
was generated from specialty [contract] compounding work. Net sales revenues
increased 21 % over fiscal 1999 . The majority of this increase taking place
in specialty compounding work in which the company supplied raw materials. In
comparison fiscal 1999 incurred a loss of ($686,387) on net sales of
$1,131,280.
Reflecting the expense during fiscal 2000 related to the issue of shares for
financial advisory and consulting which was $359,838, the net loss would
become ($423,575). Similarly in fiscal 1999 the expense of $302,930 for
financial advisory and consulting, the net loss would become ($383,457).
Gross margins of $311,174 in fiscal 2000, as a percentage of net sales,
decreased to 23 % from $367,357 or 32 % for the year ended June 30, 1999. The
decline in gross margins is due in part to the change in the mix of clients.
A major portion of the revenue earned in fiscal 2000 came from clients for
which the company purchases raw materials and provides services for the
compounding, charging the client accordingly; margins for this segment of the
business are lower because of very competitive circumstances.
-16-
<PAGE>17
Sales by geographic area for the fiscal year ended June 30, 2000 and
1999, in US$ are as follows:
Geographic Area 2000 1999
United States $ 73,801 $ 120,456
Canada 964,611 779,070
France 329,038 231,754
$1,367,450 $1,131,280
Sales by product line for the fiscal year ended June 30, 2000 and
1999 , in US$ are as follows:
Product Line 2000 1999
Specialty Compounding $1,258,814 $1,046,463
(including Composite)
Polymer Technology 98,618 50,307
Miscellaneous 10,018 34,510
$1,367,450 $1,131,280
Net sales revenues for the period ending June 30, 2000 and 1999 are
catagorised as follows:
Category 2000 1999
Proprietary -Thermo Plastic $ 7,415 $ 0
Proprietary - Morfoam 91,203 58,792
Compounding With Materials 814,223 550,285
Compounding Without Materials 444,591 487,693
Miscellaneous Without Materials 10,018 34,510
$1,367,450 $1,131,280
Financial and Interest Expense decreased 12 % in fiscal 2000 when compared to
those for the corresponding period of the previous year. The major decrease
being attributable to a decline in expense related to the company's 8 %
debentures.
Administrative expense decreased $42,135 during fiscal 2000 as there were no
repetative expenses relative to the quest for financing which took place in
fiscal 1999. R&D Expenses decreased $64,041 as resources were diverted to
the manufacturing and sales effort required for the Company's new product
"Morfoam".
Selling expenses increased by $64,575 [71 %] in fiscal 2000 over comparative
fiscal 1999; as the Company pursued marketing of its new product "Morfoam" and
endeavors to introduce the product to the market.
Customer projections for the current year anticipate a continued growth of
sales revenues. Such growth is anticipated to take place in all areas of the
Company's expertise and technology. However, there can be no assurance in
this regard.
The sales launch of the new product for the rubber and plastic industry
commenced in early June of 1998 and response to the product exceeded all
expectations. This product provides not only significant cost reductions
by reducing the amount of plastic consumed but also provided many other
-17-
<PAGE>18
advantages to the Industry. The market is not only significant in terms of
potential revenues and profits in North America but will open many export
potentials in Europe. Although there has been widely accepted response to the
product, actual sales have been nomimal, however, a 55 % increase in these
revenues during fiscal 2000 occurred over fiscal 1999. The Company enters its
current fiscal year with some confidence, that the technological advantage
obtained over the past years will enable it to obtain a significant market
share for its products at satisfactory selling prices, thereby enabling the
Company to grow and meet the anticipated demand for its products, although
there can be no assurance of this.
Additionally, with the intended acquisition of Multi-Web as detailed under
Item 6 - Liquidity and Capital Resources, additional sales revenue should
result in the company's majority owned subsidiary Mortile Industries Ltd., as
Mortile's new product "Morfoam" compliments Multi-Web's existing product
lines.
Forward Looking Statements:
This Form 10 KSB contains forward looking statements within the meaning of
Section 27A of the Securities Exchange Act Of 1933 and Section 21B of the
Securities Exchange Act of 1934. The Company's actual results could differ
materially from those set forth in the forward looking statements.
Item 7. Financial Statements and Supplementary Data
See Part IV, item 13 for Index to Consolidated Financial Statements
and Schedules.
Item 8. Changes in and Disagreements on Accounting and Financial Disclosures
None
-18-
<PAGE>19
-PART III-
Item 9. Directors and Executive Officers of the Registrant
The directors and officers of the Company at June 30, 2000 are as follows:
Name Age Position with Company
Frank Mortimer 61 Director, President
Bryan Carter 79 Director,
Vice President
Larry Leverton 61 Director, Secretary
Treasurer
Frank Mortimer has been President and a Director of the Company since April
1986. He is also President of Fam Tile Restoration Services Ltd. ("FAM"),
a company specializing in the restoration of acoustical ceilings. Fam is a
wholly owned subsidiary of the Company. From 1967 to 1982 Mr. Mortimer
managed several export companies in South Africa. Mr. Mortimer is an
associate member of the Institute of Materials Handling (London UK).
Bryan Carter has been a director of the Company since April 1986. In 1982 he
formed Bryan Carter and Associates, a firm which offers international
consulting and marketing services to the plastics industry and small business.
From 1954 to 1962 he was in charge of the North American base of Rosedale
Assoc. Manufacturers of London (UK.) in Toronto, Canada. From 1962 to 1982
he was President and part owner of Rosedale Plastics, a rotational moulding
company. Mr. Carter has extensive international business experience
including work in Lebanon, Haiti and Australia, on behalf of various
organizations. Mr. Carter pioneered the rotational moulding industry in
North America and in 1982 served as the International President of Rotational
Moulders.
Larry Leverton has been Secretary and Treasurer of the Company since
April 1986. Since 1983 he has been president of L.R. Leverton Enterprises'
Inc., a transportation consulting firm. In 1982 he was vice-president of Newm
an Harbour Terminals and Transportation.
Item 10 Executive Compensation
Frank Mortimer, the Company's Principal Executive Officer, received salary of
$61,085, $61,615, $63,450 for the years ended June 30, 2000, 1999 and 1998,
respectively. These amounts constituted Mr. Mortimer's sole compensations
from the Company. Amounts presented are expressed in US dollars and have been
converted from Canadian dollars using the average exchange rate for the
periods presented. No executive officer of the Company received a total
salary and bonus in excess of $100,000 during any of the three year period
ended June 30, 2000.
-19-
<PAGE>20
Item 11 Security Ownership of Certain Beneficial Owners and Management
The following table indicates the name of each person who is known by the
Company to be a beneficial owner of more than five-percent of its common stock
as of September 30, 2000, the ownership of those persons on such date, and the
stock ownership of all officers and directors of the Company as a group. The
address of all persons listed is in care of the Company.
Number of Shares
Name of Beneficially Percent of
Beneficial Owner Owned (1) Common Stock
Frank Mortimer 1,900,753 (2) 7.2 %
L.R. Leverton Enterprises 591,448 (3) 2.3 %
Bryan Carter 165,000 0.6 %
All Officers & Directors
As A Group 2,657,201 (4) 10.0 %
(1) Unless otherwise indicated, each such beneficial owner holds the sole
voting power and investment power over the shares beneficially owned.
(2) Includes 354,020 shares owned by Mr. Mortimer's wife, Anne Mortimer and
200,000 shares owned by Mr. Mortimer's son, Roger Mortimer.
(3) L.R. Leverton Entprs.' Inc., is a corporation owned and controlled by
Larry Leverton, Secretary, Treasurer and Director of the Registrant.
(4) Excludes the effects on total outstanding shares which would result
from exercise of stock purchase options and conversion of debt.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the executive
officers and directors of the Company and persons who own more than ten
percent of the Company's Common Stock, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Such
executive officers, directors and greater than ten-percent stockholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) filings.
Based solely on review of the copies of such forms furnished to the Company
and other information which has been made available to the Company, management
believes that during the year ended June 30, 2000. all Section 16(a) filing
requirements applicable to the executive officers and directors of the Company
and greater than ten-percent beneficial owners were complied with.
Item 12. Certain Relationships and Related Transactions
During fiscal year 2000, the Company issued a total of 2,050,000 Restricted
Common Shares in exchange for Consulting - Financial & Public Relations
Services to the company, expensing a total of $359,838 for the service, at an
average price per share of $0.176. The shares were issued for remuneration de
fined in an agreement for corporate advisory and finance services and which
was due on execution of the agreement. The amount expensed is based on a fair
value of the equity instrument on the date of issue; as that value is more
reliably measurable than the consideration received;
-20-
<PAGE>21
The issue consisted of three [3] transactions one of which took place on
August 12, 1999 when 350,000 shares were issued to Coleman Capital; the
average selling price for the company's common shares on that date was $0.20
and the basis of the expensed amount was $0.136 per share. The second
transaction took place on August 20, 1999 when 700,000 shares were issued to
Hudson Consulting the average market price for the company's common shares on
that date was $0.325 and the basis of the expensed amount, $0.2045 per share.
The third transaction took place on May 3,2000 when 1,000,000 shares were
issued to Dutchess Advisory; the average market price for the company's
common shares on that date was $0.26 and the basis of the expensed amount,
$0.17 per share.
The company also issued 504,020 Restricted Common Shares to shareholder of the
company, Peter Wehrle, in exchange for debt and accrued interest due the share
holder in the amount of $55,442, a price per share equal to $0.11. This
transaction took place on December 13, 1999 during the second financial
quarter, on that date the average market price for the company's common shares
was $0.16. In this instance the value of the consideration was known and the
number of equity instruments issued [shares] was based on a discount, to fair
market value of the equity instrument, on the date of conversion.
Additionally, during the 3 rd fiscal quarter of 2000 the company issued 50,000
Restricted Common Shares to it's securities counsel's firm, Sichenzia, Ross &
Friedman LLP for legal services invoiced, related to the 8% debentures which
had been issued in January 1,1999 and as such the issue was expensed , at a
price of $0.20 US per share or $10,000. This transaction took place on
February 16, 2000, with the average market price per share $0.31. The value
of the consideration being known and the number of equity instruments issued
[shares] was based on a discount, to fair market value of the equity
instrument, on the date of consideration;
During the fourth fiscal quarter of 2000 the company issued 45,000 Restricted
Common Shares to an employee for input in product development. The amount
expensed is based on a fair value of the equity instrument [shares] on the
date of issue; as that value is more reliably measurable than the
consideration received.
All of the shares indicated in the preceding information were issued in
private transactions pursuant to Section 4(2) of the Securities Act Of 1933.
Shares issued were in exchange for services provided based on the date of
consideration for the service agreement, for an invoice provided and in
consideration of debt owed to an existing shareholder of the company.
All shares issued bore a Restrictive Legend restricting their transfer and may
only be publicly traded when and if registered for sale by means of a duly
processed registration, filed with the Securities And Exchange Commission by
the company or, alternatively, pursuant to Rule 144.
Due to the Restrictions of the instruments issued, the value of the shares
issued is based on a discount of 35 - 40 % to the average market price on the
date of the consideration.
The aggregate number of Restricted Common Shares issued to June 30 Th of
fiscal year 2000, 2,649,020.
-21-
<PAGE>22
Please reference the Company's Financial Statements for detailed information;
Page F5 "Consolidated Statement of Changes In Stockholders Deficiency'" and
F17 and F18, Financial Note 15, "Capital Stock".
During the first financial quarter of 2001 the company issued 1,390,975
Restricted Common Shares in exchange for existing debt and services. Total
debt reduction of $157,646 in exchange for 1,313,715 Restricted Common Shares
at $0.12 per share; total services of $9,271.20 in exchange for 77,260
Restricted Common Shares at $0.12 per share. The market price on the date of
consideration $0.20 per share.
The total number of common shares outstanding at September 30, 2000
being 26,240,006.
PART IV
Item 13. Exhibits, Financial Statements, and Reports on Form 8-K
(A) (1) Financial Statements:
See index to financial statements on Page F-1
(3) Exhibits:
(a) Exhibit 21 Subsidiaries of the Registrant are as follows:
Mortile Industries Ltd., a Canadian Private Corporation
and majority owned subsidiary of the Registrant
Fam Tile Restoration Services Ltd., a Canadian Private
Corporation and wholly-owned subsidiary of Mortile
Industries Ltd.
MPI Perlite Ltd., a Canadian Private Corporation and
wholly-owned subsidiary of Mortile Industries Ltd.
(B) Item -5- Reports on Form 8K
None
-22-
<PAGE>23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TECHNICAL VENTURES INC.
Dated: October 16, 2000 By:/s/Frank Mortimer
Frank Mortimer, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: October 16, 2000 By:/s/Frank Mortimer
Frank Mortimer, President
Principal Executive Officer
and Director
Dated: October 16, 2000 By:/s/Bryan Carter
Bryan Carter,
Vice President, Director
Dated: October 16, 2000 By:/s/Larry Leverton
Larry Leverton, Secretary
Treasurer and Principal
Accounting Officer and
Director
- 23 -
<PAGE>24
TECHNICAL VENTURES INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000 AND 1999
TOGETHER WITH REPORT OF INDEPENDENT AUDITORS
TABLE OF CONTENTS
Report of Independent Auditors F - 2
Consolidated Balance Sheets at June 30, 2000 and 1999 F - 3
Consolidated Statements of Operations for the years ended
June 30, 2000,1999 and 1998 F - 4
Consolidated Statements of Changes in Stockholders'
Deficiency for the years ended June 30, 2000, 1999 and 1998 F - 5
Consolidated Statements of Cash Flows for the years
ended June 30, 2000,1999 and 1998 F6 - F7
Notes to Consolidated Financial Statements F8 - F28
F-1
<PAGE>25
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 consolidated balance sheets of Technical
Ventures Inc. (incorporated in New York State) as of June 30, 2000 and 1999
and the related consolidated statements of operations, cash flows and changes
in stockholders' deficiency for each of the years ended June 30, 2000, 1999
and 1998. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards 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
present fairly, in all material respects, the financial position of Technical
Ventures Inc. as of June 30, 2000 and 1999 and the results of its operations
and its cash flows for each of the years ended June 30, 2000, 1999 and 1998
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 1. 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 1. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/Schwartz Levitsky Feldman
SCHWARTZ LEVITSKY FELDMAN
Chartered Accountants
Toronto, Ontario, Canada
October 16, 2000
F - 2
<PAGE>26
TECHNICAL VENTURES INC.
Consolidated Balance Sheets
As of June 30
(Amounts expressed in U.S. Dollars)
2000 1999
$ $
ASSETS
CURRENT ASSETS
Cash 4,963 13,883
Accounts receivable (note 3) 135,538 124,435
Inventory (note 4) 61,535 45,143
202,036 183,461
DEPOSITS 14,710 29,415
ADVANCES TO STOCKHOLDERS (note 5) 51,632 62,392
PROPERTY AND EQUIPMENT (note 6) 132,571 155,437
INTANGIBLE ASSETS (note 7) - 646
400,949 431,351
<PAGE>27
TECHNICAL VENTURES INC.
Consolidated Balance Sheets
As of June 30
(Amounts expressed in U.S. Dollars)
2000 1999
$ $
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued expenses (note 8) 643,310 283,965
Current portion of notes payable (note 9) 370,051 371,278
Capital lease obligations (note 10) 76,362 77,046
Loans from private lenders (note 11) 61,718 61,859
Current portion of loans from stockholders, unsecured,
interest free (note 12) 198,006 170,793
1,349,447 964,941
LONG-TERM DEBT, net of current portion
Convertible debentures (note 15 (h)) 278,267 278,267
Notes payable (note 9) 36,693 64,049
Loans from stockholders (note 12) 254,205 305,442
Other (note 13) 26,475 26,795
595,640 674,553
MINORITY INTEREST (note 14) - -
STOCKHOLDERS' DEFICIENCY
CAPITAL STOCK (note 15) 248,470 221,980
ADDITIONAL PAID IN CAPITAL (note 15) 5,126,586 4,702,463
ACCUMULATED OTHER COMPREHENSIVE INCOME (note 16) 310,124 313,319
DEFICIT (7,229,318) (6,445,905)
(1,544,138) (1,208,143)
400,949 431,351
See notes to consolidated financial statements.
F - 3
<PAGE>28
TECHNICAL VENTURES INC.
Consolidated Statements of Operations
For the years ended June 30
(Amounts expressed in U.S. Dollars)
2000 1999 1998
$ $ $
NET SALES 1,367,450 1,131,279 1,185,091
COST OF SALES 1,056,276 763,922 984,899
GROSS MARGIN 311,174 367,357 200,192
EXPENSES
Administration 587,059 690,672 146,789
Interest and other 172,847 197,466 106,801
Research and development 78,285 80,498 94,874
Selling 154,654 90,746 71,790
Gain from disposal - - (3,486)
Contingent related legal expenses 126,797 - -
1,119,642 1,059,382 416,768
LOSS BEFORE INCOME TAX RECOVERY
AND EXTRAORDINARY ITEM (808,468) (692,025) (216,576)
Income tax recovery (note 17) 25,055 5,658 258,977
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (783,413) (686,367) 42,401
Gain from transfer of technology
rights (note 9(iii)) - - 477,193
NET INCOME (LOSS) (783,413) (686,367) 519,594
BASIC INCOME (LOSS) BEFORE
EXTRAORDINARY
ITEM PER COMMON SHARE (note 18) (0.03) (0.03) 0.00
BASIC INCOME (LOSS) PER
COMMON SHARE (note 18) (0.03) (0.03) 0.04
FULLY DILUTED INCOME
(LOSS) PER COMMON SHARE (note 18) (0.03) (0.03) 0.04
See notes to consolidated financial statements.
F - 4
<PAGE>29
TECHNICAL VENTURES INC.
Consolidated Statements of Changes in Stockholders' Deficiency
For the years ended June 30
(Amounts expressed in U.S. Dollars)
<TABLE>
<C> <C> <C> <C> <C>
Common
Stock
Issued and Accumulated
outstanding Additional Other
Number of Paid in Comprehensive
Shares Amount Capital Deficit Income
$ $ $ $
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 - -
Issue of warrants (note 15(i)) - - 21,733 - -
Net loss - - - (686,367) -
Cumulative translation
adjustment - - - - 6,748
Balance, June 30, 1999 22,198,011 221,980 4,702,463 (6,445,905) 313,319
Issued in exchange for
services 2,145,000 21,450 373,721 - -
Issued for debt reduction 504,020 5,040 50,402 - -
Net loss - - - (783,413) -
Cumulative translation
adjustment - - - - (3,195)
Balance, June 30, 2000 24,847,031 48,470 5,126,586 (7,229,318) 310,124
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>30
TECHNICAL VENTURES INC.
Consolidated Statements of Cash Flows
For the years ended June 30
(Amounts expressed in U.S. Dollars)
2000 1999 1998
$ $ $
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) (783,413) (686,367) 519,594
Adjustments to reconcile
net income (loss) to net
cash used by operating
activities:
Depreciation 29,410 30,079 10,874
Gain on disposition of property
and equipment - (1,373) -
Discounts on convertible
debentures [note 15(h)] - 75,000 -
Compensation and finance
charges (note 17) 359,838 515,320 -
Gain on transfer of
Technology Rights - - (682,278)
Issue of Common Stock
for Services 24,400 80,513 9,000
(Increase) decrease in accounts
receivable (12,615) (6,035) 38,765
Increase in inventory (16,972) (10,404) (610)
Increase (decrease) in accounts
payable and accrued expenses 363,654 (101,661) (75,427)
(35,698) (104,928) (180,082)
CASH FLOW FROM INVESTING ACTIVITIES
Decrease (increase) in deposits 14,392 (2,472) (19,471)
Repayments by (advances to)
stockholders 10,723 (26,363) 2,994
Property and equipment
acquisition (8,338) (9,565) (8,035)
Proceeds from sale of property
and equipment - 3,321 -
16,777 (35,079) (24,512)
See notes to consolidated financial statements.
F - 6
<PAGE>31
TECHNICAL VENTURES INC.
Consolidated Statements of Cash Flows
For the years ended June 30
(Amounts expressed in U.S. Dollars)
2000 1999 1998
$ $ $
CASH FLOW FROM FINANCING ACTIVITIES
Repayments of note payable to
Cooper Financial Corp. (23,430) (26,960) (14,692)
Proceeds from (repayments of)
note payable to Dow Chemical
Canada - (35,375) 14,555
Proceeds from (repayments of)
capital lease obligations - (718) 2,164
Proceeds from (repayments of)
other loans payable - (26,212) 4,706
Proceeds from (repayments of)
private lenders - (14,061) 66,820
Proceeds from (repayments of)
stockholders' loans 18,429 (9,352) 135,962
Proceeds from issue of common
stock for cash - 15,000 -
Proceeds from (costs of) issue
of convertible debentures
and warrants - 225,000 -
(5,001) 127,322 209,515
EFFECT OF FOREIGN CURRENCY
EXCHANGE RATE CHANGES 15,002 8,963 (11,088)
NET DECREASE IN CASH BALANCE
FOR THE YEAR (8,920) (3,722) (6,167)
Cash balance, beginning of year 13,883 17,605 23,772
Cash balance, end of year 4,963 13,883 17,605
PAYMENTS MADE DURING THE YEAR
FOR INTEREST 15,923 19,745 15,203
INCOME TAXES PAID - - -
See notes to consolidated financial statements.
F - 7
<PAGE>32
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
1. 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.
2. 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 - 8
<PAGE>33
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
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, 2000 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.
h) Concentration of Credit Risks
The Company's receivables are unsecured and are generally due in 45 days.
The Company's receivables do not represent significant concentrations of
credit risk as at June 30, 2000 due to the wide variety of customers,
markets and geographic areas to which the Company's products are sold.
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.
F - 9
<PAGE>34
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
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.
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 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.
F - 10
<PAGE>35
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
o) Impairment
The Company's policy is to record an impairment loss against the
balance of a long-lived asset in the period when it is determined that
the carrying amount of the asset may not be recoverable. This
determination is based on an evaluation of such factors as the occurrence
of a significant event, a significant change in the environment in which
the business assets operate or if the expected future non-discounted cash
flows of the business was determined to be less than the carrying value
of the assets. If impairment is deemed to exist the assets will be
written down to fair value, management also evaluates events and
circumstances to determine whether revised estimates of useful lives are
warranted. As of June 30, 2000, management expects its long-lived assets
to be fully recoverable.
p) Recent Accounting Pronouncements
In 1998, the Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS 130 requires companies to
disclose comprehensive income in their consolidated financial statements.
In addition to items included in net income, comprehensive income
includes items currently charged or credited directly to stockholders'
equity, such as the change in unrealized appreciation (depreciation) of
securities. SFAS 131 established new standards for reporting operating
segments, products and services, geographic areas and major customers.
Segments are defined consistent with the basis management used internally
to assess performance and allocate resources.
On March 4, 1998, the AICPA Accounting Standards Executive Committee
issued Statement of Position No. 98-1 (SOP 98-1), "Accounting for the
cost of Computer Software developed or obtained for internal use." SOP
98-1 was issued to address diversity in practice regarding whether and
under what conditions the costs of internal-use software should be
capitalized. SOP 98-1 is effective for consolidated financial statements
for years beginning after December 15, 1998. In 1999, the Company
adopted the new requirements of SOP 98-1 which did not have a significant
effect on net earnings during that year.
In June 1998, SFAS No. 133, as amended, "Accounting for Derivative
Instruments and Hedging Activities" was issued, to be effective for
fiscal quarters and fiscal years beginning after June 15, 2000 but this
was extended to fiscal years beginning January 1, 2001 by SFAS no. 137.
The Company does not have any derivative instruments or hedging
activities, therefore the Company believes that SFAS No. 137 will have no
material impact on the Company's consolidated statements or notes thereto.
F - 11
<PAGE>36
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
3. ACCOUNTS RECEIVABLE
2000 1999
$ $
Accounts receivable 135,538 124,435
Less: Allowance for doubtful accounts - -
Accounts receivable, net 135,538 124,435
4. INVENTORY
Inventory at June 30, 2000 and 1999 are comprised almost entirely of raw
materials.
5. ADVANCES TO STOCKHOLDERS
The advances to stockholders are unsecured, are non-interest bearing,
are not subject to specified terms of repayments and are not expected
to be collected before July 1, 2001.
6. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2000 and 1999 are comprised as
follows:
2000 1999
$ $
Equipment under capitalized leasing
arrangements 230,360 230,360
Equipment 373,367 375,811
Furniture and fixtures 40,239 37,502
Leasehold improvements 4,217 4,217
648,183 647,890
Less: Accumulated depreciation 515,612 492,453
132,571 155,437
F - 12
<PAGE>37
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
7. INTANGIBLE ASSETS
2000 1999
$ $
Patents, at cost 6,084 6,098
Less: Accumulated depreciation 6,084 5,452
- 646
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
2000 1999
$ $
Trade payable 234,914 57,946
Accrued expenses 408,396 226,019
643,310 283,965
9. NOTES PAYABLE
2000 1999
$ $
Notes payable consist of the followings:
Innovation Ontario Corp. ("I.O.C.")
outstanding balance of $337,699, repayable
in quarterly instalments of $20,675
including interest at 8%. The Company is
in default and the entire balance is past
due (i) 337,699 341,749
Cooper Financial Corp.'s note, repayable
$3,150 monthly including interest at 10%,
due August, 2002 (ii) 69,045 93,578
406,744 435,327
Less: Current portion (370,051) (371,278)
36,693 64,049
F - 13
<PAGE>38
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
9. NOTES PAYABLE (cont'd)
i) 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.
Interest in the amount of $71,392 has been accrued on the note payable
based on the original loan depreciation table, even though no payments
have been made with respect to the loan principle. This amount is being
reflected on the financial statements in Accounts Payable and Accrued
Expenses.
ii) 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 including interest and a final
payment of $954. Interest is at 10%
Notes payable mature as follows:
2001 $ 370,051
2002 36,693
$ 406,744
iii) 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:
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
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.
F - 14
<PAGE>39
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
10. CAPITAL LEASE OBLIGATIONS
2000 1999
$ $
Capital lease obligations consist
of the following:
Obligations under capitalized leasing
arrangements, payable in monthly instalments
of $9,981 net of amount representing
interest of $2,790; the Company is in
default and the entire balance is
past due 76,362 77,046
11. LOANS FROM PRIVATE LENDERS
2000 1999
$ $
Loans from private lenders are due on
demand and consist of the following:
Private investors:
Equipment financing - interest at 10% 11,718 11,859
Unsecured demand loans:
Interest free 25,000 25,000
Interest at 10%, convertible into
50,000 shares of common stock 25,000 25,000
61,718 61,859
F - 15
<PAGE>40
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
12. LOANS FROM STOCKHOLDERS
Loans from stockholders as at June 30, consist of the following:
Current Non-Current Total
$ $ $
a) June 30, 2000
Unsecured stockholders
notes, loans and
other payable balances:
Subordinate to notes
payable to Cooper
Financial Corp. interest
at the greater of prime
or 10 % - 23,118 23,118
Subordinate to note
payable, I.O.C. - 17,045 17,045
Interest free -
notes and loans 198,006 - 198,006
Accrued interest - 60,490 60,490
Accrued compensation - 153,552 153,552
198,006 254,205 452,211
b) June 30, 1999
Unsecured stockholders
notes, loans and other
payable balances:
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. - 17,250 17,250
Interest free -
notes and loans 170,793 10,253 181,046
Accrued interest - 99,150 99,150
Accrued compensation - 155,394 155,394
170,793 305,442 476,235
c) As at June 30, 2000 loans from stockholders mature as follows:
2001 $ 198,006
2002 -
2003 -
2004 -
2005 -
After 2005 254,205
$ 452,211
F - 16
<PAGE>41
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
13. OTHER LOANS
2000 1999
$ $
Other loans consist of the following:
Unsecured loans, private investor,
interest at 10%, not subject
to specified terms of repayments 26,475 26,795
14. MINORITY INTEREST
Innovation Ontario Corp. has a 30% interest in Mortile (see note 9).
As Mortile was in a capital deficiency position as at June 30, 2000 and
1999, the minority interest was $nil as at June 30, 2000 and 1999.
15. CAPITAL STOCK
a) Authorized
50,000,000 Common stock
$0.01 par value (note 15 (b))
Issued Shares Amount
$
June 30, 2000 24,847,031 248,470
June 30, 1999 22,198,011 221,980
b) On July 22, 1999, stockholders of the Company approved an amendment
increasing the authorized common shares from 15,000,000 to 50,000,000.
F - 17
<PAGE>42
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
15. CAPITAL STOCK (cont'd)
c) Common shares issued during the years ended June 30, 2000 and 1999
were as follows:
Additional
Capital paid in
Number stock capital
$ $
i) 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 stockholders of $25,420 2,120,000 21,200 189,240
During the year ended
June 30, 1999, warrants were
issued as described in
note 15 (i) - - 21,733
7,486,670 74,867 645,719
ii)During the year ended
June 30, 2000, 2,145,000
Common shares were issued
for services rendered 2,145,000 21,450 362,788
During the year ended
June 30, 2000, 504,020
Common shares were issued in
exchange for repayment of
loans from stockholders
of $55,442 504,020 5,040 50,402
2,649,020 26,490 413,190
iii. These issued shares 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 - 18
<PAGE>43
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
15. 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 15 (h)];
additionally as part thereof, Non-Redeemable Warrants of a three year
term [see note 15 (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 stockholders and purchasers of our debentures which are
convertible into our common stock and which, additionally, bear warrants
to purchase our common stock.
The Company filed amendment No. 3 to the SB-2 Registration in April 2000.
In June, 2000 the Company received additional comments from the S.E.C.
which have not yet been responded to. Consequently, the SB-2 Registration
has not been declared effective.
e) The numbers of common shares reserved for convertible debt, stock
purchase options and warrants are as follows:
June 30, June 30,
2000 1999
For convertible debt 50,000 50,000
For common stock purchase options 50,000 50,000
For convertible debentures 8,625,512 6,535,888
For warrants 127,840 127,840
8,853,352 6,763,728
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.
F - 19
<PAGE>44
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
15. CAPITAL STOCK (cont'd)
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 $0.176 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 stock 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 at August 31, 2000, the said registration statement has
not been declared effective. The Company has recorded the cost of the
said penalty to June 30, 2000 in these financial statements as an
interest and other expense.
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:
Face value of debentures $ 225,000
Discounts 75,000
Less: value assigned to warrants (see note 16 (i)) (21,733)
$ 278,267
The discounts were expensed during the year ended June 30, 1999.
F - 20
<PAGE>45
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
15. 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 $0.176 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.
16. COMPREHENSIVE INCOME (LOSS)
The Company has adopted Statement of Financial Accounting Standards No.
130 "Reporting Comprehensive Income" as of January 1, 1999 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:
2000 1999
$ $
Net loss (783,413) (686,367)
Other comprehensive income:
foreign currency translation adjustments (3,195) 6,748
Comprehensive loss (786,608) (679,619)
F - 21
<PAGE>46
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
16. COMPREHENSIVE INCOME (LOSS) (cont'd)
The components of accumulated other comprehensive income as at
June 30, 1998, 1999 and 2000 are as follows:
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
Foreign currency translation adjustments
for the year ended June 30, 2000 (3,195)
Accumulated other comprehensive income,
June 30, 2000 $ 310,124
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 2 (l).
F - 22
<PAGE>47
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
17. INCOME TAXES
During the year ended June 30, 2000, the Company received $25,055
resulting from research and development refundable tax credits claims
filed for the year ended June 30, 1998. A claim for approximately
$23,000 has been submitted for 1999. A claim for approximately $23,000
will be filed for 2000. It is anticipated that the claims for both 1999
and 2000 will be subject to audits and there can be no assurance that the
amounts claimed will be honoured. Consequently, the Company does not
record the benefits of these claims until they are received.
Recovery of income taxes for the year ended June 30, 2000 consists
entirely of a current recovery of Canadian income taxes resulting from
the aforementioned tax refund received in the year.
The following is a summary of the tax effects of significant temporary
differences which comprise the Company's deferred tax asset at
June 30, 2000.
U.S. State &
Federal Local Foreign
at 34% at 9% at 43%
$ $ $
Loss carry forwards 700,000 185,000 255,655
Credits carry forwards:
Non-refundable credits - - 13,289
Refundable credits - - 23,000
Valuation allowance (700,000) (185,000) (291,944)
- - -
Aggregate net operating loss carry forwards and tax credit carry forwards
and their expirations are summarized as follows:
Foreign
Research &
Expiring Net Operating Loss Carry forward Development
June 30, US Federal State & Local Foreign Tax Credits
$ $ $ $
2001 3,000 3,000 257,806 -
2002 225,000 225,000 - 1,018
2003 21,000 21,000 44,023 1,889
2004 150,000 150,000 92,130 -
2005 102,000 102,000 - -
Thereafter 1,558,000 1,558,000 200,587 10,382
TOTAL 2,059,000 2,059,000 594,546 13,289
F - 23
<PAGE>48
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
18. NET INCOME (LOSS) PER COMMON STOCK
Net income (loss) per share has been calculated as follows:
2000 1999 1998
$ $ $
Basic income (loss) before
extraordinary item per share:
Income (loss) before
extraordinary item (783,413) (686,367) 42,401
Weighted average number
of shares of common stock
outstanding 23,580,902 20,237,097 14,678,752
Income (loss) before
extraordinary item
per common stock (0.03) (0.03) 0.00
Basic income (loss) per share:
Net income (loss) per
common stock (783,413) (686,367) 519,594
Weighted average number of
shares of common stock
outstanding 23,580,902 20,237,097 14,678,752
Net income (loss) per share
of common stock (0.03) (0.03) 0.04
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<PAGE>49
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
18. NET INCOME (LOSS) PER COMMON STOCK (cont'd)
Net income (loss) per share has been calculated as follows:
2000 1999 1998
$ $ $
Diluted income (loss) per share:
Net income (loss) per common stock (783,413) (686,367) 519,594
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 (783,413) (686,367) 519,594
Weighted average number of shares
of common stock outstanding 23,580,902 20,237,097 14,678,752
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 shares
of common stock outstanding,
assuming dilution 23,580,902 20,237,097 14,678,752
Net income (loss) per share of common
stock assuming dilution (0.03) (0.03) 0.04
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<PAGE>50
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
19. FOREIGN OPERATIONS
The following table summarizes certain information regarding the
Company's US and Canadian operations for the years ended June 30, 2000,
1999 and 1998:
US Canadian Consolidated
$ $ $
Year ended June 30, 2000
Revenue from unaffiliated customers - 1,367,450 1,367,450
Loss from operations (624,961) (158,452) (783,413)
Identifiable assets at end of year - 400,949 400,949
Year ended June 30, 1999
Revenue from unaffiliated customers - 1,131,279 1,131,279
Income (loss) from operations (721,158) 34,791 (686,367)
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
20. MAJOR CUSTOMERS
One customer accounted for 56% and 43% of the Company's consolidated
revenues for fiscal 2000 and 1999, respectively; another customer
accounted for 25 and 22% of consolidated revenues for these respectively
periods.
The loss of one or more of these customers would have a detrimental
effect on the Company's operating results.
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<PAGE>51
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
21. CONTINGENT LIABILITY
The Company is contingently liable under a breach secrecy agreement,
fiduciary duty and misuse of confidential information lawsuit by one of
its customers. Management of the Company is of the opinion that this
legal action will not materially affect the Company's financial position,
results of operations or cash flows. No provision has been recorded in
the accounts for possible losses or gains. Should any expenditures be
incurred by the Company for the resolution of this lawsuit, they will be
charged to the operations of the year in which such expenditures are
incurred.
22. SUBSEQUENT EVENT
Subsequent to the year end, the Company entered into a letter of intent
to acquire by November 1, 2000, all of the outstanding shares of an
unrelated company in exchange for the issuance of 2,125,000 shares of
common stock of the Company at fair market value on the date of closing.
This acquisition will be accounted for as a purchase. The acquiree
company is a manufacturer of industrial products compatible to the
Company's operations.
23. RELATED PARTY TRANSACTIONS
For the year ended June 30, 2000, 2,649,020 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 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.
24. LEASES
At June 30, 2000, 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:
2001 $ 64,076
2002 48,713
$ 112,789
Rent expense was $63,526, $49,965 and $58,061 for 2000, 1999 and 1998
respectively.
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<PAGE>52
TECHNICAL VENTURES INC.
Notes to Consolidated Financial Statements
(Amounts expressed in U.S. Dollars)
25. COMPARATIVE FIGURES
Certain figures in the June 30, 1999 and 1998 consolidated financial
statements have been reclassified to conform with the basis of
presentation used in 2000.
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. Although
the change in date has occurred, it is not possible to conclude that all
aspects of the Year 2000 Issue that may affect the entity, including those
related to customers, suppliers, or other third parties, have been fully
resolved.
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