10QSB 1 kik-10q_04302002.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended: April 30, 2002 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1939 For the transition period from __________ to ______________ Commission File Number: 000-30071 KIK TECHNOLOGY INTERNATIONAL, INC. ------------------------------------- (Exact name of registrant as specified in its charter) California 91-2021602 -------------------------------- --------------------- (State or other jurisdiction (IRS Employer of incorporation) Identification No.) 590 Airport Road Oceanside, CA 92054 --------------------------------------- --------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number: (760) 967-2777 Securities registered under Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered None None ------------------------- ------------------------ Securities registered under Section 12(g) of theExchange Act: Common Stock, $0.001 par value ----------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares outstanding of the registrant's class of common stock as of June 13, 2002: 23,985,000. Copy of Communications to: Mintmire & Associates Donald F. Mintmire, Esq. 265 Sunrise Avenue, Suite 204 Palm Beach, FL 33480 Transitional Small Business Disclosure Format (check one): Yes X No --- --- INDEX PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Page Condensed consolidated balance sheet at April 30, 2002.................3 Condensed consolidated statements of operations for the three months ended April 30, 2002 and April 30, 2001...............4 Condensed consolidated statements of cash flows for the three months ended April 30, 2002 and April 30, 2001...............5 Notes to the condensed consolidated financial statements...............6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS...........................8 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS.............................................10 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.....................10 ITEM 3. DEFAULTS UPON SENIOR SECURITIES...............................10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........10 ITEM 5. OTHER INFORMATION.............................................10 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..............................10 SIGNATURES....................................................................11 SAFE HARBOR STATEMENT This quarterly report on Form 10-QSB includes forward-looking statements. All statements, other than statements of historical fact made in this Quarterly Report on Form 10-QSB are forward-looking. In particular, the statements herein regarding industry prospects and future results of operation or financial position are forward-looking statements. Forward-looking statements reflect management's current expectations based on assumptions believed to be reasonable and are inherently uncertain as they are subject to various known and unknown risks, uncertainties and contingencies, many of which are beyond the control of KIK Technology International, Inc. The Company's actual results may differ significantly from management's expectations. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance, or achievements. We do not assume responsibility for the accuracy and completeness of the forward-looking statements. We do not intend to update any of the forward-looking statements after the date of this quarterly report to conform them to actual results. The following financial information and discussion and analysis should be read in conjunction with the Company's Annual Report on Form 10-KSB for the year ended January 31, 2002. The discussion of results, causes and trends should not be construed to imply that such results, causes or trends will necessarily continue in the future. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEET APRIL 30, 2002 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 25,201 Accounts receivable, net of allowance for doubtful accounts of $48,000 572,445 Inventories 349,233 Deposits 5,143 ----------- Total current assets 952,022 ----------- Note receivable, related party 53,400 Deferred financing costs 17,290 Property and equipment, net 146,689 ----------- Total assets $ 1,169,401 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 489,699 Accrued expenses 31,121 Current portion of capital lease obligation 3,515 Amount due to a shareholder 16,000 ----------- Total current liabilities 540,335 ----------- Capital lease obligation, net of current portion 17,133 Notes payable 65,803 ----------- Total liabilities 623,271 ----------- Shareholders' equity: Common stock, $0.001 par value, 100,000,000 shares authorized; 23,985,000 shares issued and outstanding 23,985 Additional paid-in capital 5,058,600 Accumulated deficit (4,536,455) ----------- Total shareholders' equity 546,130 ----------- Total liabilities and shareholders' equity $ 1,169,401 ===========
See accompanying notes to condensed consolidated financial statements. 3
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months ended April 30, --------------------------------------- 2002 2001 ----------------- ----------------- Net sales $ 849,370 $ 673,899 Cost of sales 719,286 615,852 --------------- --------------- Gross profit 130,084 58,047 General and administrative expenses 154,512 106,680 --------------- --------------- Loss from operations (24,428) (48,633) Interest and other income 649 2,852 --------------- --------------- Net loss $ (23,779) $ (45,781) =============== =============== Basic and diluted loss per common share $ * $ * =============== =============== Weighted average number of common shares outstanding 23,985,000 22,700,000 =============== ===============
* Less than $0.01 per share See accompanying notes to condensed consolidated financial statements. 4
KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three months ended April 30, --------------------------------------- 2002 2001 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided by (used in) operating activities $ 93,936 $ (19,123) ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (10,686) ---------------- ---------------- Net cash used in investing activities (10,686) ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments under line of credit (99,981) (19) Payment under capital lease obligation (433) Advance from shareholder 16,000 ---------------- ---------------- Net cash used in financing activities (84,414) (19) ---------------- ---------------- Net increase (decrease) in cash and cash equivalents 9,522 (29,828) Cash and cash equivalents, beginning of period 15,679 141,331 ---------------- ---------------- Cash and cash equivalents, end of period $ 25,201 $ 111,503 ================ ================ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 1,172 $ 1,005 ================ ================ SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Capital lease obligation incurred for new equipment $ 21,081 ================
See accompanying notes to condensed consolidated financial statements. 5 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS APRIL 30, 2002 (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited interim condensed consolidated financial statements of KIK Technology International, Inc. and Subsidiary (the "Company") include the accounts of KIK Technology International, Inc and its wholly-owned subsidiary, KIK Technology, Inc. Both Companies are incorporated in California. All significant intercompany accounts and transactions have been eliminated on consolidation. The unaudited condensed consolidated financial statements presented herein have been prepared in accordance with the instructions to Form 10-QSB and do not include all information and note disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) which are necessary to provide a fair presentation of financial position, operating results and cash flows for the interim periods presented have been made. It is the Company's opinion that, when the interim financial statements are read in conjunction with the January 31, 2002 Annual Report on Form 10-KSB, the Company's disclosures are adequate to make the information presented not misleading. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the entire year. 2. RISK CONSIDERATIONS The Company is subject to risks and uncertainties common to manufacturing companies, including technological change, dependence on principal products, new product introductions and other activities of competitors, and dependence on key personnel. The Company is also exposed to credit risk with respect to uncertainties as to timing and amount of collectibility of accounts receivable. The Company's ability to continue operations in the normal course of business is dependent on raising additional capital to meet its present and future commitments, and in the long-term, the Company's ability to maintain a profitable level of operations. 3. INVENTORIES Inventories are valued at the lower of cost or market. Cost is determined principally on the average cost method. Inventories consist of raw materials of $96,119 and finished goods of $253,114 at April 30, 2002. 4. DEFERRED FINANCING COSTS Deferred financing costs represent fees paid to investment bankers and attorneys in connection with debt agreements entered into by the Company. These fees are being amortized over the two-year term of the debt. Amortization related to these fees was $2,730 for the three months ended April 30, 2002. 5. ADVANCE FROM SHAREHOLDER In March 2002, the Company's majority shareholder advanced $16,000 to the Company to finance the Company's working capital requirements. The advance bears no interest and is due on demand. 6 6. COMMITMENTS AND CONTINGENCIES The Company entered into a capital lease agreement in April 2002 to finance the acquisition of $21,081 of equipment. The lease has an imputed interest rate of approximately 8.75% and is secured by the leased equipment. Monthly payments under the lease are $433, and the lease expires in March 2007. 7. SIGNIFICANT CONCENTRATIONS The Company grants credit, generally without collateral, to its customers. The Company has one customer, which is also a supplier, which accounted for approximately 71% of sales and 90% of raw material purchases for both of the three-month periods ended April 30, 2002 and 2001, respectively. This same customer accounted for approximately 66% of the Company's accounts receivable and approximately 66% of the Company's accounts payable as of April 30, 2002. 8. DEBT In April 2002, the Company paid $99,981 that was outstanding under a line of credit. Pursuant to a note agreement dated December 26, 2001, a note holder elected in April 2002 to be paid interest in restricted common stock in lieu of cash payment. At April 30, 2002, accrued interest payable to this note holder was $863. Under the terms of the note agreement, the payment of stock will 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. As a result of this election, the note holder is to be issued 7,505 shares of restricted common stock in June 2002. The Company recognized interest expense related to the line of credit and notes payable of $5,035 for the three months ended April 30, 2002. 9. SUBSEQUENT EVENT In May 2002, the Company renewed its non-cancelable facility operating lease. The lease expires in May 2005. Under the terms of the lease agreement, monthly payments are expected to be approximately $8,600 per month over the three year lease term. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS THE FOLLOWING ANALYSIS OF THE OPERATIONS AND FINANCIAL CONDITION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, OF THE COMPANY CONTAINED ELSEWHERE IN THIS FORM 10-QSB. OVERVIEW KIK Technology International, Inc. and subsidiary (the "Company") manufacturers and markets directly and through distributors urethane products, primarily puncture-proof microcellular polyurethane tires designed for a wide variety of consumer products and off-highway applications. Principle industries served include lawn and garden, health and wellness, industrial, and sports and recreation. The Company's products are sold primarily in the United States. The accompanying consolidated financial statements include the accounts of KIK Technology International, Inc. and its wholly-owned subsidiary, KIK Technology, Inc. (KTI), a company incorporated in California in June 1988. Prior to September 4, 2001, KTI was a wholly-owned United States subsidiary of KIK Tire Technologies Inc. (KTTI), a Canadian public company trading on the Canadian Venture Exchange. On September 4, 2001, the Company, formerly known as Russian-Imports.com (RIC), a California Corporation, entered into a share exchange agreement with KTI and KTTI. Pursuant to the agreement, KTTI exchanged all of its shares of KTI for 16,700,000 shares of RIC's common stock. The transaction represented a reverse acquisition of RIC by KTI, since KTTI owned approximately 73.6% of the post acquisition shares of the consolidated entity immediately after the completion of the transaction. At the date of the transaction, RIC was a shell company with no net assets. For accounting purposes, the acquisition was treated as an acquisition of RIC by KTI and as a recapitalization of KTI. The historical shareholders' equity of KTI, prior to the transaction, was retroactively restated for the equivalent number of shares exchanged in the transaction after giving effect to any difference in the par value of RIC and KTI's common stock, with an offset to additional paid-in capital. Concurrent with the reverse acquisition, Russian-Imports.com changed its name to KIK Technology International, Inc. RESULTS OF OPERATIONS The following table sets forth certain operating data for KIK Technology International, Inc. and subsidiary for the periods indicated below.
Three months ended April 30, --------------------------------------- 2002 2001 ----------------- ----------------- Net sales $ 849,370 $ 673,899 Cost of sales 719,286 615,852 General and administrative expenses 154,512 106,680 Net loss (23,779) (45,781)
COMPARISON OF THE THREE MONTHS ENDED APRIL 30, 2002 TO THE THREE MONTHS ENDED APRIL 30, 2001 The Company posted net sales of approximately $849,000 for the three months ended April 30, 2002 compared to approximately $674,000 for the three months ended April 30, 2001, an increase of approximately $175,000 or 26%. This increase is primarily due to the improving economy and the return of some traditional customers. The Company's cost of sales increased by approximately $103,000 to $719,286 for the three months ended April 30, 2002. This increase relates to the increase in sales. As a percentage of sales, cost of sales decreased to 85% for the three months ended April 30, 2002 from 91% for the three months ended April 30, 2001. This percentage decrease resulted from increased sales volume, production efficiencies and reduced labor overtime. Raw material costs in 2002 were 65% of sales compared to 63% of sales in 2001. This percentage increase was a result of reduced overhead and increased sales of particular tire products that yield lower profit margins. By possibly reformulating its chemical mix and raw material usage, the Company intends to make efforts to reduce the raw material cost as a percentage of sales to 60% in future periods. 8 General and administrative expenses for the three months ended April 30, 2002 were approximately $155,000 compared to approximately $107,000 for the three months ended April 30, 2001. The increase is primarily due to the fact that additional professional services are required since the Company is now public. LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents of $25,201 at April 30, 2002. Business liquidity and capital resources were adequate during the period to fund all capital and operating expense requirements. Operations were primarily funded from internally generated funds and working capital advanced by the major shareholder. For the three months ended April 30, 2002, net cash provided by operating activities was $93,936, which was mainly attributable to restricted cash being released from restriction. Such cash was subsequently used to pay the outstanding amount due under a line of credit. There was no investment activity affecting cash during the three months ended April 30, 2002. The Company entered into a capital lease agreement in April 2002 to finance the acquisition of equipment. Net cash used in financing activities of $84,414 during the three months ended April 30, 2002 consisted primarily of repayment of $99,981 under a line of credit. The Company also received an advance from a shareholder of $16,000. The Company believes that sufficient cash will be generated from the following sources to fund its operations for the next twelve months: Pursuant to a private placement, the Company is attempting to raise $600,000 through the placement of two-year senior notes bearing interest at 10%. The Company will intensify its efforts in collecting receivables and intends to establish more stringent credit policies for its customers to facilitate more timely payment of amounts due from customers. The Company will also attempt to generate cash by increasing its customer base. 9 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on Form 8-k None 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 13th day of June 2002. KIK TECHNOLOGY INTERNATIONAL, INC. Date: June 13, 2002 By: /s/ Donald P. Dean ----------------------------------------- Donald P. Dean, Chairman and Secretary By: /s/ William Knooihuizen ----------------------------------------- William Knooihuizen, President and Director By: /s/ Kuldip C. Baid ----------------------------------------- Kuldip C. Baid, Chief Financial Officer and Director By: /s/ A. Rene Dervaes, Jr. ----------------------------------------- A. Rene Dervaes, Jr., Director 11