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 October 31, 2007
[ ] 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)
1902 Wright Place, Suite 200, Carlsbad, CA 92008
(Address of principal executive offices)
(760) 967-2777
(Issuer's telephone number)
590 Airport Road, Oceanside CA 92054
(Former name, former address and former fiscal year,
if changed since last report)
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: December 17, 2007: 25,321,865
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
KIK TECHNOLOGY INTERNATIONAL, INC.
Form 10-QSB for the Quarter ended October 31, 2007
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 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 22
SIGNATURES 22
2
PART I
ITEM 1 - FINANCIAL STATEMENTS
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
October 31, 2007 and 2006
(UNAUDITED)
October 31, October 31,
2007 2006
----------- -----------
ASSETS
CURRENT ASSETS
Cash on hand and in bank $ 67 $ 4,453
Accounts receivable
Trade, net of allowance for doubtful accounts
of approximately $-0- and $1,016, respectively 123,989 114,193
Other 13,884 11,748
Inventories 160,025 249,990
Prepaid expenses -- --
----------- -----------
TOTAL CURRENT ASSETS 297,965 380,384
----------- -----------
PROPERTY AND EQUIPMENT - AT COST,
NET OF ACCUMULATED DEPRECIATION 60,420 89,439
----------- -----------
OTHER ASSETS
Funds held in trust by officer 53,400 53,400
Refundable deposits -- 4,800
----------- -----------
TOTAL OTHER ASSETS 53,400 58,200
----------- -----------
TOTAL ASSETS $ 411,785 $ 528,023
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable to investors $ 68,000 $ 68,000
Current maturity of capital lease payable -- 1,693
Accounts payable - trade 612,836 482,585
Other accrued expenses 58,083 43,891
Management fee payable to majority shareholder 570,000 450,000
Advances from majority shareholder 330,640 116,000
----------- -----------
TOTAL CURRENT LIABILITIES 1,639,559 1,162,169
----------- -----------
LONG-TERM DEBT
Notes payable to investors, net of current maturities -- --
Capital lease payable -- --
----------- -----------
TOTAL LIABILITIES 1,639,559 1,162,169
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - $0.001 par value
100,000,000 shares authorized
25,321,865 shares issued and outstanding 25,322 25,322
Additional paid-in capital 5,158,273 5,158,273
Accumulated deficit (6,411,369) (5,817,741)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,227,774) (634,146)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 411,785 $ 528,023
=========== ===========
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
Nine and Three months ended October 31, 2007 and 2006
(UNAUDITED)
Nine months Nine months Three months Three months
ended ended ended ended
October 31, October 31, October 31, October 31,
2007 2006 2007 2006
----------- ----------- ----------- -----------
REVENUES - net of returns and allowances $ 937,645 $ 1,452,497 $ 260,617 $ 277,577
COST OF SALES (962,719) (1,290,111) (264,864) (328,546)
----------- ----------- ----------- -----------
GROSS PROFIT (25,074) 162,386 (4,247) (50,969)
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling, general and administrative
expenses 396,381 437,065 112,353 130,370
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 396,381 437,065 112,353 130,370
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (421,455) (274,679) (116,600) (181,339)
OTHER INCOME
Interest and other income (expense) - net (7,361) (2,557) (2,627) (1,141)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (428,816) (277,236) (119,227) (182,480)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) (428,816) (277,236) (119,227) (182,480)
OTHER COMPREHENSIVE INCOME -- -- -- --
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (428,816) $ (277,236) $ (119,227) $ (182,480)
=========== =========== =========== ===========
Net income (loss) per weighted-average share
of common stock outstanding, calculated
on Net Loss - basic and fully diluted $ (0.02) $ (0.01) $ (0.01) $ (0.01)
=========== =========== =========== ===========
Weighted-average number of shares
of common stock outstanding 25,321,865 25,222,964 25,321,865 25,323,495
=========== =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
4
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended October 31, 2007 and 2006
(UNAUDITED)
Nine months Nine months
ended ended
October 31, October 31,
2007 2006
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the period $(428,816) $(277,236)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 22,265 22,803
Expenses paid with common stock -- 6,000
(Increase) Decrease in
Accounts receivable - trade and other 69,159 49,178
Inventory 1,419 (34,561)
Prepaid expenses and other 5,192 223
Increase (Decrease) in
Accounts payable 143,390 98,849
Other accrued expenses 6,904 613
Accrued management fees to parent company 90,000 90,000
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (90,487) (44,131)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (809) (8,358)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (809) (8,358)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from majority shareholder 114,640 50,000
Reduction in cash overdraft (22,883) --
Payments on long-term capital lease (425) (3,249)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES 91,332 46,751
--------- ---------
INCREASE (DECREASE) IN CASH 36 (5,738)
Cash at beginning of period 31 10,191
--------- ---------
CASH AT END OF PERIOD $ 67 $ 4,453
========= =========
SUPPLEMENTAL DISCLOSURE OF INTEREST AND INCOME TAXES PAID
Interest paid for the period $ 3,259 $ 3,074
========= =========
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
October 31, 2007 and 2006
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 with a business plan to develop an
internet e-commerce website which proved unsuccessful and was subsequently
terminated.
On September 4, 2001, KTII issued 16,700,000 shares of restricted, unregistered
common stock to KIK Polymers, Inc. (formerly KIK Tire Technologies, Inc.) (a
publicly-owned Canadian corporation) (KIK Polymers) 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 KIK Polymers became an approximate 73.6% shareholder in
KTII.
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 and competition for crude oil, as well as domestic
refining capacity and capability.
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, 2007. 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, 2008.
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
October 31, 2007 and 2006
NOTE B - PREPARATION OF FINANCIAL STATEMENTS - CONTINUED
These financial statements reflect the books and records of KIK Technology
International, Inc. (KTII) and KIK Technology, Inc. (KTI) as of and for nine and
three months ended October 31, 2007 and 2006, respectively. All significant
intercompany transactions have been eliminated in consolidation. The
consolidated entities are referred to as Company.
NOTE C - GOING CONCERN UNCERTAINTY
During Fiscal 2007, as a result of a lack of working capital and difficulties in
obtaining raw materials as a result of the continuing effects of Hurricane
Katrina on Gulf Coast refineries and chemical plants, the Company's revenues
continued to decline and the Company continues to use cash in operating
activities. 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 and the production capacity of
refineries and chemical plants, principally located on the U. S. Gulf Coast.
Management and the industry as a whole are uncertain on when Gulf Coast
refineries and chemical plants will resume producing at 100% capacity as the
Company's suppliers and competitors have been placed on allocations of available
material by the producing source. As the Company is experiencing negative cash
flows, the availability of working capital to acquire raw materials for
production has had a negative impact on the Company's operations.
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.
During Fiscal 2007and the first quarter of Fiscal 2008, respectively, the
Company obtained approximately $150,000 and $100,000 in new working capital and
continues to seek additional outside sources of working capital to support that
raised from operations. The Company's future existence is dependent upon
achieving sales volumes sufficient to sustain the Company's cash requirements on
a day-to-day basis through working capital generated from both operations and
outside sources.
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
October 31, 2007 and 2006
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.
In November 2004, Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("STATEMENT") No. 151,
"INVENTORY COSTS - AN AMENDMENT OF ACCOUNTING RESEARCH BULLETIN NO. 43,
CHAPTER 4." Statement No. 151 requires that abnormal amounts of costs,
including idle facility expense, freight, handling costs and spoilage,
should be recognized as current period charges. The provisions of this
Statement became effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Statement No. 151 was adopted the Company on
February 1, 2006. There was no material impact resulting from the adoption
of Statement No. 151 on the Company's financial statements.
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,
2007 and 2006 and the corresponding nine month periods ended October 31,
2007 and 2006, 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 October 31, 2007 and 2006, 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 October 31, 2007 and 2006, the deferred tax asset related to the
Company's net operating loss carryforward is fully reserved.
8
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 31, 2007 and 2006
NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
As of October 31, 2007 and 2006, 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
The Company is of the opinion that any and all pending accounting
pronouncements, either in the adoption phase or not yet required to be
adopted, will not have a significant impact on the Company's financial
position or results of operations.
9
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 31, 2007 and 2006
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, 2007 and 2006 and the
corresponding nine month periods ended October 31, 2007 and 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 as a result of any unsecured situations.
NOTE G - INVENTORIES
Inventories consist of the following at October 31, 2007 and 2006:
October 31, October 31,
2007 2006
-------- --------
Raw materials $ 20,945 $ 67,098
Finished goods 139,080 182,892
-------- --------
Total $160,025 $249,990
======== ========
NOTE H - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at October 31, 2007 and 2006:
October 31, October 31,
2007 2006 Estimated life
--------- --------- --------------
Machinery and Equipment $ 608,084 $ 607,275 7 years
Office furniture and fixtures 12,138 12,138 5 years
Leasehold improvements 18,029 18,029 2 years
Vehicles 9,279 9,279 5 years
--------- ---------
647,530 646,721
Less accumulated depreciation (587,110) (557,282)
--------- ---------
Net property and equipment $ 60,420 $ 89,439
========= =========
Depreciation expense for the nine months ended October 31, 2007 and 2006 was
approximately $22,265 and $22,800, respectively.
10
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 31, 2007 and 2006
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 October 31, 2007, 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.
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.
11
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 31, 2007 and 2006
NOTE J - NOTES PAYABLE TO INVESTORS - CONTINUED
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.
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.
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 January 31, 2007 $ 68,000
Less current portion (68,000)
--------
Long-term portion $ --
========
NOTE K - CAPITAL LEASE PAYABLE
Capital lease payable is as follows:
October 31, October 31,
2007 2006
------- -------
$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 $ -- $ 1,693
Less current maturities -- (1,693)
------- -------
Long-term portion $ -- $ --
======= =======
12
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 31, 2007 and 2006
NOTE L - INCOME TAXES
The components of income tax (benefit) expense for each of the nine month
periods ended October 31, 2007 and 2006, respectively, are as follows:
October 31, October 31,
2007 2006
------- -------
Federal:
Current $ -- $ --
Deferred -- --
------- -------
-- --
------- -------
State:
Current -- --
Deferred -- --
------- -------
-- --
------- -------
Total $ -- $ --
======= =======
The Company has a net operating loss carryforward of approximately $5,425,000 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 each of the nine month periods ended
October 31, 2007 and 2006, respectively, are as follows:
October 31, October 31,
2007 2006
--------- ---------
Statutory rate applied to loss before income taxes $(146,000) $ (94,200)
Increase (decrease) in income taxes resulting from:
State income taxes -- --
Other, including reserve for deferred tax asset 146,000 94,200
--------- ---------
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 October 31, 2007 and 2006,
respectively:
October 31, October 31,
2007 2006
----------- -----------
Deferred tax assets
Net operating loss carryforwards $ 1,837,500 $ 1,768,000
Less valuation allowance (1,837,500) (1,768,000)
----------- -----------
Net Deferred Tax Asset $ -- $ --
=========== ===========
During the nine months ended October 31, 2007 and 2006, respectively, the
valuation allowance for the deferred tax asset increased nominally.
13
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 31, 2007 and 2006
NOTE M - COMMON STOCK TRANSACTIONS
In July 2006, 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 closing price of the Company's common stock on the NASDAQ Electronic
Bulletin Board on the date of the 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
All warrants issued with the aforementioned convertible notes have expired. The
Company has no issued and outstanding warrants as of October 31, 2007.
NOTE O - RELATED PARTY TRANSACTIONS
The Company accrues $30,000 per quarter (or $120,000 per year) for
administrative service fees payable to KIK Polymers, Inc., the Company's
controlling shareholder. As of October 31, 2007 and 2006, the Company has
accrued an aggregate $570,000 and $450,000, respectively, in these fees payable.
During Fiscal 2006, KIK Polymers advanced KTI $50,000 for working capital
purposes. This advance is non-interest bearing and has no scheduled repayment
date.
During Fiscal 2007, KIK Polymers advanced KTI $150,000 for working capital
purposes. These advances are non-interest bearing and have no scheduled
repayment date.
During the first quarter of Fiscal 2008, KIK Polymers advanced KTI $100,000 for
working capital purposes. These advances are non-interest bearing and have no
scheduled repayment date.
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 $110,680 and
$108,597 for each of the years ended January 31, 2007 and 2006, respectively.
Future amounts due under this agreement are as follows:
Year ending
January 31, Amount
----------- ------
2008 $105,391
2009 48,585
--------
Totals $153,976
========
During the quarter ended October 31, 2007, the Company's landlord on this leased
facility evicted the Company for non-payment of scheduled lease payments. The
Company is attempting to negotiate a settlement on the amounts due; however, the
Company has accrued 100% of the unpaid lease obligation through the end of the
lease agreement as of October 31, 2007.
The Company has replaced the former operating facilities with two separate
month-to-month leases for warehouse and manufacturing space.
14
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 31, 2007 and 2006
NOTE P - COMMITMENTS AND CONTINGENCIES
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, 2007 and 2006, 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, 2007
Customer A 46.42% 30.77% 45.35%
Customer B 9.12 0.00 0.00
Customer C 5.86 16.30 0.58
Customer D 3.94 0.00 0.00
Others 34.66 52.93 54.07
------ ------ ------
Totals 100.00% 100.00% 100.00%
====== ====== ======
Year ended January 31, 2006
Customer A 28.98% 10.74% 48.05%
Customer B 25.73 3.48 0.00
Customer C 5.62 15.36 0.06
Customer D 6.28 11.08 0.00
Others 33.39 59.34 51.89
------ ------ ------
Totals 100.00% 100.00% 100.00%
====== ====== ======
During the quarter ended October 31, 2007, these trends have continued to exist.
NOTE R - SELECTED FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for each of
the years ended or ending January 31, 2008, 2007 and 2006, 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, 2008
Sales $ 312,923 $ 364,105 $ 260,617
Gross profit (35,164) 14,337 (20,827)
Net earnings after provision
for income taxes (182,934) (126,655) (119,227)
Basic and fully diluted
earnings per share $ (0.01) $ (0.01) $ 0.00
Weighted average
number of shares
issued and outstanding 25,321,865 25,321,865 25,321,865
15
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
October 31, 2007 and 2006
NOTE R - SELECTED FINANCIAL DATA (UNAUDITED) - CONTINUED
The following is a summary of the quarterly results of operations for each of
the years ended or ending January 31, 2008, 2007 and 2006, 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 $ 578,076 $ 277,577 $ 405,169 $ 1,857,666
Gross profit 143,541 69,814 (50,969) (37,068) 125,318
Net earnings after provision
for income taxes (8,429) (86,327) (182,480) (164,812) (442,048)
Basic and fully diluted
earnings per share nil nil $ (0.01) $ (0.01) $ (0.02)
Weighted average
number of shares
issued and outstanding 25,171,865 25,173,495 25,323,495 25,321,865 25,247,892
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 $ (0.01) $ (0.02)
Weighted average
number of shares
issued and outstanding 25,171,865 25,171,865 25,171,865 25,171,865 25,171,865
(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 year-to-date periods ended October 31, 2007 and 2006, respectively,
the Company achieved cumulative revenues of approximately $937,000 and
$1,452,000 and revenues for the respective quarter of approximately $261,000 and
$278,000. These revenues were derived primarily from the sale of tire products.
Net income (loss) for the cumulative period through October 31, 2007 and 2006,
respectively, was approximately $(429,000) and $(277,000) and approximately
$(119,000) and $(182,000) in the corresponding three month period only. The
results from operations for each of the 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 nine and three month periods ended October 31, 2007 and
2006, respectively, was approximately $(0.02), $(0.01), $0.00 and $(0.01).
On June 19, 2007, we filed a Current Report on Form 8-K outlining certain
negative financial and operational trends. In summary, this filing highlighted
certain disclosures in our Annual Report on Form 10-KSB (filed on or about April
30, 2007) related to raw material price increases which we are not able to fully
pass through to our customers, the competitive pressures and difficulties in
obtaining raw feedstock materials and our decline in our gross profit margin.
Further, we continue 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.
In April 2007, our management attended an industry trade show in Las Vegas
Nevada. As a result of being in attendance at this trade show, our management
continues to be of the opinion that consumer demand for the Company's flat free
tires remains strong and, with adequate working capital and availability of raw
materials, could potentially increase in the next operating year. The Company's
products continue to have strong demand at the consumer level and, although, the
Company's raw feedstocks are petrochemical based, that the Company will be able
to meet product demands and generate sufficient cash from regular product sales
to support the Company's operations for the next twelve months. In the event
that daily normal sales activities do not generate sufficient cash, management
is of the current opinion that extremely limited alternative sources of working
capital exist either from existing shareholders making a capital infusion or
from new third party sources, including receivable financing or secured bank
lines of credit as of the date of this filing.
We have been unable to acquire sufficient additional working capital from either
outside sources or its parent company, KIK Polymers, Inc. of Calgary, Alberta,
Canada. Accordingly, the Company continues to experience negative cash flows
from operating activities which negatively impact the Company's ability to meet
its daily operational cash requirements.
In the third quarter, the landlord of the office and manufacturing facilities of
KIK Technologies, Inc. evicted the Company for non-payment of contractually
agreed-upon amounts. Accordingly, the Company and its operating subsidiary, KIK
Technology, Inc., have relocated into facilities that were available in the
immediate geographic area to the former location. Unfortunately, more than one
location was procured, causing a separation of the Company's warehouse and
shipping location and the Company's production equipment. Additionally,
17
insufficient space was available to allow for the placement of the Company's
largest and most efficient production machine. Accordingly, all production is
now being handled on smaller, less efficient equipment. The Company cannot, at
this time, estimate the impact of this situation on the long-term survivability
of the Company.
On November 14, 2007, pursuant to a Called Special Meeting of the Shareholders
of the Company's parent company, KIK Polymers, Inc., a Canadian corporation, a
majority of the shareholders voting approved the selling of 100% of KIK
Polymers's holdings in the Company, subject to Canadian Regulatory approval.
According to the Information Statement circulated by KIK Polymers, it is
anticipated that a new business will be placed in the Company and a significant
possibility exists that the Company's KIK Technology, Inc. subsidiary will be
liquidated, sold or otherwise disposed of.
The ultimate resolution of the Company's financial difficulties, the ultimate
impact on the Company's operations and the future ability of the Company's
securities to be traded in an open market environment is unknown at this time.
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.
NINE MONTHS ENDED OCTOBER 31, 2007 COMPARED TO THE NINE MONTHS ENDED OCTOBER 31,
2006
The Company posted net sales of approximately $938,000 for the nine months ended
October 31, 2007 as compared to net sales of approximately $1,452,000 for the
nine months ended October 31, 2006.
The Company's cost of sales decreased to approximately $963,000 for the nine
months ended October 31, 2007 as compared to approximately $1,290,000 for the
nine months ended October 31, 2006. The Company continues to experience certain
price increases in key raw materials which cannot be fully passed through in
their entirety due to competitive pressures from comparable products produced in
Asian markets and continue to have difficulties in obtaining raw materials due
to the lack of availability of adequate working capital. All other costs related
to production, with the exception of energy costs, were relatively stable from
the end of Fiscal 2005 through the second quarter of Fiscal 2007.
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 decreased nominally to approximately
$396,000 for the nine months ended October 31, 2007 as compared to approximately
$436,000 for the nine months ended October 31, 2006. A significant contributor
to this decline was the resignation of the Company's Chief Financial Officer,
Kuldip Baid, in June 2007 which ceased the related compensation charge of
approximately $6,000 per month (or $9,000 for the current quarter). To the
extent possible, management monitors and controls the variable expenditures
related to the Company's administration; however, we are of the opinion that
these costs are relatively stable as management has reduced all administrative
costs to the minimum necessary to operate the Company. Also included in our
general and administrative expenses is a $10,000 per month ($30,000 per quarter)
administrative charge to KIK Polymers, Inc. (formerly KIK Tire Technologies
Inc.), the Company's publicly-owned Canadian majority shareholder.
While 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 market,
management is aware of this situation and continues to evaluate all productive
alternatives to restore the gross profit percentages experienced in prior years.
Due to the Company's economic condition and the anticipated change in control of
the Company, there is significant uncertainty to the continued operations of the
Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of approximately $67, $31 and $4,453
as of October 31, 2007, January 31, 2007 and October 31, 2006, 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 nine months ended October 31, 2007 and 2006, net cash provided by (used
in) operating activities was approximately $(90,500) and $(44,100),
respectively. The negative cash flow for operations is a result of reduced sales
volumes, increased raw material costs and increased costs related to energy
(principally electricity and natural gas) consumed in the production process and
maintenance of the Company's facilities.
18
Cash used in investing activities was approximately $(800) and $(8,400) for each
of the nine months ended October 31, 2007 and 2006, respectively. All
expenditures in this category were solely for the acquisition of equipment used
in the manufacturing process.
The Company experienced cash derived from (used in) financing activities of
approximately $90,000 and $44,000 in the first nine months of Fiscal 2008 and
Fiscal 2007, respectively. Any expenditures in this area were solely related to
payments on the Company's capital lease financing obligation. The Company
received a $100,000 and $50,000 cash advance during each of the first quarters
of Fiscal 2008 and 2007 from it's majority shareholder to provide additional
working capital. Further, the Company's parent facilitated the payment of
professional fees of approximately $15,000 on behalf of the Company during the
quarter ended October 31, 2007.
The likelihood of successful continuing operations as of the date of this filing
is highly unlikely. Future operations of the Company without significant
infusions of new working capital is uncertain.
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
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 not necessarily 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; however, such events could occur and have a
negative impact on the carrying values of the Company's inventory. Additionally,
the Company's estimate of future product demand may prove to be inaccurate, in
which case the Company may understate or overstate 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.
19
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 3 - 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 October 31, 2007. 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.
(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 quarter ended October 31, 2007 that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
20
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company was evicted from its operating facilities in Oceanside, California
due to non-payment of contractual lease obligations. While a formal lawsuit for
collection has not been filed as of this date, the Company is liable for all
contractually agreed unpaid amounts and the Company has fully accrued the same
in the accompanying financial statements.
From time to time the Company may become subject to various legal proceedings
that are incidental to the ordinary conduct of its business. The Company does
not consider any such proceedings to date, either individually or in the
aggregate, to be material to its business or likely to result in a material
adverse effect on its future operating results, financial condition, or cash
flows.
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
PENDING CHANGE IN CONTROL
On November 14, 2007, the Company's controlling shareholder, KIK Polymers, Inc.
(a publicly-owned Canadian corporation) held a Special Meeting of Shareholders.
At this meeting, approximately 99% of all outstanding shares voting approved a
motion for KIK Polymers, Inc. to sell 100% of its holdings in KIK Technologies
International, Inc. to an unrelated third-party. It was disclosed in the KIK
Polymers Information Statement that a new business operation would be placed
into the Company and, that in all likelihood, the operations of KIK Technology,
Inc. would be terminated, sold or otherwise liquidated. The finalization of the
change in control is subject to approval by Canadian regulatory authorities and
is expected to be approved.
OUTSTANDING AUDIT FEES
On June 14, 2007, the Company received a demand notice from its Registered
Independent Certified Public Accounting Firm. The key segments of this demand
notice are as follows:
"KIK Technology International, Inc. (Company) is seriously delinquent in the
payment of its indebtedness to S. W. Hatfield, CPA for professional services
related to the performance of the review of your financial statements for the
respective quarters ended July 31, 2006 and November 30, 2006; the performance
of the examination of your financial statements in accordance with auditing
standards established by the Public Company Accounting Oversight Board (United
States) for the year ended January 31, 2007; and the performance of certain
requested procedures related to the reliance on our audit work as it relates to
the Company's financial statements and the integration thereof into the
financial statements of the Company's parent company, KIK Polymers, Inc. ...
.... In the event that payment is not received by the due date, interest will
continue to accrue at the agreed upon rate. Further, failure to pay will result
in the filing of a lawsuit against you seeking all past due amounts, and
attorney's fees."
On September 13, 2007, the Company completed its obligation for a partial
satisfaction of the June 2007 demand notice received from its Registered
Independent Certified Public Accounting Firm which allowed our CPA Firm to
continue performing auditing and review services for the Company. However, we
have not been able to fully comply with the demands and satisfy the outstanding
balance(s) due.
Due to this payment in good faith, our auditors agreed to and have reviewed this
filing and the financial statements contained herein. However, in the event that
we are unable to fully satisfy our financial responsibilities, management
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understands that an imminent withdrawal of either the respective Independent
Accountant's Review Report on our quarterly financial statements contained in
our Form 10-QSB's for the quarters ended April 30, 2007, July 31, 2007 and/or
October 31, 2007 or the Report of Registered Independent Certified Public
Accounting Firm on our audited financial statements contained in our Form 10-KSB
for the year ended January 31, 2007 remains a distinct possibility due to our
non-payment for the related assurance services.
As of October 31, 2007, we owe our auditors approximately $13,800, exclusive of
their charges for reviewing the accompanying financial statements in this
filing. In the event that our auditor commences legal action and/or withdraws
previously issued periodic review reports or annual audit reports due to
non-payment for services, there may be an immediate negative impact on the
trading ability of the Company's equity securities. Further, our auditors will
resign due to independence issues related to the litigation. We will then be
required to engage new auditors to fulfill the Company's reporting requirements
under the Securities Exchange Act of 1934. Due to our financial condition, it is
uncertain that the Company will be able to engage successor auditors.
ITEM 6 - EXHIBITS
EXHIBITS
31.1 - Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1 - Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIK TECHNOLOGY INTERNATIONAL, INC.
Dated: December 17, 2007 /s/ William M. Knooihuizen
----------------- ----------------------------------
William M. Knooihuizen
President and Director
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