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 April 30, 2006
[ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the transition period from ______________ to _____________
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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)
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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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): YES [ ] NO [X]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: June 14, 2006: 25,171,865
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
KIK TECHNOLOGY INTERNATIONAL, INC.
Form 10-QSB for the Quarter ended April 30, 2006
Table of Contents
Page
----
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 18
Item 3 Controls and Procedures 20
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 21
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 3 Defaults Upon Senior Securities 21
Item 4 Submission of Matters to a Vote of Security Holders 21
Item 5 Other Information 21
Item 6 Exhibits 21
SIGNATURES 21
2
PART I
ITEM 1 - FINANCIAL STATEMENTS
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
April 30, 2006 and 2005
(UNAUDITED)
April 30, April 30,
2006 2005
----------- -----------
ASSETS
CURRENT ASSETS
Cash on hand and in bank $ 8,459 $ 52,158
Accounts receivable
Trade, net of allowance for doubtful accounts
of approximately $15,758 and $13,882, respectively 238,815 235,864
Other 10,680 8,544
Inventories 204,060 252,673
Prepaid expenses -- --
----------- -----------
TOTAL CURRENT ASSETS 462,014 549,239
----------- -----------
PROPERTY AND EQUIPMENT - AT COST,
NET OF ACCUMULATED DEPRECIATION 103,327 122,868
----------- -----------
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 $ 623,541 $ 730,307
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable to investors $ 68,000 $ 49,000
Current maturity of capital lease payable 4,148 4,566
Accounts payable - trade 372,502 457,481
Other accrued expenses 44,230 39,375
Management fee payable to majority shareholder 390,000 270,000
Advances from majority shareholder 116,000 16,000
----------- -----------
TOTAL CURRENT LIABILITIES 994,880 836,422
----------- -----------
LONG-TERM DEBT
Notes payable to investors, net of current maturities -- 19,000
Capital lease payable, net of current maturities -- 4,652
----------- -----------
TOTAL LIABILITIES 994,880 860,074
----------- -----------
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 (5,548,934) (5,307,362)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (371,339) (129,767)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 623,541 $ 730,307
=========== ===========
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
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
Three months ended April 30, 2006 and 2005
(UNAUDITED)
Three months Three months
ended ended
April 30, April 30,
2006 2005
------------ ------------
REVENUES - net of returns and allowances $ 596,844 $ 375,216
COST OF SALES (453,303) (374,639)
------------ ------------
GROSS PROFIT 143,541 577
------------ ------------
OPERATING EXPENSES
Selling, general and administrative expenses 151,009 146,873
------------ ------------
LOSS FROM OPERATIONS (7,468) (146,296)
OTHER INCOME
Interest and other income (expense) - net (961) (1,848)
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (8,429) (148,144)
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET LOSS (8,429) (148,144)
OTHER COMPREHENSIVE INCOME -- --
------------ ------------
COMPREHENSIVE LOSS $ (8,429) $ (148,144)
============ ============
Net loss per weighted-average share
of common stock outstanding, calculated
on Net Loss - basic and fully diluted $ (0.00) $ (0.01)
============ ============
Weighted-average number of shares
of common stock outstanding 25,171,865 25,171,865
============ ============
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of
these consolidated financial statements.
4
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended April 30, 2006 and 2005
(UNAUDITED)
Three months Three months
ended ended
April 30, April 30,
2006 2005
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (8,429) $(148,144)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 7,490 7,325
(Increase) Decrease in
Accounts receivable - trade and other (74,376) 68,779
Inventory 11,369 761
Prepaid expenses and other 223 384
Increase (Decrease) in
Accounts payable (11,234) 35,676
Other accrued expenses 952 (387)
Accrued management fees to parent company 30,000 30,000
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (44,005) (5,606)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (6,933) (1,053)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (6,933) (1,053)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from majority shareholder 50,000 --
Payments on long-term capital lease (794) (1,088)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES 49,206 (1,088)
--------- ---------
INCREASE (DECREASE) IN CASH (1,732) (7,747)
Cash at beginning of period 10,191 59,905
--------- ---------
CASH AT END OF PERIOD $ 8,459 $ 52,158
========= =========
SUPPLEMENTAL DISCLOSURE OF INTEREST AND INCOME TAXES PAID
Interest paid for the period $ 1,051 $ 4,618
========= =========
Income taxes paid for the period $ -- $ --
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES $ -- $ --
========= =========
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
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.
Russian-Imports.com was initially founded to develop an internet e-commerce
website which would sell handmade lacquer boxes, Matroshka dolls and crystal
imported from Russia. This business plan was unsuccessful and, subsequently,
terminated. 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.
The Company's principal raw materials are produced from petroleum feedstocks
and, therefore, are subject to disruption and price variances related to the
global availability of crude oil.
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
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 for the year ended
January 31, 2006. 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.
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, 2007.
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.
6
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - PREPARATION OF FINANCIAL STATEMENTS - CONTINUED
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 years ended January 31, 2004 and 2003,
respectively. All significant intercompany transactions have been eliminated in
consolidation. The consolidated entities are referred to as Company.
NOTE C - GOING CONCERN UNCERTAINTY
The Company's principal raw materials are produced from petroleum feedstocks
and, therefore, are subject to disruption and price variances related to the
global availability of crude oil.
In prior years, a significant supplier of these raw materials was also a major
customer for the Company's products. The purchase side of this relationship
began to dissolve during the year ended January 31, 2005 and further diminished
significantly in the year ended January 31, 2006.
In the event of any disruption in the availability of raw materials or a market
for the Company's products, as occurred during the year ended January 31, 2006,
the Company will experience a negative economic impact.
The Company has developed additional sources of supply of it's key raw
materials; however, still experiences fluctuations in pricing due to the current
world market conditions for crude oil. 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.
The Company's continued existence is dependent upon its ability to generate
sufficient cash flows from operations to support its daily operations as well as
provide sufficient resources to retire existing liabilities and obligations on a
timely basis.
The Company anticipates that additional working capital will be necessary to
support and preserve the integrity of the corporate entity. However, there is no
assurance that the Company will be able to obtain additional funding through
either bank lines-of-credit or the sale of additional equity securities or, that
such funding, if available, will be obtained on terms favorable to or affordable
by the Company.
If no additional operating capital is received during the next twelve months,
the Company will be forced to rely on existing cash in the bank, the cash
generated from operating activities and/or additional funds loaned by the
Company's majority parent to preserve the integrity of the corporate entity at
this time. In the event, the Company is unable to acquire advances from
management and/or significant stockholders, the Company's ongoing operations
would be negatively impacted to the point that all operating activities are
ceased.
While the Company is of the opinion that good faith estimates of the Company's
ability to secure additional capital in the future to reach our goals have been
made, there is no guarantee that the Company will receive sufficient funding to
sustain operations or implement any future business plan steps.
NOTE D - 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.
7
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
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 quarters ended April 30,
2006 and 2005, no charges to operations were made for impairments in the
future benefit or recoverability of property and equipment.
5. INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. At April 30, 2006 and 2005, 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 April 30, 2006 and 2005, 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.
8
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
As of April 30, 2006 and 2005, 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 has not issued any stock options since the adoption of
SFAS 148 and has not experienced a material impact on our results of
operations or financial condition.
9. NEW AND PENDING ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter
4." SFAS No. 151 clarifies the accounting for abnormal amounts of idle
facility expense, freight, handling costs and wasted materials. SFAS No.
151 is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The initial application of SFAS No. 151 is not
expected to have a significant impact on the Company's financial position
or results of operations.
In December 2004, the FASB issued SFAS 123(R), "Share-Based Payment," which
addresses the accounting for employee stock options. SFAS 123(R) revises
the disclosure provisions of SFAS 123 and supersedes APB 25. SFAS 123(R)
requires that the cost of all employee stock options, as well as other
equity-based compensation arrangements, be reflected in financial
statements based on the estimated fair value of the awards. In March 2005,
the Securities & Exchange Commission (the "SEC") issued Staff Accounting
Bulletin No. 107, "Share-Based Payment," which summarizes the views of the
SEC staff regarding the interaction between SFAS 123(R) and certain SEC
rules and regulations, and is intended to assist in the initial
implementation. SFAS 123(R) is effective for all companies that file as
small business issuers as of the beginning of the first interim or annual
reporting period that begins after December 15, 2005. The Company does not
expect the adoption of this statement to have a material impact on its
financial statements.
9
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
9. NEW AND PENDING ACCOUNTING PRONOUNCEMENTS - continued
In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary
Assets, an amendment of APB 29, Accounting for Nonmonetary Transactions."
This statement's amendments are based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. Further, SFAS 153 eliminates the narrow exception for
nonmonetary exchanges of similar productive assets and replaces it with a
broader exception for exchanges of nonmonetary assets that do not have
commercial substance. Provisions of this statement are effective for fiscal
periods beginning after June 15, 2005. The Company does not expect the
adoption of this statement to have a material impact on its financial
statements.
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations"("FIN 47"), which is an
interpretation of SFAS 143, "Accounting for Asset Retirement Obligations."
FIN 47 clarifies terminology within SFAS 143 and requires an entry to
recognize a liability for the fair value of a conditional asset retirement
obligation when incurred if the liability's fair value can be reasonably
estimated. FIN 47 is effective for fiscal years ending after December 15,
2005. The Company does not expect the adoption of this statement to have a
material impact on its financial statements.
In June 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections," which will require entities that voluntarily make a change in
accounting principle to apply that change retroactively to prior periods'
financial statements unless this would be impracticable. SFAS No. 154
supersedes Accounting Principles Board Opinion No. 20, "Accounting Changes"
("APB No. 20"), which previously required that most voluntary changes in
accounting principle be recognized by including in the current period's net
income the cumulative effect of changing to the new accounting principle.
SFAS No. 154 also makes a distinction between "retrospective application"
of an accounting principle and the "restatement" of financial statements to
reflect the correction of an error. Another significant change in practice
under SFAS No. 154 will be that if an entity changes its method of
depreciation, amortization, or depletion for long-lived, non-financial
assets, the change must be accounted for as a change in accounting
principle. SFAS No. 154 applies to accounting changes and error corrections
that are made in fiscal years beginning after December 15, 2005. The
provisions of SFAS No. 154 are not expected to affect the Company's
consolidated financial statements.
NOTE E - 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.
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 F - 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, 2006 and 2005, and
through the quarter ended April 30, 2006, respectively, the various entities,
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 during Fiscal 2006 and 2005, and subsequent thereto, as a result of any
unsecured situations.
10
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - INVENTORIES
Inventories consist of the following at April 30, 2006 and 2005:
April 30, April 30,
2006 2005
-------- --------
Raw materials $ 34,906 $ 31,898
Finished goods 169,154 220,775
-------- --------
Total $204,060 $252,673
======== ========
NOTE H - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at April 30, 2006 and 2005:
April 30, April 30,
2006 2005 Estimated life
--------- --------- --------------
Machinery and Equipment $ 605,850 $ 598,954 7 years
Office furniture and fixtures 12,138 25,441 5 years
Leasehold improvements 18,029 14,180 2 years
Vehicles 9,279 9,279 5 years
--------- ---------
645,296 647,854
Less accumulated depreciation (541,969) (524,986)
--------- ---------
Net property and equipment $ 103,327 $ 122,868
========= =========
Depreciation expense for the quarters ended April 30, 2006 and 2005 was
approximately $7,490 and $7,325, respectively.
NOTE I - 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 April 30, 2006, and subsequently, 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 J - 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.
11
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - NOTES PAYABLE TO INVESTORS - CONTINUED
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, in prior years, only $75,000 was 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. This calculated discount
was amortized to interest expense in prior years. 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%.
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
Company is making interest-only payments of approximately $314, which is less
than the interest accruing and is delinquent in making the required principal
payments. Accordingly, the entire debt is classified as "current" in the
accompanying consolidated financial statements.
12
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - NOTES PAYABLE TO INVESTORS - CONTINUED
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 January 31, 2006, the Company has paid approximately $7,000 in principal
and $10,438 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 April 30, 2006 $ 68,000
Less current portion (68,000)
--------
Long-term portion $ --
========
NOTE K - CAPITAL LEASE PAYABLE
Capital lease payable is as follows:
April 30, April 30,
2006 2005
-------- --------
$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 $ 4,148 $ 9,218
Less current maturities (4,158) (4,566)
-------- --------
Long-term portion $ -- $ 4,652
======== ========
Future maturities of long-term capital leases payable are
Year ending
January 31, Amount
----------- ------
2007 $3,723
2008 425
------
Total $4,148
======
13
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - INCOME TAXES
The components of income tax (benefit) expense for the quarters ended April 30,
2006 and 2005, respectively, are as follows:
April 30, April 30,
2006 2005
------- -------
Federal:
Current $ -- $ --
Deferred -- --
------- -------
-- --
------- -------
State:
Current -- --
Deferred -- --
------- -------
-- --
------- -------
Total $ -- $ --
======= =======
The Company has a net operating loss carryforward of approximately $5,200,000 to
offset future taxable income. Subject to current regulations, components of this
cumulative carryforward will at the end of each fiscal year through 2026. 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 quarters ended April 30, 2006 and 2005,
respectively, are as follows:
April 30, April 30,
2006 2005
-------- --------
Statutory rate applied to loss before income taxes $ (2,900) $(50,400)
Increase (decrease) in income taxes resulting from:
State income taxes -- --
Other, including reserve for deferred tax asset 2,900 50,400
-------- --------
Income tax expense $ -- $ --
======== ========
Temporary differences due to statutory requirements in the recognition of assets
and liabilities for tax and financial reporting purposes, generally including
such items as organizational costs, accumulated depreciation and amortization,
allowance for doubtful accounts, organizational and start-up costs and vacation
accruals. These differences give rise to the financial statement carrying
amounts and tax bases of assets and liabilities causing either deferred tax
assets or liabilities, as necessary, as of April 30, 2006 and 2005,
respectively:
April 30, April 30,
2006 2005
----------- -----------
Deferred tax assets
Net operating loss carryforwards $ 1,768,000 $ 1,700,000
Less valuation allowance (1,768,000) (1,700,000)
----------- -----------
Net Deferred Tax Asset $ -- $ --
=========== ===========
During the quarters ended April 30, 2006 and 2005, respectively, the valuation
allowance for the deferred tax asset increased nominally.
14
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - COMMON STOCK TRANSACTIONS
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 N - STOCK WARRANTS
At January 31, 2004, the 75,000 warrants sold in conjunction with the
convertible notes private placement had expired.
In conjunction with the reverse acquisition, which was concluded in September
2001, The Company granted 2,300,000 warrants to certain shareholders of KTTI.
These warrants have an exercise price of approximately $0.05 per share and
expired in April 2004.
The following table lists the issued and outstanding stock warrants as of
January 31, 2006 and 2005, respectively:
Warrants
issued Exercise price
------ --------------
Balance at February 1, 2004 2,300,000
Granted -- $0.05
Exercised --
Forfeited/Expired (2,300,000) $0.05
----------
Balance at January 31, 2005 --
Granted --
Exercised --
Forfeited/Expired --
----------
Balance at January 31, 2006 --
Granted --
Exercised --
Forfeited/Expired --
----------
Balance at April 30, 2006 --
==========
Warrants exercisable at April 30, 2006 --
==========
Weighted-average exercise price per warrant N/A
==========
NOTE O - RELATED PARTY TRANSACTIONS
During each of the years ended January 31, 2006 and 2005 and during the three
month periods ended April 30, 2006 and 2005, respectively, the Company accrued
approximately $120,000 annually or approximately $30,000 per quarter for
administrative service fees payable to KTTI.
During Fiscal 2006, KTTI advanced KTI $50,000 for working capital purposes. This
advance is non-interest bearing and has no scheduled repayment date.
During the first quarter of Fiscal 2007, KTTI advanced KTI an additional $50,000
for working capital purposes. This advance is non-interest bearing and has no
scheduled repayment date.
15
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE P - COMMITMENTS AND CONTINGENCIES
LEASED FACILITIES
The Company leases its facilities under a non-cancellable operating lease, which
expires in May 2008. The lease requires monthly payments as follows: $8,307 for
the first 12 months; $8,639 for the next 12 months and $8,984 for the next 12
months. Rent expense incurred under this lease was approximately $108,597 and
$106,428 for each of the years ended January 31, 2006 and 2005 and approximately
$29,952 and $27,741 for each of the three months ended April 30, 2006 and 2005,
respectively.
Future amounts due under this agreement are as follows:
Year ending
January 31, Amount
----------- ------
2007 $110,680
2008 105,391
2009 48,585
--------
Totals $264,656
========
EMPLOYMENT CONTRACT
KIK entered into an employment agreement with William M. Knooihuizen, the
Company's current President and Director. The agreement started in May 2000 and
was for an initial period of five (5) years at an annual salary in the amount of
$143,000, to be paid weekly. Upon expiration in May 2005, the Company and it's
officer agreed to continue this agreement in an unwritten form on an undefined,
indefinite basis.
NOTE Q - SIGNIFICANT CUSTOMERS
During the years ended January 31, 2006 and 2005, respectively, the Company had
four and three separate customers who were responsible for a significant portion
of the Company's net revenues, accounts receivable and suppliers of various raw
materials and components to the Company's manufacturing process. The following
table shows the significance of these entities:
Accounts Accounts
Revenues Receivable Payable
-------- ---------- -------
Year ended January 31, 2006
Customer A 28.98% 10.74% 48.05%
Customer B 25.73 3.48 --
Customer C 5.62 15.36 0.06
Customer D 6.28 11.08 --
Others 33.39 59.34 51.89
------ ------ ------
Totals 100.00% 100.00% 100.00%
====== ====== ======
Year ended January 31, 2005
Customer A 49.18% 35.02% 59.37%
Customer B 16.09 7.42 0.12
Customer C 6.59 18.32 0.52
Others 28.14 39.24 39.99
------ ------ ------
Totals 100.00% 100.00% 100.00%
====== ====== ======
16
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE R - SELECTED FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended January 31, 2005 and 2004, respectively.
Quarter ended Quarter ended Quarter ended Quarter ended Year ended
April 30, July 31, October 31, January 31, January 31,
--------- -------- ----------- ----------- -----------
YEAR ENDING JANUARY 31, 2007
Sales $ 596,844
Gross profit 143,541
Net earnings after
provision for
income taxes (8,429)
Basic and fully diluted
earnings per share nil
Weighted average
number of shares
issued and outstanding 25,171,865
YEAR ENDED JANUARY 31, 2006
Sales $ 375,216 $ 541,296 $ 560,849 $ 469,708 $ 1,947,069
Gross profit 577 147,853 40,488 29,097 218,015
Net earnings after
provision for
income taxes (148,144) 3,207 (105,991) (130,359) (381,287)
Basic and fully diluted
earnings per share $ (0.01) nil nil nil $ (0.01)
Weighted average
number of shares
issued and outstanding 25,171,865 25,171,865 25,171,865 25,171,865 25,171,865
YEAR ENDED JANUARY 31, 2005
Sales $ 791,111 $ 511,720 $ 704,469 $ 455,677 $ 2,462,977
Gross profit 107,642 14,866 119,193 (19,671) 222,030
Net earnings after
provision for
income taxes (56,101) (142,464) (32,265) (203,886) (434,716)
Basic and fully diluted
earnings per share nil $ (0.01) nil $ (0.01) $ (0.02)
Weighted average
number of shares
issued and outstanding 25,021,865 25,038,169 25,171,865 25,171,865 25,101,375
17
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 April 30, 2006 and 2005, respectively, the Company
achieved revenues of approximately $597,000 and $375,000. These revenues were
derived primarily from the sale of tire products. Net loss for the three months
ended April 30, 2006 and 2005 was approximately $(8,400) and $(148,000),
respectively. The net loss for each of these quarters includes a $30,000 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 three months ended April 30, 2006 and 2005,
respectively, was approximately $0.00 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.
THREE MONTHS ENDED APRIL 30, 2006 COMPARED TO THE THREE MONTHS ENDED APRIL 30,
2005
The Company posted net sales of approximately $597,000 for the three months
ended April 30, 2006 as compared to net sales of approximately $375,000 for the
three months ended April 30, 2005.
The Company's cost of sales increased by approximately $78,000 to approximately
$453,000 for the three months ended April 30, 2005 as compared to approximately
$375,000 for the three months ended April 30, 2005. This increase profiles
comparably to the increase in sales over the same calendar period of the
previous year. The Company continues to experience certain price increases in
key raw materials which have not been passed through in their entirety due to
competitive pressures from comparable products produced in Asian markets. All
other costs related to production were relatively stable from the end of Fiscal
2005 through the first quarter of Fiscal 2007. In spite of competitive pressures
and difficulties in obtaining raw feedstock materials as a result of the effects
of Hurricane Katrina and Rita on refineries located on the U. S. Gulf Coast, the
Company managed a slight increase in it's gross profit margin to approximately
24.05% (approximately $144,000) for Fiscal 2007 as compared to approximately
0.15% (approximately $600) for Fiscal 2006. The Company continues to experience
economic pricing pressures caused by foreign competition and increases in
domestic raw material costs, which are directly related to the cost of crude oil
from both foreign and domestic markets. Management is aware of this situation
and continues to evaluate all productive alternatives to restore the gross
profit percentages experienced in prior years.
General and administrative expenses increased nominally from approximately
$147,000 for the three months ended April 30, 2005 to approximately $151,000 for
the three months ended April 30, 2006. 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 ($30,000 per
18
quarter) 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 $8,500, $10,200 and
$52,000 at April 30, 2006, January 31, 2006 and April 30, 2005, 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 three months ended April 30, 2006 and 2005, net cash provided by (used
in) operating activities was approximately $(44,000) and $(5,600), 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 $(7,000) and $(1,100) for
each of the three months ended April 30, 2006 and 2005, respectively. These cash
utilizations was due solely to the acquisition of equipment used in the
manufacturing process.
The Company experienced cash derived from (used in) financing activities of
approximately $49,200 and $(1,100) in the first three months of Fiscal 2007 and
Fiscal 2006, respectively. These expenditures are related to payments on the
Company's capital lease financing obligation. The Company also received a
$50,000 cash advance during the first quarter of Fiscal 2007 from it's majority
shareholder to provide additional working capital.
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, of the U. S. 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 D to the Company's 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.
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.
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
19
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 has not issued any stock options since the adoption of SFAS
148 and has not experienced a material impact on our results of operations or
financial condition.
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. There was no significant impact to the Company's financial statements
upon the adoption of SFAS No. 123(R).
ITEM 8A - CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended (Exchange Act), as of January 31, 2005. Based on this evaluation, our
principal executive officer and principal financial officer concluded that our
disclosure controls and procedures are effective in alerting them on a timely
basis to material information relating to our Company required to be included in
our reports filed or submitted under the Exchange Act.
20
(b) Changes in Internal Controls
There were no significant changes (including corrective actions with regard to
significant deficiencies or material weaknesses) in our internal controls over
financial reporting that occurred during the fourth quarter of fiscal 2004 that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
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: June 14, 2006 /s/ Kuldip C. Baid
------------- ------------------------------------
Kuldip C. Baid
Chief Financial Officer
and Director
21