-----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, Fbwrz2SeXmgBDglkfxz+NVsN+MYF7e2EhNTjrbqxIHfpiJyjH0I6+JDn+aWRJnct RJFghNmWMCZnx5I465IskA== 0001165527-06-000286.txt : 20060823 0001165527-06-000286.hdr.sgml : 20060823 20060823150139 ACCESSION NUMBER: 0001165527-06-000286 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060731 FILED AS OF DATE: 20060823 DATE AS OF CHANGE: 20060823 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: 061050776 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 g1295.txt QUARTERLY REPORT FOR THE QTR ENDED 7/31/06 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-QSB - -------------------------------------------------------------------------------- (Mark one) [X] Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the quarterly period ended July 31, 2006 [ ] 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 [ ] 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: August 22, 2006: 25,321,865 Transitional Small Business Disclosure Format (check one): YES [ ] NO [X] KIK TECHNOLOGY INTERNATIONAL, INC. Form 10-QSB for the Quarter ended July 31, 2006 Table of Contents Page ---- PART I - FINANCIAL INFORMATION Item 1 Financial Statements 3 Item 2 Management's Discussion and Analysis or Plan of Operation 17 Item 3 Controls and Procedures 19 PART II - OTHER INFORMATION Item 1 Legal Proceedings 20 Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 20 Item 3 Defaults Upon Senior Securities 20 Item 4 Submission of Matters to a Vote of Security Holders 20 Item 5 Other Information 20 Item 6 Exhibits 20 SIGNATURES 20 2 PART I ITEM 1 - FINANCIAL STATEMENTS KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS July 31, 2006 and 2005 (UNAUDITED)
July 31, July 31, 2006 2005 ----------- ----------- ASSETS CURRENT ASSETS Cash on hand and in bank $ 27,724 $ 27,723 Accounts receivable Trade, net of allowance for doubtful accounts of approximately $1,016 and $13,686, respectively 327,075 228,861 Other 11,214 9,078 Inventories 196,555 324,790 ----------- ----------- TOTAL CURRENT ASSETS 562,568 590,452 ----------- ----------- PROPERTY AND EQUIPMENT - AT COST, NET OF ACCUMULATED DEPRECIATION 95,636 116,030 ----------- ----------- 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 $ 716,404 $ 764,682 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Notes payable to investors $ 68,000 $ 49,000 Current maturity of capital lease payable 2,934 4,667 Accounts payable - trade 515,661 459,591 Other accrued expenses 45,475 39,545 Management fee payable to majority shareholder 420,000 300,000 Advances from majority shareholder 116,000 16,000 ----------- ----------- TOTAL CURRENT LIABILITIES 1,168,070 868,803 ----------- ----------- LONG-TERM DEBT Notes payable to investors, net of current maturities -- 19,000 Capital lease payable, net of current maturities -- 3,439 ----------- ----------- TOTAL LIABILITIES 1,168,070 891,242 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT) Common stock - $0.001 par value 100,000,000 shares authorized 25,321,865 and 25,171,865 shares issued and outstanding 25,322 25,172 Additional paid-in capital 5,158,273 5,152,423 Accumulated deficit (5,635,261) (5,304,155) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (451,666) (126,560) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 716,404 $ 764,682 =========== ===========
The financial information presented herein has been prepared by management without audit by independent certified public accountants. The accompanying notes are an integral part of these consolidated financial statements. 3 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Six and Three months ended July 31, 2006 and 2005 (UNAUDITED)
Six months Six months Three months Three months ended ended ended ended July 31, July 31, July 31, July 31, 2006 2005 2006 2005 ----------- ----------- ----------- ----------- REVENUES - net of returns and allowances $ 1,174,920 $ 916,512 $ 578,076 $ 541,296 COST OF SALES (961,565) (768,082) (508,262) (393,443) ----------- ----------- ----------- ----------- GROSS PROFIT 213,355 148,430 69,814 147,853 ----------- ----------- ----------- ----------- OPERATING EXPENSES Selling, general and administrative expenses 306,695 290,162 155,686 143,289 ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS (93,340) (141,732) (85,872) 4,564 OTHER INCOME Interest and other income (expense) - net (1,416) (3,205) (455) (1,357) ----------- ----------- ----------- ----------- LOSS BEFORE PROVISION FOR INCOME TAXES (94,756) (144,937) (86,327) 3,207 PROVISION FOR INCOME TAXES -- -- -- -- ----------- ----------- ----------- ----------- NET LOSS (94,756) (144,937) (86,327) 3,207 OTHER COMPREHENSIVE INCOME -- -- -- -- ----------- ----------- ----------- ----------- COMPREHENSIVE LOSS $ (94,756) $ (144,937) $ (86,327) $ 3,207 =========== =========== =========== =========== Netloss per weighted-average share of common stock outstanding, calculated on Net Loss - basic and fully diluted nil $ (0.01) nil nil =========== =========== =========== =========== Weighted-average number of shares of common stock outstanding 25,172,694 25,171,865 25,173,495 25,171,865 =========== =========== =========== ===========
The financial information presented herein has been prepared by management without audit by independent certified public accountants. The accompanying notes are an integral part of these consolidated financial statements. 4 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended July 31, 2006 and 2005 (UNAUDITED)
Six months Six months ended ended July 31, July 31, 2006 2005 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the period $ (94,756) $(144,937) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization 15,251 15,490 Consulting fees paid with common stock 6,000 -- (Increase) Decrease in Accounts receivable - trade and other (163,170) 75,248 Inventory 18,874 (71,356) Prepaid expenses and other 223 384 Increase (Decrease) in Accounts payable 131,925 37,786 Other accrued expenses 2,197 (217) Accrued management fees to parent company 60,000 60,000 --------- --------- NET CASH USED IN OPERATING ACTIVITIES (23,456) (27,602) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (7,003) (2,380) --------- --------- NET CASH USED IN INVESTING ACTIVITIES (7,003) (2,380) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Advances from majority shareholder 50,000 -- Payments on long-term capital lease (2,008) (2,200) --------- --------- NET CASH USED IN FINANCING ACTIVITIES 47,992 (2,200) --------- --------- INCREASE (DECREASE) IN CASH 17,533 (32,182) Cash at beginning of period 10,191 59,905 --------- --------- CASH AT END OF PERIOD $ 27,724 $ 27,723 ========= ========= SUPPLEMENTAL DISCLOSURE OF INTEREST AND INCOME TAXES PAID Interest paid for the period $ 2,076 $ 2,277 ========= ========= Income taxes paid for the period $ -- $ -- ========= ========= SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES $ -- $ -- ========= =========
The financial information presented herein has been prepared by management without audit by independent certified public accountants. The accompanying notes are an integral part of these consolidated financial statements. 5 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS KIK Technology International, Inc. (KTII) was incorporated on February 1, 2000 under the laws of the State of California as Russian-Imports.com. Russian-Imports.com was initially founded to develop an internet e-commerce website which would sell handmade lacquer boxes, Matroshka dolls and crystal imported from Russia. This business plan was unsuccessful and, subsequently, terminated. On September 4, 2001, KTII (formerly Russian-Imports.com) issued 16,700,000 shares of restricted, unregistered common stock to KIK Tire Technologies, Inc. (a publicly-owned Canadian corporation) (KTTI) for 100.0% of the issued and outstanding stock of KIK Technology, Inc. (a wholly-owned subsidiary of KTTI). By virtue of this transaction, KIK Technology, Inc. became a wholly-owned subsidiary of KTII and KTTI became an approximate 73.6% shareholder in KTII. Concurrent with this transaction, Russian-Imports.com changed it's corporate name to KIK Technologies International, Inc. KIK Technology, Inc (KTI) was incorporated in June 1988 under the laws of the State of California. KTI manufactures and markets an extensive and high quality line of off-highway micro-cellular polyurethane tires for the healthcare, light industrial, lawn and garden and recreational industries. KTI operates from a sole manufacturing plant and marketing offices located in Oceanside, CA. The Company's principal raw materials are produced from petroleum feedstocks and, therefore, are subject to disruption and price variances related to the global availability of crude oil. NOTE B - PREPARATION OF FINANCIAL STATEMENTS The Company follows the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and has adopted a year-end of January 31. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented During interim periods, the Company follows the accounting policies set forth in its annual audited financial statements filed with the U. S. Securities and Exchange Commission on its Annual Report on Form 10-KSB for the year ended January 31, 2006. The information presented within these interim financial statements may not include all disclosures required by generally accepted accounting principles and the users of financial information provided for interim periods should refer to the annual financial information and footnotes when reviewing the interim financial results presented herein. In the opinion of management, the accompanying interim financial statements, prepared in accordance with the U. S. Securities and Exchange Commission's instructions for Form 10-QSB, are unaudited and contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations and cash flows of the Company for the respective interim periods presented. The current period results of operations are not necessarily indicative of results which ultimately will be reported for the full fiscal year ending January 31, 2007. For segment reporting purposes, the Company operated in only one industry segment during the periods represented in the accompanying financial statements and makes all operating decisions and allocates resources based on the best benefit to the Company as a whole. 6 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - PREPARATION OF FINANCIAL STATEMENTS - CONTINUED These financial statements reflect the books and records of KIK Technology International, Inc. (KTII) and KIK Technology, Inc. (KTI) as of and for the six and three months ended July 31, 2006 and 2005, respectively. All significant intercompany transactions have been eliminated in consolidation. The consolidated entities are referred to as Company. NOTE C - GOING CONCERN UNCERTAINTY The Company's principal raw materials are produced from petroleum feedstocks and, therefore, are subject to disruption and price variances related to the global availability of crude oil. In prior years, a significant supplier of these raw materials was also a major customer for the Company's products. The Company's sales side of this relationship began to dissolve during the year ended January 31, 2005 and further diminished significantly in the year ended January 31, 2006. In the event of any disruption in the availability of raw materials or a market for the Company's products, as occurred during the year ended January 31, 2006, the Company will experience a negative economic impact. The Company has developed additional sources of supply of it's key raw materials; however, still experiences fluctuations in pricing due to the current world market conditions for crude oil. Management is seeking other avenues of distribution of the Company's products to consumers. Management is of the opinion that no interruption of either raw materials or product demand will occur. The Company's continued existence is dependent upon its ability to generate sufficient cash flows from operations to support its daily operations as well as provide sufficient resources to retire existing liabilities and obligations on a timely basis. The Company anticipates that additional working capital will be necessary to support and preserve the integrity of the corporate entity. However, there is no assurance that the Company will be able to obtain additional funding through either bank lines-of-credit or the sale of additional equity securities or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company. If no additional operating capital is received during the next twelve months, the Company will be forced to rely on existing cash in the bank, the cash generated from operating activities and/or additional funds loaned by the Company's majority parent to preserve the integrity of the corporate entity at this time. In the event, the Company is unable to acquire advances from management and/or significant stockholders, the Company's ongoing operations would be negatively impacted to the point that all operating activities are ceased. While the Company is of the opinion that good faith estimates of the Company's ability to secure additional capital in the future to reach our goals have been made, there is no guarantee that the Company will receive sufficient funding to sustain operations or implement any future business plan steps. NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. CASH AND CASH EQUIVALENTS For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company's cash management policies. 7 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 2. ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION In the normal course of business, the Company extends unsecured credit to virtually all of its customers which are located throughout the United States and are principally concentrated in the midwest region of the country. Depending upon management's assessment of creditworthiness and order size, certain shipments are made on "COD" terms using common carriers. Because of the credit risk involved, management has provided an allowance for doubtful accounts which reflects its opinion of amounts which will eventually become uncollectible. In the event of complete non-performance, the maximum exposure to the Company is the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance. The Company recognizes revenue from the sale of tires and accessories upon shipment to, or receipt by customers, depending upon contractual terms and when there is no significant uncertainty regarding the consideration to be received and the associated costs to be incurred. Additionally, the Company recognizes reductions of recorded revenue for product returns from unsatisfied customers and other billing adjustments or corrections, at the point that the returned products are received by the Company or upon the completion of negotiations between the Company and it's customer. 3. INVENTORY Inventory consists of raw materials, principally chemical feedstocks, and finished goods, principally tires and accessories manufactured by the Company and other minor miscellaneous items purchased from third-party vendors for resale as a component of the Company's products. Inventory is valued at the lower of cost or market value, using principally the average cost method. 4. PROPERTY AND EQUIPMENT Property and equipment are recorded at historical cost. These costs are depreciated over the estimated useful lives, generally two (2) to seven (7) years, of the individual assets using the straight-line method. Gains and losses from the disposition of property and equipment are included in operations as incurred. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company follows the policy of evaluating all property and equipment as of the end of each reporting quarter. For each of the respective six and three month periods ended July 31, 2006 and 2005, no charges to operations were made for impairments in the future benefit or recoverability of property and equipment. 5. INCOME TAXES The Company uses the asset and liability method of accounting for income taxes. At July 31, 2006 and 2005, the deferred tax asset and deferred tax liability accounts, as recorded when material to the financial statements, are entirely the result of temporary differences. Temporary differences represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization, allowance for doubtful accounts and vacation accruals. As of July 31, 2006 and 2005, the deferred tax asset related to the Company's net operating loss carryforward is fully reserved. 6. ADVERTISING COSTS The Company does not conduct any direct response advertising activities. For non-direct response advertising, the Company charges the costs of these efforts to operations at the first time the related advertising is published. 8 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 7. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share is computed by dividing the net income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the respective period presented in our accompanying financial statements. Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of common stock equivalents (primarily outstanding options and warrants). Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company's net income (loss) position at the calculation date. As of July 31, 2006 and 2005, the Company's issued and outstanding warrants, options and convertible debt are considered antidilutive due to the Company's net operating loss position. 8. EMPLOYEE STOCK OPTIONS For periods prior to November 1, 2002, the Company chose to account for employee stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employees, and related interpretations. Accordingly, employee compensation cost for stock options and warrants is measured as the excess, if any, of the market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. This treatment was allowed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). In December 2002, FASB issued Statement of Financial Accounting Standards No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS 148). This statement amends SFAS 123 and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure requirements of SFAS 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS 148 are effective for financial statements issued for fiscal years ending after December 15, 2002. Effective November 1, 2003, the first day of the reporting quarter including the effective date of SFAS 148, the Company's Board of Directors, in conjunction with public opinion and SFAS 148, elected to expense the imputed compensation cost related to any stock options granted during Fiscal 2003 and for future periods. The Company has not issued any stock options since the adoption of SFAS 148 and has not experienced a material impact on our results of operations or financial condition. 9. NEW AND PENDING ACCOUNTING PRONOUNCEMENTS In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations"("FIN 47"), which is an interpretation of SFAS 143, "Accounting for Asset Retirement Obligations." FIN 47 clarifies terminology within SFAS 143 and requires an entry to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company does not expect the adoption of this statement to have a material impact on its financial statements. 9 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 9. NEW AND PENDING ACCOUNTING PRONOUNCEMENTS - continued In June 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections," which will require entities that voluntarily make a change in accounting principle to apply that change retroactively to prior periods' financial statements unless this would be impracticable. SFAS No. 154 supersedes Accounting Principles Board Opinion No. 20, "Accounting Changes" ("APB No. 20"), which previously required that most voluntary changes in accounting principle be recognized by including in the current period's net income the cumulative effect of changing to the new accounting principle. SFAS No. 154 also makes a distinction between "retrospective application" of an accounting principle and the "restatement" of financial statements to reflect the correction of an error. Another significant change in practice under SFAS No. 154 will be that if an entity changes its method of depreciation, amortization, or depletion for long-lived, non-financial assets, the change must be accounted for as a change in accounting principle. SFAS No. 154 applies to accounting changes and error corrections that are made in fiscal years beginning after December 15, 2005. The provisions of SFAS No. 154 are not expected to affect the Company's consolidated financial statements. NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash, accounts receivable, accounts payable and notes payable, as applicable, approximates fair value due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions. Interest rate risk is the risk that the Company's earnings are subject to fluctuations in interest rates on either investments or on debt and is fully dependent upon the volatility of these rates. The Company does not use derivative instruments to moderate its exposure to interest rate risk, if any. Financial risk is the risk that the Company's earnings are subject to fluctuations in interest rates or foreign exchange rates and are fully dependent upon the volatility of these rates. The company does not use derivative instruments to moderate its exposure to financial risk, if any. NOTE F - CONCENTRATIONS OF CREDIT RISK KTII and KTI maintain their respective cash accounts in financial institutions subject to insurance coverage issued by the Federal Deposit Insurance Corporation (FDIC). Under FDIC rules, both KTII and KTI are entitled to aggregate coverage of $100,000 per account type per separate legal entity per financial institution. During the years ended January 31, 2006 and 2005, and through the quarter ended July 31, 2006, respectively, the various entities, from time-to-time, had deposits in a financial institution with credit risk exposures in excess of statutory FDIC coverage. The Company has incurred no losses during Fiscal 2006 and 2005, and subsequent thereto, as a result of any unsecured situations. NOTE G - INVENTORIES Inventories consist of the following at July 31, 2006 and 2005: July 31, July 31, 2006 2005 -------- -------- Raw materials $ 32,125 $ 68,852 Finished goods 164,430 255,938 -------- -------- Total $196,555 $324,790 ======== ======== 10 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - PROPERTY AND EQUIPMENT Property and equipment consists of the following at July 31, 2006 and 2005: July 31, July 31, 2006 2005 Estimated life --------- --------- -------------- Machinery and Equipment $ 605,921 $ 600,121 7 years Office furniture and fixtures 12,138 25,441 5 years Leasehold improvements 18,029 14,180 2 years Vehicles 9,279 9,279 5 years --------- --------- 645,367 649,021 Less accumulated depreciation (549,731) (532,991) --------- --------- Net property and equipment $ 95,636 $ 116,030 ========= ========= Depreciation expense for the six months ended July 31, 2006 and 2005 was approximately $15,251 and $15,490, respectively. NOTE I - FUNDS HELD IN TRUST BY OFFICER In May 2001, the Company advanced $53,400 to its President to hold in trust as a contingency fund for the sole use of the Company in the event of a unanticipated cash shortfall. The advance bears interest at 4.0% annually and is unsecured. The original documentation required repayment of the advance and accrued, but unpaid, interest in May 2003. As of July 31, 2006, and subsequently, with the approval of the Company's Board of Directors, the Company's President continues to maintain these funds as trustee on behalf of the Company. NOTE J - NOTES PAYABLE TO INVESTORS Pursuant to the terms of a private placement agreement, the Company attempted to raise up to $600,000 through the placement of two-year senior notes bearing interest at 10% payable quarterly. This Private Placement Memorandum was terminated by the Company during the fiscal quarter ended October 31, 2002. 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. 11 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - NOTES PAYABLE TO INVESTORS - CONTINUED Pursuant to the private placement, the Company sold a $50,000 convertible note on November 12, 2001 and a $25,000 convertible note on December 26, 2001 to two unrelated investors. Warrants to purchase a combined total of 75,000 shares of the Company's common stock at $0.60 per share were also issued to the investors. The warrants were valued at $11,789 using the Black-Scholes option-pricing model, and therefore $11,789 of the total debt proceeds of $75,000 was allocated to the warrants, resulting in a discount on the notes, was amortized to interest expense over the initial term of the underlying debt. This calculated discount was amortized to interest expense in prior years. The weighted average assumptions utilized to value the warrants using the Black-Scholes option-pricing model were as follows: Expected life of the option: The initial life of the corresponding option, generally two (2) years Expected volatility in the Company's stock price: 150.0%, which was based on fluctuations of the Company's stock price over the past Fiscal year. Expected dividends: Zero (0.00) based on past performance. Anticipated risk free interest rate: Estimated to be 2.80%. The convertible notes contained a beneficial conversion feature valued at a combined total of approximately $63,000. However, because the conversion features were fully contingent upon the occurrence of certain future events, the Company did not record a discount resulting from the beneficial conversion feature. The notes matured on November 12, 2003 ($50,000) and December 26, 2003 ($25,000), respectively. On February 16, 2004, the Company restructured the $50,000 convertible note. Under the restructured terms, the Company paid all accrued interest and a $3,000 principal reduction on March 16, 2004, as of February 16, 2004. The Company is obligated to pay $2,000 per month, plus accrued interest, for the period from March 16, 2004 through August 16, 2004 and $1,000 per month, plus accrued interest, on the 16th of each month thereafter until all outstanding amounts are paid in full. The restructured note bears interest at 10.0% per annum. The Company is making interest-only payments of approximately $314, which is less than the interest accruing and is delinquent in making the required principal payments. Accordingly, the entire debt is classified as "current" in the accompanying consolidated financial statements. 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 July 31, 2006 $ 68,000 Less current portion (68,000) -------- Long-term portion $ -- ======== 12 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - CAPITAL LEASE PAYABLE Capital lease payable is as follows: July 31, July 31, 2006 2005 ------- ------- $21,080 capital lease payable to a finance corporation Interest at 8.60%. Payable in monthly installments of approximately $432, including accrued interest Final maturity due in April 2007. Collateralized by equipment $ 2,934 $ 8,106 Less current maturities (2,934) (3,439) ------- ------- Long-term portion $ -- $ 4,667 ======= ======= Future maturities of long-term capital leases payable are: Year ending January 31, Amount ----------- ------ 2007 $2,509 2008 425 ------ Total $2,934 ====== NOTE L - INCOME TAXES The components of income tax (benefit) expense for the six months ended July 31, 2006 and 2005, respectively, are as follows: July 31, July 31, 2006 2005 ------- ------- Federal: Current $ -- $ -- Deferred -- -- ------- ------- -- -- ------- ------- State: Current -- -- Deferred -- -- ------- ------- -- -- ------- ------- Total $ -- $ -- ======= ======= The Company has a net operating loss carryforward of approximately $5,200,000 to offset future taxable income. Subject to current regulations, components of this cumulative carryforward will at the end of each fiscal year through 2026. The amount and availability of the net operating loss carryforwards may be subject to limitations set forth by the Internal Revenue Code. Factors such as the number of shares ultimately issued within a three year look-back period; whether there is a deemed more than 50 percent change in control; the applicable long-term tax exempt bond rate; continuity of historical business; and subsequent income of the Company all enter into the annual computation of allowable annual utilization of the carryforwards. The Company's income tax expense for the six months ended July 31, 2006 and 2005, respectively, are as follows: July 31, July 31, 2006 2005 -------- -------- Statutory rate applied to loss before income taxes $(32,200) $(49,300) Increase (decrease) in income taxes resulting from: State income taxes -- -- Other, including reserve for deferred tax asset 32,200 49,300 -------- -------- Income tax expense $ -- $ -- ======== ======== 13 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE L - INCOME TAXES - CONTINUED 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 July 31, 2006 and 2005, respectively: July 31, July 31, 2006 2005 ----------- ----------- Deferred tax assets Net operating loss carryforwards $ 1,768,000 $ 1,700,000 Less valuation allowance (1,768,000) (1,700,000) ----------- ----------- Net Deferred Tax Asset $ -- $ -- =========== =========== During the six months ended July 31, 2006 and 2005, respectively, the valuation allowance for the deferred tax asset increased nominally. NOTE M - COMMON STOCK TRANSACTIONS In July 2004, the Company issued 150,000 restricted, unregistered shares of common stock in payment of a contract for professional services. This transaction was valued at approximately $6,000, which was equal to or in excess of the discounted closing price of the Company's common stock on the NASDAQ Electronic Bulletin Board on the date of 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. 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 At January 31, 2004, the 75,000 warrants sold in conjunction with the convertible notes private placement had expired. In conjunction with the reverse acquisition, which was concluded in September 2001, The Company granted 2,300,000 warrants to certain shareholders of KTTI. These warrants have an exercise price of approximately $0.05 per share and expired in April 2004. The following table lists the issued and outstanding stock warrants as of July 31, 2006 and 2005, respectively: Warrants issued Exercise price ------ -------------- Balance at January 31, 2005 -- Granted -- Exercised -- Forfeited/Expired -- ----- Balance at January 31, 2006 -- Granted -- Exercised -- Forfeited/Expired -- ----- Balance at July 31, 2006 -- ===== 14 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE O - RELATED PARTY TRANSACTIONS During each of the years ended January 31, 2006 and 2005 and during the period(s) ended July 31, 2006 and 2005, respectively, the Company accrued approximately $120,000 annually or approximately $30,000 per quarter for administrative service fees payable to KTTI. During Fiscal 2006, KTTI advanced KTI $50,000 for working capital purposes. This advance is non-interest bearing and has no scheduled repayment date. During the first quarter of Fiscal 2007, KTTI advanced KTI an additional $50,000 for working capital purposes. This advance is non-interest bearing and has no scheduled repayment date. NOTE P - COMMITMENTS AND CONTINGENCIES LEASED FACILITIES The Company leases its facilities under a non-cancellable operating lease, which expires in May 2008. The lease requires monthly payments as follows: $8,307 for the first 12 months; $8,639 for the next 12 months and $8,984 for the next 12 months. Rent expense incurred under this lease was approximately $108,597 and $106,428 for each of the years ended January 31, 2006 and 2005 and approximately $54,622 and $54,693 for each of the six month periods ended July 31, 2006 and 2005, respectively. Future amounts due under this agreement are as follows: Year ending January 31, Amount ----------- ------ 2007 $110,680 2008 105,391 2009 48,585 -------- Totals $264,656 ======== EMPLOYMENT CONTRACT KIK entered into an employment agreement with William M. Knooihuizen, the Company's current President and Director. The agreement started in May 2000 and was for an initial period of five (5) years at an annual salary in the amount of $143,000, to be paid weekly. Upon expiration in May 2005, the Company and it's officer agreed to continue this agreement in an unwritten form on an undefined, indefinite basis. NOTE Q - SIGNIFICANT CUSTOMERS During the years ended January 31, 2006 and 2005, respectively, the Company had four and three separate customers who were responsible for a significant portion of the Company's net revenues, accounts receivable and suppliers of various raw materials and components to the Company's manufacturing process. The following table shows the significance of these entities: Accounts Accounts Revenues Receivable Payable -------- ---------- ------- Year ended January 31, 2006 Customer A 28.98% 10.74% 48.05% Customer B 25.73 3.48 -- Customer C 5.62 15.36 0.06 Customer D 6.28 11.08 -- Others 33.39 59.34 51.89 ------ ------ ------ Totals 100.00% 100.00% 100.00% ====== ====== ====== 15 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE Q - SIGNIFICANT CUSTOMERS - CONTINUED Year ended January 31, 2005 Customer A 49.18% 35.02% 59.37% Customer B 16.09 7.42 0.12 Customer C 6.59 18.32 0.52 Others 28.14 39.24 39.99 ------ ------ ------ Totals 100.00% 100.00% 100.00% ====== ====== ====== NOTE R - SELECTED FINANCIAL DATA (UNAUDITED) The following is a summary of the quarterly results of operations for the year ending January 31, 2007 and each of the years ended January 31, 2006 and 2005, 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 Gross profit 143,541 69,814 Net earnings after provision for income taxes (8,429) (86,327) Basic and fully diluted earnings per share nil nil Weighted average number of shares issued and outstanding 25,171,865 25,173,495 YEAR ENDED JANUARY 31, 2006 Sales $ 375,216 $ 541,296 $ 560,849 $ 469,708 $ 1,947,069 Gross profit 577 147,853 40,488 29,097 218,015 Net earnings after provision for income taxes (148,144) 3,207 (105,991) (130,359) (381,287) Basic and fully diluted earnings per share $ (0.01) nil nil nil $ (0.01) Weighted average number of shares issued and outstanding 25,171,865 25,171,865 25,171,865 25,171,865 25,171,865 YEAR ENDED JANUARY 31, 2005 Sales $ 791,111 $ 511,720 $ 704,469 $ 455,677 $ 2,462,977 Gross profit 107,642 14,866 119,193 (19,671) 222,030 Net earnings after provision for income taxes (56,101) (142,464) (32,265) (203,886) (434,716) Basic and fully diluted earnings per share nil $ (0.01) nil $ (0.01) $ (0.02) Weighted average number of shares issued and outstanding 25,021,865 25,038,169 25,171,865 25,171,865 25,101,375
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 quarter ended July 31, 2006 and 2005, respectively, the Company achieved revenues of approximately $578,000 and $541,000. These revenues were derived primarily from the sale of tire products. Net income (loss) for the three months ended July 31, 2006 and 2005 was approximately $(86,300) and $3,200, respectively. 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 three months ended July 31, 2006 and 2005, respectively, was approximately $0.00 and $0.00. RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes. SIX MONTHS ENDED JULY 31, 2006 COMPARED TO THE SIX MONTHS ENDED JULY 31, 2005 The Company posted net sales of approximately $1,175,000 for the six months ended July 31, 2006 as compared to net sales of approximately $917,000 for the six months ended July 31, 2005. The Company's cost of sales increased by approximately $194,000 to approximately $962,000 for the six months ended July 31, 2006 as compared to approximately $768,000 for the six months ended July 31, 2005. This increase reflects increases in raw materials which are dependent on crude oil prices and supply throughout the world. The Company continues to experience price increases in key raw materials which cannot be passed through in the form of price increases for the Company's urethane tire products in their entirety due to competitive pressures from comparable products produced in Asian markets. Except for increases in energy costs, all other costs related to production have remained relatively stable from the end of Fiscal 2005 through the second quarter of Fiscal 2007. In spite of competitive pressures and difficulties in obtaining raw feedstock materials as a result of the effects of Hurricane Katrina and Rita on refineries located on the U. S. Gulf Coast, the Company managed a slight increase in it's gross profit margin for the six months ended July 31, 2006 as compared to the six months ended July 31, 2005; 2006-approximately $213,000 or approximately 18.16% as compared to 2005 - approximately $148,000 or approximately 16.20%. The three months ended July 31, 2006 experienced a significant decline in gross profit and gross profit margin of approximately $70,000 (12.08%) from the comparable period ended July 31, 2005 of approximately $148,000 (27.31%). These results are directly related to the aforementioned pressures of increased raw material costs and the effect of foreign competition on market prices of comparable products being introduced into the U. S. marketplace. 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, 17 management is aware of this situation and continues to evaluate all productive alternatives to restore the gross profit percentages experienced in prior years. General and administrative expenses increased nominally from approximately $290,000 for the six months ended July 31, 2005 to approximately $307,000 for the six months ended July 31, 2006. To the extent possible, management monitors and controls the variable expenditures related to the Company's administration. Included in these costs is a $10,000 per month ($30,000 per quarter) administrative charge to KIK Tire Technologies Inc., the Company's publicly-owned Canadian majority shareholder. LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents of approximately $27,700, $10,200 and $27,700 at July 31, 2006, January 31, 2006 and July 31, 2005, respectively. The Company maintained business liquidity and capital resources during the year adequate to fund all capital and operating expense requirements. Operations were primarily funded from internally generated funds, line of credit borrowings, and capital raised via a private placement of securities in previous years. During the 4th quarter of Fiscal 2006 (ended January 31, 2006) and the 1st quarter of Fiscal 2007 (ended April 30, 2006), the Company received two separate advances of $50,000 each from it's parent company to support operations and provide additional working capital. For the six months ended July 31, 2006 and 2005, net cash provided by (used in) operating activities was approximately $(23,000) and $(28,000), respectively. Net cash provided by operating activities consists of cash received from sales of products to customers, less purchases of raw materials, payment of payroll and payment of other general operating expenses, including interest. Cash used in investing activities was approximately $(7,000) and $(2,400) for each of the six month periods ended July 31, 2006 and 2005, respectively. These cash utilizations was due solely to the acquisition of equipment used in the manufacturing process. The Company experienced cash derived from (used in) financing activities of approximately $48,000 and $(2,200) in the first six months of Fiscal 2007 and Fiscal 2006, respectively. These expenditures are related to payments on the Company's capital lease financing obligation. The Company also received a $50,000 cash advance during the first quarter of Fiscal 2007 from it's majority shareholder to provide additional working capital. Management remains confident that sufficient cash will be generated internally to fund its operations for the next twelve months. CRITICAL ACCOUNTING POLICIES Financial Reporting Release No. 60, of the U. S. Securities and Exchange Commission, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Note D to the Company's Consolidated Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of the Company's Consolidated Financial Statements. The following is a brief discussion of the more significant accounting policies and methods used by the Company. REVENUE RECOGNITION The Company recognizes revenue from the sale of tires and accessories upon shipment to, or receipt by customers, depending upon contractual terms and when there is no significant uncertainty regarding the consideration to be received and the associated costs to be incurred. Additionally, the Company recognizes reductions of recorded revenue for product returns from unsatisfied customers and other billing adjustments or corrections, at the point that the returned products are received by the Company or upon the completion of negotiations between the Company and it's customer. ACCOUNTS RECEIVABLE The Company continuously monitors collections and payments from its customers and maintains an allowance for estimated uncollectible accounts based upon historical experience and specific customer collections issues that have been identified. Depending upon management's assessment of a customer's creditworthiness and order size, certain shipments are made on "COD" terms using common carriers. In the normal course of business, the Company extends unsecured credit to virtually all of its customers which are located throughout the United States and are principally concentrated in the midwest region of the country. Depending upon management's assessment of creditworthiness and order size, certain shipments are made on "COD" terms using common carriers. Because of the credit risk involved, management has provided an 18 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 characterized by rapid technological change, frequent new product development and rapid product obsolescence that could result in an increase in the amount of obsolete inventory quantities on hand. Additionally, the Company's estimate of future product demand may prove to be inaccurate, in which case the Company may have understated or overstated the provision required for excess and obsolete inventory. Therefore, although the Company makes every effort to ensure the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant impact on the Company's inventory value and reported operating results. STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation, defines a fair-value based method of accounting for stock-based employee compensation plans and transactions in which an entity issues its equity instruments to acquire goods and services from non-employees, and encourages but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. For periods prior to November 1, 2002, the Company has chosen to account for employee stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employees, and related interpretations. Accordingly, employee compensation cost for stock options and warrants is measured as the excess, if any, of the market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. This treatment was allowed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). In December 2002, FASB issued Statement of Financial Accounting Standards No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS 148). This statement amends SFAS 123 and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure requirements of SFAS 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS 148 are effective for financial statements issued for fiscal years ending after December 15, 2002. Effective November 1, 2003, the first day of the reporting quarter including the effective date of SFAS 148, the Company's Board of Directors, in conjunction with public opinion and SFAS 148, elected to expense the imputed compensation cost related to any stock options granted during Fiscal 2003 and for future periods. The Company has not issued any stock options since the adoption of SFAS 148 and has not experienced a material impact on our results of operations or financial condition. In December 2004, the FASB issued SFAS 123(R), "Share-Based Payment." SFAS 123(R) amends SFAS 123, "Accounting for Stock-Based Compensation," and APB Opinion 25, "Accounting for Stock Issued to Employees." SFAS 123(R) requires that the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. SFAS 123(R) applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for those held by an ESOP) or by incurring liabilities (1) in amounts based (even in part) on the price of the entity's shares or other equity instruments, or (2) that require (or may require) settlement by the issuance of an entity's shares or other equity instruments. This statement is effective (1) for public companies qualifying as SEC small business issuers, as of the first interim period or fiscal year beginning after December 15, 2005, or (2) for all other public companies, as of the first interim period or fiscal year beginning after June 15, 2005, or (3) for all nonpublic entities, as of the first fiscal year beginning after December 15, 2005. There was no significant impact to the Company's financial statements upon the adoption of SFAS No. 123(R). 19 ITEM 8A - CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of July 31, 2006. 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 July 31, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS None ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS In July 2006, the Company issued 150,000 restricted, unregistered shares of common stock to The Compeller Group, Ltd. 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. 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: August 22, 2006 /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 I, William M. Knooihuizen, certify that: 1. I have reviewed this quarterly report on Form 10-QSB for the quarter ended July 31, 2006 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 small business issuer as of, and for, the periods presented in this report; 4. The small business issuer'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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer 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 small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer'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 (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer'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 small business issuer'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 small business issuer's internal control over financial reporting. Date: August 22, 2006 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 I, Kuldip C. Baid, certify that: 1. I have reviewed this quarterly report on Form 10-QSB for the quarter ended July 31, 2006 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 small business issuer as of, and for, the periods presented in this report; 4. The small business issuer'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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer 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 small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer'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 (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer'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 small business issuer'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 small business issuer's internal control over financial reporting. Date: August 22, 2006 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. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of KIK Technology International, Inc. (the "Company") on Form 10-QSB for the period ending July 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William M. Knooihuizen, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted 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 results of operations of the Company. Date: August 22, 2006 By: /s/ William M. Knooihuizen --------------- ---------------------------------- William M. Knooihuizen Chief Executive Officer In connection with the Quarterly Report of KIK Technology International, Inc. (the "Company") on Form 10-QSB for the period ending July 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kuldip C. Baid, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted 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 results of operations of the Company. Date: August 22, 2006 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-----