-----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, F5mDnwq5b66f6Q4+2VMwKpp1b14aFTVnjmW8C8ETqjFz3E3MVoyGVBpW96e+qG0Y DV7ytQVRRNS/TdcjMZDtDg== 0001165527-07-000233.txt : 20070430 0001165527-07-000233.hdr.sgml : 20070430 20070430131825 ACCESSION NUMBER: 0001165527-07-000233 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070131 FILED AS OF DATE: 20070430 DATE AS OF CHANGE: 20070430 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: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-30197 FILM NUMBER: 07799019 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 10KSB 1 g1683.txt ANNUAL REPORT FOR THE YEAR ENDED 1-31-07 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-KSB (Mark one) [X] Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year ended January 31, 2007 [ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the transition period from ______________ to _____________ - -------------------------------------------------------------------------------- Commission File Number: 0-30197 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, California 92054 (Address of principal executive offices) (760) 967-2777 (Issuer's telephone number) - -------------------------------------------------------------------------------- Securities registered under Section 12 (b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock $.001 par value - -------------------------------------------------------------------------------- Check whether the issuer has (1) filed all reports required to be files by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes [ ] No [X] The issuer's revenues for the fiscal year ended January 31, 2007 were $1,857,666. The aggregate market value of the voting common equity held by non-affiliates as of April 26, 2007 was approximately $118,078 based upon 25,321,865 shares outstanding of which 7,871,865 are held by non-affiliates and a share price of $0.015. No non-voting common equity is outstanding. As of April 27, 2007, there were 25,321,865 shares of Common Stock issued and outstanding. Transitional Small Business Disclosure Format: Yes [ ] No [X] KIK TECHNOLOGY INTERNATIONAL, INC. INDEX TO CONTENTS Page Number ------ PART I Item 1 Description of Business 3 Item 2 Description of Property 7 Item 3 Legal Proceedings 7 Item 4 Submission of Matters to a Vote of Security Holders 8 PART II Item 5 Market for Company's Common Equity, Related Stockholders Matters and Small Business Issuer Purchasers of Equity Securities 8 Item 6 Management's Discussion and Analysis or Plan of Operation 9 Item 7 Financial Statements 12 Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 12 Item 8A Controls and Procedures 12 PART III Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 13 Item 10 Executive Compensation 14 Item 11 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 14 Item 12 Certain Relationships and Related Transactions 15 Item 13 Exhibits 15 Item 14 Principal Accountant Fees and Services 16 SIGNATURES 35 2 CAUTION REGARDING FORWARD-LOOKING INFORMATION Certain statements contained in this annual 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-KSB 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. PART I ITEM 1 - DESCRIPTION OF BUSINESS BUSINESS DEVELOPMENT 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 issued 16,700,000 shares of restricted, unregistered common stock to KIK Polymers, Inc. (formerly KIK Tire Technologies, Inc.) (a publicly-owned Canadian corporation) (KIK Polymers) for 100.0% of the issued and outstanding stock of KIK Technology, Inc. (a wholly-owned subsidiary of KTTI). By virtue of this transaction, KIK Technology, Inc. became a wholly-owned subsidiary of KTII and KIK Polymers became an approximate 73.6% shareholder in KTII. 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 operates through it's wholly-owned subsidiary, KIK Technology, Inc. (KTI) with its manufacturing plant and marketing offices located at Oceanside, California. KTI manufactures and markets an extensive high quality line of off-highway micro-cellular polyurethane tires for the healthcare, light industrial, lawn and garden and recreational industries. The current KIK production processes, formulations, manufacturing equipment, and line of some 150 products are the result of over ten years of research and development, funded by over $5 million of invested capital, and protected by trade secrets and licensing agreements. 3 In its formative years, KIK, through it's research and development efforts, developed new and tougher varieties of urethane formulations for it's products; obtained tooling for new products; and added extensive production capacity. Revenues are generated through direct sales to the medical market segment (primarily wheelchair tires), through a network of third party marketing distributors and, in recent periods, through nominal direct sales to dealers. KIK continues to develop the implementation of other marketing strategies, directly and through carefully selected new strategic partners as the necessary funds are available. The manufacturing infrastructure sufficient to meet projected demand through the next few years is in place. The Company has generated revenues for the preceding years as follows: Year ended January 31, 2007 - approximately $1.9 million Year ended January 31, 2006 - approximately $1.9 million Year ended January 31, 2005 - approximately $2.4 million Year ended January 31, 2004 - approximately $3.6 million Year ended January 31, 2003 - approximately $3.2 million Year ended January 31, 2002 - approximately $2.6 million Year ended January 31, 2001 - approximately $3.7 million During Fiscal 2006, the Company felt the full impact of a change in it's relationship with ARNCO, a Los Angeles, California based producer of pneumatic tire sealants and foam-fill compounds. In prior years, KIK private-labeled tires for ARNCO under ARNCO's registered trademark "Carefree Tire". This relationship slowed significantly during Fiscal 2006 and is reflected in the Company's results of operations. BUSINESS STRATEGY KIK is a manufacturer of micro-cellular polyurethane (MCP) tires with the technology and equipment to take advantage of the growing market for flat-free tires. It has developed what it considers is an excellent reputation within the industry. It is the objective of the Company to become a major force throughout the world as a MCP tire producer. The Company believes the tire industry is looking for an alternative to pneumatic tires and that the KIK tires provide a viable, "value added" alternative. The Company's focus continues to be in determining the needs of existing and potential customers and supplying a superior product at competitive prices. The Company also pursues and evaluates new business diversification opportunities that may become available to it using its existing technology. PRODUCT KIK manufactures polyurethane tires by blending hydrocarbon-based quality isocyanate intermediates with glycol-based polyols and other chemicals. The resulting compound makes a light but tough tire. KIK tires are environmentally friendly, puncture and leak proof and maintenance free. They ride like a pneumatic tire but last much longer due to their tough polymer construction. THE COMPANY'S EQUIPMENT AND PRODUCTION LINE CAPABILITIES KIK owns all the equipment necessary to turn raw material to the finished product - including tires and completed wheel assemblies. The Company's technology and equipment enable it to produce a large variety of tires and other products. Although the Company is licensed for three variant features of MCP tire technologies, it has developed its own unique chemical formulations and manufacturing processes. The Company's production process requires the dispensing of catalyzed liquid chemicals into a spinning mold. This centrifugal casting of mixed, activated polyurethane base stock raw materials results in a tough molded polymer with smooth, solid outer skin and a lighter, uniformly dense porous foam core. KIK tires can be designed and molded to virtually any tread specification and are available in a variety of colors. The spin casting results in perfectly balanced tires. The Company has the production capacity to produce between 1,500,000 and 2,500,000 tires annually, depending upon the size of the tire being manufactured. The Company's facilities include a machine shop and it's own testing and quality assurance equipment and program. Completed tires must meet specific protocols such as weight and pressure. Whenever possible, the Company purchases bulk raw materials in volumes to produce significant cost savings in the manufacturing process. 4 The Company is constantly looking into developing new products and modifying existing products for its production lines, and is evaluating improvements to its technology designed to lower production costs and improve competitiveness in its markets. PROPRIETARY TECHNOLOGY The Company operates under perpetual licensing agreements with patent holders that cover various aspects of tire and equipment designs, chemical formulations and manufacturing processes. MARKETING AND SALES DISTRIBUTION The Company has grouped the worldwide market for off-highway tires into four major market segments, each possessing identifiable business characteristics requiring separate sales strategies. HEALTHCARE: The Company's focus in this area is directed towards a penetration of the existing wheelchair and power scooter pneumatic tire business, with emphasis at the OEM level. This has been the "prototype" industry around which the Company has developed and perfected its MCP tire technology. Through trade shows, trade magazine advertising, distributors and direct sales contacts, an excellent base has been established to facilitate future growth in this sector. Unfortunately, due to foreign competition and lack of capital for an effective marketing campaign, the Company has not been able to complete the penetration of this market as originally anticipated. Management remains hopeful that this market will be viable and profitable to the Company. INDUSTRIAL: During Fiscal 2006, the Company felt the full impact of a change in it's relationship with ARNCO, a Los Angeles, California based producer of pneumatic tire sealants and foam-fill compounds. KIK marketed light, off-highway industrial and utility tires through its strategic alliance with ARNCO, a Los Angeles, California based producer of pneumatic tire sealants and foam-fill compounds. In prior years, KIK private-labeled tires for ARNCO under ARNCO's registered trademark "Carefree Tire". This relationship slowed significantly during Fiscal 2006 and is reflected in the Company's results of operations. RECREATIONAL: Although the Company has products for recreational devices such as golf carts and skate boards, this market is dominated by bicycles. Previously, KIK has discussed the manufacture of bicycle tires outside of North America through selected strategic (joint venture) partners in countries such as China active in export markets, and where users are reliant on the bicycle as basic transportation. During Fiscal 2004, the Company became aware of the Chinese manufacture of products of comparable quality which directly compete with the Company's products. During Fiscal 2006, the effect of this competition in the Company's domestic marketplace became apparent and is reflected in the Company's financial results. LAWN & GARDEN: KIK will attack the international lawn and garden OEM market directly and through established distributors. Most of Carefree Tire's North American downstream tire distribution network services this industry parallel to the industrial market. Initial results indicate that users embrace this new technology enthusiastically for such applications as wheelbarrows, powered lawn mowers, snow blowers, and farm carts, etc. OEMs are also being aggressively pursued in the United States, Canada and Europe. ADVERTISING & PROMOTION As the Company has available capital, the Company anticipates developing a variety of collateral materials to support sales efforts. These materials include informational and instructional video tapes , brochures, product catalogs with data sheets, flyers, sample presentations etc. The Company also advertises and markets its products on its website - www.kiktire.com. COMPETITION Currently the Company knows of several tire manufacturers that utilize a manufacturing process similar to its own, including ARNCO, Green Tire, U.K., Alshin Tire, U.S.A., and Amerityre Corporation, U.S.A. The Company is also aware of growing manufacturing and sales competition from both China and India. The Chinese competition is of serious concern to the Company's management as more and more of domestic manufacturing, which uses the Company's tire products, is being transferred to the Pacific Rim where the Company loses market opportunities due to price and shipping distances. Competition also comes from firms that manufacture and market tires and tubes made from rubber. Several of these competitors are large well-established companies with considerably greater financial, marketing, sales and technical resources than those available to the Company. 5 Because of these factors, any expansion of manufacturing outside the Oceanside, California plant is uncertain. Further, many of the Company's present and potential competitors have capabilities which are allowing such competitors to offer its products at prices which may compete with the Company's products. The Company's products could be made uneconomical by the introduction of new products or marketing or pricing actions by one or more of the Company's competitors, including foreign competition. However, the Company believes that once the superior characteristics of the MCP tires have been properly communicated to the consumers, an increasingly large percentage of consumers will switch to the Company's tires. SOURCES AND AVAILABILITY OF RAW MATERIALS The Company's principal raw materials are produced from petroleum feedstocks and, therefore, are subject to disruption and price variances related to the global availability of crude oil and the production capacity of refineries and chemical plants, principally located on the U. S. Gulf Coast. In prior years, a significant supplier of these raw materials was also a major customer for the Company's products. The purchase side of this relationship began to dissolve during the year ended January 31, 2005 and further diminished significantly in the year ended January 31, 2006. During 2005, the Company incurred an unanticipated disruption of raw materials as Hurricanes Katrina and Rita impacted the U. S. Gulf Coast causing a temporary shutdown of refineries in this region. The Company's raw material supply chain was also impacted by the effect of rising prices in the worldwide crude oil markets. During Fiscal 2007, as a result of a lack of working capital and difficulties in obtaining raw materials as a result of the continuing effects of Hurricane Katrina on Gulf Coast refineries and chemical plants, the Company's revenues continued to decline and the Company continues to use cash in operating activities. Management and the industry as a whole are uncertain on when Gulf Coast refineries and chemical plants will resume producing at 100% capacity as the Company's suppliers and competitors have been placed on allocations of available material by the producing source. 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 and production capacities of various refiners/producers of petrochemical feedstocks. Management continues to seek other avenues of distribution of the Company's products to consumers. In the event of any disruption in the availability of raw materials or a market for the Company's products occurs, the Company will experience a negative economic impact. RESEARCH AND DEVELOPMENT The Company constantly seeks to improve its MCP technology and develop new products. However, the Company does not anticipate that it will be required to commit any substantial funds for existing development projects or for new research and development. REGULATION AND ENVIRONMENTAL COMPLIANCE The Company is subject to general local, state and federal regulations governing environmental concerns. Management believes the Company has always been and continues to be in compliance with all such laws. EMPLOYEES As of April 27, 2007, the Company has approximately 15 full-time employees, including 2 management/clerical personnel. None of these employees are represented by a labor union. The Company considers its relations with its employees to be excellent. The Company may employ additional personnel, as necessary, to accommodate future expansion. (Remainder of this page left blank intentionally) 6 KEY CUSTOMERS/SUPPLIERS During the years ended January 31, 2007 and 2006, respectively, the Company had four separate customers who were responsible for a significant portion of the Company's net revenues, accounts receivable and suppliers of various raw materials and components to the Company's manufacturing process. The following table shows the significance of these entities: Accounts Accounts Revenues Receivable Payable -------- ---------- ------- Year ended January 31, 2007 Customer A 46.42% 30.77% 45.35% Customer B 9.12 0.00 0.00 Customer C 5.86 16.30 0.58 Customer D 3.94 0.00 0.00 Others 34.66 52.93 54.07 ------ ------ ------ Totals 100.00% 100.00% 100.00% ====== ====== ====== Year ended January 31, 2006 Customer A 28.98% 10.74% 48.05% Customer B 25.73 3.48 0.00 Customer C 5.62 15.36 0.06 Customer D 6.28 11.08 0.00 Others 33.39 59.34 51.89 ------ ------ ------ Totals 100.00% 100.00% 100.00% ====== ====== ====== 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% ====== ====== ====== ITEM 2 - DESCRIPTION OF PROPERTY The Company maintains its executive offices at 590 Airport Road, Oceanside, CA 92054. Its telephone number is (760) 967-2777. The Company leases its facilities under a non-cancellable operating lease, which expires in May 2008. The lease requires monthly payments as follows: $8,307 for the first 12 months; $8,639 for the next 12 months and $8,984 for the next 12 months. Rent expense incurred under this lease was approximately $110,680 and $108,597 for each of the years ended January 31, 2007 and 2006, respectively. Future amounts due under this agreement are as follows: Year ending January 31, Amount ----------- ------ 2008 $105,391 2009 48,585 -------- Totals $153,976 ======== ITEM 3 - LEGAL PROCEEDINGS The Company may become involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse impact either individually or in the aggregate on consolidated results of operations, financial position or cash flows of the Company. As of the date of this filing, the Company is not involved in any legal proceeding. 7 ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company has not conducted any meetings of shareholders during the preceding quarter or periods subsequent thereto. PART II ITEM 5 - MARKET FOR COMPANY'S COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND SMALL BUSINESS ISSUER PURCHASERS OF EQUITY SECURITIES As of April 27, 2007, 25,321,865 shares of $0.001 par value common stock (the "Common Stock") of the Company outstanding and owned by approximately 62 shareholders of record, exclusive of shareholders holding their certificates in street name. Our Certificate of Incorporation authorizes the issuance of 100,000,000 shares of $0.001 par value common stock. Our Certificate of Incorporation does not allow for the issuance of any class of preferred stock. Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock have cumulative voting rights. Holders of shares of common stock are entitled to share ratably in dividends, if any, as may be declared, from time to time by the Board of Directors in its discretion, from funds legally available therefor. In the event of a liquidation, dissolution, or winding up of the company, the holders of shares of common stock are entitled to share pro rata all assets remaining after payment in full of all liabilities. Holders of common stock have no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to such shares. During 2001, the Company filed a request for clearance of quotations on the OTC Bulletin Board under SEC Rule 15c2-11, Subsection (a)(5) with NASD Regulation Inc. A Clearance Letter was issued to the Company and was issued the trading symbol "KKTI". The ask/high and bid/low information for each calendar quarter since September 4, 2001, noting that the over-the-counter quotations provided herein reflect inter-dealer prices, without retail markup, mark-down or commission and may not represent actual transactions. High Low ---- --- FISCAL YEAR ENDED JANUARY 31, 2006 First quarter 2006 (February 1, 2005 - April 30, 2005) $0.04 $0.02 Second quarter 2006 (May 1, 2005 - July 31, 2005) $0.045 $0.02 Third quarter 2006 (August 1, 2005 - October 31, 2005) $0.03 $0.02 Fourth quarter 2006 (November 1, 2005 - January 31, 2006) $0.025 $0.012 FISCAL YEAR ENDED JANUARY 31, 2007 First quarter 2007 (February 1, 2006 - April 30, 2006) $0.03 $0.02 Second quarter 2007 (May 1, 2006 - July 31, 2006) $0.06 $0.016 Third quarter 2007 (August 1, 2006 - October 31, 2006) $0.022 $0.015 Fourth quarter 2007 (November 1, 2006 - January 31, 2007) $0.022 $0.015 DIVIDENDS The Company has never paid or declared any dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future. RECENT SALES OF UNREGISTERED SECURITIES On July 22, 2004, 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 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 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 8 4(2) of The Securities Act of 1933, as amended, for an exemption from registration on these shares. ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW During Fiscal 2007, 2006, 2005, 2004 and 2003, the Company achieved revenues of approximately $1,857,666, $1,947,000, $2,463,000, $3,639,000 and $3,155,000, respectively. These revenues were derived primarily from the sale of tire products. Net losses for the years ended January 31, 2007, 2006, 2005, 2004 and 2003 were approximately $(442,000), $(381,000), $(435,000), $(199,000) and ($12,700), respectively. The net losses for Fiscal 2007, 2006, 2005 and 2004 each include a $120,000 charge for administrative services to the Company from KIK Polymers, Inc. (formerly KIK Tire Technologies Inc.), the Company's publicly-owned Canadian majority shareholder. The net loss per share of common stock outstanding for Fiscal 2007, 2006, 2005 and 2004 were approximately $(0.02), $(0.02), $(0.02) and $(0.01) per share, respectively. 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. YEAR ENDED JANUARY 31, 2007 AS COMPARED TO JANUARY 31, 2006 The Company posted net sales of approximately $1,858,000 for the fiscal year ended January 31, 2007 as compared to net sales of approximately $1,947,000 for the fiscal year ended January 31, 2006. This decrease reflects a the overall availability of raw materials during Fiscal 2007, changes in the Company's product demand and distribution and the negative impact of foreign competition. The Company's cost of sales increased slightly from approximately $1,729,000 for the year ended January 31, 2006 as compared to approximately $1,732,000 for the year ended January 31, 2007. This nominal change reflects increased pricing for raw materials due to global crude oil pricing and product demand vs. availability as a result of diminished capacity from Gulf Coast refineries as a continuing condition of Hurricane Katrina and Rita. The Company has experienced certain price increases in key raw materials which have not been passed through in their entirety due to competitive pressures from comparable products produced in Asian markets. As a result 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 experienced a decline in its gross profit margin from approximately 11.19% (approximately $218,000) for Fiscal 2006 to approximately 6.75% (approximately $125,000) for Fiscal 2007. The Company continues to experience economic pricing pressures caused by foreign competition and increases in domestic raw material costs, which are directly related to the cost of crude oil from both foreign and domestic markets. Management is aware of this situation and is evaluating various remedies to restore the gross profit percentages experienced in prior years. General and administrative expenses declined from approximately $593,000 for Fiscal 2006 to approximately $563,000 in Fiscal 2007. At the KIK operating subsidiary level, management continued to effect a decline in all general and administrative costs as a result of constant spending controls and diligent monitoring (approximately $437,000 for Fiscal 2007 versus $471,000 for Fiscal 2006). The difference reflects various overhead expenses at the corporate administrative level which are subject to random fluctuation based upon business and overhead activities, including an administrative support charge of $120,000 which was assessed by KIK Polymers, Inc. (formerly KIK Tire Technologies Inc.), the Company's publicly-owned Canadian majority shareholder, starting in Fiscal 2004. Overall, the Company experienced a net loss of approximately $(442,000) and $(381,000) for Fiscal 2007 and 2006, respectively and recognized a net loss per weighted-average share outstanding of approximately $(0.02) and $(0.02), respectively. As evidenced response to the Company's presence at an industry trade show in Las Vegas Nevada in April 2007, the Company's management continues to be of the opinion that consumer demand for the Company's flat free tires remains strong and, with adequate working capital and availability of raw materials, could potentially increase in the next operating year. The Company's products continue to have strong demand at the consumer level and, although, the Company's raw feedstocks are petrochemical based, that the Company will be able to meet product demands and generate sufficient cash from regular product sales to support the Company's operations for the next twelve months. In the event that 9 daily normal sales activities do not generate sufficient cash, management is of the opinion that alternative sources of working capital exist either from existing shareholders making a capital infusion or from new third party sources, including receivable financing or secured bank lines of credit. RESTRUCTURED CONVERTIBLE NOTE On February 16, 2004, the Company restructured the $50,000 convertible note. Under the restructured terms, the Company paid all accrued interest and a $3,000 principal reduction on March 16, 2004, as of February 16, 2004. The Company is obligated to pay $2,000 per month, plus accrued interest, for the period from March 16, 2004 through August 16, 2004 and $1,000 per month, plus accrued interest, on the 16th of each month thereafter until all outstanding amounts are paid in full. The restructured note bears interest at 10.0% per annum. The Company is making interest-only payments of approximately $314, which is less than the interest accruing and is delinquent in making the required principal payments. Accordingly, the entire debt is classified as "current" in the accompanying consolidated financial statements. The $50,000 restructured note is convertible into shares of unregistered, restricted common stock at the discretion of the Noteholder with the Company's consent, provided that the daily average (calculated from the last sale price daily) of the market price of the Company's common stock for any 30 calendar day period equals or exceeds $1.00 per share, with the conversion being calculated at a 50% discount of such 30 day average. The $50,000 Noteholder also has the election to receive the monthly interest payments in restricted, unregistered common stock of the Company at the daily average (calculated from the last sale price daily) of the market price of the Company's common stock for the 30 calendar day period prior to the interest due date, with the number of shares to be issued calculated at a 50% discount of such 30 day average. The $25,000 convertible note is in default and no demand for payment has been made to the Company. The Company continues to accrue interest on this convertible note in accordance with the original terms and conditions. The aggregate maturities of the notes are as follows: Balance as of January 31, 2007 $ 68,000 Less current portion (68,000) -------- Long-term portion $ -- ======== 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 Our revenue recognition policy is significant because our revenue is a key component of our results of operations. The Company recognizes revenue from the sale of tires and accessories. Revenue is recognized 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, we provide a reduction of recorded revenue for billing adjustments and billing corrections. 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 10 the Company would be the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance. INVENTORIES Inventory consists of raw materials, principally chemical feedstocks, and finished goods, principally tires and accessories manufactured by the Company and other minor miscellaneous items purchased from third-party vendors for resale as a component of the Company's products. Inventory is valued at the lower of cost or market value, using principally the average cost method. In November 2004, Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("STATEMENT") No. 151, "INVENTORY COSTS - AN AMENDMENT OF ACCOUNTING RESEARCH BULLETIN NO. 43, CHAPTER 4." Statement No. 151 requires that abnormal amounts of costs, including idle facility expense, freight, handling costs and spoilage, should be recognized as current period charges. The provisions of this Statement became effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Statement No. 151 was adopted the Company on February 1, 2006. There was no material impact resulting from the adoption of Statement No. 151 on the Company's financial statements. 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. 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 11 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). NEW AND PENDING ACCOUNTING PRONOUNCEMENTS The Company is of the opinion that any and all pending accounting pronouncements, either in the adoption phase or not yet required to be adopted, will not have a significant impact on the Company's financial position or results of operations. ITEM 7 - FINANCIAL STATEMENTS The required consolidated financial statements begin on Page F-1 of this document. ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None ITEM 8A - CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's control objectives. The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Accounting Officer, on the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15 as of the end of the period covered by this report. Based upon that evaluation, the Company's Chief Executive Officer and Chief Accounting Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to information relating to the Company required to be included in the Company's Exchange Act reports. While the Company believes that its existing disclosure controls and procedures have been effective to accomplish their objectives, the Company intends to continue to examine, refine and document its disclosure controls and procedures and to monitor ongoing developments in this area. (b) Changes in Internal Controls During the quarter ended January 31, 2007, there were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 12 ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Name Age Position ---- --- -------- Donald P. Dean 71 Chairman and Director William M. Knooihuizen 63 President and Director Kuldip C. Baid 59 Chief Financial Officer and Director DONALD P. DEAN, P. ENG. Donald P. Dean serves as Secretary, Chairman of the Board and Director of KIK Technology International, Inc. He has been with KIK Technology International, Inc. since 1987. From 1984 to 1987, he served as President of Jade Marble Crafts Ltd., a manufacturer of polyester resin-based plastic products and Twin Top Industries Ltd. Twin Top was a manufacturer of polyurethane foam insulated fiberglass well-head shelters and buildings. During the 1960's Mr. Dean worked as an engineer, distribution supervisor and plant manager of the Toronto Marketing and Chemical Distribution Terminal for Shell Canada Limited. Subsequently, he was President of a subsidiary of Trimac Limited providing worldwide transportation and logistics planning, and management consulting services to government and industry. Mr. Dean is a registered professional engineer. He received a B.Sc. in civil engineering from the University of Saskatchewan in 1960. Mr. Dean is also an executive officer of KIK Polymers, Inc. (formerly KIK Tire Technologies Inc.), the Company's publicly-owned Canadian majority shareholder. WILLIAM M. KNOOIHUIZEN, PE William M. Knooihuizen serves as President and Director of KKTI. He joined KIK Technology, Inc. in May, 1993, and was appointed President and CEO of that company in 1996. He has over 34 years experience in urethane processing technology, where he has held the positions of V.P./General Manager for Dam Industries, Inc., United Foam Corporation and Evanite Permaglass. He received a degree in Chemical Engineering from Penn State University in 1966. KULDIP C. BAID, CA Kuldip C. Baid serves as CFO and Director of KKTI. He has been with KIK Technology International, Inc. since 1987. Mr. Baid is a Canadian Chartered Accountant who from 1981 to 1986 was Manager of Tax with Turbo Resources Ltd. Previous work experience includes public accounting practice with Deloitte & Touche; employment as a financial analyst for Oxford Development Group Ltd.; and Manager of Accounting for Carma Developers Ltd.. Mr. Baid received a B. Commerce degree from the University of Alberta in 1976 and completed his certification as a Chartered Accountant in 1979. Mr. Baid was formerly an executive officer and director of KIK Polymers, Inc. (formerly KIK Tire Technologies Inc.), the Company's publicly-owned Canadian majority shareholder. He resigned this position during Fiscal 2007. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 No Director, Officer, Beneficial Owner of more than ten percent (10%) of any class of securities of the Company has filed any of the reports required by Section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years. INVOLVEMENT ON CERTAIN MATERIAL LEGAL PROCEEDINGS DURING THE PAST FIVE (5) YEARS (1) No director, officer, significant employee or consultant has been convicted in a criminal proceeding, exclusive of traffic violations or is subject to any pending criminal proceeding. (2) No bankruptcy petitions have been filed by or against any business or property of any director, officer, significant employee or consultant of the Company nor has any bankruptcy petition been filed against a partnership or business association where these persons were general partners or executive officers. (3) No director, officer, significant employee or consultant has been permanently or temporarily enjoined, barred, suspended or otherwise limited from involvement in any type of business, securities or banking activities. (4) No director, officer or significant employee has been convicted of violating a federal or state securities or commodities law. 13 ITEM 10 - EXECUTIVE COMPENSATION The following summary compensation table sets forth the aggregate cash compensation paid or accrued by the Company to each of the Company's executive officers for services rendered to the Company during the Company's fiscal years ended 2007, 2006 and 2005 and all plan and non-plan compensation awarded to, earned by or paid to certain designated executive officers. SUMMARY COMPENSATION TABLE
Changes in Pension Value and Nonqualified Name and Non-Equity Deferred Principal Stock Option Incentive Plan Compensation All Other Position Year Salary ($) Bonus($) Awards($) Awards($) Compensation($) Earnings($) Compensation($) Total($) -------- ---- ---------- -------- --------- --------- --------------- ----------- --------------- -------- Donald P. 2007 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- Dean, 2006 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- Chairman and 2005 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- Director William P. 2007 $143,000 $ -0- $ -0- $ -0- $ -0- $ -0- $15,000 $158,000 Knooihuizen, 2006 $143,000 $ -0- $ -0- $ -0- $ -0- $ -0- $15,000 $158,000 President 2005 $143,000 $ -0- $ -0- $ -0- $ -0- $ -0- $15,000 $158,000 Kuldip C. 2007 $ 72,000 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ 72,000 Baid, Chief 2006 $ 72,000 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ 72,000 Financial 2005 $ 72,000 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ 72,000 Officer
The Company has no other Executive Compensation issues which would require the inclusion of other mandated table disclosures. 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. COMPENSATION OF DIRECTORS The Company has no standard arrangements for compensating directors of the Company for their attendance at meetings of the Board of Directors. ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table shows, as of April 27, 2007, the shares of Common Stock beneficially owned by all of the persons who served as the directors or officers of the Company during Fiscal 2007 as well as the principal shareholders (greater than 5%) of the Company individually and, as to the directors and officers, as a group. The address of each person or entity, unless otherwise noted, is c/o KIK Technology International, Inc., 590 Airport Road, Oceanside, California 92054. The number of shares beneficially owned by each person or entity is determined under rules of the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the person has the sole or shared voting power or investment power and also any shares which the person has the right to acquire as of a date within 60 days after the relevant date through the exercise of any stock option or other right. 14 % of Class Name and address Number of Shares Beneficially Owned - ---------------- ---------------- ------------------ KIK Polymers, Inc. (1) 16,700,000 65.95% Donald P. Dean 250,000 0.99% William M. Knooihuizen 250,000 0.99% Kuldip C. Baid 250,000 0.99% All officers and directors 17,450,000 68.91% as a group (1) - ---------- (1) Donald P. Dean is an Executive Officer of KIK Polymers, Inc. (formerly KIK Tire Technologies Inc.), and as such, may be deemed to have voting control over the above listed shares by attribution. Mr. Baid was also an Executive Officer of KIK Polymers, Inc. until his resignation from this position during Fiscal 2007. ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In May 2001, the Company advanced $53,400 to its President, William Knooihuizen, 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 January 31, 2007, 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. During each of the years ended January 31, 2007, 2006 and 2005, the Company accrued $120,000 payable to its majority shareholder, KIK Polymers, Inc. (formerly KIK Tire Technologies Inc.) (a publicly-owned Canadian corporation) for administrative services. ITEM 13 - EXHIBITS Exhibits 2.1 Acquisition agreement (3) 3.1 Articles of Incorporation (1) 3.2 Amendment to Articles of Incorporation (1) 3.4 By-Laws (1) 4.1 Form of Common Stock Certificate (2) 4.2 Subscription Agreement of Rene Dervaes (3) 5.1 Opinion of Kenneth G. Eade, Attorney at Law (including consent) (2) 6.1 Specimen of Stock Certificate (2) 10.1 Employee/Consultant Stock Compensation Plan (4) 14.1 Code of Ethics (5) 21.1 Subsidiaries of the Registrant 23.1 Consent of Independent Accountant (2) 23.2 Consent of Kenneth G. Eade (filed as part of Exhibit 5.1) (2) 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 Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002 98.1 Subscription Agreement of Rene Dervaes (3) - ---------- (1) Incorporated herein by reference to the Company's Registration Statement on Form 10-SB filed with the SEC on April 30, 2000. (2) Incorporated herein by reference to the Company's Registration Statement on Form SB-2 filed with the SEC on April 4, 2000. (3) Incorporated herein by reference to the Company's 8-K current report filed with the SEC on December 18, 2000. (4) Incorporated herein by reference to the Company's Registration Statement on Form S-8 filed with the SEC on December 29, 2000. (5) Incorporated herein by reference to the Company's Annual Report on Form 10-KSB for the year ended January 31, 2006 filed with the SEC on May 2, 2006 15 ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES The Company paid or accrued the following fees in each of the prior two fiscal years to it's principal accountant, S. W. Hatfield, CPA of Dallas, Texas: Year ended Year ended January 31, January 31, 2007 2006 ------- ------- a) Audit fees $21,119 $18,905 b) Audit-related fees -- -- c) Tax fees -- -- d) All other fees -- -- ------- ------- Totals $21,119 $18,905 ======= ======= The Company has no formal audit committee. However, as defined in Sarbanes-Oxley Act of 2002, the entire Board of Directors is the Company's defacto audit committee. In discharging its oversight responsibility as to the audit process, the Board obtained from the independent auditors a formal written statement describing all relationships between the auditors and the Company that might bear on the auditors' independence as required by Independence Standards Board Standard No. 1, "Independence Discussions with Audit Committees." The Board discussed with the auditors any relationships that may impact their objectivity and independence, including fees for non-audit services, and satisfied itself as to the auditors' independence. The Board also discussed with management, the internal auditors and the independent auditors the quality and adequacy of the Company's internal controls. The Board reviewed with the independent auditors their management letter on internal controls, if one was issued by the Company's auditors. The Board discussed and reviewed with the independent auditors all matters required to be discussed by auditing standards generally accepted in the United States of America, including those described in Statement on Auditing Standards No. 61, as amended, "Communication with Audit Committees". The Board reviewed the audited consolidated financial statements of the Company as of and for the year ended January 31, 2007 and 2006, with management and the independent auditors. Management has the sole ultimate responsibility for the preparation of the Company's financial statements and the independent auditors have the responsibility for their examination of those statements. Based on the above-mentioned review and discussions with the independent auditors and management, the Board of Directors approved the Company's audited consolidated financial statements and recommended that they be included in its Annual Report on Form 10-KSB for the year ended January 31, 2007 for filing with the Securities and Exchange Commission. The Company's principal accountant, S. W. Hatfield, CPA did not engage any other persons or firms other than the principal accountant's full-time, permanent employees. (Financial statements start on the following page numbered " F-1") 16 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- REPORT OF REGISTERED INDEPENDENT CERTIFIED PUBLIC ACCOUNTING FIRM F-2 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets as of January 31, 2007 and 2006 F-3 Consolidated Statements of Operations and Comprehensive Loss for the years ended January 31, 2007 and 2006 F-4 Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the years ended January 31, 2007 and 2006 F-5 Consolidated Statements of Cash Flows for the years ended January 31, 2007 and 2006 F-6 Notes to Consolidated Financial Statements F-7 F-1 LETTERHEAD OF S. W. HATFIELD, CPA REPORT OF REGISTERED INDEPENDENT CERTIFIED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders KIK Technology International, Inc. We have audited the accompanying consolidated balance sheet of KIK Technology International, Inc. and Subsidiary (California corporations) as of January 31, 2007 and 2006 and the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity (deficit) and cash flows for each of the years ended January 31, 2007 and 2006, respectively. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The consolidated financial statements referred to above, in our opinion, present fairly, in all material respects, the consolidated financial position of KIK Technology International, Inc. and Subsidiary as of January 31, 2007 and 2006 and the results of their consolidated operations and cash flows for each of the years ended January 31, 2007 and 2006, respectively, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note C to the financial statements, the Company's revenues have been declining and the Company has been using cash in operating activities. Additionally, the Company continues to experience the effects of Hurricane Katrina on the availability of raw materials from Gulf Coast refineries and chemical plants that are not yet producing at 100% capacity. The Company has obtained some new working capital during Fiscal 2007 and continues to seek additional outside sources of working capital to support that raised from operations. The Company's future existence is dependent upon achieving sales volumes sufficient to sustain the Company's cash requirements on a day-to-day basis through working capital generated from both operations and outside sources. These circumstances create substantial doubt about the Company's ability to continue as a going concern and Management's plans in regard to these matters are also described in Note C. The financial statements do not contain any adjustments that might result from the outcome of these uncertainties. /s/ S. W. Hatfield, CPA ------------------------------ S. W. HATFIELD, CPA Dallas, Texas April 20, 2007 F-2 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS January 31, 2007 and 2006
January 31, January 31, 2007 2006 ----------- ----------- ASSETS CURRENT ASSETS Cash on hand and in bank $ 31 $ 10,191 Accounts receivable Trade, net of allowance for doubtful accounts of approximately $1,989 and $15,758, respectively 194,750 164,973 Other 12,282 10,146 Inventories 161,444 215,429 Prepaid expenses 226 223 ----------- ----------- TOTAL CURRENT ASSETS 368,733 400,962 ----------- ----------- PROPERTY AND EQUIPMENT - AT COST 646,721 638,363 Less Accumulated depreciation (564,846) (534,479) ----------- ----------- NET PROPERTY AND EQUIPMENT 81,875 103,884 ----------- ----------- OTHER ASSETS Funds held in trust by officer 53,400 53,400 Refundable deposits 4,966 4,800 ----------- ----------- TOTAL OTHER ASSETS 58,366 58,200 ----------- ----------- TOTAL ASSETS $ 508,974 $ 563,046 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Cash overdraft $ 22,883 $ -- Notes payable to investors 68,000 68,000 Current maturities of long-term debt 425 4,517 Accounts payable - trade 469,445 383,736 Other accrued expenses 51,179 43,278 Management fee payable to majority shareholder 480,000 360,000 Advances from majority shareholder 216,000 66,000 ----------- ----------- TOTAL CURRENT LIABILITIES 1,307,932 925,531 ----------- ----------- LONG-TERM DEBT Notes payable to investors, net of current maturities -- -- Capital lease payable -- 425 ----------- ----------- TOTAL LIABILITIES 1,307,932 925,956 ----------- ----------- 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, respectively 25,322 25,172 Additional paid-in capital 5,158,273 5,152,423 Accumulated deficit (5,982,553) (5,540,505) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (798,958) (362,910) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 508,974 $ 563,046 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-3 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Years ended January 31, 2007 and 2006
Year ended Year ended January 31, January 31, 2007 2006 ------------ ------------ REVENUES - net of returns and allowances $ 1,857,666 $ 1,947,069 COST OF SALES Raw materials 1,054,969 1,086,153 Direct labor and other costs 647,468 614,362 Depreciation 29,911 28,539 ------------ ------------ TOTAL COST OF SALES 1,732,348 1,729,054 ------------ ------------ GROSS PROFIT 125,318 218,015 ------------ ------------ OPERATING EXPENSES Selling and marketing expenses -- -- General and administrative expenses Salaries and related expenses 92,578 94,428 Other operating expenses 350,109 377,227 Administrative service fee to majority shareholder 120,000 120,000 Depreciation and amortization 455 1,583 ------------ ------------ TOTAL OPERATING EXPENSES 563,142 593,238 ------------ ------------ LOSS FROM OPERATIONS (437,824) (375,223) OTHER INCOME Interest expense (7,073) (7,483) Interest and other income 2,849 1,419 ------------ ------------ LOSS BEFORE PROVISION FOR INCOME TAXES (442,048) (381,287) PROVISION FOR INCOME TAXES -- -- ------------ ------------ NET LOSS (442,048) (381,287) OTHER COMPREHENSIVE INCOME -- -- ------------ ------------ COMPREHENSIVE LOSS $ (442,048) $ (381,287) ============ ============ Net loss per weighted-average share of common stock outstanding, calculated on Net Loss - basic and fully diluted $ (0.02) $ (0.02) ============ ============ Weighted-average number of shares of common stock outstanding 25,247,892 25,171,865 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-4 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) Years ended January 31, 2007 and 2006
Common Stock Additional --------------------- paid-in Accumulated Shares Amount capital deficit Total ------ ------ ------- ------- ----- BALANCES AT FEBRUARY 1, 2005 25,171,865 $ 25,172 $ 5,152,423 $(5,159,218) $ 18,377 Net loss for the year -- -- -- (381,287) (381,287) ----------- -------- ----------- ----------- ---------- BALANCES AT JANUARY 31, 2006 25,171,865 25,172 5,152,423 (5,540,505) (362,910) Issuance of common stock for consulting fees 150,000 150 5,850 -- 6,000 Net loss for the year -- -- -- (442,048) (442,048) ----------- -------- ----------- ----------- ---------- BALANCES AT JANUARY 31, 2007 25,321,865 $ 25,322 $ 5,158,273 $(5,982,553) $ (798,958) =========== ======== =========== =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-5 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended January 31, 2007 and 2006
Year ended Year ended January 31, January 31, 2007 2006 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the year $(442,048) $(381,287) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization 30,366 30,122 Provision for doubtful accounts receivable 1,989 2,071 Expenses paid with common stock 6,000 -- (Increase) Decrease in Accounts receivable - trade and other (33,902) 135,997 Inventory 53,985 38,005 Prepaid expenses and other (169) 161 Increase (Decrease) in Accounts payable 85,710 (38,069) Other accrued expenses 7,901 3,516 Accrued management fees to parent company 120,000 120,000 --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (170,168) (89,484) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (8,358) (4,866) --------- --------- NET CASH USED IN INVESTING ACTIVITIES (8,358) (4,866) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Increase in cash overdraft 22,883 -- Cash received from parent company 150,000 50,000 Payments on long-term capital lease (4,517) (5,364) --------- --------- NET CASH USED IN FINANCING ACTIVITIES 168,366 44,636 --------- --------- INCREASE (DECREASE) IN CASH (10,160) (49,714) Cash at beginning of period 10,191 59,905 --------- --------- CASH AT END OF PERIOD $ 31 $ 10,191 ========= ========= SUPPLEMENTAL DISCLOSURE OF INTEREST AND INCOME TAXES PAID Interest paid for the period $ 4,044 $ 4,454 ========= ========= Income taxes paid for the period $ -- $ -- ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-6 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 2007 and 2006 NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS KIK Technology International, Inc. (KTII) was incorporated on February 1, 2000 under the laws of the State of California as Russian-Imports.com. Russian-Imports.com was initially founded with a business plan to develop an internet e-commerce website which proved unsuccessful and was subsequently terminated. On September 4, 2001, KTII issued 16,700,000 shares of restricted, unregistered common stock to KIK Polymers, Inc. (formerly KIK Tire Technologies, Inc.) (a publicly-owned Canadian corporation) (KIK Polymers) for 100.0% of the issued and outstanding stock of KIK Technology, Inc. (a wholly-owned subsidiary of KTTI). By virtue of this transaction, KIK Technology, Inc. became a wholly-owned subsidiary of KTII and KIK Polymers became an approximate 73.6% shareholder in KTII. KIK Technology, Inc (KTI) was incorporated in June 1988 under the laws of the State of California. KTI manufactures and markets an extensive and high quality line of off-highway micro-cellular polyurethane tires for the healthcare, light industrial, lawn and garden and recreational industries. KTI operates from a sole manufacturing plant and marketing offices located in Oceanside, CA. The Company's principal raw materials are produced from petroleum feedstocks and, therefore, are subject to disruption and price variances related to the global availability of 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 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. (KTII) and KIK Technology, Inc. (KTI) as of and for years ended January 31, 2007 and 2006, respectively. All significant intercompany transactions have been eliminated in consolidation. The consolidated entities are referred to as Company. (Remainder of this page left blank intentionally) F-7 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED January 31, 2007 and 2006 NOTE C - GOING CONCERN UNCERTAINTY During Fiscal 2007, as a result of a lack of working capital and difficulties in obtaining raw materials as a result of the continuing effects of Hurricane Katrina on Gulf Coast refineries and chemical plants, the Company's revenues continued to decline and the Company continues to use cash in operating activities. The Company's principal raw materials are produced from petroleum feedstocks and, therefore, are subject to disruption and price variances related to the global availability of crude oil and the production capacity of refineries and chemical plants, principally located on the U. S. Gulf Coast. Management and the industry as a whole are uncertain on when Gulf Coast refineries and chemical plants will resume producing at 100% capacity as the Company's suppliers and competitors have been placed on allocations of available material by the producing source. In the event of any disruption in the availability of raw materials or a market for the Company's products, as occurred during the year ended January 31, 2006, the Company will experience a negative economic impact. During Fiscal 2007, the Company obtained approximately $150,000 in new working capital and continues to seek additional outside sources of working capital to support that raised from operations. The Company's future existence is dependent upon achieving sales volumes sufficient to sustain the Company's cash requirements on a day-to-day basis through working capital generated from both operations and outside sources. The Company anticipates that additional working capital will be necessary to support and preserve the integrity of the corporate entity. However, there is no assurance that the Company will be able to obtain additional funding through either bank lines-of-credit or the sale of additional equity securities or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company. If no additional operating capital is received during the next twelve months, the Company will be forced to rely on existing cash in the bank, the cash generated from operating activities and/or additional funds loaned by the Company's majority parent to preserve the integrity of the corporate entity at this time. In the event, the Company is unable to acquire advances from management and/or significant stockholders, the Company's ongoing operations would be negatively impacted to the point that all operating activities are ceased. While the Company is of the opinion that good faith estimates of the Company's ability to secure additional capital in the future to reach our goals have been made, there is no guarantee that the Company will receive sufficient funding to sustain operations or implement any future business plan steps. NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. CASH AND CASH EQUIVALENTS For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company's cash management policies. (Remainder of this page left blank intentionally) F-8 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED January 31, 2007 and 2006 NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 2. ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION In the normal course of business, the Company extends unsecured credit to virtually all of its customers which are located throughout the United States and are principally concentrated in the midwest region of the country. Depending upon management's assessment of creditworthiness and order size, certain shipments are made on "COD" terms using common carriers. Because of the credit risk involved, management has provided an allowance for doubtful accounts which reflects its opinion of amounts which will eventually become uncollectible. In the event of complete non-performance, the maximum exposure to the Company is the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance. The Company recognizes revenue from the sale of tires and accessories upon shipment to, or receipt by customers, depending upon contractual terms and when there is no significant uncertainty regarding the consideration to be received and the associated costs to be incurred. Additionally, the Company recognizes reductions of recorded revenue for product returns from unsatisfied customers and other billing adjustments or corrections, at the point that the returned products are received by the Company or upon the completion of negotiations between the Company and it's customer. 3. INVENTORY Inventory consists of raw materials, principally chemical feedstocks, and finished goods, principally tires and accessories manufactured by the Company and other minor miscellaneous items purchased from third-party vendors for resale as a component of the Company's products. Inventory is valued at the lower of cost or market value, using principally the average cost method. In November 2004, Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("STATEMENT") No. 151, "INVENTORY COSTS - AN AMENDMENT OF ACCOUNTING RESEARCH BULLETIN NO. 43, CHAPTER 4." Statement No. 151 requires that abnormal amounts of costs, including idle facility expense, freight, handling costs and spoilage, should be recognized as current period charges. The provisions of this Statement became effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Statement No. 151 was adopted the Company on February 1, 2006. There was no material impact resulting from the adoption of Statement No. 151 on the Company's financial statements. 4. PROPERTY AND EQUIPMENT Property and equipment are recorded at historical cost. These costs are depreciated over the estimated useful lives, generally two (2) to seven (7) years, of the individual assets using the straight-line method. Gains and losses from the disposition of property and equipment are included in operations as incurred. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company follows the policy of evaluating all property and equipment as of the end of each reporting quarter. For each of the years ended January 31, 2007 and 2006, 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 January 31, 2007 and 2006, the deferred tax asset and deferred tax liability accounts, as recorded when material to the financial statements, are entirely the result of temporary differences. Temporary differences represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization, allowance for doubtful accounts and vacation accruals. As of January 31, 2007 and 2006, the deferred tax asset related to the Company's net operating loss carryforward is fully reserved. F-9 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED January 31, 2007 and 2006 NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 6. ADVERTISING COSTS The Company does not conduct any direct response advertising activities. For non-direct response advertising, the Company charges the costs of these efforts to operations at the first time the related advertising is published. 7. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share is computed by dividing the net income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the respective period presented in our accompanying financial statements. Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of common stock equivalents (primarily outstanding options and warrants). Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company's net income (loss) position at the calculation date. As of January 31, 2007 and 2006, the Company's issued and outstanding warrants, options and convertible debt are considered antidilutive due to the Company's net operating loss position. 8. EMPLOYEE STOCK OPTIONS For periods prior to November 1, 2002, the Company chose to account for employee stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employees, and related interpretations. Accordingly, employee compensation cost for stock options and warrants is measured as the excess, if any, of the market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. This treatment was allowed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). In December 2002, FASB issued Statement of Financial Accounting Standards No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS 148). This statement amends SFAS 123 and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure requirements of SFAS 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS 148 are effective for financial statements issued for fiscal years ending after December 15, 2002. Effective November 1, 2003, the first day of the reporting quarter including the effective date of SFAS 148, the Company's Board of Directors, in conjunction with public opinion and SFAS 148, elected to expense the imputed compensation cost related to any stock options granted during Fiscal 2003 and for future periods. The Company has not issued any stock options since the adoption of SFAS 148 and has not experienced a material impact on our results of operations or financial condition. 9. NEW AND PENDING ACCOUNTING PRONOUNCEMENTS The Company is of the opinion that any and all pending accounting pronouncements, either in the adoption phase or not yet required to be adopted, will not have a significant impact on the Company's financial position or results of operations. F-10 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED January 31, 2007 and 2006 NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash, accounts receivable, accounts payable and notes payable, as applicable, approximates fair value due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions. Interest rate risk is the risk that the Company's earnings are subject to fluctuations in interest rates on either investments or on debt and is fully dependent upon the volatility of these rates. The Company does not use derivative instruments to moderate its exposure to interest rate risk, if any. Financial risk is the risk that the Company's earnings are subject to fluctuations in interest rates or foreign exchange rates and are fully dependent upon the volatility of these rates. The company does not use derivative instruments to moderate its exposure to financial risk, if any. NOTE F - CONCENTRATIONS OF CREDIT RISK KTII and KTI maintain their respective cash accounts in financial institutions subject to insurance coverage issued by the Federal Deposit Insurance Corporation (FDIC). Under FDIC rules, both KTII and KTI are entitled to aggregate coverage of $100,000 per account type per separate legal entity per financial institution. During the years ended January 31, 2007 and 2006, and subsequent thereto, respectively, the various entities, from time-to-time, had deposits in a financial institution with credit risk exposures in excess of statutory FDIC coverage. The Company has incurred no losses as a result of any unsecured situations. NOTE G - INVENTORIES Inventories consist of the following at January 31, 2007 and 2006: January 31, January 31, 2007 2006 -------- -------- Raw materials $ 22,363 $ 60,557 Finished goods 139,081 154,872 -------- -------- Total $161,444 $215,429 ======== ======== NOTE H - PROPERTY AND EQUIPMENT Property and equipment consists of the following at January 31, 2007 and 2006: January 31, January 31, 2007 2006 Estimated life --------- --------- -------------- Machinery and Equipment $ 607,275 $ 602,766 7 years Office furniture and fixtures 12,138 12,138 5 years Leasehold improvements 18,029 14,180 2 years Vehicles 9,279 9,279 5 years --------- --------- 646,721 638,363 Less accumulated depreciation (564,846) (534,479) --------- --------- Net property and equipment $ 81,875 $ 103,884 ========= ========= Depreciation expense for the years ended January 31, 2007 and 2006 were approximately $30,366 and $30,122, respectively. F-11 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED January 31, 2007 and 2006 NOTE I - FUNDS HELD IN TRUST BY OFFICER In May 2001, the Company advanced $53,400 to its President to hold in trust as a contingency fund for the sole use of the Company in the event of a unanticipated cash shortfall. The advance bears interest at 4.0% annually and is unsecured. The original documentation required repayment of the advance and accrued, but unpaid, interest in May 2003. As of January 31, 2007, and subsequent thereto, with the approval of the Company's Board of Directors, the Company's President continues to maintain these funds as trustee on behalf of the Company. NOTE J - NOTES PAYABLE TO INVESTORS Pursuant to the terms of a private placement agreement, the Company attempted to raise up to $600,000 through the placement of two-year senior notes bearing interest at 10% payable quarterly. This Private Placement Memorandum was terminated by the Company during the fiscal quarter ended October 31, 2002. In November 2001, the Company entered into an agreement with an investment banker whereby the investment banker would act as exclusive dealer-manager in this private placement of securities to be issued by the Company pursuant to Regulation D of the Securities Act of 1933, as amended. As compensation, the investment banker was paid $15,000 for professional fees, received a commission equal to 10% of the gross proceeds, an unaccountable expense allowance equal to 4% of the gross proceeds, and for every $500,000 raised, 150,000 shares of the Company's restricted, unregistered common stock. Such shares will be issued upon completion of the private placement. In addition, the investment banker will have the option to nominate one person to the Company's Board of Directors if at least $2,000,000 is raised. As of the termination of this Private Placement Memorandum, in prior years, only $75,000 was raised. Note holders can elect, with the consent of the Company, to accept Company common stock in lieu of cash interest payments. Such payments in stock would be calculated at 50% of the daily average of the market price of the common stock for the 30-calendar days preceding the interest due date. After six months from the date of issue of the notes, the Company can convert the notes to common stock if the daily average market price of the Company's common stock for any 30-calendar days after the initial six-month period equals or exceeds $1.00. The conversion of the notes to common stock would also be calculated at 50% of the daily average market price for the 30 days prior to the Company giving notice of its plan to convert. In conjunction with the offering of the notes, each note holder was given one warrant for each $1.00 invested. Each warrant allows the holder to purchase one share of the Company's common stock at an initial exercise price of $0.60 per share, and is exercisable for two years. In March 2002, the Company repriced the outstanding warrants to an exercise price of $0.40 per share. Pursuant to the private placement, the Company sold a $50,000 convertible note on November 12, 2001 and a $25,000 convertible note on December 26, 2001 to two unrelated investors. Warrants to purchase a combined total of 75,000 shares of the Company's common stock at $0.60 per share were also issued to the investors. The warrants were valued at $11,789 using the Black-Scholes option-pricing model, and therefore $11,789 of the total debt proceeds of $75,000 was allocated to the warrants, resulting in a discount on the notes, was amortized to interest expense over the initial term of the underlying debt. This calculated discount was amortized to interest expense in prior years. The weighted average assumptions utilized to value the warrants using the Black-Scholes option-pricing model were as follows: Expected life of the option: The initial life of the corresponding option, generally two (2) years Expected volatility in the Company's stock price: 150.0%, which was based on fluctuations of the Company's stock price over the past Fiscal year. Expected dividends: Zero (0.00) based on past performance Anticipated risk free interest rate: Estimated to be 2.80%. The convertible notes contained a beneficial conversion feature valued at a combined total of approximately $63,000. However, because the conversion features were fully contingent upon the occurrence of certain future events, the Company did not record a discount resulting from the beneficial conversion feature. F-12 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED January 31, 2007 and 2006 NOTE J - NOTES PAYABLE TO INVESTORS - CONTINUED The notes matured on November 12, 2003 ($50,000) and December 26, 2003 ($25,000), respectively. On February 16, 2004, the Company restructured the $50,000 convertible note. Under the restructured terms, the Company paid all accrued interest and a $3,000 principal reduction on March 16, 2004, as of February 16, 2004. The Company is obligated to pay $2,000 per month, plus accrued interest, for the period from March 16, 2004 through August 16, 2004 and $1,000 per month, plus accrued interest, on the 16th of each month thereafter until all outstanding amounts are paid in full. The restructured note bears interest at 10.0% per annum. The Company is making interest-only payments of approximately $314, which is less than the interest accruing and is delinquent in making the required principal payments. Accordingly, the entire debt is classified as "current" in the accompanying consolidated financial statements. The $50,000 restructured note is convertible into shares of unregistered, restricted common stock at the discretion of the Noteholder with the Company's consent, provided that the daily average (calculated from the last sale price daily) of the market price of the Company's common stock for any 30 calendar day period equals or exceeds $1.00 per share, with the conversion being calculated at a 50% discount of such 30 day average. The $50,000 Noteholder also has the election to receive the monthly interest payments in restricted, unregistered common stock of the Company at the daily average (calculated from the last sale price daily) of the market price of the Company's common stock for the 30 calendar day period prior to the interest due date, with the number of shares to be issued calculated at a 50% discount of such 30 day average. The $25,000 convertible note is in default and no demand for payment has been made to the Company. The Company continues to accrue interest on this convertible note in accordance with the original terms and conditions. The aggregate maturities of the notes are as follows: Balance as of January 31, 2007 $ 68,000 Less current portion (68,000) -------- Long-term portion $ -- ======== NOTE K - CAPITAL LEASE PAYABLE Capital lease payable is as follows: January 31, January 31, 2007 2006 ------- ------- $21,080 capital lease payable to a finance corporation Interest at 8.60%. Payable in monthly installments of approximately $432, including accrued interest Final maturity due in April 2007. Collateralized by equipment. Paid in full in March 2007 $ 425 $ 4,942 Less current maturities (425) (4,517) ------- ------- Long-term portion $ -- $ 425 ======= ======= Future maturities of long-term capital leases payable are: Year ending January 31, Amount ----------- ------ 2008 $ 425 ===== F-13 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED January 31, 2007 and 2006 NOTE L - INCOME TAXES The components of income tax (benefit) expense for each of the years ended January 31, 2007 and 2006, respectively, are as follows: Year Ended Year Ended January 31, January 31, 2007 2006 ------- ------- Federal: Current $ -- $ -- Deferred -- -- ------- ------- -- -- ------- ------- State: Current -- -- Deferred -- -- ------- ------- -- -- ------- ------- Total $ -- $ -- ======= ======= The Company has a cumulative net operating loss carryforward of approximately $5,300,000 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 (benefit) for the years ended January 31, 2007 and 2006, respectively, differed from the statutory federal rate of 34 percent as follows: Year Ended Year Ended January 31, January 31, 2007 2006 -------- -------- Statutory rate applied to loss before income taxes $(150,000) $(130,000 Increase (decrease) in income taxes resulting from: State income taxes -- -- Other, including reserve for deferred tax asset 150,000 130,000 --------- --------- Income tax expense $ -- $ -- ========= ========= Temporary differences due to statutory requirements in the recognition of assets and liabilities for tax and financial reporting purposes, generally including such items as organizational costs, accumulated depreciation and amortization, allowance for doubtful accounts, organizational and start-up costs and vacation accruals. These differences give rise to the financial statement carrying amounts and tax bases of assets and liabilities causing either deferred tax assets or liabilities, as necessary, as of January 31, 2007 and 2006, respectively: January 31, January 31, 2007 2006 ----------- ----------- Deferred tax assets Net operating loss carryforwards $ 1,797,000 $ 1,647,000 Less valuation allowance (1,797,000) (1,647,000) ----------- ----------- Net Deferred Tax Asset $ -- $ -- =========== =========== During the year ended January 31, 2007 and 2006, respectively, the valuation allowance for the deferred tax asset increased by approximately $150,000 and $122,000. F-14 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED January 31, 2007 and 2006 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 All warrants issued with the aforementioned convertible notes have expired. The Company has no issued and outstanding warrants as of January 31, 2007. NOTE O - RELATED PARTY TRANSACTIONS During each of the years ended January 31, 2007 and 2006, the Company accrued approximately $120,000 annually or approximately $30,000 per quarter for administrative service fees payable to KIK Polymers, the Company's controlling shareholder. During Fiscal 2006, KIK Polymers advanced KTI $50,000 for working capital purposes. This advance is non-interest bearing and has no scheduled repayment date. During Fiscal 2007, KIK Polymers advanced KTI $150,000 for working capital purposes. These advances are non-interest bearing and have no scheduled repayment date. During the first quarter of Fiscal 2008, KIK Polymers advanced KTI an aggregate additional $100,000 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 $110,680 and $108,597 for each of the years ended January 31, 2007 and 2006, respectively. Future amounts due under this agreement are as follows: Year ending January 31, Amount ----------- ------ 2008 $105,391 2009 48,585 -------- Totals $153,976 ======== F-15 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED January 31, 2007 and 2006 NOTE P - COMMITMENTS AND CONTINGENCIES EMPLOYMENT CONTRACT KIK entered into an employment agreement with William M. Knooihuizen, the Company's current President and Director. The agreement started in May 2000 and was for an initial period of five (5) years at an annual salary in the amount of $143,000, to be paid weekly. Upon expiration in May 2005, the Company and it's officer agreed to continue this agreement in an unwritten form on an undefined, indefinite basis. NOTE Q - SIGNIFICANT CUSTOMERS During the years ended January 31, 2007 and 2006, respectively, the Company had four and three separate customers who were responsible for a significant portion of the Company's net revenues, accounts receivable and suppliers of various raw materials and components to the Company's manufacturing process. The following table shows the significance of these entities: Accounts Accounts Revenues Receivable Payable -------- ---------- ------- Year ended January 31, 2007 Customer A 46.42% 30.77% 45.35% Customer B 9.12 0.00 0.00 Customer C 5.86 16.30 0.58 Customer D 3.94 0.00 0.00 Others 34.66 52.93 54.07 ------ ------ ------ Totals 100.00% 100.00% 100.00% ====== ====== ====== Year ended January 31, 2006 Customer A 28.98% 10.74% 48.05% Customer B 25.73 3.48 0.00 Customer C 5.62 15.36 0.06 Customer D 6.28 11.08 0.00 Others 33.39 59.34 51.89 ------ ------ ------ Totals 100.00% 100.00% 100.00% ====== ====== ====== NOTE R - SELECTED FINANCIAL DATA (UNAUDITED) The following is a summary of the quarterly results of operations for each of the years ended January 31, 2007, 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 $ 277,577 $ 405,169 $ 1,857,666 Gross profit 143,541 69,814 (50,969) (37,068) 125,318 Net earnings after provision for income taxes (8,429) (86,327) (182,480) (164,812) (442,048) Basic and fully diluted earnings per share nil nil $ (0.01) $ (0.01) $ (0.02) Weighted average number of shares issued and outstanding 25,171,865 25,173,495 25,323,495 25,321,865 25,247,892
F-16 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED January 31, 2007 and 2006 NOTE R - SELECTED FINANCIAL DATA (UNAUDITED) - CONTINUED The following is a summary of the quarterly results of operations for each of the years ended January 31, 2007, 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 ENDED JANUARY 31, 2006 Sales $ 375,216 $ 541,296 $ 560,849 $ 469,708 $ 1,947,069 Gross profit 577 147,853 40,488 29,097 218,015 Net earnings after provision for income taxes (148,144) 3,207 (105,991) (130,359) (381,287) Basic and fully diluted earnings per share $ (0.01) nil nil $ (0.01) $ (0.02) Weighted average number of shares issued and outstanding 25,171,865 25,171,865 25,171,865 25,171,865 25,171,865 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
NOTE S - SUBSEQUENT EVENT During the first quarter of Fiscal 2008, KIK Polymers advanced KTI an aggregate additional $100,000 for working capital purposes. This advance is non-interest bearing and has no scheduled repayment date. (Remainder of this page left blank intentionally) (Signatures follow on next page) F-17 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KIK TECHNOLOGY INTERNATIONAL, INC. Dated: April 27, 2007 /s/ Kuldip C. Baid -------------- ------------------------------------ Kuldip C. Baid Chief Financial Officer and Director In accordance with the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the date as indicated. Dated: April 27, 2007 by /s/ Donald P. Dean -------------- ------------------------------------ Donald P. Dean Chairman and Secretary Dated: April 27, 2007 /s/ William M. Knooihuizen -------------- ------------------------------------ William M. Knooihuizen President and Director Dated: April 27, 2007 /s/ Kuldip C. Baid -------------- ------------------------------------ Kuldip C. Baid Chief Financial Officer and Director 35 EX-21.1 2 ex21-1.txt SUBSIDIARIES EXHIBIT 21.1 Form 10-KSB KIK Technology International, Inc. File No. 0-30197 SUBSIDIARIES OF THE REGISTRANT KIK Technology, Inc. - incorporated in June 1988 under the laws of the State of California. EX-31.1 3 ex31-1.txt CEO SECTION 302 CERTIFICATION EXHIBIT NO. 31.1 Form 10-KSB KIK Technology International, Inc. File No. 0-30197 Certification I, William M. Knooihuizen, certify that: a) I have reviewed this annual report on Form 10-KSB for the year ended January 31, 2007 of KIK Technology International, Inc. b) 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; c) 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; d) 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: (1) 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; (2) 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; (3) 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): (1) 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 (2) 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: April 27, 2007 By: /s/ William M. Knooihuizen -------------- ------------------------------- William M. Knooihuizen Chief Executive Officer EX-31.2 4 ex31-2.txt CFO SECTION 302 CERTIFICATION EXHIBIT NO. 31.2 Form 10-KSB KIK Technology International, Inc. File No. 0-30197 Certification I, Kuldip C. Baid, certify that: a) I have reviewed this annual report on Form 10-KSB for the year ended January 31, 2007 of KIK Technology International, Inc. b) 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; c) 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; d) 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: (1) 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; (2) 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; (3) 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): (1) 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 (2) 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: April 27, 2007 By: /s/ Kuldip C. Baid -------------- ---------------------------- Kuldip C. Baid Chief Financial Officer EX-32.1 5 ex32-1.txt CEO & CFO SECTION 906 CERTIFICATION EXHIBIT NO. 32.1 Form 10-KSB KIK Technology International, Inc. File No. 0-30197 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 Annual Report of KIK Technology International, Inc. (the "Company") on Form 10-KSB for the year ending January 31, 2007 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: April 27, 2007 By: /s/ William M. Knooihuizen -------------- -------------------------------- William M. Knooihuizen Chief Executive Officer In connection with the Annual Report of KIK Technology International, Inc. (the "Company") on Form 10-KSB for the year ending January 31, 2007 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: April 27, 2007 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 will furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----