10QSB 1 g1823.txt QTRLY REPORT FOR THE QTR ENDED 4-30-07 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-QSB -------------------------------------------------------------------------------- (Mark one) [X] Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the quarterly period ended April 30, 2007 [ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the transition period from ______________ to _____________ -------------------------------------------------------------------------------- Commission File Number: 000-30071 KIK Technology International, Inc. (Exact name of small business issuer as specified in its charter) California 91-2021602 (State of incorporation) (IRS Employer ID Number) 590 Airport Road, Oceanside CA 92054 (Address of principal executive offices) (760) 967-2777 (Issuer's telephone number) -------------------------------------------------------------------------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YES [ ] NO [X] State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: July 19, 2007: 25,321,865 Transitional Small Business Disclosure Format (check one):YES [ ] NO [X] KIK TECHNOLOGY INTERNATIONAL, INC. Form 10-QSB for the Quarter ended April 30, 2007 Table of Contents Page ---- PART I - FINANCIAL INFORMATION Item 1 Financial Statements 3 Item 2 Management's Discussion and Analysis or Plan of Operation 17 Item 3 Controls and Procedures 20 PART II - OTHER INFORMATION Item 1 Legal Proceedings 20 Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 20 Item 3 Defaults Upon Senior Securities 20 Item 4 Submission of Matters to a Vote of Security Holders 20 Item 5 Other Information 20 Item 6 Exhibits 21 SIGNATURES 21 2 PART I ITEM 1 - FINANCIAL STATEMENTS KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS April 30, 2007 and 2006 (UNAUDITED)
April 30, April 30, 2007 2006 ----------- ----------- ASSETS CURRENT ASSETS Cash on hand and in bank $ 832 $ 8,459 Accounts receivable Trade, net of allowance for doubtful accounts of approximately $1,989 and $15,758, respectively 187,269 238,815 Other 12,282 10,680 Inventories 161,444 204,060 Prepaid expenses -- -- ----------- ----------- TOTAL CURRENT ASSETS 364,459 462,014 ----------- ----------- PROPERTY AND EQUIPMENT - AT COST, NET OF ACCUMULATED DEPRECIATION 81,875 103,327 ----------- ----------- 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 $ 623,541 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Cash overdraft $ 18,527 $ -- Notes payable to investors 68,000 68,000 Current maturity of capital lease payable -- 4,148 Accounts payable - trade 520,032 372,502 Other accrued expenses 47,324 44,230 Management fee payable to majority shareholder 510,000 390,000 Advances from majority shareholder 316,000 116,000 ----------- ----------- TOTAL CURRENT LIABILITIES 1,479,883 994,880 ----------- ----------- LONG-TERM LIABILITIES -- -- ----------- ----------- TOTAL LIABILITIES 1,479,883 994,880 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' DEFICIT Common stock - $0.001 par value 100,000,000 shares authorized 25,171,865 shares issued and outstanding 25,172 25,172 Additional paid-in capital 5,152,423 5,152,423 Accumulated deficit (6,165,487) (5,548,934) ----------- ----------- TOTAL STOCKHOLDERS' DEFICIT (981,892) (371,339) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 497,991 $ 623,541 =========== ===========
The financial information presented herein has been prepared by management without audit by independent certified public accountants. The accompanying notes are an integral part of these consolidated financial statements. 3 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Three months ended April 30, 2007 and 2006 (UNAUDITED)
Three months Three months ended ended April 30, April 30, 2007 2006 ------------ ------------ REVENUES - net of returns and allowances $ 312,923 $ 596,844 COST OF SALES (348,087) (453,303) ------------ ------------ GROSS PROFIT (35,164) 143,541 ------------ ------------ OPERATING EXPENSES Selling, general and administrative expenses 145,464 151,009 ------------ ------------ LOSS FROM OPERATIONS (180,628) (7,468) OTHER INCOME Interest and other income (expense) - net (2,306) (961) ------------ ------------ LOSS BEFORE PROVISION FOR INCOME TAXES (182,934) (8,429) PROVISION FOR INCOME TAXES -- -- ------------ ------------ NET LOSS (182,934) (8,429) OTHER COMPREHENSIVE INCOME -- -- ------------ ------------ COMPREHENSIVE LOSS $ (182,934) $ (8,429) ============ ============ Net loss per weighted-average share of common stock outstanding, calculated on Net Loss - basic and fully diluted $ (0.01) $ (0.00) ============ ============ Weighted-average number of shares of common stock outstanding 25,171,865 25,171,865 ============ ============
The financial information presented herein has been prepared by management without audit by independent certified public accountants. The accompanying notes are an integral part of these consolidated financial statements. 4 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended April 30, 2007 and 2006 (UNAUDITED)
Three months Three months ended ended April 30, April 30, 2007 2006 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the period $(182,934) $ (8,429) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization 6,711 7,490 (Increase) Decrease in Accounts receivable - trade and other 6,947 (74,376) Inventory (211) 11,369 Prepaid expenses and other (1,661) 223 Increase (Decrease) in Accounts payable 50,585 (11,234) Other accrued expenses (3,855) 952 Accrued management fees to parent company 30,000 30,000 --------- --------- NET CASH USED IN OPERATING ACTIVITIES (94,418) (44,005) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment -- (6,933) --------- --------- NET CASH USED IN INVESTING ACTIVITIES -- (6,933) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Decrease in cash overdraft (4,356) -- Advances from majority shareholder 100,000 50,000 Payments on long-term capital lease (425) (794) --------- --------- NET CASH USED IN FINANCING ACTIVITIES 95,219 49,206 --------- --------- INCREASE (DECREASE) IN CASH 801 (1,732) Cash at beginning of period 31 10,191 --------- --------- CASH AT END OF PERIOD $ 832 $ 8,459 ========= ========= SUPPLEMENTAL DISCLOSURE OF INTEREST AND INCOME TAXES PAID Interest paid for the period $ 1,382 $ 1,051 ========= ========= Income taxes paid for the period $ -- $ -- ========= ========= SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES $ -- $ -- ========= =========
The financial information presented herein has been prepared by management without audit by independent certified public accountants. The accompanying notes are an integral part of these consolidated financial statements. 5 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 2007 and 2006 NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS KIK Technology International, Inc. (KTII) was incorporated on February 1, 2000 under the laws of the State of California as Russian-Imports.com. Russian-Imports.com was initially founded with a business plan to develop an internet e-commerce website which proved unsuccessful and was subsequently terminated. On September 4, 2001, KTII issued 16,700,000 shares of restricted, unregistered common stock to KIK Polymers, Inc. (formerly KIK Tire Technologies, Inc.) (a publicly-owned Canadian corporation) (KIK Polymers) for 100.0% of the issued and outstanding stock of KIK Technology, Inc. (a wholly-owned subsidiary of KTTI). By virtue of this transaction, KIK Technology, Inc. became a wholly-owned subsidiary of KTII and KIK Polymers became an approximate 73.6% shareholder in KTII. KIK Technology, Inc (KTI) was incorporated in June 1988 under the laws of the State of California. KTI manufactures and markets an extensive and high quality line of off-highway micro-cellular polyurethane tires for the healthcare, light industrial, lawn and garden and recreational industries. KTI operates from a sole manufacturing plant and marketing offices located in Oceanside, CA. The Company's principal raw materials are produced from petroleum feedstocks and, therefore, are subject to disruption and price variances related to the global availability of and competition for crude oil, as well as domestic refining capacity and capability. NOTE B - PREPARATION OF FINANCIAL STATEMENTS The Company follows the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and has adopted a year-end of January 31. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented During interim periods, the Company follows the accounting policies set forth in its annual audited financial statements filed with the U. S. Securities and Exchange Commission on its Annual Report on Form 10-KSB for the year ended January 31, 2007. The information presented within these interim financial statements may not include all disclosures required by generally accepted accounting principles and the users of financial information provided for interim periods should refer to the annual financial information and footnotes when reviewing the interim financial results presented herein. In the opinion of management, the accompanying interim financial statements, prepared in accordance with the U. S. Securities and Exchange Commission's instructions for Form 10-QSB, are unaudited and contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations and cash flows of the Company for the respective interim periods presented. The current period results of operations are not necessarily indicative of results which ultimately will be reported for the full fiscal year ending January 31, 2008. For segment reporting purposes, the Company operated in only one industry segment during the periods represented in the accompanying financial statements and makes all operating decisions and allocates resources based on the best benefit to the Company as a whole. 6 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED April 30, 2007 and 2006 NOTE B - PREPARATION OF FINANCIAL STATEMENTS - CONTINUED These financial statements reflect the books and records of KIK Technology International, Inc. (KTII) and KIK Technology, Inc. (KTI) as of and for three months ended April 30, 2007 and 2006, respectively. All significant intercompany transactions have been eliminated in consolidation. The consolidated entities are referred to as Company. NOTE C - GOING CONCERN UNCERTAINTY During Fiscal 2007, as a result of a lack of working capital and difficulties in obtaining raw materials as a result of the continuing effects of Hurricane Katrina on Gulf Coast refineries and chemical plants, the Company's revenues continued to decline and the Company continues to use cash in operating activities. The Company's principal raw materials are produced from petroleum feedstocks and, therefore, are subject to disruption and price variances related to the global availability of crude oil and the production capacity of refineries and chemical plants, principally located on the U. S. Gulf Coast. Management and the industry as a whole are uncertain on when Gulf Coast refineries and chemical plants will resume producing at 100% capacity as the Company's suppliers and competitors have been placed on allocations of available material by the producing source. As the Company is experiencing negative cash flows, the availability of working capital to acquire raw materials for production has had a negative impact on the Company's operations. In the event of any disruption in the availability of raw materials or a market for the Company's products, as occurred during the year ended January 31, 2006, the Company will experience a negative economic impact. During Fiscal 2007and the first quarter of Fiscal 2008, respectively, the Company obtained approximately $150,000 and $100,000 in new working capital and continues to seek additional outside sources of working capital to support that raised from operations. The Company's future existence is dependent upon achieving sales volumes sufficient to sustain the Company's cash requirements on a day-to-day basis through working capital generated from both operations and outside sources. The Company anticipates that additional working capital will be necessary to support and preserve the integrity of the corporate entity. However, there is no assurance that the Company will be able to obtain additional funding through either bank lines-of-credit or the sale of additional equity securities or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company. If no additional operating capital is received during the next twelve months, the Company will be forced to rely on existing cash in the bank, the cash generated from operating activities and/or additional funds loaned by the Company's majority parent to preserve the integrity of the corporate entity at this time. In the event, the Company is unable to acquire advances from management and/or significant stockholders, the Company's ongoing operations would be negatively impacted to the point that all operating activities are ceased. While the Company is of the opinion that good faith estimates of the Company's ability to secure additional capital in the future to reach our goals have been made, there is no guarantee that the Company will receive sufficient funding to sustain operations or implement any future business plan steps. NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Cash and cash equivalents For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company's cash management policies. 7 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED April 30, 2007 and 2006 NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 2. Accounts receivable and Revenue Recognition In the normal course of business, the Company extends unsecured credit to virtually all of its customers which are located throughout the United States and are principally concentrated in the midwest region of the country. Depending upon management's assessment of creditworthiness and order size, certain shipments are made on "COD" terms using common carriers. Because of the credit risk involved, management has provided an allowance for doubtful accounts which reflects its opinion of amounts which will eventually become uncollectible. In the event of complete non-performance, the maximum exposure to the Company is the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance. The Company recognizes revenue from the sale of tires and accessories upon shipment to, or receipt by customers, depending upon contractual terms and when there is no significant uncertainty regarding the consideration to be received and the associated costs to be incurred. Additionally, the Company recognizes reductions of recorded revenue for product returns from unsatisfied customers and other billing adjustments or corrections, at the point that the returned products are received by the Company or upon the completion of negotiations between the Company and it's customer. 3. Inventory Inventory consists of raw materials, principally chemical feedstocks, and finished goods, principally tires and accessories manufactured by the Company and other minor miscellaneous items purchased from third-party vendors for resale as a component of the Company's products. Inventory is valued at the lower of cost or market value, using principally the average cost method. In November 2004, Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("STATEMENT") No. 151, "INVENTORY COSTS - AN AMENDMENT OF ACCOUNTING RESEARCH BULLETIN NO. 43, CHAPTER 4." Statement No. 151 requires that abnormal amounts of costs, including idle facility expense, freight, handling costs and spoilage, should be recognized as current period charges. The provisions of this Statement became effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Statement No. 151 was adopted the Company on February 1, 2006. There was no material impact resulting from the adoption of Statement No. 151 on the Company's financial statements. 4. Property and Equipment Property and equipment are recorded at historical cost. These costs are depreciated over the estimated useful lives, generally two (2) to seven (7) years, of the individual assets using the straight-line method. Gains and losses from the disposition of property and equipment are included in operations as incurred. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company follows the policy of evaluating all property and equipment as of the end of each reporting quarter. For each of the years ended January 31, 2007 and 2006 and the corresponding three month periods ended April 30, 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 April 30, 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 April 30, 2007 and 2006, the deferred tax asset related to the Company's net operating loss carryforward is fully reserved. 8 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED April 30, 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 April 30, 2007 and 2006, the Company's issued and outstanding warrants, options and convertible debt are considered antidilutive due to the Company's net operating loss position. 8. Employee Stock Options For periods prior to November 1, 2002, the Company chose to account for employee stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employees, and related interpretations. Accordingly, employee compensation cost for stock options and warrants is measured as the excess, if any, of the market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. This treatment was allowed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). In December 2002, FASB issued Statement of Financial Accounting Standards No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS 148). This statement amends SFAS 123 and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure requirements of SFAS 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS 148 are effective for financial statements issued for fiscal years ending after December 15, 2002. Effective November 1, 2003, the first day of the reporting quarter including the effective date of SFAS 148, the Company's Board of Directors, in conjunction with public opinion and SFAS 148, elected to expense the imputed compensation cost related to any stock options granted during Fiscal 2003 and for future periods. The Company has not issued any stock options since the adoption of SFAS 148 and has not experienced a material impact on our results of operations or financial condition. 9. New and Pending Accounting Pronouncements The Company is of the opinion that any and all pending accounting pronouncements, either in the adoption phase or not yet required to be adopted, will not have a significant impact on the Company's financial position or results of operations. 9 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED April 30, 2007 and 2006 NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash, accounts receivable, accounts payable and notes payable, as applicable, approximates fair value due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions. Interest rate risk is the risk that the Company's earnings are subject to fluctuations in interest rates on either investments or on debt and is fully dependent upon the volatility of these rates. The Company does not use derivative instruments to moderate its exposure to interest rate risk, if any. Financial risk is the risk that the Company's earnings are subject to fluctuations in interest rates or foreign exchange rates and are fully dependent upon the volatility of these rates. The company does not use derivative instruments to moderate its exposure to financial risk, if any. NOTE F - CONCENTRATIONS OF CREDIT RISK KTII and KTI maintain their respective cash accounts in financial institutions subject to insurance coverage issued by the Federal Deposit Insurance Corporation (FDIC). Under FDIC rules, both KTII and KTI are entitled to aggregate coverage of $100,000 per account type per separate legal entity per financial institution. During the years ended January 31, 2007 and 2006 and the corresponding three month periods ended April 30, 2007 and 2006, respectively, the various entities, from time-to-time, had deposits in a financial institution with credit risk exposures in excess of statutory FDIC coverage. The Company has incurred no losses as a result of any unsecured situations. NOTE G - INVENTORIES Inventories consist of the following at April 30, 2007 and 2006: April 30, April 30, 2007 2006 -------- -------- Raw materials $ 22,574 $ 31,898 Finished goods 139,081 169,154 -------- -------- Total $161,655 $204,060 ======== ======== NOTE H - PROPERTY AND EQUIPMENT Property and equipment consists of the following at April 30, 2007 and 2006: April 30, April 30, 2007 2006 Estimated life --------- --------- -------------- Machinery and Equipment $ 607,275 $ 605,850 7 years Office furniture and fixtures 12,138 12,138 5 years Leasehold improvements 18,029 18,029 2 years Vehicles 9,279 9,279 5 years --------- --------- 646,721 645,296 Less accumulated depreciation (571,555) (541,969) --------- --------- Net property and equipment $ 75,166 $ 103,327 ========= ========= Depreciation expense for the each of the three months ended April 30, 2007 and 2006 were approximately $6,711 and $7,490, respectively. 10 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED April 30, 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 April 30, 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. 11 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED April 30, 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: April 30, April 30, 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 $ -- $ 4,148 Less current maturities -- (4,148) ------- ------- Long-term portion $ -- $ 425 ======= ======= 12 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED April 30, 2007 and 2006 NOTE L - INCOME TAXES The components of income tax (benefit) expense for each of the three month periods ended April 30, 2007 and 2006, respectively, are as follows: Three months Three months ended ended April 30, April 30, 2007 2006 ------- ------- Federal: Current $ -- $ -- Deferred -- -- ------- ------- -- -- ------- ------- State: Current -- -- Deferred -- -- ------- ------- -- -- ------- ------- Total $ -- $ -- ======= ======= As of the year ended January 31, 2007, 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 three month periods ended April 30, 2007 and 2006, respectively, differed from the statutory federal rate of 34 percent as follows: Three months Three months ended ended April 30, April 30, 2007 2006 -------- -------- Statutory rate applied to loss before income taxes $(62,000) $ (2,900) Increase (decrease) in income taxes resulting from: State income taxes -- -- Other, including reserve for deferred tax asset 62,000 2,900 -------- -------- 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 the year ended 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. 13 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED April 30, 2007 and 2006 NOTE M - COMMON STOCK TRANSACTIONS In July 2006, the Company issued 150,000 restricted, unregistered shares of common stock in payment of a contract for professional services. This transaction was valued at approximately $6,000, which was equal to or in excess of the closing price of the Company's common stock on the NASDAQ Electronic Bulletin Board on the date of the transaction. The Company relied upon Section 4(2) of The Securities Act of 1933, as amended, for an exemption from registration on these shares. NOTE N - STOCK WARRANTS All warrants issued with the aforementioned convertible notes have expired. The Company has no issued and outstanding warrants as of April 30, 2007. NOTE O - RELATED PARTY TRANSACTIONS The Company accrues $30,000 per quarter (or $120,000 per year) for administrative service fees payable to KIK Polymers, Inc., the Company's controlling shareholder. As of April 30, 2007 and 2006, the Company has accrued an aggregate $510,000 and $390,000, respectively, in these fees payable. During Fiscal 2006, KIK Polymers advanced KTI $50,000 for working capital purposes. This advance is non-interest bearing and has no scheduled repayment date. During Fiscal 2007, KIK Polymers advanced KTI $150,000 for working capital purposes. These advances are non-interest bearing and have no scheduled repayment date. During the first quarter of Fiscal 2008, KIK Polymers advanced KTI $100,000 for working capital purposes. These advances are non-interest bearing and have no scheduled repayment date. NOTE P - COMMITMENTS AND CONTINGENCIES LEASED FACILITIES The Company leases its facilities under a non-cancellable operating lease, which expires in May 2008. The lease requires monthly payments as follows: $8,307 for the first 12 months; $8,639 for the next 12 months and $8,984 for the next 12 months. Rent expense incurred under this lease was approximately $110,680 and $108,597 for each of the years ended January 31, 2007 and 2006, respectively. Future amounts due under this agreement are as follows: Year ending January 31, Amount ----------- ------ 2008 $105,391 2009 48,585 -------- Totals $153,976 ======== 14 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED April 30, 2007 and 2006 NOTE P - COMMITMENTS AND CONTINGENCIES EMPLOYMENT CONTRACT KIK entered into an employment agreement with William M. Knooihuizen, the Company's current President and Director. The agreement started in May 2000 and was for an initial period of five (5) years at an annual salary in the amount of $143,000, to be paid weekly. Upon expiration in May 2005, the Company and it's officer agreed to continue this agreement in an unwritten form on an undefined, indefinite basis. NOTE Q - SIGNIFICANT CUSTOMERS During the years ended January 31, 2007 and 2006, respectively, the Company had four and three separate customers who were responsible for a significant portion of the Company's net revenues, accounts receivable and suppliers of various raw materials and components to the Company's manufacturing process. The following table shows the significance of these entities: Accounts Accounts Revenues Receivable Payable -------- ---------- ------- Year ended January 31, 2007 Customer A 46.42% 30.77% 45.35% Customer B 9.12 0.00 0.00 Customer C 5.86 16.30 0.58 Customer D 3.94 0.00 0.00 Others 34.66 52.93 54.07 ------ ------ ------ Totals 100.00% 100.00% 100.00% ====== ====== ====== Year ended January 31, 2006 Customer A 28.98% 10.74% 48.05% Customer B 25.73 3.48 0.00 Customer C 5.62 15.36 0.06 Customer D 6.28 11.08 0.00 Others 33.39 59.34 51.89 ------ ------ ------ Totals 100.00% 100.00% 100.00% ====== ====== ====== During the quarter ended April 30, 2007, these trends have continued to exist. NOTE R - SELECTED FINANCIAL DATA (UNAUDITED) The following is a summary of the quarterly results of operations for each of the years ended or ending January 31, 2008, 2007 and 2006, respectively.
Quarter ended Quarter ended Quarter ended Quarter ended Year ended April 30, July 31, October 31, January 31, January 31, --------- -------- ----------- ----------- ----------- YEAR ENDING JANUARY 31, 2008 Sales $ 312,923 Gross profit (35,164) Net earnings after provision for income taxes (182,934) Basic and fully diluted earnings per share $ (0.01) Weighted average number of shares issued and outstanding 25,321,865
15 KIK TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED April 30, 2007 and 2006 NOTE R - SELECTED FINANCIAL DATA (UNAUDITED) - CONTINUED The following is a summary of the quarterly results of operations for each of the years ended or ending January 31, 2008, 2007 and 2006, respectively.
Quarter ended Quarter ended Quarter ended Quarter ended Year ended April 30, July 31, October 31, January 31, January 31, --------- -------- ----------- ----------- ----------- YEAR ENDING JANUARY 31, 2007 Sales $ 596,844 $ 578,076 $ 277,577 $ 405,169 $ 1,857,666 Gross profit 143,541 69,814 (50,969) (37,068) 125,318 Net earnings after provision for income taxes (8,429) (86,327) (182,480) (164,812) (442,048) Basic and fully diluted earnings per share nil nil $ (0.01) $ (0.01) $ (0.02) Weighted average number of shares issued and outstanding 25,171,865 25,173,495 25,323,495 25,321,865 25,247,892 YEAR ENDED JANUARY 31, 2006 Sales $ 375,216 $ 541,296 $ 560,849 $ 469,708 $ 1,947,069 Gross profit 577 147,853 40,488 29,097 218,015 Net earnings after provision for income taxes (148,144) 3,207 (105,991) (130,359) (381,287) Basic and fully diluted earnings per share $ (0.01) nil nil $ (0.01) $ (0.02) Weighted average number of shares issued and outstanding 25,171,865 25,171,865 25,171,865 25,171,865 25,171,865
16 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (1) CAUTION REGARDING FORWARD-LOOKING INFORMATION Certain statements contained in this quarterly filing, including, without limitation, statements containing the words "believes", "anticipates", "expects" and words of similar import, constitute forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: international, national and local general economic and market conditions: demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings. Given these uncertainties, readers of this Form 10-QSB and investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. (2) RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES OR PLAN OF OPERATION OVERVIEW During the three months ended April 30, 2007 and 2006, respectively, the Company achieved revenues of approximately $313,000 and $597,000. These revenues were derived primarily from the sale of tire products. Net loss for the three months ended April 30, 2007 and 2006 was approximately $(183,000) and $(8,400), respectively. The net loss for each of these quarters includes a $30,000 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 for the three months ended April 30, 2007 and 2006, respectively, was approximately $(0.01) and $(0.00). On June 19, 2007, we filed a Current Report on Form 8-K outlining certain negative financial and operational trends. In summary, this filing highlighted certain disclosures in our Annual Report on Form 10-KSB (filed on or about April 30, 2007) related to raw material price increases which we are not able to fully pass through to our customers, the competitive pressures and difficulties in obtaining raw feedstock materials and our decline in our gross profit margin. Further, we continue to experience economic pricing pressures caused by foreign competition and increases in domestic raw material costs, which are directly related to the cost of crude oil from both foreign and domestic markets. In April 2007, our management attended an industry trade show in Las Vegas Nevada. As a result of being in attendance at this trade show, our management continues to be of the opinion that consumer demand for the Company's flat free tires remains strong and, with adequate working capital and availability of raw materials, could potentially increase in the next operating year. The Company's products continue to have strong demand at the consumer level and, although, the Company's raw feedstocks are petrochemical based, that the Company will be able to meet product demands and generate sufficient cash from regular product sales to support the Company's operations for the next twelve months. In the event that daily normal sales activities do not generate sufficient cash, management is of the 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. However, we have been unable to acquire sufficient additional working capital from either outside sources or its parent company, KIK Polymers, Inc. of Calgary, Alberta, Canada. Accordingly, the Company continues to experience negative cash flows from operating activities which negatively impact the Company's ability to meet its daily operational cash requirements. The ultimate resolution of the Company's financial difficulties, the ultimate impact on the Company's operations and the future ability of the Company's securities to be traded in an open market environment is unknown at this time. 17 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. THREE MONTHS ENDED APRIL 30, 2007 COMPARED TO THE THREE MONTHS ENDED APRIL 30, 2006 The Company posted net sales of approximately $313,000 for the three months ended April 30, 2007 as compared to net sales of approximately $597,000 for the three months ended April 30, 2006. The Company's cost of sales increased by approximately $105,000 to approximately $348,000 for the three months ended April 30, 2007 as compared to approximately $453,000 for the three months ended April 30, 2006. This increase profiles comparably to the increase in sales over the same calendar period of the previous year. The Company continues to experience certain price increases in key raw materials which cannot be fully passed through in their entirety due to competitive pressures from comparable products produced in Asian markets and continue to have difficulties in obtaining raw materials due to the lack of availability of adequate working capital. All other costs related to production were relatively stable from the end of Fiscal 2005 through the first quarter of Fiscal 2007. The Company continues to experience economic pricing pressures caused by foreign competition and increases in domestic raw material costs, which are directly related to the cost of crude oil from both foreign and domestic markets. Management is aware of this situation and continues to evaluate all productive alternatives to restore the gross profit percentages experienced in prior years. General and administrative expenses decreased nominally to approximately $145,000 for the three months ended April 30, 2007 to approximately $151,000 for the three months ended April 30, 2006. To the extent possible, management monitors and controls the variable expenditures related to the Company's administration; however, we are of the opinion that these costs are relatively stable as management has reduced all administrative costs to the minimum necessary to operate the Company. Included in these costs is a $10,000 per month ($30,000 per quarter) administrative charge to KIK Tire Technologies Inc., the Company's publicly-owned Canadian majority shareholder. LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents of approximately $832, $31 and $8.500 as of April 30, 2007, January 31, 2007 and April 30, 2006, respectively. The Company maintained business liquidity and capital resources during the year adequate to fund all capital and operating expense requirements. Operations were primarily funded from internally generated funds, line of credit borrowings, and capital raised via a private placement of securities in previous years. For the three months ended April 30, 2007 and 2006, net cash provided by (used in) operating activities was approximately $(94,400) and $(44,000), respectively. The negative cash flow for operations is a result of reduced sales volumes, increased raw material costs and increased costs related to energy (principally electricity and natural gas) consumed in the production process and maintenance of the Company's facilities. Cash used in investing activities was approximately $-0- and $(7,000) for each of the three months ended April 30, 2007 and 2006, respectively. The Fiscal 2007 cash utilizations were solely for the acquisition of equipment used in the manufacturing process. The Company experienced cash derived from (used in) financing activities of approximately $95,200 and $49,200 in the first three months of Fiscal 2008 and Fiscal 2007, respectively. Any expenditures in this area were solely related to payments on the Company's capital lease financing obligation. The Company received a $100,000 and $50,000 cash advance during each of the first quarters of Fiscal 2008 and 2007 from it's majority shareholder to provide additional working capital. Management is uncertain on the future operations of the Company without significant infusions of new working capital. 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. 18 REVENUE RECOGNITION The Company recognizes revenue from the sale of tires and accessories upon shipment to, or receipt by customers, depending upon contractual terms and when there is no significant uncertainty regarding the consideration to be received and the associated costs to be incurred. Additionally, the Company recognizes reductions of recorded revenue for product returns from unsatisfied customers and other billing adjustments or corrections, at the point that the returned products are received by the Company or upon the completion of negotiations between the Company and it's customer. ACCOUNTS RECEIVABLE The Company continuously monitors collections and payments from its customers and maintains an allowance for estimated uncollectible accounts based upon historical experience and specific customer collections issues that have been identified. Depending upon management's assessment of a customer's creditworthiness and order size, certain shipments are made on "COD" terms using common carriers. In the normal course of business, the Company extends unsecured credit to virtually all of its customers which are located throughout the United States and are principally concentrated in the midwest region of the country. Depending upon management's assessment of creditworthiness and order size, certain shipments are made on "COD" terms using common carriers. Because of the credit risk involved, management has provided an allowance for doubtful accounts which reflects its opinion of amounts which will eventually become uncollectible. In the event of complete non-performance, the maximum exposure to the Company is the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance. INVENTORIES Inventories are valued at the lower of cost or market. Cost is determined principally on the average cost method. The Company regularly reviews inventory quantities on hand and records, when necessary, a provision for excess and obsolete inventory based primarily on the Company's estimated forecast of product demand and production requirements for the next twelve months. Demand for the Company's products can fluctuate significantly. A significant increase in the demand for the Company's products could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand. In addition, the Company's industry is 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 19 periods. The Company has not issued any stock options since the adoption of SFAS 148 and has not experienced a material impact on our results of operations or financial condition. In December 2004, the FASB issued SFAS 123(R), "Share-Based Payment." SFAS 123(R) amends SFAS 123, "Accounting for Stock-Based Compensation," and APB Opinion 25, "Accounting for Stock Issued to Employees." SFAS 123(R) requires that the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. SFAS 123(R) applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for those held by an ESOP) or by incurring liabilities (1) in amounts based (even in part) on the price of the entity's shares or other equity instruments, or (2) that require (or may require) settlement by the issuance of an entity's shares or other equity instruments. This statement is effective (1) for public companies qualifying as SEC small business issuers, as of the first interim period or fiscal year beginning after December 15, 2005, or (2) for all other public companies, as of the first interim period or fiscal year beginning after June 15, 2005, or (3) for all nonpublic entities, as of the first fiscal year beginning after December 15, 2005. There was no significant impact to the Company's financial statements upon the adoption of SFAS No. 123(R). ITEM 3 - CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of April 30, 2007. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to our Company required to be included in our reports filed or submitted under the Exchange Act. (b) Changes in Internal Controls There were no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the quarter ended April 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS None ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None ITEM 3 - DEFAULTS ON SENIOR SECURITIES None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company has held no regularly scheduled, called or special meetings of shareholders during the reporting period. ITEM 5 - OTHER INFORMATION DIRECTOR RESIGNATION On June 18, 2007, the Company's management and Board of Directors received a Letter of Resignation dated June 15, 2007 from Mr. Kuldip C. Baid, the Company's former Chief Financial Officer and member of the Company's Board of Directors, effective as of that date. While Mr. Baid did not specifically state a reason for his resignation, management and the Board of Directors believe the event is related to the Company's financial condition and Mr. Baid's relationship with the Company's Canadian based majority stockholder, KIK Polymers, Inc. Mr Baid was provided with a copy of our initial disclosure in a Current Report on Form 8-K and he verbally advised the Company that he had no issues or disagreements with the information disclosed. As a result of Mr. Baid's resignation, Mr. William Knooihuizen assumed the position of Acting Chief Financial Officer. 20 ACCOUNTING FIRM MATTERS On June 14, 2007, the Company received a demand notice from its Registered Independent Certified Public Accounting Firm. The key segments of this demand notice are as follows: "KIK Technology International, Inc. (Company) is seriously delinquent in the payment of its indebtedness to S. W. Hatfield, CPA for professional services related to the performance of the review of your financial statements for the respective quarters ended July 31, 2006 and November 30, 2006; the performance of the examination of your financial statements in accordance with auditing standards established by the Public Company Accounting Oversight Board (United States) for the year ended January 31, 2007; and the performance of certain requested procedures related to the reliance on our audit work as it relates to the Company's financial statements and the integration thereof into the financial statements of the Company's parent company, KIK Polymers, Inc. BE ADVISED THAT FINANCE CHARGES HAVE ACCRUED FROM THE DATE OF INITIAL INVOICE, AT THE AGREED-UPON RATE OF 21.0%. DEMAND IS MADE FOR PAYMENT IN THE AMOUNT OF $24,266.79. SEE THE ATTACHED CALCULATION. THIS DEMAND IS AN ATTEMPT TO COLLECT A DEBT. ANY INFORMATION YOU PROVIDE MAY BE USED TO ASSIST IN THE COLLECTION OF THIS DEBT. PAYMENT IS TO BE MADE IN U.S. DOLLARS, VIA WIRE TRANSFER, NO LATER THAN 12:00 NOON, MONDAY, JUNE 25, 2007. WIRE INSTRUCTIONS WILL BE PROVIDED. In the event that payment is not received by the due date, interest will continue to accrue at the agreed upon rate. Further, failure to pay will result in the filing of a lawsuit against you seeking all past due amounts, and attorney's fees." While the Company has made a partial payment on the demands of the Company's Registered Certified Public Accounting Firm, we have not been able to fully comply with the demands and satisfy the outstanding balance(s) due. Due to this payment in good faith, our auditors agreed to and have reviewed this filing and the financial statements contained herein. However, in the event that we are unable to fully satisfy our financial responsibilities, management that our understands that a withdrawal of either the respective Independent Accountant's Review Report or Report of Registered Independent Certified Public Accounting Firm on any or all of the Company's financial statements as contained in either Quarterly Reports on Form 10-QSB or Annual Reports on Form 10-KSB remains a distinct possibility due to our non-payment for the related assurance services. In the event that the Company's auditor commences legal action and/or withdraws previously issued periodic review reports or annual audit reports due to non-payment for services, there will be an immediate negative impact on the trading ability of the Company's equity securities. Further, our auditors will resign due to independence issues and the litigation. The Company will then be required to engage new auditors to fulfill the Company's reporting requirements under the Securities Exchange Act of 1934. Due to the Company's financial condition, it is uncertain that the Company will be able to engage successor auditors. ITEM 6 - EXHIBITS Exhibits 31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 - Chief Executive and Financial Officer 32.1 Certifications pursuant to Section 906 of Sarbanes-Oxley Act of 2002. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KIK TECHNOLOGY INTERNATIONAL, INC. Date: June 14, 2006 By: /s/ William M. Knooihuizen ------------- -------------------------------- William M. Knooihuizen Chief Executive Officer and Acting Chief Financial Officer 21