SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[X] Quarterly Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the quarterly period ended July 31, 2005
[ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the transition period from ______________ to _____________
- --------------------------------------------------------------------------------
Commission File Number: 000-30071
KIK Technology International, Inc.
(Exact name of small business issuer as specified in its charter)
California 91-2021602
(State of incorporation) (IRS Employer ID Number)
590 Airport Road, Oceanside CA 92054
(Address of principal executive offices)
(760) 967-2777
(Issuer's telephone number)
- --------------------------------------------------------------------------------
Check whether the issuer (1) 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: September 13, 2005: 25,171,865
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
KIK TECHNOLOGY INTERNATIONAL, INC.
Form 10-QSB for the Quarter ended July 31, 2005
Table of Contents
Page
----
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 17
Item 3 Controls and Procedures 19
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 20
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3 Defaults Upon Senior Securities 20
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 5 Other Information 20
Item 6 Exhibits 20
SIGNATURES 20
2
PART I
ITEM 1 - FINANCIAL STATEMENTS
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
July 31, 2005 and 2004
(UNAUDITED)
July 31, July 31,
2005 2004
----------- -----------
ASSETS
CURRENT ASSETS
Cash on hand and in bank $ 27,723 $ 33,247
Accounts receivable
Trade, net of allowance for doubtful accounts
of approximately $13,686 and $14,230, respectively 228,861 260,644
Other 9,078 8,632
Inventories 324,790 328,345
----------- -----------
TOTAL CURRENT ASSETS 590,452 630,868
----------- -----------
PROPERTY AND EQUIPMENT - AT COST,
NET OF ACCUMULATED DEPRECIATION 116,030 145,201
----------- -----------
OTHER ASSETS
Funds held in trust by officer 53,400 53,400
Refundable deposits 4,800 4,800
----------- -----------
TOTAL OTHER ASSETS 58,200 58,200
----------- -----------
TOTAL ASSETS $ 764,682 $ 834,269
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable to investors $ 49,000 $ 49,000
Current maturity of capital lease payable 4,667 4,308
Accounts payable - trade 459,591 263,868
Other accrued expenses 39,545 39,460
Management fee payable to majority shareholder 300,000 180,000
Advances from majority shareholder 16,000 16,000
----------- -----------
TOTAL CURRENT LIABILITIES 868,803 552,636
----------- -----------
LONG-TERM DEBT
Notes payable to investors, net of current maturities 19,000 19,000
Capital lease payable 3,439 8,105
----------- -----------
TOTAL LIABILITIES 891,242 579,741
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - $0.001 par value
100,000,000 shares authorized
25,171,865 shares issued and outstanding 25,172 25,172
Additional paid-in capital 5,152,423 5,152,423
Accumulated deficit (5,304,155) (4,923,067)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (126,560) 254,528
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 764,682 $ 834,269
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
3
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Six and Three months ended July 31, 2005 and 2004
(UNAUDITED)
Six months Six months Three months Three months
ended ended ended ended
July 31, July 31, July 31, July 31,
2005 2004 2005 2004
----------- ----------- ----------- -----------
REVENUES - net of returns and allowances $ 916,512 $ 1,302,831 $ 541,296 $ 929,571
COST OF SALES (768,082) (1,180,323) (393,443) (791,754)
----------- ----------- ----------- -----------
GROSS PROFIT 148,430 122,508 147,853 137,817
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling, general and administrative expenses 290,162 317,447 143,289 177,897
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 290,162 317,447 143,289 177,897
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (141,732) (194,939) 4,564 (40,080)
OTHER INCOME
Interest and other income (expense) - net (3,205) (3,626) (1,357) (1,828)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (144,937) (198,565) 3,207 (41,908)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) (144,937) (198,565) 3,207 (41,908)
OTHER COMPREHENSIVE INCOME -- -- -- --
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (144,937) $ (198,565) $ 3,207 $ (41,908)
=========== =========== =========== ===========
Net income (loss) per weighted-average share
of common stock outstanding, calculated
on Net Loss - basic and fully diluted $ (0.01) $ (0.01) nil nil
=========== =========== =========== ===========
Weighted-average number of shares
of common stock outstanding 25,171,865 25,030,107 25,171,865 25,038,169
=========== =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
4
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended July 31, 2005 and 2004
(UNAUDITED)
Six months Six months
ended ended
July 31, July 31,
2005 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the period $(144,937) $(198,565)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 15,490 18,984
Expenses paid with common stock -- 6,000
(Increase) Decrease in
Accounts receivable - trade and other 75,248 110,474
Inventory (71,356) (5,282)
Prepaid expenses and other 384 2,671
Increase (Decrease) in
Accounts payable 37,786 (22,905)
Other accrued expenses (217) (2,994)
Accrued management fees to parent company 60,000 60,000
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (27,602) (31,617)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (2,380) (6,632)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (2,380) (6,632)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable to investors -- (7,000)
Payments on long-term capital lease (2,200) (2,018)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (2,200) (9,018)
--------- ---------
INCREASE (DECREASE) IN CASH (32,182) (47,267)
Cash at beginning of period 59,905 80,514
--------- ---------
CASH AT END OF PERIOD $ 27,723 $ 33,247
========= =========
SUPPLEMENTAL DISCLOSURE OF INTEREST AND
INCOME TAXES PAID
Interest paid for the period $ 2,277 $ 6,204
========= =========
Income taxes paid for the period $ -- $ --
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
5
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
KIK Technology International, Inc. (KTII) was incorporated on February 1, 2000
under the laws of the State of California as Russian-Imports.com. On September
4, 2001, KTII (formerly Russian-Imports.com) issued 16,700,000 shares of
restricted, unregistered common stock to KIK Tire Technologies, Inc. (a
publicly-owned Canadian corporation) (KTTI) for 100.0% of the issued and
outstanding stock of KIK Technology, Inc. (a wholly-owned subsidiary of KTTI).
By virtue of this transaction, KIK Technology, Inc. became a wholly-owned
subsidiary of KTII and KTTI became an approximate 73.6% shareholder in KTII.
Concurrent with this transaction, Russian-Imports.com changed it's corporate
name to KIK Technologies International, Inc.
KIK Technology, Inc (KTI) was incorporated in June 1988 under the laws of the
State of California. KTI manufactures and markets an extensive and high quality
line of off-highway micro-cellular polyurethane tires for the healthcare, light
industrial, lawn and garden and recreational industries. KTI operates from a
sole manufacturing plant and marketing offices located in Oceanside, CA.
In prior years, the Company's principal raw materials are purchased from a sole
supplier was also a major customer for the Company's products. In the event of
any disruption in the availability of raw materials or a market for the
Company's products purchased by this key supplier, the Company could have
experienced a negative economic impact. The Company is developing additional
sources of supply of it's key raw materials comparable prices and management is
seeking other avenues of distribution of the Company's products to consumers.
Management is of the opinion that no interruption of either raw materials or
product demand will occur.
NOTE B - PREPARATION OF FINANCIAL STATEMENTS
The Company follows the accrual basis of accounting in accordance with
accounting principles generally accepted in the United States of America and has
adopted a year-end of January 31.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management further acknowledges that it is solely responsible for adopting sound
accounting practices, establishing and maintaining a system of internal
accounting control and preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other items, that 1)
recorded transactions are valid; 2) valid transactions are recorded; and 3)
transactions are recorded in the proper period in a timely manner to produce
financial statements which present fairly the financial condition, results of
operations and cash flows of the Company for the respective periods being
presented
Management further acknowledges that it is solely responsible for adopting sound
accounting practices, establishing and maintaining a system of internal
accounting control and preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other items, that 1)
recorded transactions are valid; 2) valid transactions are recorded; and 3)
transactions are recorded in the proper period in a timely manner to produce
financial statements which present fairly the financial condition, results of
operations and cash flows of the Company for the respective periods being
presented.
During interim periods, the Company follows the accounting policies set forth in
its annual audited financial statements filed with the U. S. Securities and
Exchange Commission on its Annual Report on Form 10-KSB/A for the year ended
January 31, 2005. The information presented within these interim financial
statements may not include all disclosures required by generally accepted
accounting principles and the users of financial information provided for
interim periods should refer to the annual financial information and footnotes
when reviewing the interim financial results presented herein.
6
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - PREPARATION OF FINANCIAL STATEMENTS - CONTINUED
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the U. S. Securities and Exchange Commission's
instructions for Form 10-QSB, are unaudited and contain all material
adjustments, consisting only of normal recurring adjustments necessary to
present fairly the financial condition, results of operations and cash flows of
the Company for the respective interim periods presented. The current period
results of operations are not necessarily indicative of results which ultimately
will be reported for the full fiscal year ending January 31, 2006.
For segment reporting purposes, the Company operated in only one industry
segment during the periods represented in the accompanying financial statements
and makes all operating decisions and allocates resources based on the best
benefit to the Company as a whole.
These financial statements reflect the books and records of KIK Technology
International, Inc. (formerly Russian-Imports.com) (KTII) and KIK Technology,
Inc. (KTI) as of and for the periods ended April 30, 2005 and 2004,
respectively. All significant intercompany transactions have been eliminated in
consolidation. The consolidated entities are referred to as Company.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. CASH AND CASH EQUIVALENTS
For Statement of Cash Flows purposes, the Company considers all cash on
hand and in banks, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents.
Cash overdraft positions may occur from time to time due to the timing of
making bank deposits and releasing checks, in accordance with the Company's
cash management policies.
2. ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers which are located throughout the United
States and are principally concentrated in the midwest region of the
country. Depending upon management's assessment of creditworthiness and
order size, certain shipments are made on "COD" terms using common
carriers. Because of the credit risk involved, management has provided an
allowance for doubtful accounts which reflects its opinion of amounts which
will eventually become uncollectible. In the event of complete
non-performance, the maximum exposure to the Company is the recorded amount
of trade accounts receivable shown on the balance sheet at the date of
non-performance.
The Company recognizes revenue from the sale of tires and accessories upon
shipment to, or receipt by customers, depending upon contractual terms and
when there is no significant uncertainty regarding the consideration to be
received and the associated costs to be incurred. Additionally, the Company
recognizes reductions of recorded revenue for product returns from
unsatisfied customers and other billing adjustments or corrections, at the
point that the returned products are received by the Company or upon the
completion of negotiations between the Company and it's customer.
7
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
3. INVENTORY
Inventory consists of raw materials, principally chemical feedstocks, and
finished goods, principally tires and accessories manufactured by the
Company and other minor miscellaneous items purchased from third-party
vendors for resale as a component of the Company's products.
Inventory is valued at the lower of cost or market value, using principally
the average cost method.
4. PROPERTY AND EQUIPMENT
Property and equipment are recorded at historical cost. These costs are
depreciated over the estimated useful lives, generally two (2) to seven (7)
years, of the individual assets using the straight-line method. Gains and
losses from the disposition of property and equipment are included in
operations as incurred.
In accordance with Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the
Company follows the policy of evaluating all property and equipment as of
the end of each reporting quarter. For each of the years ended January 31,
2004 and 2003 and during the quarter ended July 31, 2005, no charges to
operations were made for impairments in the future benefit of property and
equipment.
5. INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. At July 31, 2005 and 2004, the deferred tax asset and deferred tax
liability accounts, as recorded when material to the financial statements,
are entirely the result of temporary differences. Temporary differences
represent differences in the recognition of assets and liabilities for tax
and financial reporting purposes, primarily accumulated depreciation and
amortization, allowance for doubtful accounts and vacation accruals.
As of July 31, 2005 and 2004, the deferred tax asset related to the
Company's net operating loss carryforward is fully reserved.
6. ADVERTISING COSTS
The Company does not conduct any direct response advertising activities.
For non-direct response advertising, the Company charges the costs of these
efforts to operations at the first time the related advertising is
published.
7. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing the net income
(loss) available to common shareholders by the weighted-average number of
common shares outstanding during the respective period presented in our
accompanying financial statements.
Fully diluted earnings (loss) per share is computed similar to basic income
(loss) per share except that the denominator is increased to include the
number of common stock equivalents (primarily outstanding options and
warrants).
Common stock equivalents represent the dilutive effect of the assumed
exercise of the outstanding stock options and warrants, using the treasury
stock method, at either the beginning of the respective period presented or
the date of issuance, whichever is later, and only if the common stock
equivalents are considered dilutive based upon the Company's net income
(loss) position at the calculation date.
8
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
7. EARNINGS (LOSS) PER SHARE - continued
As of July 31, 2005 and 2004, the Company's issued and outstanding,
warrants, options and convertible debt are considered antidilutive due to
the Company's net operating loss position.
8. EMPLOYEE STOCK OPTIONS
For periods prior to November 1, 2002, the Company chose to account for
employee stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25 (APB No. 25),
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, employee compensation cost for stock options and warrants is
measured as the excess, if any, of the market price of the Company's stock
at the date of the grant over the amount an employee must pay to acquire
the stock. This treatment was allowed under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation"
(SFAS 123).
In December 2002, FASB issued Statement of Financial Accounting Standards
No. 148 "Accounting for Stock-Based Compensation - Transition and
Disclosure" (SFAS 148). This statement amends SFAS 123 and provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. This
statement also amends the disclosure requirements of SFAS 123 to require
more prominent and frequent disclosures in financial statements about the
effects of stock-based compensation. The transition guidance and annual
disclosure provisions of SFAS 148 are effective for financial statements
issued for fiscal years ending after December 15, 2002. Effective November
1, 2003, the first day of the reporting quarter including the effective
date of SFAS 148, the Company's Board of Directors, in conjunction with
public opinion and SFAS 148, elected to expense the imputed compensation
cost related to any stock options granted during Fiscal 2003 and for future
periods. The Company did not issue any stock options during Fiscal 2004 or
Fiscal 2003 and the adoption of SFAS 148 did not have a material impact on
our results of operations or financial condition.
9. NEW AND PENDING ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board issued FASB
Interpretation Number 46-R "Consolidation of Variable Interest Entities."
FIN 46-R, which modifies certain provisions and effective dates of FIN 46,
sets for the criteria to be used in determining whether an investment is a
variable interest entity should be consolidated. These provisions are based
on the general premise that if a company controls another entity through
interests other than voting interests, that company should consolidate the
controlled entity. The Company believes that currently, it does not have
any material arrangements that meet the definition of a variable interest
entity which would require consolidation.
In November 2004, the FASB issued SFAS 151, "Inventory Costs." SFAS 151
amends the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage) under the guidance
in ARB 43, Chapter 4, "Inventory Pricing." Paragraph 5 of ARB 43, Chapter
4, previously stated that "...under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and rehandling costs
may be so abnormal as to require treatment as current period charges...."
This Statement requires that those items be recognized as current-period
charges regardless of whether they meet the criterion of "so abnormal." In
addition, this Statement requires that allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of the
production facilities. This statement is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. Management does
not expect adoption of SFAS 151 to have a material impact on the Company's
financial statements.
9
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
9. NEW AND PENDING ACCOUNTING PRONOUNCEMENTS - continued
In December 2004, the FASB issued SFAS 152, "Accounting for Real Estate
Time-Sharing Transactions." The FASB issued this Statement as a result of
the guidance provided in AICPA Statement of Position (SOP) 04-2,
"Accounting for Real Estate Time-Sharing Transactions." SOP 04-2 applies to
all real estate time-sharing transactions. Among other items, the SOP
provides guidance on the recording of credit losses and the treatment of
selling costs, but does not change the revenue recognition guidance in SFAS
66, "Accounting for Sales of Real Estate," for real estate time-sharing
transactions. SFAS 152 amends Statement 66 to reference the guidance
provided in SOP 04-2. SFAS 152 also amends SFAS 67, "Accounting for Costs
and Initial Rental Operations of Real Estate Projects", to state that SOP
04-2 provides the relevant guidance on accounting for incidental operations
and costs related to the sale of real estate time-sharing transactions.
SFAS 152 is effective for years beginning after June 15, 2005, with
restatements of previously issued financial statements prohibited.
Management does not expect adoption of SFAS 152 to have a material impact
on the Company's financial statements.
In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary
Assets," an amendment to Opinion No. 29, "Accounting for Nonmonetary
Transactions." Statement 153 eliminates certain differences in the guidance
in Opinion No. 29 as compared to the guidance contained in standards issued
by the International Accounting Standards Board. The amendment to Opinion
No. 29 eliminates the fair value 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. Such
an 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 periods beginning
after June 15, 2005. Earlier application is permitted for nonmonetary asset
exchanges occurring in periods beginning after December 16, 2004.
Management does not expect adoption of SFAS 153 to have a material impact
on the Company's financial statements.
In December 2004, the FASB issued SFAS 123(R), "Share-Based Payment." SFAS
123(R) amends SFAS 123, "Accounting for Stock-Based Compensation," and APB
Opinion 25, "Accounting for Stock Issued to Employees." SFAS 123(R)
requires that the cost of share-based payment transactions (including those
with employees and non-employees) be recognized in the financial
statements. SFAS 123(R) applies to all share-based payment transactions in
which an entity acquires goods or services by issuing (or offering to
issue) its shares, share options, or other equity instruments (except for
those held by an ESOP) or by incurring liabilities (1) in amounts based
(even in part) on the price of the entity's shares or other equity
instruments, or (2) that require (or may require) settlement by the
issuance of an entity's shares or other equity instruments. This statement
is effective (1) for public companies qualifying as SEC small business
issuers, as of the first interim period or fiscal year beginning after
December 15, 2005, or (2) for all other public companies, as of the first
interim period or fiscal year beginning after June 15, 2005, or (3) for all
nonpublic entities, as of the first fiscal year beginning after December
15, 2005. Management anticipates no significant impact to the Company's
financial statements upon the adoption of SFAS No. 123(R).
NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, accounts payable and notes
payable, as applicable, approximates fair value due to the short term nature of
these items and/or the current interest rates payable in relation to current
market conditions.
Interest rate risk is the risk that the Company's earnings are subject to
fluctuations in interest rates on either investments or on debt and is fully
dependent upon the volatility of these rates. The Company does not use
derivative instruments to moderate its exposure to interest rate risk, if any.
10
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
Financial risk is the risk that the Company's earnings are subject to
fluctuations in interest rates or foreign exchange rates and are fully dependent
upon the volatility of these rates. The company does not use derivative
instruments to moderate its exposure to financial risk, if any.
NOTE E - CONCENTRATIONS OF CREDIT RISK
KTII and KTI maintain their respective cash accounts in financial institutions
subject to insurance coverage issued by the Federal Deposit Insurance
Corporation (FDIC). Under FDIC rules, both KTII and KTI are entitled to
aggregate coverage of $100,000 per account type per separate legal entity per
financial institution. During the years ended January 31, 2005 and 2004 and for
the period through July 31, 2005, respectively, KTTI and KTI, from time-to-time,
had deposits in a financial institution with credit risk exposures in excess of
statutory FDIC coverage. The Company has incurred no losses as a result of any
of these unsecured situations.
NOTE F - INVENTORIES
Inventories consist of the following at July 31, 2005 and 2004:
July 31, July 31,
2005 2004
-------- --------
Raw materials $ 68,852 $ 46,262
Finished goods 255,938 282,083
-------- --------
Total $324,790 $328,345
======== ========
NOTE G - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at July 31, 2005 and 2004:
July 31, July 31,
2005 2004 Estimated life
--------- --------- --------------
Machinery and Equipment $ 600,121 $ 594,512 7 years
Office furniture and fixtures 25,441 25,441 5 years
Leasehold improvements 14,180 14,180 2 years
Vehicles 9,279 9,279 5 years
--------- ---------
649,021 643,412
Less accumulated depreciation (532,991) (498,211)
--------- ---------
Net property and equipment $ 116,030 $ 145,201
========= =========
,Depreciation expense for the three month periods ended July 31, 2005 and 2004
was approximately $15,490 and $18,984, respectively.
11
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - FUNDS HELD IN TRUST BY OFFICER
In May 2001, the Company advanced $53,400 to its President to hold in trust as a
contingency fund for the sole use of the Company in the event of a unanticipated
cash shortfall. The advance bears interest at 4.0% annually and is unsecured.
The original documentation required repayment of the advance and accrued, but
unpaid, interest in May 2003. As of July 31, 2005, with the approval of the
Company's Board of Directors, the Company's President continues to maintain
these funds as trustee on behalf of the Company.
NOTE I - NOTES PAYABLE TO INVESTORS
Pursuant to the terms of a private placement agreement, the Company attempted to
raise up to $600,000 through the placement of two-year senior notes bearing
interest at 10% payable quarterly. This Private Placement Memorandum was
terminated by the Company during the fiscal quarter ended October 31, 2002.
In November 2001, the Company entered into an agreement with an investment
banker whereby the investment banker would act as exclusive dealer-manager in
this private placement of securities to be issued by the Company pursuant to
Regulation D of the Securities Act of 1933, as amended. As compensation, the
investment banker was paid $15,000 for professional fees, received a commission
equal to 10% of the gross proceeds, an unaccountable expense allowance equal to
4% of the gross proceeds, and for every $500,000 raised, 150,000 shares of the
Company's restricted, unregistered common stock. Such shares will be issued upon
completion of the private placement. In addition, the investment banker will
have the option to nominate one person to the Company's Board of Directors if at
least $2,000,000 is raised. As of the termination of this Private Placement
Memorandum, only $75,000 had been successfully raised.
Note holders can elect, with the consent of the Company, to accept Company
common stock in lieu of cash interest payments. Such payments in stock would be
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. After six months from
the date of issue of the notes, the Company can convert the notes to common
stock if the daily average market price of the Company's common stock for any
30-calendar days after the initial six-month period equals or exceeds $1.00. The
conversion of the notes to common stock would also be calculated at 50% of the
daily average market price for the 30 days prior to the Company giving notice of
its plan to convert.
In conjunction with the offering of the notes, each note holder was given one
warrant for each $1.00 invested. Each warrant allows the holder to purchase one
share of the Company's common stock at an initial exercise price of $0.60 per
share, and is exercisable for two years. In March 2002, the Company repriced the
outstanding warrants to an exercise price of $0.40 per share.
Pursuant to the private placement, the Company sold a $50,000 convertible note
on November 12, 2001 and a $25,000 convertible note on December 26, 2001 to two
unrelated investors. Warrants to purchase a combined total of 75,000 shares of
the Company's common stock at $0.60 per share were also issued to the investors.
The warrants were valued at $11,789 using the Black-Scholes option-pricing
model, and therefore $11,789 of the total debt proceeds of $75,000 was allocated
to the warrants, resulting in a discount on the notes, was amortized to interest
expense over the initial term of the underlying debt. During the years ended
January 31, 2004, approximately $9,100 of the discount was amortized to interest
expense. The weighted average assumptions utilized to value the warrants using
the Black-Scholes option-pricing model were as follows:
Expected life of the option: The initial life of the corresponding option,
generally two (2) years
Expected volatility in the
Company's stock price: 150.0%, which was based on fluctuations of
the Company's stock price over the past Fiscal
year.
Expected dividends: Zero (0.00) based on past performance
Anticipated risk free
interest rate: Estimated to be 2.80%.
12
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - NOTES PAYABLE TO INVESTORS - CONTINUED
The convertible notes contained a beneficial conversion feature valued at a
combined total of approximately $63,000. However, because the conversion
features were fully contingent upon the occurrence of certain future events, the
Company did not record a discount resulting from the beneficial conversion
feature.
The notes matured on November 12, 2003 ($50,000) and December 26, 2003
($25,000), respectively.
On February 16, 2004, the Company restructured the $50,000 convertible note.
Under the restructured terms, the Company paid all accrued interest and a $3,000
principal reduction on March 16, 2004, as of February 16, 2004. The Company is
obligated to pay $2,000 per month, plus accrued interest, for the period from
March 16, 2004 through August 16, 2004 and $1,000 per month, plus accrued
interest, on the 16th of each month thereafter until all outstanding amounts are
paid in full. The restructured note bears interest at 10.0% per annum.
The $50,000 restructured note is convertible into shares of unregistered,
restricted common stock at the discretion of the Noteholder with the Company's
consent, provided that the daily average (calculated from the last sale price
daily) of the market price of the Company's common stock for any 30 calendar day
period equals or exceeds $1.00 per share, with the conversion being calculated
at a 50% discount of such 30 day average.
The $50,000 Noteholder also has the election to receive the monthly interest
payments in restricted, unregistered common stock of the Company at the daily
average (calculated from the last sale price daily) of the market price of the
Company's common stock for the 30 calendar day period prior to the interest due
date, with the number of shares to be issued calculated at a 50% discount of
such 30 day average.
Through April 30, 2005, the Company has paid approximately $7,000 in principal
and $7,296 in cumulative accrued interest on the $50,000 restructured
convertible note.
The $25,000 convertible note is in default and no demand for payment has been
made to the Company. The Company continues to accrue interest on this
convertible note in accordance with the original terms and conditions.
The aggregate maturities of the notes are as follows:
Balance as of July 31, 2005 $ 68,000
Less current portion (49,000)
--------
Long-term portion $ 19,000
========
NOTE J - CAPITAL LEASE PAYABLE
Capital lease payable as of July 31, 2005 and 2004 is as follows:
July 31, July 31,
2005 2004
-------- --------
$21,080 capital lease payable to a finance corporation
Interest at 8.60%. Payable in monthly installments
of approximately $432, including accrued interest
Final maturity due in April 2007. Collateralized by
equipment $ 8,106 $ 12,413
Less current maturities (4,667) (4,308)
-------- --------
Long-term portion $ 3,439 $ 8,105
======== ========
13
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - CAPITAL LEASE PAYABLE - CONTINUED
Future annual maturities of long-term capital leases payable, as of January 31,
2005, for each of the following years ending January 31 are as follows:
Year ending
January 31, Amount
----------- ------
2006 $ 4,468
2007 4,872
2008 966
-------
Total $10,306
=======
NOTE K - INCOME TAXES
The components of income tax (benefit) expense for the six months ended July 31,
2005 and 2004, respectively, are as follows:
July 31, July 31,
2005 2004
------- -------
Federal:
Current $ -- $ --
Deferred -- --
------- -------
-- --
------- -------
State:
Current -- --
Deferred -- --
------- -------
-- --
------- -------
Total $ -- $ --
======= =======
The Company has a net operating loss carryforward of approximately $5,000,000 to
offset future taxable income. Subject to current regulations, this carryforward
will begin to expire in 2005. The amount and availability of the net operating
loss carryforwards may be subject to limitations set forth by the Internal
Revenue Code. Factors such as the number of shares ultimately issued within a
three year look-back period; whether there is a deemed more than 50 percent
change in control; the applicable long-term tax exempt bond rate; continuity of
historical business; and subsequent income of the Company all enter into the
annual computation of allowable annual utilization of the carryforwards.
The Company's income tax expense for the six months ended July 31, 2005 and
2004, respectively, are as follows:
July 31, July 31,
2005 2004
-------- --------
Statutory rate applied to loss before income taxes $(49,300) $(67,500)
Increase (decrease) in income taxes resulting from:
State income taxes -- --
Other, including reserve for deferred tax asset 49,300 67,500
-------- --------
Income tax expense $ -- $ --
======== ========
Temporary differences, consisting primarily of net operating loss carryforwards,
statutory deferrals of expenses for organizational costs and accrued, but
unpaid, accruals for officer compensation and statutory differences in the
depreciable lives for property and equipment, between the financial statement
carrying amounts and tax bases of assets and liabilities give rise to deferred
tax assets and liabilities as of January 31, 2005 and 2004, respectively:
14
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - INCOME TAXES - CONTINUED
January 31, January 31,
2005 2004
----------- -----------
Deferred tax assets
Net operating loss carryforwards $ 1,700,000 $ 1,564,000
Less valuation allowance (1,700,000) (1,564,000)
----------- -----------
Net Deferred Tax Asset $ -- $ --
=========== ===========
During the Fiscal years ended January 31, 2005 and 2004, respectively, the
valuation allowance for the deferred tax asset increased (decreased) by
approximately $136,000 and $68,000.
NOTE L - COMMON STOCK TRANSACTIONS
In February 2003, the Company issued 150,000 restricted, unregistered shares of
common stock in payment of a contract for marketing services. This transaction
was valued at approximately $3,000, which was equal to or in excess of the
discounted closing price of the Company's common stock on the NASDAQ Electronic
Bulletin Board on the date of each respective transaction. The Company relied
upon Section 4(2) of The Securities Act of 1933, as amended, for an exemption
from registration on these shares.
In April 2003, the Company issued 22,500 restricted, unregistered shares of
common stock in settlement of a January 31, 2003 trade account payable in the
amount of approximately $552. The value of this transaction was equal to or in
excess of the discounted closing price of the Company's common stock on the
NASDAQ Electronic Bulletin Board on the date of each respective transaction. The
Company relied upon Section 4(2) of The Securities Act of 1933, as amended, for
an exemption from registration on these shares.
In May 2003, the Company issued 575,664 restricted, unregistered shares of
common stock in payment of trade accounts payable to the Company's primary legal
counsel in the amount of approximately $72,849. The value of this transaction
was equal to or in excess of the discounted closing price of the Company's
common stock on the NASDAQ Electronic Bulletin Board on the date of each
respective transaction. The Company relied upon Section 4(2) of The Securities
Act of 1933, as amended, for an exemption from registration on these shares.
In July 2004, the Company issued 150,000 restricted, unregistered shares of
common stock in payment of a contract for professional services. This
transaction was valued at approximately $6,000, which was equal to or in excess
of the discounted closing price of the Company's common stock on the NASDAQ
Electronic Bulletin Board on the date of each respective transaction. The
Company relied upon Section 4(2) of The Securities Act of 1933, as amended, for
an exemption from registration on these shares.
NOTE M - RELATED PARTY TRANSACTIONS
During the six months ended July 31, 2005 and during each of the years ended
January 31, 2005 and 2004, respectively, the Company accrued approximately
$60,000, $120,000 and $120,000 in administrative service fees payable to KTTI,
respectively.
(Remainder of this page left blank intentionally)
15
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE O - COMMITMENTS AND CONTINGENCIES
LEASED FACILITIES
The Company leases its facilities under a non-cancellable operating lease, which
expires on May 31, 2008. The lease requires monthly payments as follows: $8,987
for the period from June 1, 2005 through May 31, 2006; $9,343 for the period
from June 1, 2006 through May 31, 2007; and $9,717 for the period from June 1,
2007 through May 31, 2008. Rent expenses incurred under this lease was
approximately $106,428 and $102,340 for each of the years ended January 31, 2005
and 2004, respectively.
Future amounts due under this agreement are as follows:
Year ending
January 31, Amount
----------- ------
2006 $107,808
2007 110,680
2008 105,391
2009 48,585
--------
Totals $372,464
========
EMPLOYMENT CONTRACT
In May 2000, KIK entered into an employment agreement with William M.
Knooihuizen, the Company's current President and Director. The term of the
agreement is for a period of five (5) years. For such services, KIK agreed to
pay Mr. Knooihuizen an annual salary in the amount of $143,000, to be paid
weekly.
NOTE P - SIGNIFICANT CUSTOMERS
During the year ended January 31, 2005, the Company had three separate customers
responsible for an aggregate of approximately 71.86% (49.18%, 16.09% and 6.59%,
respectively) of total net revenues. The largest customer was also a significant
vendor of raw materials. The largest key customer was responsible for
approximately 35.02% of accounts receivable and 59.37% of accounts payable at
January 31, 2005. The second key customer was responsible for approximately
7.42% of accounts receivable and 0.12% of accounts payable at January 31, 2005.
The third key customer was responsible for approximately 18.32% of accounts
receivable and approximately 0.52% of accounts payable at January 31, 2005.
During the year ended January 31, 2004, the Company had two separate customers
responsible for an aggregate of approximately 78.47% (69.06% and 9.41%,
respectively) of total sales. The largest customer is also a significant vendor
of raw materials. The largest key customer was responsible for approximately
48.95% of accounts receivable and 76.17% of accounts payable at January 31,
2004. The second key customer was responsible for approximately 1.72% of
accounts receivable and 0.00% of accounts payable at January 31, 2004. There
were no other customer(s) responsible for more than 10.0% of total net sales
during Fiscal 2004.
These significant customer trends are anticipated to continue into future
periods.
(Remainder of this page left blank intentionally)
16
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(1) CAUTION REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this quarterly filing, including, without
limitation, statements containing the words "believes", "anticipates", "expects"
and words of similar import, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
Such factors include, among others, the following: international, national and
local general economic and market conditions: demographic changes; the ability
of the Company to sustain, manage or forecast its growth; the ability of the
Company to successfully make and integrate acquisitions; raw material costs and
availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; and other factors referenced in this and previous filings.
Given these uncertainties, readers of this Form 10-QSB and investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
(2) RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES OR PLAN OF OPERATION
OVERVIEW
During the three months ended July 31, 2005 and 2004, respectively, the Company
achieved revenues of approximately $916,000 and $1,303,000. These revenues were
derived primarily from the sale of tire products. Net loss for the six months
ended July 31, 2005 and 2004 was approximately $(145,000) and $(198,500),
respectively. The net loss for each of these quarters includes a $60,000 charge
for administrative services to the Company from KIK Tire Technologies Inc., the
Company's publicly-owned Canadian majority shareholder. The net loss per share
of common stock for the six months ended July 31, 2005 and 2004, respectively,
was approximately $(0.01) and $(0.01).
RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and notes.
SIX MONTHS ENDED JULY 31, 2005 COMPARED TO THE SIX MONTHS ENDED JULY 31, 2004
The Company posted net sales of approximately $916,500 for the six months ended
July 31, 2005 as compared to net sales of approximately $1,303,000 for the six
months ended July 31, 2004. During the quarter ended April 30, 2005, the Company
discontinued it's relationship with a major customer, who was primarily a
wholesale distributor of the Company's products. While the demand for the
Company's product remains strong, in management's opinion, the Company is
rapidly developing a sales channel directly with retail resellers of the
Company's products to eliminate the "middleman" from the distribution channel.
It is anticipated that the Company's sales will regain levels comparable or in
excess of prior period comparable sales in future periods. It should be noted
that the Company has begun to experience competition from foreign sources for
comparable products and this may negatively impact revenues in the future.
The Company's cost of sales decreased by approximately $412,000 to approximately
$768,000 for the six months ended July 31, 2005 as compared to approximately
$1,180,000 for the six months ended July 31, 2004. The Company is consistently
subjected to cost increases in raw material and ancillary supplies which are not
readily passed through with product price increases due to foreign competition
for sales of the Company's tire products. The Company experienced a gross profit
margin of approximately 16.20% (approximately $148,000) for the first six months
of Fiscal 2006 as compared to approximately 9.40% (approximately $122,500) for
the first six months of Fiscal 2005.
17
General and administrative expenses decreased from approximately $317,000 for
the six months ended July 31, 2004 to approximately $290,000 for the six months
ended July 31, 2005. To the extent possible, management monitors and controls
the variable expenditures related to the Company's administration. Included in
these costs is a $10,000 per month administrative charge to KIK Tire
Technologies Inc., the Company's publicly-owned Canadian majority shareholder.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of approximately $28,000, $59,900 and
$33,000 at July 31, 2005, January 31, 2005 and July 31, 2004, respectively. The
Company maintained business liquidity and capital resources during the year
adequate to fund all capital and operating expense requirements. Operations were
primarily funded from internally generated funds, line of credit borrowings, and
capital raised via a private placement of securities in previous years.
For the six months ended July 31, 2005 and 2004, net cash provided by (used in)
operating activities was approximately $(27,600) and $(31,600), respectively.
Net cash provided by operating activities consists of cash received from sales
of products to customers, less purchases of raw materials, payment of payroll
and payment of other general operating expenses, including interest.
Cash used in investing activities was approximately $(2,400) and $(6,600) for
each of the six months ended July 31, 2005 and 2004, respectively. These cash
utilizations was due solely to the acquisition of equipment used in the
manufacturing process.
The Company experienced cash used in financing activities of approximately
$(2,200) and $(9,000) in the first six months of Fiscal 2006 and Fiscal 2005,
respectively. All of these expenditures were related to the reduction in
outstanding principal on the Company's $50,000 convertible note payable and the
Company's equipment capital lease payable.
Management remains confident that sufficient cash will be generated internally
to fund its operations for the next twelve months.
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note C to the Consolidated Financial Statements includes a
summary of the significant accounting policies and methods used in the
preparation of the Company's Consolidated Financial Statements. The following is
a brief discussion of the more significant accounting policies and methods used
by the Company.
REVENUE RECOGNITION
The Company recognizes revenue from the sale of tires and accessories upon
shipment to, or receipt by customers, depending upon contractual terms and when
there is no significant uncertainty regarding the consideration to be received
and the associated costs to be incurred. Additionally, the Company recognizes
reductions of recorded revenue for product returns from unsatisfied customers
and other billing adjustments or corrections, at the point that the returned
products are received by the Company or upon the completion of negotiations
between the Company and it's customer.
ACCOUNTS RECEIVABLE
The Company continuously monitors collections and payments from its customers
and maintains an allowance for estimated uncollectible accounts based upon
historical experience and specific customer collections issues that have been
identified. Depending upon management's assessment of a customer's
creditworthiness and order size, certain shipments are made on "COD" terms using
common carriers.
Since accounts receivable are concentrated in a relatively few customers, a
significant change in the liquidity or financial position of any one of these
customers could have a material adverse impact on the collectibility of the
Company's accounts receivable and future operating results. In the event of
complete non-performance by any customer or customers, the maximum exposure to
18
the Company would be the recorded amount of trade accounts receivable shown on
the balance sheet at the date of non-performance.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
principally on the average cost method. The Company regularly reviews inventory
quantities on hand and records, when necessary, a provision for excess and
obsolete inventory based primarily on the Company's estimated forecast of
product demand and production requirements for the next twelve months. Demand
for the Company's products can fluctuate significantly. A significant increase
in the demand for the Company's products could result in a short-term increase
in the cost of inventory purchases while a significant decrease in demand could
result in an increase in the amount of excess inventory quantities on hand. In
addition, the Company's industry is characterized by rapid technological change,
frequent new product development and rapid product obsolescence that could
result in an increase in the amount of obsolete inventory quantities on hand.
Additionally, the Company's estimate of future product demand may prove to be
inaccurate, in which case the Company may have understated or overstated the
provision required for excess and obsolete inventory. Therefore, although the
Company makes every effort to ensure the accuracy of its forecasts of future
product demand, any significant unanticipated changes in demand or technological
developments could have a significant impact on the Company's inventory value
and reported operating results.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation, defines a fair-value based method of accounting for stock-based
employee compensation plans and transactions in which an entity issues its
equity instruments to acquire goods and services from non-employees, and
encourages but does not require companies to record compensation cost for
stock-based employee compensation plans at fair value.
For periods prior to November 1, 2002, the Company has chosen to account for
employee stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock
Issued to Employees, and related interpretations. Accordingly, employee
compensation cost for stock options and warrants is measured as the excess, if
any, of the market price of the Company's stock at the date of the grant over
the amount an employee must pay to acquire the stock. This treatment was allowed
under Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" (SFAS 123).
In December 2002, FASB issued Statement of Financial Accounting Standards No.
148 "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS
148). This statement amends SFAS 123 and provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. This statement also amends the disclosure
requirements of SFAS 123 to require more prominent and frequent disclosures in
financial statements about the effects of stock-based compensation. The
transition guidance and annual disclosure provisions of SFAS 148 are effective
for financial statements issued for fiscal years ending after December 15, 2002.
Effective November 1, 2003, the first day of the reporting quarter including the
effective date of SFAS 148, the Company's Board of Directors, in conjunction
with public opinion and SFAS 148, elected to expense the imputed compensation
cost related to any stock options granted during Fiscal 2003 and for future
periods. The Company did not issue any stock options during Fiscal 2003 and the
adoption of SFAS 148 did not have a material impact on our results of operations
or financial condition.
ITEM 3 - CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Exchange Act, within the 90 days prior to
the filing date of this report, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's President
and Chief Executive Officer along with the Company's Chief Financial Officer.
Based upon that evaluation, the Company's President and Chief Executive Officer
along with the Company's Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective. There have been no significant
changes in the Company's internal controls or in other factors, which could
significantly affect internal controls subsequent to the date the Company
carried out its evaluation.
19
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding required disclosure.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3 - DEFAULTS ON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company has held no regularly scheduled, called or special meetings of
shareholders during the reporting period.
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS
EXHIBITS
31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 -
Chief Executive Officer
31.2 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 -
Chief Financial Officer
32.1 Certifications pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
- --------------------------------------------------------------------------------
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.
KIK TECHNOLOGY INTERNATIONAL, INC.
Dated: September 13, 2005 /s/ Kuldip C. Baid
------------------ -----------------------------------
Kuldip C. Baid
Chief Financial Officer
and Director
20