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Form 10 -QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
Commission File Number 33-2775-A
TECHNICAL VENTURES INC.
_____________________________________________________________________________
(Exact Name of small business issuer as specified in its charter)
New York 13-3296819
_____________________________________________________________________________
(State or other jurisdiction of (I.R.S Employer
incorporation of organization) identification No.)
3411 McNicoll Avenue, Unit 11, Scarborough, Ontario, Canada M1V 2V6
____________________________________________________________________________
(Address of Principal Executive Offices, Zip Code)
Issuer's Telephone Number, Including Area Code (416) 299-9280
______________________________________________________________________________
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of September 30, 1999.
23,248,011 shares of common stock, $.01 par value
______________________________________________________________________________
Page 1 of 13 Pages
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TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30 September 30
1999 1998
UNAUDITED UNAUDITED
ASSETS
CURRENT ASSETS
Cash $10,368
Accounts Receivable $146,590 65,680
Inventory (Note 2) 40,982 37,510
TOTAL CURRENT ASSETS 187,572 113,558
OTHER ASSETS
Advances To Shareholders 62,319 36,407
Deposits 13,607 10,902
Prepaid Expenses 6,346 704
PROPERTY AND EQUIPMENT, at cost, net
of accumlated depreciation of $498,846
at Sept. 30,1999 and $449,943
at Sept. 30, 1998 147,148 162,496
INTANGIBLE ASSETS, net of accumulated
amortization of $5,517 at Sept. 30, 1999
and $4,979 at Sept. 30, 1998. 563 847
TOTAL ASSETS $417,556 $324,914
LIABILITIES AND STOCK HOLDERS DEFICIENCY
CURRENT LIABILITIES
Bank Overdraft $5,527
Current Portion of long term debt (Note 3):
Notes Payable 30,023 114,048
Capital lease obligations 77,052 77,052
Other 340,749 326,549
Loans & advances:
Private Lenders 61,824 101,339
Shareholders, unsecured
interest free 183,923 172,745
Accounts payable and accrued expenses 384,002 286,276
TOTAL CURRENT LIABILITIES 1,083,102 1,078,008
LONG-TERM LIABILITIES, net of current portion:
Notes Payable 61,256
Shareholders 307,232 299,304
Other 26,717 47,692
MINORITY INTEREST 0 0
SHAREHOLDERS' DEFICIENCY:
Common stock, $.01 par value,
50,000,000 shares authorized:
Issued and outstanding, 23,248,011
at September 30, 1999 and 19,798,011
shares at September 30, 1998 $232,480 $197,780
Additional Paid in capital: 4,861,097 4,485,370
Paid In Capital -
For Subscribed Common Stock 165,717
Deficit (6,633,801) (6,130,496)
Foreign currency translation
adjustment 313,757 347,256
Total Shareholders' deficiency (1,060,750) (1,100,090)
$417,556 $324,914
See Notes To Condensed Consolidated Financial Statements
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TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(NOT AUDITED)
THREE MONTHS ENDED
SEPTEMBER
1999 1998
SALES $288,411 $240,990
COST OF SALES 237,554 186,389
GROSS MARGIN 50,857 54,601
GENERAL EXPENSE
Administration 43,838 39,090
Financial
-Interest & Other 21,904 20,694
Research & Development 17,104 21,936
Selling 33,963 17,194
TOTAL GENERAL EXPENSES 116,810 98,914
OPERATING LOSS - Before Extrordinary Items (65,953) (44,313)
Contingent Related Legal Expense 74,353
Issued Shares, Fair Market Value Adjustment 180,338 326,860
LOSS BEFORE OTHER INCOME (320,644) (371,173)
OTHER INCOME
R&D Investment Tax Recovery 215
NET LOSS ($320,644) ($370,958)
NET LOSS PER COMMON SHARE ($0.01) ($0.02)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING FOR THE PERIOD 22,734,424 15,512,864
See notes to condensed consolidated financial statements.
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TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOT AUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss ($320,644) ($370,958)
Adjustments to reconcile net Income (Loss)
to net cash, provided (Used) by operating
activities:
Depreciation and amortization 8,259 7,785
Fair Market Value Adjustment,
For Shares Issued 180,338 326,860
Issue of Restricted Common Stock
for Services 10,500 20,201
Net Change in non-cash operating assets
and liabilities 91,638 (29,124)
Net Cash Used By Operating Activities (29,909) (45,237)
CASH FLOWS FROM INVESTING ACTIVITIES
Property & Equipment Acquisition (484)
Net Cash Used By Investing Actiivities (484)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayment of) loans,
notes and advances:
Bank Overdraft 5,527
Line of Credit (33,801)
Long Term Debt 231 (211)
Shareholders 16,315 55,710
Bank Note (2,298) (6,490)
Private Lenders (22,433)
Issue of Restricted Common Stock 46,812
Costs Related to Convertible Debenture (1,506)
Net Cash Provided By Financing Activities 18,269 39,587
EFFECT OF EXCHANGE RATE ON CASH (2,242) (1,104)
CHANGE IN CASH BALANCE FOR THE PERIOD (13,883) (7,238)
CASH, BEGINING OF PERIOD 13,883 17,605
CASH, END OF PERIOD $0 $10,368
See notes to condensed consolidated financial statements.
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TECHNICAL VENTURES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(NOT AUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1999
NON-CASH FINANCING ACTIVITIES:
Issue of Restricted Common Shares Reducing
Debt Liabilities:
Private Lenders 60,000
Shareholders 25,420
Fair Market Value
Adjustment For Shares Issued 180,338 326,860
$180,338 $412,280
PAYMENTS MADE FOR INTEREST $4,175 $5,720
NET CHANGE IN NON-CASH OPERATING ASSETS
AND LIABILITIES:
Decreases (increases) in operating assets
and increases (decreases) in operating
liabilties:
Accounts Receivable ($22,520) $47,454
Inventory 4,029 (4,316)
Other assets 9,267 12,160
Accounts Payable and accrued expenses 100,862 (84,422)
$91,638 ($29,124)
See notes to condensed consolidated financial statements.
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TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(NOT AUDITED)
NOTE 1: BASIS OF PRESENTATION :
The accompanying condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB and Regulation S-B. Accordingly, they
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for
fair presentation have been included. Operating results for the
three months ended September 30, 1999 are not necessarily indicative
of the results that may be expected for the year ended June 30,2000.
For further information refer to the financial statements and
footnotes thereto included in the Company's annual report on form
10-KSB for the year ended June 30, 1999.
Foreign Currency Translation:
The financial statements of Canadian subsidiaries have been
translated into US. dollars as follows:
(a) Assets and Liabilities at the rate of exchange in effect at
the balance sheet date, Sept. 30, 1999 at $0.6815 US and
Sept. 30, 1998 at $0.6531.
(b) Revenues and expenses at the average exchange rate during the
period, July 1,1999 through Sept. 30, 1999 at $0.6729 US and
Sept. 30, 1998 at $0.6602.
Exchange gains or losses arising from the translation are deferred
and included as a separate component of shareholders' equity
(deficiency). All amounts presented in these financial statements
are expressed in US. dollars unless otherwise stated.
NOTE 2: INVENTORY:
Inventory is comprised of the following:
September 30,1999
Raw Materials $40,982
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TECHNICAL VENTURES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(NOT AUDITED)
NOTE 3: LONG TERM DEBT:
At September 30, 1999 the Company was in default on it's notes
payable to I.O.C. and it's lease payable to FBX Holdings Inc. .
Although the respective creditors have not called the obligations,
payments are due on demand and accordingly the balances are reflected
on the September 30, 1999 balance sheet as current liabilities.
NOTE 4: In August 1999 the Company refinanced it's note payable due to Cooper
Financial Corp. This obligation, is guaranteed by a shareholder of
the Company. A refinancing charge was assessed, increasing the
principal owed to $95,999 US. At September 30, 1999 the Company was
current with the new loan provisions; with a payable balance of
$91,280 US. The Company has been maintaining monthly payments of
$3,150 US. Interest charged is 10% per annum calculated over a
period of 35 months.
NOTE 5: Contingent Liability And Related Costs:
The Company is contingently liable under a breach of secrecy
agreements, fiduciary duty and misuse of confidential information
lawsuit. The Company's attorneys are of the opinion that the
company's defences are meritorious and the lawsuit will result in no
material losses. Accordingly, no provision is included in the
accounts for possible related losses.
The Company does, however, reflect legal and any related costs
incurred for any contingencies as a charge to operations of the year
in which the expenditures are determined.
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PART 1 - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources:
The company's first quarter of fiscal 2000 was not profitable; additionally
monthly debt service requirements and payment of $65,000 CND towards
contingency related legal costs, leave the Company in a position where it is
unable to meet its monthly cash flow requirements.
Two of the Company's long term debt financing arrangements, Note 3, are
currently in arrears, as such these debt's continue to be reflected as
current liabilities on the September 30/99 balance sheet. Both debtors
clearly understand the Company's financial position and as such have verbally
agreed to a moratorium on principal repayments until the Company is in a
financial position to make a payment [s] or suggest an alternate acceptable
method of settlement.
The Company has submitted a tax claim for fiscal 1998 amounting to
approximately $35,000 (Canadian). The tax department will perform both a
scientific and financial audits in December 1999 relative to this claim.
Additionally, a claim for fiscal 1999 of approximately $35,000 (Canadian)
will be filed. The tax department has notified the Company of their intent
to audit all such claims submitted.
The Company had prepared and filed on April 8, 1999 a Registration Statement
on Form SB-2, in accordance with it's Private Offering of late January 1999.
This Private Offering having been reported in its quarterly Report 10 QSB of
March 31, 1999 and annual Report 10 KSB of June 30th, 1999, both having been
filed with the Securities Exchange Commission,. The Company also filed an
amended SB 2 Registration in September 1999 and will also submit a further
amendment to the registration. It is expected the 2nd amended filing will be
completed in late November.
The company will continue to assess and investigate all avenues in respect
of it's financial requirements. If it is deemed to be in the best interest
of the Company and its stockholders, serious consideration will be given to
raising additional funds through private or public issuance's in the future.
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Significant property and equipment purchases and/or expansion of facilities
will only be considered if demand for Company products warrant such expansion
and the financing of such expansion would not adversely effect the Company's
financial condition.
Based on projections provided by existing customers, management expects
increased sales in all areas of it's expertise, during fiscal 2000.
Additionally, the company's financial and public relations consultants have
expressed their confidence in being able to secure financing enabling the
company to maintain cash flow requirements and also provide capital for
expansion when required. However, there can be no guarantee of this.
The Company's new product "Morfoam" introduction to many potential customers,
could necessitate immediate expansion of existing warehouse facilities by
approximately 30% and consideration of acquiring additional manufacturing
equipment necessary to performing a relative manufacturing function in house,
rather than contracting the work to an outside firm.
"Morfoam", a product for the plastics and rubber industry, is a chemical
foaming agent and processing aid, providing significant cost reductions by
reducing the amount of plastic consumed, but also provides many other
advantages to the industry, such as improved surface finishes, physical
properties and sink mark elimination, lower part weight and shorter cycle
times. Morfoam is a concentrate encapsulated in an olefin binder, presented
in pellet form to be easily blended or metered into the users formulations.
The product improves cell structure and reduces voids when nitrogen is used
as the primary foaming agent.
The Company recognizes and has adopted the Fair Value Method of accounting
for stock based compensation. This method set out in SFAS No 123,
encourages, but does not require, companies to do so. This recognition
therefore has necessitated amendments to its filed Annual Report 10 KSB
financial statements. This amendment has not yet been filed as it involves o
ther fundamental changes in presentation of pertinent financial information,
it will, however, be filed shortly.
The fiscal result of this recognition represents an expense increase of
$515,350 US covering Restricted Common Shares issued [6,825,000] during
fiscal 1999 at or near par value. This expense will be credited to Paid in
Capital of the Company and will accordingly increase the accumulated deficit
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and shareholder deficiency reported on its balance sheet at June 30, 1999.
The Balance Sheet presented in this report for the fiscal quarter ending
September 30, 1999 reflects this change. Additionally the comparative period
Balance Sheet and as well, Income And Expense for the comparative quarter of
1999, reflects the Fair Market Adjustment for restricted common shares at or
near par value issued during that period.
During the first quarter of Fiscal Year 2000. The Company issued an
additional 1,050,000 Restricted Common Shares in exchange for Consulting -
Financial & Public Relations Services to the company. This resulted in
further Fair Market Value adjustment expense of $180,338 US and concurrently
an increase in Paid In Capital of an equal amount.
Results of Operations:
Sales revenues for the first three months of fiscal 2000 increased 20 %, when
compared to those for the corresponding period of the previous year. The
majority increase due to an increase in orders from two of the Company's
major customers. Comparative gross margins, however, decreased due to a
change in the mix of orders and related pricing from customers. The Company
therefore undertook and has been successful in negotiating an increase in
prices from some of it's customers.
Technical Ventures continues to develop and market the specialty compounding,
with this segment representing 94 % of total revenues during the first three
months of fiscal 2000. The Company also continues to assess additional
opportunities in it's expertise of specialty compounding.
Administrative expenses increased 12% for the three month period ending
September 30,1999 when compared to those for the corresponding period of the
previous year. This increase due in part to the on going quest for financing
and resources being directed to the current lawsuit.
R&D expenses decreased 20%, when compared to those of the corresponding three
month period for the previous fiscal year, due to resources being redirected
to manufacturing and sales.
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Selling expenses have increased 97 % as efforts are stepped up to introduce
and market the company's new product Morfoam. This has included increased
market activity in Canada and the US. Potential customers that have
completed their testing advise that Morfoam is the product of choice, in that
regard; a major international toy manufacturer, a plastic crate and skid
manufacturer, as well, manufacturers in the construction and marine
industries, with applications for plastic wood, decorative trim and marine
plywood.
The Company, however, continues to take measures to contain all areas of
expense.
Forward Looking Statements:
This Form 10-QSB contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21B of the Securities
Exchange Act of 1934. The Company's actual results could differ materially
from those set forth in the forward looking statements.
PART II - OTHER INFORMATION
Item 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 (Commercial)
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.
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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.
Based on prior written legal opinion from its patent attorneys that the
allegations are without merit, the Corporation has retained a law firm
specializing in Intellectual Property Law and is vigorously defending the
action.
On September 16-17, 1999, at the hearing of the interlocutory injunction
motion, the parties agreed, on consent, to adjourn the motion until trial.
The parties agreed to expedite the matter to trial with a target date of
about December 1999.
Subsequently, it appears that date of trial will be delayed until January
2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 K
(a) Exhibits - none
(b) Reports on Form 8-K -
During the quarter for which this report is filed,
the Company filed a Current Report on Form 8K, dated
September 28, 1999, updating and regarding a legal
action referenced under Item 5 - Legal Proceedings in
this report 10 QSB, September 30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNICAL VENTURES INC.
Date: November 25,1999 BY: /s/Frank Mortimer
Frank Mortimer, President and
Chief Executive Officer
Date: November 25,1999 BY: /s/Larry Leverton
Larry Leverton, V/P & Secretary
Chief Financial Officer
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