-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R/LJYbmyi7DpgM75Yrs5WjnLOALRe28nVYZhJ8ao+7drPo6DifMzv3Sam4V6/v1c dPDaKtmZcjxkTWkBwppjFQ== 0001165527-05-000346.txt : 20051214 0001165527-05-000346.hdr.sgml : 20051214 20051214155313 ACCESSION NUMBER: 0001165527-05-000346 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20051031 FILED AS OF DATE: 20051214 DATE AS OF CHANGE: 20051214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KIK TECHNOLOGY INTERNATIONAL INC CENTRAL INDEX KEY: 0001109662 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190] IRS NUMBER: 912021602 STATE OF INCORPORATION: CA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-30197 FILM NUMBER: 051263878 BUSINESS ADDRESS: STREET 1: 590 AIRPORT ROAD CITY: OCEANSIDE STATE: CA ZIP: 92054 BUSINESS PHONE: 7609672777 FORMER COMPANY: FORMER CONFORMED NAME: RUSSIAN IMPORTS COM DATE OF NAME CHANGE: 20000320 10QSB 1 g1044.txt QUARTERLY REPORT FTQE 10/31/05 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, 2005 [ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the transition period from ______________ to _____________ - -------------------------------------------------------------------------------- Commission File Number: 000-30071 KIK Technology International, Inc. (Exact name of small business issuer as specified in its charter) California 91-2021602 (State of incorporation) (IRS Employer ID Number) 590 Airport Road, Oceanside CA 92054 (Address of principal executive offices) (760) 967-2777 (Issuer's telephone number) - -------------------------------------------------------------------------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: December 13, 2005: 25,171,865 Transitional Small Business Disclosure Format (check one): YES [ ] NO [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YES [ ] NO [X] KIK TECHNOLOGY INTERNATIONAL, INC. Form 10-QSB for the Quarter ended October 31, 2005 Table of Contents Page ---- PART I - FINANCIAL INFORMATION Item 1 Financial Statements 3 Item 2 Management's Discussion and Analysis or Plan of Operation 17 Item 3 Controls and Procedures 19 PART II - OTHER INFORMATION Item 1 Legal Proceedings 20 Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 20 Item 3 Defaults Upon Senior Securities 20 Item 4 Submission of Matters to a Vote of Security Holders 20 Item 5 Other Information 20 Item 6 Exhibits 20 SIGNATURES 20 2 PART I ITEM 1 - FINANCIAL STATEMENTS KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS October 31, 2005 and 2004 (UNAUDITED)
October 31, October 31, 2005 2004 ----------- ----------- ASSETS CURRENT ASSETS Cash on hand and in bank $ 38,880 $ 63,104 Accounts receivable Trade, net of allowance for doubtful accounts of approximately $13,686 and $14,230, respectively 174,615 293,798 Other 9,612 9,145 Inventories 208,903 365,330 Prepaid expenses 1,409 831 ----------- ----------- TOTAL CURRENT ASSETS 433,419 732,208 ----------- ----------- PROPERTY AND EQUIPMENT - AT COST, NET OF ACCUMULATED DEPRECIATION 109,605 137,893 ----------- ----------- 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 $ 601,224 $ 928,301 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Notes payable to investors $ 49,000 $ 49,000 Current maturity of capital lease payable 4,388 4,403 Accounts payable - trade 373,161 358,209 Other accrued expenses 39,646 42,458 Management fee payable to majority shareholder 330,000 210,000 Advances from majority shareholder 16,000 16,000 ----------- ----------- TOTAL CURRENT LIABILITIES 812,195 680,070 ----------- ----------- LONG-TERM DEBT Notes payable to investors, net of current maturities 19,000 19,000 Capital lease payable 2,580 6,968 ----------- ----------- TOTAL LIABILITIES 833,775 706,038 ----------- ----------- 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 (5,410,146) (4,955,332) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (232,551) 222,263 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 601,224 $ 928,301 =========== ===========
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, 2005 and 2004 (UNAUDITED)
Nine months Nine months Three months Three months ended ended ended ended October 31, October 31, October 31, October 31, 2005 2004 2005 2004 ------------ ------------ ------------ ------------ REVENUES - net of returns and allowances $ 1,477,361 $ 2,007,300 $ 560,849 $ 704,469 COST OF SALES (1,288,443) (1,765,599) (520,361) (585,276) ------------ ------------ ------------ ------------ GROSS PROFIT 188,918 241,701 40,488 119,193 ------------ ------------ ------------ ------------ OPERATING EXPENSES Selling, general and administrative expenses 435,234 467,482 145,072 150,035 ------------ ------------ ------------ ------------ TOTAL OPERATING EXPENSES 435,234 467,482 145,072 150,035 ------------ ------------ ------------ ------------ INCOME (LOSS) FROM OPERATIONS (246,316) (225,781) (104,584) (30,842) OTHER INCOME Interest and other income (expense) - net (4,612) (5,049) (1,407) (1,423) ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (250,928) (230,830) (105,991) (32,265) PROVISION FOR INCOME TAXES -- -- -- -- ------------ ------------ ------------ ------------ NET INCOME (LOSS) (250,928) (230,830) (105,991) (32,265) OTHER COMPREHENSIVE INCOME -- -- -- -- ------------ ------------ ------------ ------------ COMPREHENSIVE INCOME (LOSS) $ (250,928) $ (230,830) $ (105,991) $ (32,265) ============ ============ ============ ============ Net income (loss) per weighted-average share of common stock outstanding, calculated on Net Loss - basic and fully diluted $ (0.01) $ (0.01) nil nil ============ ============ ============ ============ Weighted-average number of shares of common stock outstanding 25,171,865 25,077,704 25,171,865 25,171,865 ============ ============ ============ ============
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, 2005 and 2004 (UNAUDITED)
Nine months Nine months ended ended October 31, October 31, 2005 2004 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) for the period $(250,928) $(230,830) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization 22,961 28,575 Expenses paid with common stock -- 6,000 (Increase) Decrease in Accounts receivable - trade and other 128,960 76,786 Inventory 44,531 (42,267) Prepaid expenses and other (1,025) 1,861 Increase (Decrease) in Accounts payable (48,644) 71,436 Other accrued expenses (116) 4 Accrued management fees to parent company 90,000 90,000 --------- --------- NET CASH USED IN OPERATING ACTIVITIES (14,261) 1,565 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (3,426) (8,915) --------- --------- NET CASH USED IN INVESTING ACTIVITIES (3,426) (8,915) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on notes payable to investors -- (7,000) Payments on long-term capital lease (3,338) (3,060) --------- --------- NET CASH USED IN FINANCING ACTIVITIES (3,338) (10,060) --------- --------- INCREASE (DECREASE) IN CASH (21,025) (17,410) Cash at beginning of period 59,905 80,514 --------- --------- CASH AT END OF PERIOD $ 38,880 $ 63,104 ========= ========= SUPPLEMENTAL DISCLOSURE OF INTEREST AND INCOME TAXES PAID Interest paid for the period $ 3,378 $ 7,400 ========= ========= Income taxes paid for the period $ -- $ -- ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 5 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS KIK Technology International, Inc. (KTII) was incorporated on February 1, 2000 under the laws of the State of California as Russian-Imports.com. On September 4, 2001, KTII (formerly Russian-Imports.com) issued 16,700,000 shares of restricted, unregistered common stock to KIK Tire Technologies, Inc. (a publicly-owned Canadian corporation) (KTTI) for 100.0% of the issued and outstanding stock of KIK Technology, Inc. (a wholly-owned subsidiary of KTTI). By virtue of this transaction, KIK Technology, Inc. became a wholly-owned subsidiary of KTII and KTTI became an approximate 73.6% shareholder in KTII. Concurrent with this transaction, Russian-Imports.com changed it's corporate name to KIK Technologies International, Inc. KIK Technology, Inc (KTI) was incorporated in June 1988 under the laws of the State of California. KTI manufactures and markets an extensive and high quality line of off-highway micro-cellular polyurethane tires for the healthcare, light industrial, lawn and garden and recreational industries. KTI operates from a sole manufacturing plant and marketing offices located in Oceanside, CA. In prior years, the Company's principal raw materials are purchased from a sole supplier was also a major customer for the Company's products. In the event of any disruption in the availability of raw materials or a market for the Company's products purchased by this key supplier, the Company could have experienced a negative economic impact. The Company is developing additional sources of supply of it's key raw materials comparable prices and management is seeking other avenues of distribution of the Company's products to consumers. Management is of the opinion that no interruption of either raw materials or product demand will occur. NOTE B - PREPARATION OF FINANCIAL STATEMENTS The Company follows the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and has adopted a year-end of January 31. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented. During interim periods, the Company follows the accounting policies set forth in its annual audited financial statements filed with the U. S. Securities and Exchange Commission on its Annual Report on Form 10-KSB/A for the year ended January 31, 2005. The information presented within these interim financial statements may not include all disclosures required by generally accepted accounting principles and the users of financial information provided for interim periods should refer to the annual financial information and footnotes when reviewing the interim financial results presented herein. 6 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - PREPARATION OF FINANCIAL STATEMENTS - CONTINUED In the opinion of management, the accompanying interim financial statements, prepared in accordance with the U. S. Securities and Exchange Commission's instructions for Form 10-QSB, are unaudited and contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations and cash flows of the Company for the respective interim periods presented. The current period results of operations are not necessarily indicative of results which ultimately will be reported for the full fiscal year ending January 31, 2006. For segment reporting purposes, the Company operated in only one industry segment during the periods represented in the accompanying financial statements and makes all operating decisions and allocates resources based on the best benefit to the Company as a whole. These financial statements reflect the books and records of KIK Technology International, Inc. (formerly Russian-Imports.com) (KTII) and KIK Technology, Inc. (KTI) as of and for the periods ended October 31, 2005 and 2004, respectively. All significant intercompany transactions have been eliminated in consolidation. The consolidated entities are referred to as Company. NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Cash and cash equivalents For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company's cash management policies. 2. Accounts receivable and Revenue Recognition In the normal course of business, the Company extends unsecured credit to virtually all of its customers which are located throughout the United States and are principally concentrated in the midwest region of the country. Depending upon management's assessment of creditworthiness and order size, certain shipments are made on "COD" terms using common carriers. Because of the credit risk involved, management has provided an allowance for doubtful accounts which reflects its opinion of amounts which will eventually become uncollectible. In the event of complete non-performance, the maximum exposure to the Company is the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance. The Company recognizes revenue from the sale of tires and accessories upon shipment to, or receipt by customers, depending upon contractual terms and when there is no significant uncertainty regarding the consideration to be received and the associated costs to be incurred. Additionally, the Company recognizes reductions of recorded revenue for product returns from unsatisfied customers and other billing adjustments or corrections, at the point that the returned products are received by the Company or upon the completion of negotiations between the Company and it's customer. 7 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 3. Inventory Inventory consists of raw materials, principally chemical feedstocks, and finished goods, principally tires and accessories manufactured by the Company and other minor miscellaneous items purchased from third-party vendors for resale as a component of the Company's products. Inventory is valued at the lower of cost or market value, using principally the average cost method. 4. Property and Equipment Property and equipment are recorded at historical cost. These costs are depreciated over the estimated useful lives, generally two (2) to seven (7) years, of the individual assets using the straight-line method. Gains and losses from the disposition of property and equipment are included in operations as incurred. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company follows the policy of evaluating all property and equipment as of the end of each reporting quarter. For each of the years ended January 31, 2005 and 2004 and during the period ended October 31, 2005, no charges to operations were made for impairments in the future benefit of property and equipment. 5. Income Taxes The Company uses the asset and liability method of accounting for income taxes. At October 31, 2005 and 2004, the deferred tax asset and deferred tax liability accounts, as recorded when material to the financial statements, are entirely the result of temporary differences. Temporary differences represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization, allowance for doubtful accounts and vacation accruals. As of October 31, 2005 and 2004, the deferred tax asset related to the Company's net operating loss carryforward is fully reserved. 6. Advertising costs The Company does not conduct any direct response advertising activities. For non-direct response advertising, the Company charges the costs of these efforts to operations at the first time the related advertising is published. 7. Earnings (loss) per share Basic earnings (loss) per share is computed by dividing the net income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the respective period presented in our accompanying financial statements. Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of common stock equivalents (primarily outstanding options and warrants). Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company's net income (loss) position at the calculation date. 8 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 7. Earnings (loss) per share - continued As of October 31, 2005 and 2004, the Company's issued and outstanding, warrants, options and convertible debt are considered antidilutive due to the Company's net operating loss position. 8. Employee Stock Options For periods prior to November 1, 2002, the Company chose to account for employee stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employees, and related interpretations. Accordingly, employee compensation cost for stock options and warrants is measured as the excess, if any, of the market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. This treatment was allowed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). In December 2002, FASB issued Statement of Financial Accounting Standards No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS 148). This statement amends SFAS 123 and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure requirements of SFAS 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS 148 are effective for financial statements issued for fiscal years ending after December 15, 2002. Effective November 1, 2003, the first day of the reporting quarter including the effective date of SFAS 148, the Company's Board of Directors, in conjunction with public opinion and SFAS 148, elected to expense the imputed compensation cost related to any stock options granted during Fiscal 2003 and for future periods. The Company did not issue any stock options during Fiscal 2004 or Fiscal 2003 and the adoption of SFAS 148 did not have a material impact on our results of operations or financial condition. 9. New and Pending Accounting Pronouncements In December 2003, the Financial Accounting Standards Board issued FASB Interpretation Number 46-R "Consolidation of Variable Interest Entities." FIN 46-R, which modifies certain provisions and effective dates of FIN 46, sets for the criteria to be used in determining whether an investment is a variable interest entity should be consolidated. These provisions are based on the general premise that if a company controls another entity through interests other than voting interests, that company should consolidate the controlled entity. The Company's management believes that it does not have any material arrangements that meet the definition of a variable interest entity which would require consolidation. In November 2004, the FASB issued SFAS 151, "Inventory Costs." SFAS 151 amends the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) under the guidance in ARB 43, Chapter 4, "Inventory Pricing." Paragraph 5 of ARB 43, Chapter 4, previously stated that "...under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges...." This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not expect adoption of SFAS 151 to have a material impact on the Company's financial statements. 9 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 9. New and Pending Accounting Pronouncements - continued In December 2004, the FASB issued SFAS 152, "Accounting for Real Estate Time-Sharing Transactions." The FASB issued this Statement as a result of the guidance provided in AICPA Statement of Position (SOP) 04-2, "Accounting for Real Estate Time-Sharing Transactions." SOP 04-2 applies to all real estate time-sharing transactions. Among other items, the SOP provides guidance on the recording of credit losses and the treatment of selling costs, but does not change the revenue recognition guidance in SFAS 66, "Accounting for Sales of Real Estate," for real estate time-sharing transactions. SFAS 152 amends Statement 66 to reference the guidance provided in SOP 04-2. SFAS 152 also amends SFAS 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects", to state that SOP 04-2 provides the relevant guidance on accounting for incidental operations and costs related to the sale of real estate time-sharing transactions. SFAS 152 is effective for years beginning after June 15, 2005, with restatements of previously issued financial statements prohibited. Management does not expect adoption of SFAS 152 to have a material impact on the Company's financial statements. In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary Assets," an amendment to Opinion No. 29, "Accounting for Nonmonetary Transactions." Statement 153 eliminates certain differences in the guidance in Opinion No. 29 as compared to the guidance contained in standards issued by the International Accounting Standards Board. The amendment to Opinion No. 29 eliminates the fair value exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. Such an exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for nonmonetary asset exchanges occurring in periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in periods beginning after December 16, 2004. Management does not expect adoption of SFAS 153 to have a material impact on the Company's financial statements. In December 2004, the FASB issued SFAS 123(R), "Share-Based Payment." SFAS 123(R) amends SFAS 123, "Accounting for Stock-Based Compensation," and APB Opinion 25, "Accounting for Stock Issued to Employees." SFAS 123(R)requires that the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. SFAS 123(R) applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for those held by an ESOP) or by incurring liabilities (1) in amounts based (even in part) on the price of the entity's shares or other equity instruments, or (2) that require (or may require) settlement by the issuance of an entity's shares or other equity instruments. This statement is effective (1) for public companies qualifying as SEC small business issuers, as of the first interim period or fiscal year beginning after December 15, 2005, or (2) for all other public companies, as of the first interim period or fiscal year beginning after June 15, 2005, or (3) for all nonpublic entities, as of the first fiscal year beginning after December 15, 2005. Management anticipates no significant impact to the Company's financial statements upon the adoption of SFAS No. 123(R). NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash, accounts receivable, accounts payable and notes payable, as applicable, approximates fair value due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions. Interest rate risk is the risk that the Company's earnings are subject to fluctuations in interest rates on either investments or on debt and is fully dependent upon the volatility of these rates. The Company does not use derivative instruments to moderate its exposure to interest rate risk, if any. 10 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED Financial risk is the risk that the Company's earnings are subject to fluctuations in interest rates or foreign exchange rates and are fully dependent upon the volatility of these rates. The company does not use derivative instruments to moderate its exposure to financial risk, if any. NOTE E - CONCENTRATIONS OF CREDIT RISK KTII and KTI maintain their respective cash accounts in financial institutions subject to insurance coverage issued by the Federal Deposit Insurance Corporation (FDIC). Under FDIC rules, both KTII and KTI are entitled to aggregate coverage of $100,000 per account type per separate legal entity per financial institution. During the years ended January 31, 2005 and 2004 and for the period through October 31, 2005, respectively, KTTI and KTI, from time-to-time, had deposits in a financial institution with credit risk exposures in excess of statutory FDIC coverage. The Company has incurred no losses as a result of any of these unsecured situations. NOTE F - INVENTORIES Inventories consist of the following at October 31, 2005 and 2004: October 31, October 31, 2005 2004 -------- -------- Raw materials $ 38,218 $ 61,038 Finished goods 170,685 304,292 -------- -------- Total $208,903 $365,330 ======== ======== NOTE G - PROPERTY AND EQUIPMENT Property and equipment consists of the following at October 31, 2005 and 2004: October 31, October 31, 2005 2004 Estimated life --------- --------- -------------- Machinery and Equipment $ 601,166 $ 596,796 7 years Office furniture and fixtures 25,441 25,441 5 years Leasehold improvements 14,180 14,180 2 years Vehicles 9,279 9,279 5 years --------- --------- 650,066 645,696 Less accumulated depreciation (540,461) (507,803) --------- --------- Net property and equipment $ 109,605 $ 137,893 ========= ========= Depreciation expense for each of the nine month periods ended October 31, 2005 and 2004 was approximately $22,961 and $28,575, respectively. 11 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - FUNDS HELD IN TRUST BY OFFICER In May 2001, the Company advanced $53,400 to its President to hold in trust as a contingency fund for the sole use of the Company in the event of a unanticipated cash shortfall. The advance bears interest at 4.0% annually and is unsecured. The original documentation required repayment of the advance and accrued, but unpaid, interest in May 2003. As of October 31, 2005, with the approval of the Company's Board of Directors, the Company's President continues to maintain these funds as trustee on behalf of the Company. NOTE I - NOTES PAYABLE TO INVESTORS Pursuant to the terms of a private placement agreement, the Company attempted to raise up to $600,000 through the placement of two-year senior notes bearing interest at 10% payable quarterly. This Private Placement Memorandum was terminated by the Company during the fiscal quarter ended October 31, 2002. In November 2001, the Company entered into an agreement with an investment banker whereby the investment banker would act as exclusive dealer-manager in this private placement of securities to be issued by the Company pursuant to Regulation D of the Securities Act of 1933, as amended. As compensation, the investment banker was paid $15,000 for professional fees, received a commission equal to 10% of the gross proceeds, an unaccountable expense allowance equal to 4% of the gross proceeds, and for every $500,000 raised, 150,000 shares of the Company's restricted, unregistered common stock. Such shares will be issued upon completion of the private placement. In addition, the investment banker will have the option to nominate one person to the Company's Board of Directors if at least $2,000,000 is raised. As of the termination of this Private Placement Memorandum, only $75,000 had been successfully raised. Note holders can elect, with the consent of the Company, to accept Company common stock in lieu of cash interest payments. Such payments in stock would be calculated at 50% of the daily average of the market price of the common stock for the 30-calendar days preceding the interest due date. After six months from the date of issue of the notes, the Company can convert the notes to common stock if the daily average market price of the Company's common stock for any 30-calendar days after the initial six-month period equals or exceeds $1.00. The conversion of the notes to common stock would also be calculated at 50% of the daily average market price for the 30 days prior to the Company giving notice of its plan to convert. In conjunction with the offering of the notes, each note holder was given one warrant for each $1.00 invested. Each warrant allows the holder to purchase one share of the Company's common stock at an initial exercise price of $0.60 per share, and is exercisable for two years. In March 2002, the Company repriced the outstanding warrants to an exercise price of $0.40 per share. Pursuant to the private placement, the Company sold a $50,000 convertible note on November 12, 2001 and a $25,000 convertible note on December 26, 2001 to two unrelated investors. Warrants to purchase a combined total of 75,000 shares of the Company's common stock at $0.60 per share were also issued to the investors. The warrants were valued at $11,789 using the Black-Scholes option-pricing model, and therefore $11,789 of the total debt proceeds of $75,000 was allocated to the warrants, resulting in a discount on the notes, was amortized to interest expense over the initial term of the underlying debt. During the years ended January 31, 2004, approximately $9,100 of the discount was amortized to interest expense. The weighted average assumptions utilized to value the warrants using the Black-Scholes option-pricing model were as follows: Expected life of the option: The initial life of the corresponding option, generally two (2) years Expected volatility in the Company's stock price: 150.0%, which was based on fluctuations of the Company's stock price over the past Fiscal year. Expected dividends: Zero (0.00) based on past performance Anticipated risk free interest rate: Estimated to be 2.80%. 12 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE I - NOTES PAYABLE TO INVESTORS - CONTINUED The convertible notes contained a beneficial conversion feature valued at a combined total of approximately $63,000. However, because the conversion features were fully contingent upon the occurrence of certain future events, the Company did not record a discount resulting from the beneficial conversion feature. The notes matured on November 12, 2003 ($50,000) and December 26, 2003 ($25,000), respectively. On February 16, 2004, the Company restructured the $50,000 convertible note. Under the restructured terms, the Company paid all accrued interest and a $3,000 principal reduction on March 16, 2004, as of February 16, 2004. The Company is obligated to pay $2,000 per month, plus accrued interest, for the period from March 16, 2004 through August 16, 2004 and $1,000 per month, plus accrued interest, on the 16th of each month thereafter until all outstanding amounts are paid in full. The restructured note bears interest at 10.0% per annum. The Company has been delinquent in making the required principal reductions since May 2004; however, is current in making the required monthly payments of accrued interest. 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 October 31, 2005, the Company has paid approximately $7,000 in cumulative principal and approximately $10,438 in cumulative accrued interest on the $50,000 restructured convertible note since the restructuring date. 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 October 31, 2005 $ 68,000 Less current portion (49,000) -------- Long-term portion $ 19,000 ======== NOTE J - CAPITAL LEASE PAYABLE Capital lease payable as of October 31, 2005 and 2004 is as follows: October 31, October 31, 2005 2004 -------- -------- $21,080 capital lease payable to a finance corporation Interest at 8.60%. Payable in monthly installments of approximately $432, including accrued interest Final maturity due in April 2007. Collateralized by equipment $ 6,968 $ 11,371 Less current maturities (4,388) (4,403) -------- -------- Long-term portion $ 2,580 $ 6,968 ======== ======== 13 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - CAPITAL LEASE PAYABLE - CONTINUED Future annual maturities of long-term capital leases payable, as of January 31, 2005, for each of the following years ending January 31 are as follows: Year ending January 31, Amount ----------- ------ 2006 $ 4,468 2007 4,872 2008 966 ------- Total $10,306 ======= NOTE K - INCOME TAXES The components of income tax (benefit) expense for the nine months ended October 31, 2005 and 2004, respectively, are as follows: October 31, October 31, 2005 2004 ------- ------- Federal: Current $ -- $ -- Deferred -- -- ------- ------- -- -- ------- ------- State: Current -- -- Deferred -- -- ------- ------- -- -- ------- ------- Total $ -- $ -- ======= ======= The Company has a net operating loss carryforward of approximately $5,000,000 to offset future taxable income. Subject to current regulations, this carryforward will begin to expire in 2005. The amount and availability of the net operating loss carryforwards may be subject to limitations set forth by the Internal Revenue Code. Factors such as the number of shares ultimately issued within a three year look-back period; whether there is a deemed more than 50 percent change in control; the applicable long-term tax exempt bond rate; continuity of historical business; and subsequent income of the Company all enter into the annual computation of allowable annual utilization of the carryforwards. The Company's income tax expense for the nine months ended October 31, 2005 and 2004, respectively, are as follows: October 31, October 31, 2005 2004 -------- -------- Statutory rate applied to loss before income taxes $(85,300) $(78,500) Increase (decrease) in income taxes resulting from: State income taxes -- -- Other, including reserve for deferred tax asset 85,300 78,500 -------- -------- Income tax expense $ -- $ -- ======== ======== Temporary differences, consisting primarily of net operating loss carryforwards, statutory deferrals of expenses for organizational costs and accrued, but unpaid, accruals for officer compensation and statutory differences in the depreciable lives for property and equipment, between the financial statement carrying amounts and tax bases of assets and liabilities give rise to deferred tax assets and liabilities as of January 31, 2005 and 2004, respectively: 14 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - INCOME TAXES - CONTINUED January 31, January 31, 2005 2004 ----------- ----------- Deferred tax assets Net operating loss carryforwards $ 1,700,000 $ 1,564,000 Less valuation allowance (1,700,000) (1,564,000) ----------- ----------- Net Deferred Tax Asset $ -- $ -- =========== =========== During the Fiscal years ended January 31, 2005 and 2004, respectively, the valuation allowance for the deferred tax asset increased (decreased) by approximately $136,000 and $68,000. NOTE L - COMMON STOCK TRANSACTIONS In February 2003, the Company issued 150,000 restricted, unregistered shares of common stock in payment of a contract for marketing services. This transaction was valued at approximately $3,000, which was equal to or in excess of the discounted closing price of the Company's common stock on the NASDAQ Electronic Bulletin Board on the date of each respective transaction. The Company relied upon Section 4(2) of The Securities Act of 1933, as amended, for an exemption from registration on these shares. In April 2003, the Company issued 22,500 restricted, unregistered shares of common stock in settlement of a January 31, 2003 trade account payable in the amount of approximately $552. The value of this transaction was equal to or in excess of the discounted closing price of the Company's common stock on the NASDAQ Electronic Bulletin Board on the date of each respective transaction. The Company relied upon Section 4(2) of The Securities Act of 1933, as amended, for an exemption from registration on these shares. In May 2003, the Company issued 575,664 restricted, unregistered shares of common stock in payment of trade accounts payable to the Company's primary legal counsel in the amount of approximately $72,849. The value of this transaction was equal to or in excess of the discounted closing price of the Company's common stock on the NASDAQ Electronic Bulletin Board on the date of each respective transaction. The Company relied upon Section 4(2) of The Securities Act of 1933, as amended, for an exemption from registration on these shares. In July 2004, the Company issued 150,000 restricted, unregistered shares of common stock in payment of a contract for professional services. This transaction was valued at approximately $6,000, which was equal to or in excess of the discounted closing price of the Company's common stock on the NASDAQ Electronic Bulletin Board on the date of each respective transaction. The Company relied upon Section 4(2) of The Securities Act of 1933, as amended, for an exemption from registration on these shares. NOTE M - RELATED PARTY TRANSACTIONS During the nine months ended October 31, 2005 and during each of the years ended January 31, 2005 and 2004, respectively, the Company accrued approximately $90,000, $120,000 and $120,000 in administrative service fees payable to KTTI, respectively. (Remainder of this page left blank intentionally) 15 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE N - COMMITMENTS AND CONTINGENCIES LEASED FACILITIES The Company leases its facilities under a non-cancellable operating lease, which expires on May 31, 2008. The lease requires monthly payments as follows: $8,987 for the period from June 1, 2005 through May 31, 2006; $9,343 for the period from June 1, 2006 through May 31, 2007; and $9,717 for the period from June 1, 2007 through May 31, 2008. Rent expenses incurred under this lease was approximately $106,428 and $102,340 for each of the years ended January 31, 2005 and 2004, respectively. Future amounts due under this agreement are as follows: Year ending January 31, Amount ----------- ------ 2006 $107,808 2007 110,680 2008 105,391 2009 48,585 -------- Totals $372,464 ======== EMPLOYMENT CONTRACT In May 2000, KIK entered into an employment agreement with William M. Knooihuizen, the Company's current President and Director. The term of the agreement is for a period of five (5) years. For such services, KIK agreed to pay Mr. Knooihuizen an annual salary in the amount of $143,000, to be paid weekly. NOTE O - SIGNIFICANT CUSTOMERS During the year ended January 31, 2005, the Company had three separate customers responsible for an aggregate of approximately 71.86% (49.18%, 16.09% and 6.59%, respectively) of total net revenues. The largest customer was also a significant vendor of raw materials. The largest key customer was responsible for approximately 35.02% of accounts receivable and 59.37% of accounts payable at January 31, 2005. The second key customer was responsible for approximately 7.42% of accounts receivable and 0.12% of accounts payable at January 31, 2005. The third key customer was responsible for approximately 18.32% of accounts receivable and approximately 0.52% of accounts payable at January 31, 2005. During the year ended January 31, 2004, the Company had two separate customers responsible for an aggregate of approximately 78.47% (69.06% and 9.41%, respectively) of total sales. The largest customer is also a significant vendor of raw materials. The largest key customer was responsible for approximately 48.95% of accounts receivable and 76.17% of accounts payable at January 31, 2004. The second key customer was responsible for approximately 1.72% of accounts receivable and 0.00% of accounts payable at January 31, 2004. There were no other customer(s) responsible for more than 10.0% of total net sales during Fiscal 2004. During the quarter ended April 30, 2005, the Company discontinued it's relationship with a major customer, who was primarily a wholesale distributor of the Company's products. The Company is developing a direct sales channel with retail resellers of the Company's products. The existence of "major" customers may change in future periods. 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 nine months ended October 31, 2005 and 2004, respectively, the Company recognized net revenues of approximately $1,477,000 and $2,007,000, respectively. These revenues were derived primarily from the sale of the Company's urethane based tire products. Net loss for the nine months ended October 31, 2005 and 2004 was approximately $(251,000) and $(231,000), respectively. The net loss for each of these nine month periods includes a $90,000 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 months ended October 31, 2005 and 2004, respectively, was approximately $(0.01) and $(0.01). RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes. NINE MONTHS ENDED OCTOBER 31, 2005 COMPARED TO THE NINE MONTHS ENDED OCTOBER 31, 2004 The Company posted net sales of approximately $1,477,000 for the nine months ended October 31, 2005 as compared to net sales of approximately $2,007,000 for the nine months ended October 31, 2004. During the quarter ended April 30, 2005, the Company discontinued it's relationship with a major customer, who was primarily a wholesale distributor of the Company's products. While the demand for the Company's product remains strong, in management's opinion, the Company is rapidly developing a sales channel directly with retail resellers of the Company's products to eliminate the "middleman" from the distribution channel. It is anticipated that the Company's sales will regain levels comparable or in excess of prior period comparable sales in future periods. The Company has begun to experience competition from foreign sources for comparable products and this has negatively impact revenues in the current reporting period and will do so in future periods. . The Company's cost of sales decreased by approximately $478,000 to approximately $1,288,000 for the nine months ended October 31, 2005 as compared to approximately $1,766,000 for the nine months ended October 31, 2004. The urethane compounds used in the manufacture of the Company's tire products is derived from hydrocarbon processing and, therefore, is directly related to crude oil. Accordingly, the Company's raw material costs are directly related to price and demand fluctuations in global crude oil supplies. The Company has been and 17 continues to be consistently subjected to cost increases in raw material and ancillary supplies which are not readily passed through with product price increases due to domestic market conditions and foreign competition for sales of the Company's tire products. The Company experienced a gross profit margin of approximately 12.79% (approximately $189,000) for the first nine months of Fiscal 2006 as compared to approximately 12.04% (approximately $242,000) for the first nine months of Fiscal 2005. General and administrative expenses decreased from approximately $467,000 for the nine months ended October 31, 2004 to approximately $435,000 for the nine months ended October 31, 2005. To the extent possible, management monitors and controls the variable expenditures related to the Company's administration; however, given increases in energy costs which are an integral component of all goods and services used by the Company in it's operations, the availability of cost controls as a budget monitoring and profit control mechanism is diminishing. Included in the Company's general and administrative costs is a $10,000 per month administrative charge to KIK Tire Technologies Inc., the Company's publicly-owned Canadian majority shareholder. LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents of approximately $39,000, $59,900 and $63,000 at October 31, 2005, January 31, 2005 and October 31, 2004, respectively. The Company maintained business liquidity and capital resources during the year adequate to fund all capital and operating expense requirements. Operations for Fiscal 2005 and 2004 have principally been funded from internally generated funds. Management is of the opinion that line of credit borrowings and capital raised via private placement(s) of securities may be available to the Company should the need arise in future periods. For the nine months ended October 31, 2005 and 2004, net cash provided by (used in) operating activities was approximately $(14,000) and $1,600, respectively. Net cash provided by (used in) 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 $(3,400) and $(8,900) for each of the nine months ended October 31, 2005 and 2004, respectively. These cash utilizations was due solely to the acquisition of equipment used in the manufacturing process. The Company experienced cash used in financing activities of approximately $(3,300) and $(10,000) in the first nine months of Fiscal 2006 and Fiscal 2005, respectively. All of these expenditures were related to the reduction in outstanding principal on the Company's $50,000 convertible note payable and the Company's equipment capital lease payable. Management remains confident that sufficient cash will be generated internally to fund its operations for the next twelve months. CRITICAL ACCOUNTING POLICIES Financial Reporting Release No. 60, issued by the Securities and Exchange Commission, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Note C to the Consolidated Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of the Company's Consolidated Financial Statements. The following is a brief discussion of the more significant accounting policies and methods used by the Company. REVENUE RECOGNITION The Company recognizes revenue from the sale of tires and accessories upon shipment to, or receipt by customers, depending upon contractual terms and when there is no significant uncertainty regarding the consideration to be received and the associated costs to be incurred. Additionally, the Company recognizes reductions of recorded revenue for product returns from unsatisfied customers and other billing adjustments or corrections, at the point that the returned products are received by the Company or upon the completion of negotiations between the Company and it's customer. 18 ACCOUNTS RECEIVABLE The Company continuously monitors collections and payments from its customers and maintains an allowance for estimated uncollectible accounts based upon historical experience and specific customer collections issues that have been identified. Depending upon management's assessment of a customer's creditworthiness and order size, certain shipments are made on "COD" terms using common carriers. Since accounts receivable are concentrated in a relatively few customers, a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the collectibility of the Company's accounts receivable and future operating results. In the event of complete non-performance by any customer or customers, the maximum exposure to the Company would be the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance. INVENTORIES Inventories are valued at the lower of cost or market. Cost is determined principally on the average cost method. The Company regularly reviews inventory quantities on hand and records, when necessary, a provision for excess and obsolete inventory based primarily on the Company's estimated forecast of product demand and production requirements for the next twelve months. Demand for the Company's products can fluctuate significantly. A significant increase in the demand for the Company's products could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand. In addition, the Company's industry is characterized by rapid technological change, frequent new product development and rapid product obsolescence that could result in an increase in the amount of obsolete inventory quantities on hand. Additionally, the Company's estimate of future product demand may prove to be inaccurate, in which case the Company may have understated or overstated the provision required for excess and obsolete inventory. Therefore, although the Company makes every effort to ensure the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant impact on the Company's inventory value and reported operating results. STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation, defines a fair-value based method of accounting for stock-based employee compensation plans and transactions in which an entity issues its equity instruments to acquire goods and services from non-employees, and encourages but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. For periods prior to November 1, 2002, the Company has chosen to account for employee stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employees, and related interpretations. Accordingly, employee compensation cost for stock options and warrants is measured as the excess, if any, of the market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. This treatment was allowed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). In December 2002, FASB issued Statement of Financial Accounting Standards No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS 148). This statement amends SFAS 123 and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure requirements of SFAS 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS 148 are effective for financial statements issued for fiscal years ending after December 15, 2002. Effective November 1, 2003, the first day of the reporting quarter including the effective date of SFAS 148, the Company's Board of Directors, in conjunction with public opinion and SFAS 148, elected to expense the imputed compensation cost related to any stock options granted during Fiscal 2003 and for future periods. The Company did not issue any stock options during Fiscal 2003 and the adoption of SFAS 148 did not have a material impact on our results of operations or financial condition. 19 ITEM 3 - CONTROLS AND PROCEDURES As required by Rule 13a-15 under the Exchange Act, within the 90 days prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's President and Chief Executive Officer along with the Company's Chief Financial Officer. Based upon that evaluation, the Company's President and Chief Executive Officer along with the Company's Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. There have been no significant changes in the Company's internal controls or in other factors, which could significantly affect internal controls subsequent to the date the Company carried out its evaluation. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS None ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None ITEM 3 - DEFAULTS ON SENIOR SECURITIES None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company has held no regularly scheduled, called or special meetings of shareholders during the reporting period. ITEM 5 - OTHER INFORMATION None ITEM 6 - EXHIBITS Exhibits 31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 - Chief Executive Officer 31.2 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 - Chief Financial Officer 32.1 Certifications pursuant to Section 906 of Sarbanes-Oxley Act of 2002. - -------------------------------------------------------------------------------- SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KIK TECHNOLOGY INTERNATIONAL, INC. Dated: December 13, 2005 /s/ Kuldip C. Baid ----------------- ---------------------------------- Kuldip C. Baid Chief Financial Officer and Director 20 EX-31.1 2 ex31-1.txt CEO SECTION 302 CERTIFICATION EXHIBIT NO. 31.1 Form 10-QSB KIK Technology International, Inc. File No. 000-30071 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - CHIEF EXECUTIVE OFFICER I, William M. Knooihuizen, Chief Executive Officer of KIK Technology International, Inc., certify that: 1. I have reviewed this report on Form 10-QSB for the quarter ended October 31, 2005 of KIK Technology International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 13, 2005 By: /s/ William M. Knooihuizen ----------------- --------------------------- William M. Knooihuizen Chief Executive Officer EX-31.2 3 ex31-2.txt CFO SECTION 302 CERTIFICATION EXHIBIT NO. 31.2 Form 10-QSB KIK Technology International, Inc. File No. 000-30071 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - CHIEF ACCOUNTING OFFICER I, Kuldip C. Baid, Chief Accounting Officer of KIK Technology International, Inc., certify that: 1. I have reviewed this report on Form 10-QSB for the quarter ended October 31, 2005 of KIK Technology International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 13, 2005 By: /s/ Kuldip C. Baid ----------------- --------------------------- Kuldip C. Baid Chief Financial Officer EX-32.1 4 ex32-1.txt CEO & CFO SECTION 906 CERTIFICATION EXHIBIT NO. 32.1 Form 10-QSB KIK Technology International, Inc. File No. 000-30071 CERTIFICATION PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - CHIEF EXECUTIVE OFFICER AND CHIEF ACCOUNTING OFFICER In connection with the Quarterly Report of KIK Technology International, Inc. (Company) on Form 10-QSB for the period ended October 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (Report), I, William M. Knooihuizen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, adopted as pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: December 13, 2005 By: /s/ William M. Knooihuizen ----------------- --------------------------- William M. Knooihuizen Chief Executive Officer In connection with the Quarterly Report of KIK Technology International, Inc. (Company) on Form 10-QSB for the period ended October 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (Report), I, Kuldip C. Baid, Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, adopted as pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: December 13, 2005 By: /s/ Kuldip C. Baid ----------------- --------------------------- Kuldip C. Baid Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to KIK Technology International, Inc. and will be retained by KIK Technology International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----