UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended September 30, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
From the transition period from to
Commission File No. 000-49900
RIVAL TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Nevada N/A
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification No.)
#200, 100 Park Royal, West Vancouver, British Columbia, Canada V7T 1A2
(Address of principal executive offices)
(604) 689-0584
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of November 10, 2005, Rival Technologies, Inc. had a total of 43,210,843
shares of common stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements...............................................2
Item 2. Management's Discussion and Analysis or Plan of Operation.........15
Item 3. Controls and Procedures............................................17
PART II: OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.......17
Item 6. Exhibits..........................................................17
Signatures.................................................................19
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
All amounts in this report are expressed in Canadian dollars, except where
specifically indicated in United States dollars. The unaudited consolidated
financial statements do not include all disclosures required by generally
accepted accounting principles in the United States of America and should be
read in conjunction with the audited consolidated financial statements for the
year ended December 31, 2004.
2
RIVAL TECHNOLOGIES INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
(Unaudited)
SEPTEMBER 30, 2005
3
RIVAL TECHNOLOGIES INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
(Expressed in Canadian dollars)
==============================================================================
September 30,
2005
- ------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current
Cash and cash equivalents $ 857,952
Receivables 15,258
Prepaid expenses 70,859
-------------
Total current assets 944,069
Equipment 6,290
Deferred income taxes, less valuation allowance of $1,665,525 -
-------------
Total assets $ 950,359
==============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 42,842
Promissory note payable 5,575
-------------
Total current liabilities 48,417
-------------
Commitments and contingencies (Notes 1, 11 and 12)
Shareholders' equity
Common stock
Authorized
100,000,000 common shares without par value
Issued and outstanding
43,083,093 common shares 14,401,997
Additional paid-in capital 261,544
Deficit accumulated during the development stage (6,529,111)
Deficit (7,232,488)
-------------
Total shareholders' equity 901,942
-------------
Total liabilities and shareholders' equity $ 950,359
==============================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
4
RIVAL TECHNOLOGIES INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in Canadian dollars)
(Unaudited)
====================================================================================================
Cumulative
Amounts From
Beginning of
Development
Stage (April Three Month Three Month Nine Month Nine Month
1, 2003) to Period Ended Period Ended Period Ended Period Ended
September 30, September 30, September 30, September 30, September 30,
2005 2005 2004 2005 2004
-------------- -------------- -------------- -------------- -------------
<s> <c> <c> <c> <c> <c>
EXPENSES
Accounting and legal $ 150,563 $ 11,249 $ 10,071 $ 42,584 $ 42,486
Consulting 396,646 80,937 1,000 115,105 31,625
Depreciation 2,918 508 375 1,455 897
Finder's fees 665,000 665,000 - 665,000 -
Foreign exchange 123,428 44,185 - 123,428 -
Interest expense 104,186 (1,467) 31,142 41,240 33,661
Investor relations 476,865 63,564 4,426 96,719 12,814
Office and miscellaneous 35,999 7,802 3,792 19,458 6,498
Management and
director fees 35,902 28,532 - 35,902 -
Regulatory fees 49,487 4,175 4,485 22,155 12,049
Rent 22,667 1,696 2,147 8,303 6,084
Research and development 262,042 56,700 30,140 143,192 70,292
Shareholder costs 7,329 1,928 949 7,329 949
Telephone and utilities 8,666 954 918 3,610 1,857
Travel and related 24,872 6,381 1,194 8,499 1,194
Website design and
maintenance 2,652 206 - 377 -
-------------- -------------- -------------- -------------- -------------
Loss before other items (2,369,222) (972,350) (90,639) (1,334,356) (220,406)
OTHER ITEMS
Impairment of intangible
property (4,550,000) - - - -
Interest income 111 - - 111 -
-------------- -------------- -------------- -------------- -------------
(4,549,889) - - 111 -
-------------- -------------- -------------- -------------- -------------
Loss before income taxes (6,919,111) (972,350) (90,639) (1,334,245) (220,406)
Provision for income taxes - - - - -
-------------- -------------- -------------- -------------- -------------
Net loss for period $ (6,919,111) $ (972,350) $ (90,639) $ (1,334,245) $ (220,406)
===================================================================================================
Basic and diluted net
loss per common share $ (0.02) $ (0.01) $ (0.03) $ (0.01)
===================================================================================================
Weighted average number of
common shares outstanding -
basic and diluted 42,418,740 42,659,834 42,811,831 42,612,403
====================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
5
RIVAL TECHNOLOGIES INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian dollars)
(Unaudited)
====================================================================================================
Cumulative
Amounts From
Beginning of
Development
Stage (April Nine Month Nine Month
1, 2003) to Period Ended Period Ended
September 30, September 30, September 30,
2005 2005 2004
-------------- -------------- --------------
<s> <c> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (6,919,111) $ (1,334,245) $ (222,406)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of beneficial conversion feature 101,531 50,409 27,497
Depreciation 2,918 1,455 897
Shares issued for services 1,281,962 780,667 -
Impairment of intangible property 4,550,000 - -
Changes in assets and liabilities:
(Increase) decrease in receivables (15,258) 686 (2,137)
(Increase) decrease in prepaid expenses 62,461 (789) 31,625
Increase (decrease) in accounts payable and
accrued liabilities (16,200) (100,445) (19,917)
-------------- -------------- --------------
Net cash used in operating activities (951,697) (602,262) (184,441)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Convertible debentures 162,604 - 149,315
Repayment of convertible debentures (156,546) (156,546) -
Promissory note payable 5,575 - -
Proceeds from issuance of common stock 1,804,737 1,556,956 13,661
Stock subscriptions received - - 60,286
-------------- -------------- --------------
Net cash provided by financing activities 1,816,370 1,400,410 223,262
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (9,208) (2,807) (2,590)
-------------- -------------- --------------
Net cash used in investing activities (9,208) (2,807) (2,590)
-------------- -------------- --------------
Change in cash and cash equivalents during period 855,465 795,341 36,231
Cash and cash equivalents, beginning 2,487 62,611 3,580
-------------- -------------- --------------
Cash and cash equivalents, ending $ 857,952 $ 857,952 $ 39,811
===================================================================================================
Supplemental disclosure with respect to cash flows
Settlement of accounts payable to an officer
of the Company $ 54,744 $ - $ -
Shares issued to acquire intangible property 4,550,000 - -
Shares issued for services 530,772 120,000 -
Shares issued to settle convertible debenture
and accrued interest payable 13,729 - 13,729
Beneficial conversion feature recorded as
additional paid-in capital 94,300 - 94,300
Contributed capital on settlement of accounts
payable 7,500 - -
Shares issued for obligation - 308,945 -
Cancellation of shares 390,000 390,000 -
====================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
6
RIVAL TECHNOLOGIES INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
SEPTEMBER 30, 2005
(Unaudited)
==============================================================================
1. OPERATIONS AND GOING CONCERN
The Company is incorporated under the Company Act of British Columbia with its
head office in West Vancouver, British Columbia, Canada.
The Company was the exclusive licensed manufacturer and distributor worldwide
of a brand of fire extinguishants and fire retardant products. The license
agreement was terminated December 1999. During the three years ended December
2002, all sales were made to customers in North America. The Company does not
expect any further sales of these products and has abandoned this business
effective during the three-month period beginning April 1, 2003.
During the period beginning April 1, 2003, the Company acquired a new
technology for reducing diesel emissions and will now focus on developing and
marketing this technology. The Company is considered to be a development
stage company beginning April 1, 2003, as the Company has changed its business
and no longer generates revenues from operations.
These consolidated financial statements have been prepared on the basis of
accounting principles applicable to a going concern, which assumes that the
Company will continue in operation for the foreseeable future and will be able
to realize its assets and discharge its liabilities in the normal course of
operations. The Company's continued existence is dependent upon its ability to
raise substantial capital, maintain adequate financing arrangements and to
generate profitable operations in the future. During 2001, control of the
Company passed to a new group that is actively seeking to raise capital and to
identify possible business acquisitions.
The operations of the Company have primarily been funded by the issuance of
common stock. Continued operations of the Company are dependent on the
Company's ability to complete equity financings or generate profitable
operations in the future. Management's plan in this regard is to secure
additional funds through future equity financings. Such financings may not be
available or may not be available on reasonable terms.
==============================================================================
September 30,
2005
- -----------------------------------------------------------------------------
Working capital (deficiency) $ 895,652
Deficit accumulated during the development stage (6,529,111)
Deficit (7,232,488)
=============================================================================
All amounts are expressed in Canadian dollars except for certain per share
amounts denoted in United States dollars ("US$").
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary (consisting of normal
recurring accruals) to present fairly the financial information contained
therein. The accompanying unaudited consolidated financial statements do not
include all disclosures required by generally accepted accounting principles
in the United States of America and should be read in conjunction with the
audited consolidated financial statements of the Company for the year ended
December 31, 2004. The results of operations for the nine-month period ended
September 30, 2005, are not necessarily indicative of the results to be
expected for the year ending December 31, 2005.
7
RIVAL TECHNOLOGIES INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
SEPTEMBER 30, 2005
(Unaudited)
=============================================================================
2. SIGNIFICANT ACCOUNTING POLICIES
Net loss per share
Basic net loss per share is computed by dividing net loss attributable to
common stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted net loss per share takes into
consideration shares of common stock outstanding (computed under basic loss
per share) and potentially dilutive shares of common stock. The dilutive
effect of Nil (September 30, 2004 46,900) warrants is not reflected in net
loss per share as the effect would be anti-dilutive.
New accounting pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Financial Interpretation No. 46 "Consolidation of Variable Interest Entities"
("FIN 46") (revised in December 17, 2003). The objective of FIN 46 is to
improve financial reporting by companies involved with variable interest
entities. A variable interest entity is a corporation, partnership, trust, or
any other legal structure used for business purposes that either (a) does not
have equity investors with voting rights or (b) has equity investors that do
not provide sufficient financial resources for the entity to support its
activities. FIN 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. FIN 46 also requires disclosures about
variable interest entities that a company is not required to consolidate but
in which it has a significant variable interest. The consolidation
requirements of FIN 46 apply immediately to variable interest entities created
after December 15, 2003. The consolidation requirements apply to older
entities in the first fiscal year or interim period beginning after March 15,
2004.
In December 2004, FASB issued Statement of Financial Accounting Standards No.
153, "Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29"
("SFAS 153") which amends Accounting Principles Board Opinion No. 29,
"Accounting for Nonmonetary Transactions" to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a
result of the exchange. SFAS 153 is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005.
In December 2004, FASB issued Statement of Financial Accounting Standards No.
123R, "Share Based Payment" ("SFAS 123R"). SFAS 123R supersedes Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and its related implementation guidance by requiring entities to
recognize the cost of employee services received in exchange for awards of
equity instruments based on the grant-date fair value of those awards (with
limited exceptions) and revises Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") as follows:
8
RIVAL TECHNOLOGIES INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
SEPTEMBER 30, 2005
(Unaudited)
==============================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
New accounting pronouncements
i) Public entities are required to measure liabilities incurred to employees
in share-based payment transactions at fair value and nonpublic entities
may elect to measure their liabilities to employees incurred in
share-based payment transactions at their intrinsic value whereas under
SFAS 123, all share-based payment liabilities were measured at their
intrinsic value.
ii) Nonpublic entities are required to calculate fair value using an
appropriate industry sector index for the expected volatility of its
share price if it is not practicable to estimate the expected volatility
of the entity's share price.
iii) Entities are required to estimate the number of instruments for which the
requisite service is expected to be rendered as opposed to accounting for
forfeitures as they occur.
iv) Incremental compensation cost for a modification of the terms or
conditions of an award is measured by comparing the fair value of the
modified award with the fair value of the award immediately before the
modification whereas SFAS 123 required that the effects of a modification
be measured as the difference between the fair value of the modified
award at the date it is granted and the award's value immediately before
the modification determined based on the shorter of (1) its remaining
initially estimated expected life or (2) the expected life of the
modified award.
SFAS 123R also clarifies and expands guidance in several areas, including
measuring fair value, classifying an award as equity or as a liability and
attributing compensation cost to reporting periods. SFAS 123R does not change
the accounting guidance for share-based payment transactions with parties
other than employees provided in SFAS 123 as originally issued and Emerging
Issues Task Force No. 96-18 "Accounting for Equity Instruments that are Issued
to Other Than Employees for Acquiring or in Conjunction with Selling, Goods
and Services" ("EITF 96-18"). SFAS 123R also does not address the accounting
for employee share ownership plans which are subject to Statement of Position
93-6, "Employers' Accounting for Employee Stock Ownership Plans". Public
entities (other than those filing as small business issuers) will be required
to apply SFAS 123R as of the first annual reporting period that begins after
June 15, 2005. Public entities that file as small business issuers will be
required to apply SFAS 123R in the first annual reporting period that begins
after December 15, 2005. For nonpublic entities, SFAS 123R must be applied as
of the beginning of the first annual reporting period beginning after December
15, 2005.
In May 2005, FASB issued Statement of Financial Accounting Standards No. 154
Accounting for Changes and Error Corrections A Replacement of APB Opinion
No. 20 and FASB Statement No. 3 ("SFAS 154"), which is effective for fiscal
years ending after December 15, 2005. SFAS 154 requires that changes in
accounting policy be accounted for on a retroactive basis.
The adoption of these new pronouncements are not expected to have a material
effect on the Company's consolidated financial position or results of
operations.
Comparative figures
Certain comparative figures have been reclassified to conform with the
presentation adopted in the current year.
9
RIVAL TECHNOLOGIES INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
SEPTEMBER 30, 2005
(Unaudited)
==============================================================================
3. EQUIPMENT
=============================================================================
September 30, 2005
-------------------------------------------------
Accumulated Net
Cost Amortization Book Value
- -----------------------------------------------------------------------------
Furniture and equipment $ 3,811 $ 1,349 $ 2,462
Computer equipment 5,397 1,569 3,828
-------------- ------------- -------------
$ 9,208 $ 2,918 $ 6,290
==============================================================================
4. INTANGIBLE PROPERTY
The Company acquired certain diesel engine technology ("CWI Technology") from
M.A. Turbo/Engine Ltd. ("M.A. Turbo"). It acquired a 100% interest in the CWI
Technology for the automotive transportation industry and a 20% interest in
the CWI Technology for the marine industry. The purchase agreement includes an
option clause to acquire the balance of the marine application.
Under the terms of the purchase agreement, the Company has issued 35,000,000
restricted common shares. The Company has determined the value of the shares
based on the market price of the securities under the guidance in Emerging
Issues Task Force No. 97-8 "Accounting for Contingent Consideration Issued in
a Purchase Business Combination" and Emerging Issues Task Force No. 99-12
"Determination of the Measurement Date for the Market Price of Acquirer
Securities Issued in a Purchase Business Combination". On the date of the
acquisition agreement, the market value of the stock was $0.15 per share;
however, the market value of the stock was adjusted as follows:
i) A discount of approximately 23%, based upon published materials, was
applied against the market value of the stock of $0.15 per share to
reflect the thinly traded market in which the Company's stock trades.
ii) A premium of approximately 10%, based upon published materials, was
applied against the market value of the stock of $0.15 per share to
reflect the cost of issuing a significant number of shares that results
in control of the Company passing to the vendors of the CWI Technology.
Accordingly, the Company determined the share price for this transaction to be
approximately $0.13 per share. As a result, the cost recorded by the Company
upon acquisition of the CWI Technology was $4,550,000.
Subsequent to the acquisition of the CWI Technology and under the guidance in
Statements of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets", the Company determined that carrying value of the CWI
Technology exceeded the fair value which was estimated to be approximately
$35,000 based upon expected future cash flows. Consequently, the Company
recorded a charge in the consolidated statements of operations of $4,515,000
during the year ended December 31, 2003 as the carrying value of CWI
Technology was written down to fair value in the year the impairment was
recognized. During the year ended December 31, 2004, the Company determined a
further write down was required and accordingly, a charge of $35,000 was
recorded in the consolidated statements of operations.
10
RIVAL TECHNOLOGIES INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
SEPTEMBER 30, 2005
(Unaudited)
==============================================================================
4. INTANGIBLE PROPERTY (cont'd...)
The Company has also committed to provide M.A. Turbo with $230,000 (unpaid) in
development and marketing funds to complete the CWI Technology for the
automotive transportation industry plus $100,000 for its 20% interest in the
CWI Technology for the marine industry. At December 31, 2004, the Company has
not incurred any costs related to these commitments.
In connection with the purchase of the CWI Technology, the Company entered
into a contractor agreement for a one-year term. Under the agreement, the
Company provided compensation of 150,000 common shares for services related to
the acquisition.
In April 2005, the Company decided not to proceed with the CWI Technology for
the marine industry and accordingly, 3,000,000 shares of common stock were
returned to treasury and cancelled and the Company was released from its
commitment to incur development and marketing expenses of $100,000.
On July 25, 2005, the Company acquired the exclusive right to market, sell and
distribute a water injection technology for application on the marine/shipping
industry (the "CWI Marine Technology") in Europe and non-European countries
bordering the Mediterranean Sea for a period of 5 years in exchange for 50% of
any net profit received from sales of the CWI Marine Technology.
5. PROMISSORY NOTE PAYABLE
On April 17, 2003, the Company issued a promissory note of $5,575 to an
individual related to a director of the Company. The note is unsecured, bears
no interest and is payable on demand.
6. CONVERTIBLE DEBENTURES
On January 16, 2004, the Company borrowed $15,000 from a lender and issued a
convertible debenture for a period of one year, bearing interest of 10% per
annum. The Company may prepay the principal and interest accrued to the date
of payment, in whole or in part, without penalty. If all or any portion of the
principal and interest remains unpaid at the end of the term, the lender
and/or the Company shall have the right to convert the principal and interest
earned into common stock of the Company at a value of US$0.35 per share. On
January 16, 2005, the option to convert expired unexercised and the term of
the loan was extended to July 15, 2005.
On March 8, 2004, the Company borrowed $13,015 (US$10,000) from a lender and
issued a convertible debenture for a period of one year, bearing interest of
10% per annum. The Company may prepay the principal and interest accrued to
the date of payment, in whole or in part, without penalty. If all or any
portion of the principal and interest remains unpaid at the end of the term,
the lender and/or the Company shall have the right to convert the principal
and interest earned into common stock of the Company at a value of US$0.35 per
share. On March 8, 2005, the option to convert expired unexercised and the
term of the loan was extended to September 8, 2005.
On April 13, 2004, the Company borrowed $27,000 from a lender and issued a
convertible debenture for a period of one year, bearing interest of 10% per
annum. The Company may prepay the principal and interest accrued to the date
of payment, in whole or in part, without penalty. If all or any portion of the
principal and interest remains unpaid at the end of the term, the lender
and/or the Company shall have the right to convert the principal and interest
earned into common stock of the Company at a value of US$0.35 per share.
Subsequent to March 31, 2005, the option to convert expired unexercised and
the term of the loan was extended to October 13, 2005.
11
RIVAL TECHNOLOGIES INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
SEPTEMBER 30, 2005
(Unaudited)
==============================================================================
6. CONVERTIBLE DEBENTURES (cont'd...)
On June 9, 2004, the Company borrowed $67,300 (US$50,000) from a lender and
issued a convertible debenture for a period of one year, bearing interest of
10% per annum. The Company may prepay the principal and interest accrued to
the date of payment, in whole or in part, without penalty. If all or any
portion of the principal and interest remains unpaid at the end of the term,
the lender and/or the Company shall have the right to convert the principal
and interest earned into common stock of the Company at a value of US$0.35 per
share. As the market price of the Company's common stock exceeded the exercise
price on the commitment date, the intrinsic value of the beneficial conversion
feature recorded by the Company as additional paid-in capital was $67,300. To
date, the Company recognized $54,497 of intrinsic value of the beneficial
conversion feature in the consolidated statements of operations.
On June 30, 2004, the Company borrowed $27,000 (US$20,000) from a lender and
issued a convertible debenture for a period of one year, bearing interest of
10% per annum. The Company may prepay the principal and interest accrued to
the date of payment, in whole or in part, without penalty. If all or any
portion of the principal and interest remains unpaid at the end of the term,
the lender and/or the Company shall have the right to convert the principal
and interest earned into common stock of the Company at a value of US$0.35 per
share. As the market price of the Company's common stock exceeded the exercise
price on the commitment date, the intrinsic value of the beneficial conversion
feature recorded by the Company as additional paid-in capital was $27,000. To
date, the Company recognized $20,250 of intrinsic value of the beneficial
conversion feature in the consolidated statements of operations.
The related accrued interest for the convertible debentures has been recorded
as accounts payable and accrued liabilities.
In May 2005, the Company settled all outstanding convertible debentures, plus
accrued interest, for total cash proceeds of $156,556.
7. COMMON STOCK
During the year ended December 31, 2004, the Company issued and transferred
4,000,000 shares of common stock to a trustee for the sole purpose of selling
the shares of common stock. The trustee will receive a trustee fee equal to 3%
of the selling value of the shares of common stock. There is no time limit as
to when the trustee has to sell the shares of common stock. Any shares of
common stock not sold by the trustee will be returned to the Company at its
request. Accordingly, those shares of common stock were not recorded as issued
and outstanding on the consolidated balance sheet when originally issued and
transferred.
In conjunction with the above, the Company entered into an agreement with a
third party for investor relations services whereby the third party is
entitled to receive a fee equal to 47% of the selling value of the shares of
common stock. Additionally, the third party is entitled to receive, on a
one-time basis only, 250,000 shares of common stock to be delivered upon
execution of this agreement dated November 15, 2004. Further, during the
period ended September 30, 2005, the third party received 500,000 shares of
common stock for investor relations services. These shares were valued at
$1.33 per share for a total value of $665,000, which approximated the trading
price when the shares were issued.
To date, 3,065,359 shares of common stock had been issued by the trustee for
proceeds of $1,658,665 (net of issue costs).
12
<PAG>
RIVAL TECHNOLOGIES INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
SEPTEMBER 30, 2005
(Unaudited)
==============================================================================
7. COMMON STOCK (cont'd...)
On September 9, 2005, the board of directors resolved to issue and transfer
5,000,000 shares of common stock to a trustee for the sole purpose of selling
the shares of common stock. The trustee will receive a trustee fee equal to 3%
of the selling value of the shares of common stock. There is no time limit as
to when the trustee has to sell the shares of common stock. Any shares of
common stock not sold by the trustee will be returned to the Company at its
request. Accordingly, those shares of common stock have not been recorded as
issued and outstanding on the consolidated balance sheet during the period
ended September 30, 2005.
In conjunction with the above, the Company entered into an agreement with a
third party for investor relations services whereby the third party is
entitled to receive a fee equal to 38% of the selling value of the shares of
common stock.
During the nine month period ended September 30, 2005, the Company issued
45,000 shares of common stock to various directors and consultants at $1.25
per share for a total value of $56,250 which approximated the trading price
when the shares were issued. These shares were issued pursuant to an equity
incentive plan that the Company has in place.
Stock options
At September 30, 2005, there were no stock options outstanding.
Share purchase warrants
During the nine month period ended September 30, 2005, the Company issued
24,900 shares of common stock for gross proceeds of $10,464 pursuant to the
exercise of share purchase warrants.
8. SEGMENT INFORMATION
The Company operates in one reportable segment, being the diesel technology
industry, in Canada and the United States of America.
9. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
receivables, accounts payable and accrued liabilities, promissory note payable
and convertible debentures. Unless otherwise noted, it is management's opinion
that the Company is not exposed to significant interest, currency or credit
risks arising from these financial instruments. The fair value of these
financial instruments approximate their carrying values, unless otherwise
noted.
10. STRATEGIC ALLIANCE AGREEMENT
In April 2005, the Company entered into an agreement with UTEK Corporation
("UTEK") whereby the Company retained UTEK to search for technologies at
universities and research institutions that the Company may wish to acquire
for a period of one year in exchange for 120,000 shares of unregistered common
stock valued at $1.00 per share. The shares vest at 10,000 shares per month.
Unvested shares are reflected as prepaid expenses.
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RIVAL TECHNOLOGIES INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian dollars)
SEPTEMBER 30, 2005
(Unaudited)
==============================================================================
11. PURCHASE AGREEMENT
On September 20, 2005, the Company entered into a purchase agreement with G.A.
(Sandy) Constable, Norman L. Carlson and Gerald A. Heelan (collectively the
"Vendor") to acquire a heavy oil upgrading technology called TRU Oiltech. The
Company will incorporate a Nevada corporation named TRU Oiltech, Inc. ("TRU
Nevada") which will hold title to the TRU Oiltech technology. As
consideration, the Company will issue 4,000,000 common shares of TRU Nevada to
the Vendor at closing at a price of $0.001 per share. Additionally, the
Company agrees to provide $150,000 to TRU Nevada and any additional financing
required on a best efforts basis.
To date, none of the consideration has been exchanged and accordingly, there
have been no amounts recorded in the consolidated financial statements with
respect to this transaction.
12. AMALGAMATION AGREEMENT
The Company and Rival Technologies, Inc ("Rival Nevada") have agreed to
amalgamate and merge pursuant to an agreement dated September 6, 2005. Rival
Nevada was incorporated in the state of Nevada on September 2, 2005, and is an
inactive and wholly-owned subsidiary of by the Company.
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In this report references to "Rival" "Rival Technologies "we," "us," and "our"
refer to Rival Technologies Inc.
NOTE REGARDING PROJECTIONS AND FORWARD LOOKING STATEMENTS
Except for historical information contained herein, this Form 10-QSB contains
express or implied forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Exchange Act. We may
make written or oral forward-looking statements from time to time in filings
with the Securities and Exchange Commission ("SEC"), in press releases,
quarterly conference calls or otherwise. The words "believes," "expects,"
"anticipates," "intends," "forecasts," "project," "plans," "estimates" and
similar expressions identify forward-looking statements. These statements
reflect our current views with respect to future events and financial
performance or operations and speak only as of the date the statements are
made.
Forward-looking statements involve risks and uncertainties and readers are
cautioned not to place undue reliance on forward-looking statements. Our
actual results may differ materially from such statements. Factors that cause
or contribute to such differences include, but are not limited to, those
discussed elsewhere in this Form 10-QSB.
Although we believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate with
the result that there can be no assurance the results contemplated in such
forward-looking statements will be realized. The inclusion of such
forward-looking information should not be regarded, as a representation that
the future events, plans, or expectations contemplated will be achieved. We
undertake no obligation to publicly update, review, or revise any
forward-looking statements to reflect any change in our expectations or any
change in events, conditions, or circumstances on which any such statements
based. Our filings with the SEC may be accessed at the SEC's Web site,
www.sec.gov.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Executive Overview
We are a development stage company with a business plan to acquire interests
in technologies and develop, market and distribute them in Canada and the
United States. We have not recorded revenues from ongoing operations for the
past two years and have relied on equity transactions to fund development of
our business plan. We anticipate that equity financings will be our primary
source of funding for the next twelve months.
In April 2003, we acquired a diesel engine technology called Continuous Water
Injection technology ("CWI Technology") from M.A. Turbo/Engine Ltd. ("M.A.
Turbo"). The CWI Technology is a continuous water injection system designed
to reduce harmful nitrogen oxide and smoke emissions, improve fuel efficiency
and provide cleaner operations of diesel engines. We acquired a 100% interest
in the CWI Technology for the automotive transportation industry.
In May 2005, we filed a patent application with the United States Patent
Office for the CWI Technology systems and process. In June, 2005, a working
prototype of the CWI technology was installed in a Dodge Ram pickup with a 5.9
liter in-line six cylinder, 24-valve turbocharged and inter-cooled Cummins
diesel engine. This engine was chosen because it is widely used in diesel
trucks and buses, off-road construction equipment and diesel generators. We
intend to complete field testing and final design of this truck version and a
locomotive version of our CWI technology during the next twelve months.
On April 25, 2005, we entered into a Strategic Alliance Agreement with UTEK
Corporation, whereby we retained UTEK to search for technologies at
universities and research institutions that we may wish to acquire. UTEK
received 120,000 restricted common shares that vest at 10,000 shares per month
for services for one year. The agreement provides for a structure whereby we
may acquire additional technologies with common stock, subject to mutual
agreement in this regard. However, this type of agreement may be canceled by
either party with thirty days written notice.
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On July 25, 2005, we entered into a distribution agreement with M.A. Turbo
that granted us the exclusive distribution rights to the marine application of
CWI Technology in Europe and non-European countries bordering the
Mediterranean Sea. The term of the exclusive license is a period of five
years, and M.A. Turbo will receive 50% of any net profit received from sales
of the marine CWI Technology. We intend to initiate a marketing effort in
Europe within the next ninety days focused on ship owners and ship servicing
companies.
On September 20, 2005, we entered into a purchase agreement with G.A.
Constable, Norman L. Carlson and Gerald A. Heelan, the owners of TRU Oiltech
technology. TRU Oiltech is a mild thermal reagent-based upgrading process
added to heavy crude oil and oil sands bitumen in order to improve viscosity
for transfer in pipeline systems. Management believes this process could
reduce costs for oil producers that transfer millions of barrels of heavy
crude each day.
Pursuant to the terms of the purchase agreement, we incorporated TRU Oiltech,
a Nevada subsidiary, for the purpose of acquiring, developing and marketing
the TRU Oiltech technology. The TRU Oiltech technology was transferred to TRU
Oiltech and Rival Technologies received 6,000,000 shares of TRU Oiltech. The
owners received 4,000,000 shares of TRU Oiltech and Mr. Constable was
appointed Director and President of TRU Oiltech. Rival Technologies will
provide $150,000 in financing to TRU Oiltech to fund research and tests aimed
at obtaining a patent and developing a commercially viable process.
Our challenge for the next twelve months will be to develop these technologies
to a commercially viable application and then market it to customers.
However, we may be unable to develop each technology to a point where it
satisfies the needs of the market. In that case we may have to research and
develop other applications or abandon our business plans.
Liquidity and Capital Resources
During the three-month period ended September 30, 2005, we met all cash flow
needs from the sale of Regulation S shares of common stock. Regulation S
provides for the offers and sales of restricted securities outside of the
United States. These securities are not registered under the Securities Act
of 1933 and cannot be offered or sold in the United States unless registered
under the Securities Act or an exemption from registration is available.
Our cash position at September 30, 2005, was $857,952 as compared to $62,611
at December 31, 2004, representing an increase of $795,341. We have not had
revenues from operations for the past two fiscal years and our total operating
expenses increased to $1,334,356 for the nine-month period ended September 30,
2005 (the "2005 nine-month period"), compared to $222,406 for the nine-month
period ended September 30, 2004 (the "2004 nine-month period"). This increase
was primarily due to increased expenses related to our Regulation S offering
in the areas of finders' fees, foreign exchange and investor relations.
Our net working capital position (current assets less current liabilities)
increased to $895,652 at September 30, 2005, from negative $176,374 at
December 31, 2004, due primarily to the sale of common stock in the Regulation
S offering. Management believes that equity funding will provide cash for
operations for the next twelve months.
Financing
We are actively raising funds through equity transactions to proceed with the
development of the technologies we have acquired. In April, 2004, we
initiated an offering in Europe pursuant to Regulation S. We will receive the
net proceeds from the sale of these shares and any shares of common stock not
sold by the trustee will be returned to us upon our request.
In 2004, we transferred 4,000,000 shares of common stock to Karsten Behrens,
as trustee, for the sole purpose of selling the shares of common stock in the
Regulation S offering. Then on September 9, 2005, we transferred an
additional 5,000,000 shares to the trustee. As of September 30, 2005, an
aggregate of 3,065,359 Regulation S common shares have been sold in this
offering and we have received net proceeds of $1,658,665. As a result, net
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cash provided by financing activities was $1,400,410 for the 2005 nine-month
period compared to $223,262 for the 2004 nine-month period.
Recent Accounting Announcements
In December 2004, FASB issued SFAS No. 123(R) which requires compensation
costs relating to share-based payment transactions to be recognized in
financial statements. These costs will be measured based on the grant-date
fair value of the instruments issued. (See Note 2 of the Notes to the
Consolidated Financial Statements for further details.) We will be required
to apply this accounting statement as of the first annual reporting period
that begins after December 15, 2005.
ITEM 3. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our filings under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within
the periods specified in the rules and forms of the Securities and Exchange
Commission. Such information is accumulated and communicated to our
management, including our Principal Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
Our Chief Financial Officer, who is also our Principal Executive Officer,
evaluated the effectiveness of our disclosure controls and procedures as of
the end of the period covered by this report. Based on that evaluation, she
concluded that our disclosure controls and procedures were effective.
Also, our Chief Financial Officer determined that there were no changes made
in our internal controls over financial reporting during the third quarter of
2005 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following discussion describes unregistered securities sold by Rival
Technologies that have not been previously reported.
We initiated a Regulation S offering of 10,000,000 shares in April, 2004. As
of September 30, 2005, we have sold an aggregate of 3,065,359 Regulation S
shares of common stock for total net proceeds of $1,658,665. In April 2004,
we transferred 4,000,000 shares to Karsten Behrens, as trustee. Karsten
Behrens will receive a fee equal to 3% of the selling value of the Regulation
S shares and the agent will receive a financing fee equal to 47% of the
selling value of the Regulation S shares. In September 2005, we transferred
an additional 5,000,000 shares to Karsten Behrens and the trustee will receive
a fee equal to 3% of the selling value of the Regulation S shares and the
agent will receive a financing fee equal to 38% of the selling value of the
Regulation S shares. We relied on an exemption from registration provided by
Section 903 of Regulation S. All sales were offshore transactions, with no
direct selling in the United States, the shares are restricted securities and
cannot be sold to or for the account of a United States citizen without
registration or unless an exemption from registration exists.
ITEM 6. EXHIBITS
Part I Exhibits
31.1 Principal Executive Officer Certification
31.2 Chief Financial Officer Certification
32.1 Section 1350 Certification
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Part II Exhibits
1.1 Trust Declaration between Rival Technologies and Karsten Behrens., dated
April 21, 2004
1.2 Trust Declaration between Rival Technologies and Karsten Behrens., dated
September 14, 2005
2.1 Plan of Merger Amalgamation Agreement, dated September 6, 2005
(Incorporated by reference to exhibit 2.1 to Form 8-K, filed October 31,
2005)
3.1 Articles of Incorporation of Rival Technologies, Inc. (Incorporated by
reference to exhibit 3.1 to Form 8-K, filed October 31, 2005)
3.2 Articles of Merger, dated September 6, 2005 (Incorporated by reference
to exhibit 3.2 to Form 8-K, filed October 31, 2005)
3.3 By-laws of Rival Technologies, Inc. (Incorporated by reference to
exhibit 3.3 to Form 8-K, filed October 31, 2005)
4.1 The 2005 Stock Equity Incentive Plan of Rival Technologies Inc.
(Incorporated by reference to exhibit 4.1 to Form S-8, filed June 30,
2005)
10.1 Financing Agreement between Rival Technologies and Abernathy, Mendelson
& Associates, Ld (Incorporated by reference to exhibit 10.2 to Form
10-KSB, as amended, filed April 15, 2005)
10.2 Strategic Alliance Agreement between Rival Technologies and UTEK, dated
April 25, 2005
10.3 Distribution Agreement between Rival Technologies and M.A. Turbo/Engine
Ltd., dated July 15, 2005
10.4 Purchase Agreement between Rival Technologies and the owners of TRU
Technology, dated September 20, 2005
21.1 Subsidiaries of Rival Technologies
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RIVAL TECHNOLOGIES, INC.
/s/ Robin J. Harvey
Date: November 17, 2005 By: ___________________________________
Robin J. Harvey
President, Treasurer, Chief
Financial Officer and Director
/s/ Piero D. Guglielmi
Date: November 17, 2005 By: ______________________________________
Piero D. Guglielmi
Secretary and Director
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