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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended: July 31, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1939
For the transition period from __________ to ______________
Commission File Number: 000-30071
KIK TECHNOLOGY INTERNATIONAL, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
California 91-2021602
- -------------------------------- ---------------------
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
590 Airport Road
Oceanside, CA 92054
- --------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (760) 967-2777
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange
on which registered
None None
- ------------------------- ------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
----------------------
(Title of class)
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
Number of shares outstanding of the registrant's class of common stock as
of July 31, 2002: 24,014,212.
Copy of Communications to:
Mintmire & Associates
Donald F. Mintmire, Esq.
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Transitional Small Business Disclosure Format (check one): Yes [X] No[_]
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Page
Condensed consolidated balance sheet at July 31, 2002..................3
Condensed consolidated statements of operations for the three-month and
six-month periods ended July 31, 2002 and July 31, 2001................4
Condensed consolidated statements of cash flows for
the six-month periods ended July 31, 2002 and July 31, 2001............5
Notes to the condensed consolidated financial statements...............6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS...........................8
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.............................................10
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.....................10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...............................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........10
ITEM 5. OTHER INFORMATION.............................................10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..............................10
SIGNATURES....................................................................11
CERTIFICATIONS................................................................12
SAFE HARBOR STATEMENT
This quarterly report on Form 10-QSB includes forward-looking statements. All
statements, other than statements of historical fact made in this Quarterly
Report on Form 10-QSB are forward-looking. In particular, the statements herein
regarding industry prospects and future results of operation or financial
position are forward-looking statements. Forward-looking statements reflect
management's current expectations based on assumptions believed to be reasonable
and are inherently uncertain as they are subject to various known and unknown
risks, uncertainties and contingencies, many of which are beyond the control of
KIK Technology International, Inc. The Company's actual results may differ
significantly from management's expectations.
In some cases, you can identify forward-looking statements by terminology such
as "may", "will", "should," "expects," "plans," "intends," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events, levels of
activity, performance, or achievements. We do not assume responsibility for the
accuracy and completeness of the forward-looking statements. We do not intend to
update any of the forward-looking statements after the date of this quarterly
report to conform them to actual results.
The following financial information and discussion and analysis should be read
in conjunction with the Company's Annual Report on Form 10-KSB for the year
ended January 31, 2002.
The discussion of results, causes and trends should not be construed to imply
that such results, causes or trends will necessarily continue in the future.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
JULY 31, 2002
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 38,575
Accounts receivable, net of allowance for doubtful
accounts of $50,000 348,622
Inventories 402,609
Deposits 6,469
------------
Total current assets 796,275
------------
Note receivable, related party 53,400
Deferred financing costs 14,560
Property and equipment, net 139,386
------------
Total assets $ 1,003,621
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 301,512
Accrued expenses 39,620
Current portion of capital lease obligation 3,578
Amount due to a shareholder 16,000
------------
Total current liabilities 360,710
------------
Capital lease obligation, net of current portion 16,377
Notes payable 67,277
------------
Total liabilities 444,364
------------
Shareholders' equity:
Common stock, $0.001 par value,
100,000,000 shares authorized;
24,014,212 shares issued and outstanding 24,014
Additional paid-in capital 5,062,882
Accumulated deficit (4,527,639)
------------
Total shareholders' equity 559,257
------------
Total liabilities and shareholders' equity $ 1,003,621
============
See accompanying notes to condensed consolidated financial statements.
3
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
July 31, July 31,
----------------------------------- -----------------------------------
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Net sales $ 779,391 $ 592,925 $ 1,628,761 $ 1,266,824
Cost of sales 619,885 419,852 1,339,171 1,057,996
--------------- --------------- --------------- ---------------
Gross profit 159,506 173,073 289,590 208,828
General and administrative expenses 152,330 134,271 306,842 218,659
--------------- --------------- --------------- ---------------
Income (loss) from operations 7,176 38,802 (17,252) (9,831)
Interest and other income 1,640 211 2,289 3,064
--------------- --------------- --------------- ---------------
Net income (loss) $ 8,816 $ 39,013 $ (14,963) $ (6,767)
=============== =============== =============== ===============
Basic and diluted income (loss) per common share $ * $ * $ * $ *
=============== =============== =============== ===============
Weighted average number of common shares outstanding 23,998,336 22,700,000 23,991,778 22,700,000
=============== =============== =============== ===============
* Less than $0.01 per share
See accompanying notes to condensed consolidated financial statements.
4
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
July 31,
------------------------------------------------
2002 2001
---------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities $ 109,264 $ (28,720)
---------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,261) (19,225)
---------------------- ----------------------
Net cash used in investing activities (1,261) (19,225)
---------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit 49,980
Payments under line of credit (99,981)
Payment under capital lease obligation (1,126)
Advance from shareholder 16,000
---------------------- ----------------------
Net cash provided by (used in) financing activities (85,107) 49,980
---------------------- ----------------------
Net increase in cash and cash equivalents 22,896 2,035
Cash and cash equivalents, beginning of period 15,679 141,331
---------------------- ----------------------
Cash and cash equivalents, end of period $ 38,575 $ 143,366
====================== ======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,172 $ 2,526
====================== ======================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligation incurred for new equipment $ 21,081
======================
See accompanying notes to condensed consolidated financial statements.
5
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JULY 31, 2002
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements
of KIK Technology International, Inc. and Subsidiary (the "Company") include the
accounts of KIK Technology International, Inc and its wholly-owned subsidiary,
KIK Technology, Inc. Both Companies are incorporated in California. All
significant intercompany accounts and transactions have been eliminated on
consolidation.
The unaudited condensed consolidated financial statements presented herein have
been prepared in accordance with the instructions to Form 10-QSB and do not
include all information and note disclosures required by accounting principles
generally accepted in the United States of America for complete financial
statements.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary to provide a fair presentation of
financial position, operating results and cash flows for the interim periods
presented have been made. It is the Company's opinion that, when the interim
financial statements are read in conjunction with the January 31, 2002 Annual
Report on Form 10-KSB, the Company's disclosures are adequate to make the
information presented not misleading. The results of operations for the interim
periods presented are not necessarily indicative of the results to be expected
for the entire year.
2. RISK CONSIDERATIONS
The Company is subject to risks and uncertainties common to manufacturing
companies, including technological change, dependence on principal products, new
product introductions and other activities of competitors, and dependence on key
personnel.
The Company is also exposed to credit risk with respect to uncertainties as to
timing and amount of collectibility of accounts receivable.
The Company's ability to continue operations in the normal course of business is
dependent on raising additional capital to meet its present and future
commitments, and in the long-term, the Company's ability to maintain a
profitable level of operations.
3. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
principally on the average cost method. Inventories consist of raw materials of
$127,834 and finished goods of $274,775 at July 31, 2002.
4. DEFERRED FINANCING COSTS
Deferred financing costs represent fees paid to investment bankers and attorneys
in connection with debt agreements entered into by the Company. These fees are
being amortized over the two-year term of the debt. Amortization related to
these fees was $2,730 and $5,460 for the three-month and six-month periods ended
July 31, 2002, respectively.
5. ADVANCE FROM SHAREHOLDER
In March 2002, the Company's majority shareholder advanced $16,000 to the
Company to finance the Company's working capital requirements. The advance bears
no interest and is due on demand.
6
6. COMMITMENTS AND CONTINGENCIES
The Company entered into a capital lease agreement in April 2002 to finance the
acquisition of $21,081 of equipment. The lease has an imputed interest rate of
approximately 8.75% and is secured by the leased equipment. Monthly payments
under the lease are $433, and the lease expires in March 2007.
7. SIGNIFICANT CONCENTRATIONS
The Company grants credit, generally without collateral, to its customers. The
Company has one customer, that is also a supplier, which accounted for
approximately 62% and 67% of sales for the three-month and six-month periods
ended July 31, 2002, respectively; approximately 64% and 68% of sales for the
three-month and six-month periods ended July 31, 2001, respectively;
approximately 95% and 93% of raw material purchases for the three-month and
six-month periods ended July 31, 2002, respectively; and approximately 93% and
92% of raw material purchases for the three-month and six-month periods ended
July 31, 2001, respectively. This same customer accounted for approximately 32%
of the Company's accounts receivable and approximately 35% of the Company's
accounts payable as of July 31, 2002.
8. DEBT
In April 2002, the Company paid $99,981 that was outstanding under a line of
credit.
Pursuant to a note agreement dated December 26, 2001, a note holder elected in
April 2002 to receive quarterly interest in shares of restricted common stock in
lieu of cash payment. At April 30, 2002, accrued interest payable to this note
holder was $863. Under the terms of the note agreement, the number of shares to
be issued was calculated at 50% of the daily average of the market price of the
common stock for the 30-calendar days preceding the interest due date. As a
result of this election, the note holder was issued 7,505 shares of restricted
common stock in June 2002. At July 31, 2002, accrued interest payable to this
note holder was $630. The Company expects to issue 8,692 shares of restricted
common stock to this note holder in lieu of cash payment.
Pursuant to a note agreement dated November 12, 2001, a note holder elected in
May 2002 to receive quarterly interest in shares of restricted common stock in
lieu of cash payment. At April 30, 2002, accrued interest payable to this note
holder was $2,329. Under the terms of the note agreement, the number of shares
to be issued was calculated at 50% of the daily average of the market price of
the common stock for the 30-calendar days preceding the interest due date. As a
result of this election, the note holder was issued 21,707 shares of restricted
common stock in June 2002. At July 31, 2002, accrued interest payable to this
note holder was $1,260. The Company expects to issue 17,383 shares of restricted
common stock to this note holder in lieu of cash payment.
The Company recognized interest expense related to the line of credit and notes
payable of $3,924 and $8,959 for the three-month and six-month periods ended
July 31, 2002, respectively.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
THE FOLLOWING ANALYSIS OF THE OPERATIONS AND FINANCIAL CONDITION OF THE COMPANY
SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, OF THE COMPANY CONTAINED ELSEWHERE IN
THIS FORM 10-QSB.
OVERVIEW
KIK Technology International, Inc. and subsidiary (the "Company") manufactures
and markets directly and through distributors urethane products, primarily
puncture-proof micro-cellular polyurethane tires designed for a wide variety of
consumer products and off-highway applications. Principal industries served
include lawn and garden, health and wellness, industrial, and sports and
recreation. The Company's products are sold primarily in the United States.
The accompanying consolidated financial statements include the accounts of KIK
Technology International, Inc. and its wholly-owned subsidiary, KIK Technology,
Inc. (KTI), a company incorporated in California in June 1988. Prior to
September 4, 2001, KTI was a wholly owned United States subsidiary of KIK Tire
Technologies Inc. (KTTI), a Canadian public company trading on the Canadian
Venture Exchange. On September 4, 2001, the Company, formerly known as
Russian-Imports.com (RIC), a California Corporation, entered into a share
exchange agreement with KTI and KTTI. Pursuant to the agreement, KTTI exchanged
all of its shares of KTI for 16,700,000 shares of RIC's common stock. The
transaction represented a reverse acquisition of RIC by KTI, since KTTI owned
approximately 73.6% of the post acquisition shares of the consolidated entity
immediately after the completion of the transaction. At the date of the
transaction, RIC was a shell company with no net assets. For accounting
purposes, the acquisition was treated as an acquisition of RIC by KTI and as a
re-capitalization of KTI. The historical shareholders' equity of KTI, prior to
the transaction, was retroactively restated for the equivalent number of shares
exchanged in the transaction after giving effect to any difference in the par
value of RIC and KTI's common stock, with an offset to additional paid-in
capital.
Concurrent with the reverse acquisition, Russian-Imports.com changed its name to
KIK Technology International, Inc.
RESULTS OF OPERATIONS
The following table sets forth certain operating data for KIK Technology
International, Inc. and subsidiary for the periods indicated below.
Three months ended
July 31,
- ---------------------------------------------------------------------
2002 2001
---------- -------------
Net sales $ 779,391 $ 592,925
Cost of sales 619,885 419,852
General and administrative expenses 152,330 134,271
Net income 8,816 39,013
COMPARISON OF THE THREE MONTHS ENDED JULY 31, 2002 TO THE THREE MONTHS ENDED
JULY 31, 2001
The Company posted net sales of approximately $779,000 for the three months
ended July 31, 2002 compared to approximately $593,000 for the three months
ended July 31, 2001, an increase of approximately $186,000 or 31%. This increase
is the result of improved economy, consumer confidence in flat free tires and
restocking of inventory levels to pre-recession levels.
The Company's cost of sales increased by approximately $200,000 to $619,885 for
the three months ended July 31, 2002. This increase relates to the increase in
sales. As a percentage of sales, cost of sales increased to 80% for the three
months ended July 31, 2002 from 71% for the three months ended July 31, 2001.
This percentage increase resulted from increased sales of particular tire
products that yield lower profit margins. Raw material costs in 2002 were 65% of
sales compared to 63% of sales in 2001. By reformulating its chemical mix and
raw material usage, the Company intends to make efforts to reduce the raw
material cost as a percentage of sales to 60% in future periods.
8
General and administrative expenses for the three months ended July 31, 2002
were approximately $152,000 compared to approximately $134,000 for the three
months ended July 31, 2001. The increase is primarily due to the fact that
additional professional services are required since the Company is now public.
Six months ended
July 31,
- -----------------------------------------------------------------
2002 2001
------------ ------------
Net sales $ 1,628,761 $ 1,266,824
Cost of sales 1,339,171 1,057,996
General and administrative expenses 306,842 218,659
Net loss (14,963) (6,767)
COMPARISON OF THE SIX MONTHS ENDED JULY 31, 2002 TO THE SIX MONTHS ENDED
JULY 31, 2001
The Company posted net sales of approximately $1,629,000 for the six months
ended July 31, 2002 compared to approximately $1,267,000 for the six months
ended July 31, 2001, an increase of approximately $362,000 or 29%. This increase
is the result of improved economy, consumer confidence in flat free tires and
restocking of inventory levels to pre-recession levels.
The Company's cost of sales increased by approximately $281,000 to $1,339,171
for the six months ended July 31, 2002. This increase relates to the increase in
sales. As a percentage of sales, cost of sales decreased to 82% for the six
months ended July 31, 2002 from 84% for the six months ended July 31, 2001. This
percentage decrease resulted from a mix of tire products that yield higher
profit margins. Raw material costs in 2002 were 62% of sales compared to 58% of
sales in 2001. By reformulating its chemical mix and raw material usage, the
Company intends to make efforts to reduce the raw material cost as a percentage
of sales to 60% in future periods.
General and administrative expenses for the six months ended July 31, 2002 were
approximately $307,000 compared to approximately $219,000 for the six months
ended July 31, 2001. The increase is primarily due to the fact that additional
professional services are required since the Company is now public.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $38,575 at July 31, 2002. Business
liquidity and capital resources were adequate during the period to fund all
capital and operating expense requirements. Operations were primarily funded
from internally generated funds and working capital advanced by the major
shareholder.
For the six months ended July 31, 2002, net cash provided by operating
activities was $109,264, which was mainly attributable to restricted cash being
released from restriction. Such cash was subsequently used to pay the
outstanding amount due under a line of credit.
Investing activity included equipment purchases of $1,261 during the six months
ended July 31, 2002. The Company also entered into a capital lease agreement in
April 2002 to finance the acquisition of equipment.
Net cash used in financing activities of $85,107 during the six months ended
July 31, 2002 consisted primarily of repayment of $99,981 under a line of
credit. The Company also received an advance from a shareholder of $16,000.
The Company believes that sufficient cash will be generated from the following
sources to fund its operations for the next twelve months:
Pursuant to a private placement, the Company is attempting to raise $600,000
through the placement of two-year senior notes bearing interest at 10%.
The Company will intensify its efforts in collecting receivables and intends to
establish more stringent credit policies for its customers to facilitate more
timely payment of amounts due from customers.
The Company will also attempt to generate cash by increasing its customer base.
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to a note agreement dated December 26, 2001, a note holder elected in
April 2002 to receive quarterly interest in shares of restricted common stock in
lieu of cash payment. At April 30, 2002, accrued interest payable to this note
holder was $863. Under the terms of the note agreement, the number of shares to
be issued was calculated at 50% of the daily average of the market price of the
common stock for the 30-calendar days preceding the interest due date. As a
result of this election, the note holder was issued 7,505 shares of restricted
common stock in June 2002.
Pursuant to a note agreement dated November 12, 2001, a note holder elected in
May 2002 to receive quarterly interest in shares of restricted common stock in
lieu of cash payment. At April 30, 2002, accrued interest payable to this note
holder was $2,329. Under the terms of the note agreement, the number of shares
to be issued was calculated at 50% of the daily average of the market price of
the common stock for the 30-calendar days preceding the interest due date. As a
result of this election, the note holder was issued 21,707 shares of restricted
common stock in June 2002.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. 1350
99.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. 1350
(b) Reports on Form 8-k
None
10
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, on the 10th day of
September 2002.
KIK TECHNOLOGY INTERNATIONAL, INC.
Date: September 10, 2002
By: /s/ Donald P. Dean
- -----------------------------------------
Donald P. Dean, Chairman and Secretary
By: /s/ William M. Knooihuizen
- -----------------------------------------
William M. Knooihuizen, President and Director
By: /s/ Kuldip C. Baid
- -----------------------------------------
Kuldip C. Baid, Chief Financial Officer and
Director
By: /s/ A. Rene Dervaes, Jr.
- -----------------------------------------
A. Rene Dervaes, Jr., Director
11
CERTIFICATIONS
I, William Knooihuizen, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of KIK Technology
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 12, 2002
/s/ William Knooihuizen
- ---------------------------------------------
William Knooihuizen
Chief Executive Officer (or equivalent thereof)
I, Kuldip C. Baid, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of KIK Technology
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 12, 2002
/s/ Kuldip C. Baid
- ---------------------------------------------
Kuldip C. Baid
Chief Financial Officer (or equivalent thereof)
12