10KSB 1 technicalvent.txt 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C.. 20549 FORM 10-KSB [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2001 [ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 33-2775-A TECHNICAL VENTURES INC. (Exact name of registrant as specified in its charter) New York State 13-3296819 (State or other Jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 3411 McNicoll Avenue, Unit 11 Scarborough, Ontario, Canada M1V 2V6 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (416) 299-9280 Securities registered pursuant to Section 12 (b) of the Act: NONE Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $.01 Par Value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained to the best of registrant'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 [ ] State Issuer's revenues for its most recent fiscal year, $1,281,848 The appropriate aggregate market value of the voting stock of the Registrant held by non-affiliates of the Registrant as of September 30, 2001 (based upon the average bid and asked prices as reported by the National Association of Securities Dealers Automatic Quotation System) was approximately $1,225,291 . The number of shares outstanding of the Registrant's common stock, as of Sept ember 30, 2001 is 27,163,006. Exhibit index is located on page 22 of this Annual Report on Form 10-KSB. Page 1 of 49 TECHNICAL VENTUES INC. FORM 10-KSB A Fiscal Year Ended June 30, 2000 ITEM Table of Contents PAGE PART I Item 1. Business 3-11 Item 2. Properties 11 Item 3. Legal Proceedings 12 Item 4. Submission of Matters to a Vote of Security Holders 12 PART II Item 5. Market for Registrants Common Equity and Related Stockholder Matters. 13 Item 6. Management's Discussions and Analysis of Financial Conditions and Results of Operations. 14-19 Item 7. Financial Statements and Supplementary Data 19 Item 8. Changes in Disagreements with Accountants on Accounting and Financial Disclosure. 19 PART III Item 9. Directors and Executive Officers of the Registrant 20 Item 10. Executive Compensation 20 Item 11. Security Ownership of Certain Beneficial Owners and Management 21 Item 12. Certain Relationships and Related Transactions 22 PART IV Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8 K 23 Signatures 24 -2- 3 Item 1. Business Introduction: Technical Ventures Inc. (the Company) is a New York corporation formed on June 14, 1985 to raise capital for the purpose of seeking business acquisition possibilities throughout North America. The primary objective of the Company was to search for a business which in the opinion of its management, demonstrated long-term growth potential that would warrant involvement. On April 14, 1986, the Company acquired all the issued and outstanding shares of common stock of Mortile Industries Ltd. (Mortile) a Canadian corporation. Prior to April 1992, the Company had been considered to be in its development stage. The market in which Technical Ventures operates has had increased demand for products that meet certain requirements whether by companies or government legislation. These demands are met with TVI's products and services. The Company has entered into a unique market niche that allows them to specialize in the production of the products to meet their clients needs and provide the technical support that may be needed. TVI has the capacity to tailor their production for each customers' requirements. Working closely with its client base in order to maintain good customer relations and help fully satisfy their needs, the Company is set apart from the others in the industry due to the technical support staff and direct distribution of the products. Technical Ventures Inc.'s subsidiary Mortile Industries Ltd., deals in the design, development, and manufacturing of proprietary polymer, composite and specialty compounds; additionally Mortile compounds proprietary formulations of the customer. The applications for TVI's products expand into every area of plastics. Repeat business is also high, due to the technical complexity of their products and the loyalty to TVI by it's customers. Since inception, the Company has expended $ 3,212,239 US in the development of it's products, including $56,636 in fiscal 2001, $74,053 in fiscal 2000, $76,850 in 1999. The Company's present operations, assets and employees are primarily those of Mortile. At June 30, 2001 the Company has fourteen full time employees, all being employees of Mortile. Having built the background in technology, products and with management expertise, customers suport, future planning strategies and with financial backing; Technical Ventures and it's subsidiary Mortile Industries is ready for rapid growth. -3- Product & Service Description: TVI has developed, manufactured, and sold a wide range of specialty resin materials for applications to many large multinational firms across the globe. The products have the means to lower their client's cost of raw materials while maintaining the product's performance. This has led to several reputable firms taking notice of the Company's achievements. Subsidiary, Mortile Industries Ltd., deals in proprietary polymer/ thermoplastic compounds, composite compounds (a composition of plastic with other powdered materials), and specialty compounds which it produces by mixing and pelletizing proprietary formulations specified by its customers. It is engaged in the design, development and manufacture of highly engineered specially formulated, high performance polymer materials. Products and services are sold to end-use manufacturers in the industrial equipment, transportation, electronics, munitions and process industries markets. Some of the Company's keys to success are: Success rate and performance of the Company's products Technical expertise and background of scientists and engineers Technical support provided for customers Global patents and licenses on the technologies Strategic alliances with large multinational firms Timing in a market where change is needed. The development of the products and service by TVI has been a lengthy process. However, with the massive amounts of stringent tests on products and the very promising results, the management believes the market potential of the products will justify the time and costs. Technologies: Technical Ventures Inc. has focused its efforts on the development of proprietary thermoplastic compounds (plastics mixed with other solid materials) and specialty compounding which the Company produces by compounding and pelletizing proprietary formulations specified by its customers. Polymer Technologies A polymer consists of chains of molecules, called monomers, that combine or polymerize (normally with help from a catalyst) to form large molecular structures. Polymers are very versatile materials. For example, they can be cast into molds to create intricate structures, extruded through a spinneret to make fibers, or blended with liquids - including water - to make coatings, adhesives and thickeners. As a result, polymers have replaced, and continue to replace, natural products such as metal, wood, paper, cotton and glass in a broad range of applications. Moreover, the substitution is not driven primarily by cost, but by the increasing desirability of polymers based on their versatility and performance characteristics. Two common types of polymers are thermoplastics and thermosets which, collectively, are referred to as plastics. Thermoplastics are the most common synthetic polymers. They are relatively inexpensive, light and durable, but not particularly strong. -4- 5 Thermoplastics can be remelted at relatively low temperatures, thus making them recyclable. They are used in structural applications where exposure to high stress and heat are not concerns Common thermoplastics include polyethylene, polypropylene, polystyrene and polyvinyl chloride. Other thermoplastics such as engineering resins, which typically have higher strength and performance, include nylons and polycarbonates. Thermosets polymerize at relatively high temperatures, normally through mixing with an initiation compound. During polymerization they are cross-linked, a process that increases their strength and durability relative to thermoplastics. They are generally stronger, more heat resistant and more difficult to process than thermoplastics. Common thermosets include epoxies most polyurethane's, unsaturated polyester, melamine and phenolics. Thermosets, however, cannot be re-melted or recycled. In light of growing environmental pollution concerns, It is expected that the plastics industry will be forced by legislation to develop and manufacture plastics that are recyclable or to include recycled content. The plastics industry has undertaken extensive research to develop cost-effective thermoplastic products that are both durable and flame-retardant, particularly for applications in the wire, cable, transportation and construction industries. Flame resistant polymer compositions have been available for many years. However, many such compositions relied on the presence of halogen based compounds to yield flame-retardancy. Halogen based compounds, on combustion, emit toxins including gaseous chlorine and bromine compounds. Other retardants can emit hazardous sulfur, cyanide and phosphorus gaseous compounds. Concerns by environmentalists worldwide have resulted in increased pressure on manufacturers of polymer-based products to eliminate plastics with such potential dangers. TVI is working toward eliminating the halogens in certain polymer technologies while maintaining the same degree of flame-retardancy . In addition, the recycling of some plastics will be easier with the added polymer technologies of TVI. As the industry becomes more and more legislated by governments with regard to the environment, TVI plans to further explore the development of their substitute products to the industry. TVl's polymer compounds meet the current requirements of customers while adhering to the laws of the government. Composite Technology: The object of composite technology is to mix plastic binders with powder materials of choice, and to prove specified strength and durability designed f or use In a variety of plastics and foaming processes including injection, molding and extruding. The end result is a material that is both strong and durable, yet has flexible design options so it can be used in injection molding applications. Injection molding is a process by which a compound is heated to a fluid state and injected into a cavity mold in the shape or form and density required. The fluid compound flows to the shape of the mold and is cooled to a solid state and then removed. Injection molding is a significantly less expensive alternative to machining and die casting. This process reduces the cost of machining and die casting significantly . By applying existing technology to new ideas, TVI can successfully produce, for example, metal/plastic compounds suited to meet demand for the replacement of lead and other metals in many applications. -5- Opportunities to market these compounds exist in a variety of industries including automotive and munitions. Specialty Compounds Technology: Specialty compounding may be defined as the compounding and enhancement of the customer's proprietary formulation(s) into pellet form, which is a semi- manufactured form. This process involves the customer's presentation of required mix components, the physical mixing of the components, and then pelletizing the compound. Component raw materials for this process may be supplied by the customer or purchased on behalf of the customer. Practical and technological expertise was gained from the use of the compounding and mixing machinery purchased in 1989. Laboratory and test facilities, which have now been put in place, have allowed the Company to secure major customers in their market. One aspect of this service is what is known as master batches. This is the pre- dispersion of highly concentrated powders, which are to be mixed and diluted by "letdown" with resins in the final stages of manufacture. The predisposed powders are added to the resins at the end-user extruder or molder. Typical master batches are: foaming agents, sulfur, zinc oxide, flame retardants, curing agents, processing aids, antioxidant stabilizers and slip and anti block agents. A large portion of TVI's revenue for fiscal year end 2000, and the majority of efforts have been concentrated on specialty compounding. In this business unit, the customers retain the Company to enhance and compound their proprietary formulations into a pellet form. With the assistance of the customer, TVI formulates the most effective and efficient method to mix the components. Customers who retain TVI for specialty compounding are manufacturers of end-use plastics and plastic products. Generally, many manufacturers of these products do not compound component materials into a pelletized form themselves prior to manufacturing end products. However, an increasing number of manufacturers prefer this process because it provides for a more perfect dispersion of component materials which are often in powder form and streamlines their thermoforming systems. Specialty compounding is particularly useful when manufacturing components are reactive. For example, reactive components are used In the curing or cross-Inking of rubber or plastic. Additionally , because powder components are difficult to work with, manufacturers prefer to work with pelletized master batches, as there are less environmental risks. TVI is fully capable of providing their customers with this pelletized form for ease of use and safety. Research and Development The research and development of the aforementioned technologies is targeted to establish as much technical and test data information needed to provide the technical sales staff and potential customers with the technical sales information. Product technical sales brochures are developed in order to inform potential customers and employees of the comparative benefits of TVI products. Future development of products will focus on specific problems experienced in the marketplace and attempt to solve these problems with potential customers. There are thousands of injection molders and extruders operating with many different polymer and die configurations. The trained technical staff will be -6- called upon to satisfy the customers' needs. Research and development will also continue to add additional products to meet the market requirements. Patents TVI sold significant patented and proprietary technologies to the Dow Chemical Company in 1998, but retained certain licenses and rights to use these. It also has developed other proprietary technology and trade secrets. Since all manufacturing is "in-house" , the Company is able to protect its technology and quality while continually improving the product to maintain the customer loyalty. Products Technical Ventures, Inc. is very close to its customers and their needs, which allows it to identify areas of opportunity that may be exploited. It has developed a range of materials, having broad applications such as fillers, foaming agents, and pigment extenders. This product group delivers unique user benefits, such as smaller consistent cell size, which produces a stronger product and/or higher foaming capability . This translates into a lower raw material cost, which in turn reduces cost for the end-use manufacturer. The market for the product is large with a potentially large application in the automotive and construction market worldwide. Polymer Compounds: TVI has developed, manufactured and sold one type of flame retardant, nontoxic, thermoplastic compound. It minimizes the hazards of fire and can be easily processed into end-use products. The Company has conducted extensive re search and testing with regard to the use of this product in the construction and transportation industries. The performance test results have concluded that TVl's thermoplastic products, when burned, emit none of the toxins discussed earlier. Additionally, the products possess anti-combustion, low toxicity attributes and are considered to be superior to other products presently available. Although the sale of TVI's thermoplastic products has not represented a significant portion of revenues to date, it is believed that these products have significant market potential. Product roll out of these polymer compounds should increase with the expansion of manufacturing facilities. Composite Compounds: Using composite compounds, TVI has successfully produced metal/plastic materials that can be used in many applications as a replacement for lead and other metals. Presently, the Company supplies this product for use in munitions, fishing sinkers and lures, and for bushings in copiers and fax machines. Also, the Company is expected to market metal replacement compounds in the automotive, construction and firearms markets. Many laws constraining use of lead are currently being reviewed by governments around the globe. A replacement will be needed for lead in munitions, fishing sinkers and lures, and various other lead based products. TVI can provide this replacement material with their composite compounds with none of the hazards that lead poses to the environment. - 7 - Specialty Compounds: TVI has been selling a reinforcing agent used to increase the stiffness of plastics used for crates and component parts. The product has been thoroughly tested in incubator trays for the poultry industry and will now be offered to the industry at large. The largest potential product is a specialty compound called Morfoam. It acts as a chemical foaming agent, nucleating agent and processing aid which undergoes an endothermic chemical reaction at processing temperatures. This reaction produces a gas resulting in fine cell structures in extrusion and molded parts. The Morfoam technology combines a chemical foaming agent, nucleating agent and processing aid into one easy to use master batch. Morfoam is a multi-component chemical concentrate encapsulated in a polyolefin carrier. Morfoam is produced in pellet form in order for customers to easily blend or meter into a wide range of polymer products. As a foaming agent Morfoam produces a uniform cell structure that can reduce part densities by 40% or more. The fine foam structure also increases opacity, which allows for lower titanium dioxide levels in film and sheet The inherent fine particles in Morfoam also act as an efficient nucleating agent generating large quantities of fine closed cells. Morfoam also improves cell structures and reduces voids when nitrogen is used as the primary foaming agent. Morfoam can be used as a processing aid in extrusion and injection molding for improved output rates, reduced cycle times and enhanced surface appearance. Morfoam also reduces part stresses, sink marks, pinholes and furthermore acts as an efficient purging/cleaning agent. During fiscal year 2001, TVI continued to work closely with three customers developing all types of compounding methodology for each customer's proprietary component formulations; providing compounding services for Shaw Industries formulation for an industrial pipe wrap and coating, compounding services for MLPC International's formulations for various proprietary rubber curing compounds and additonally, Fin Project's proprietary formulation for the footwear industry was also on the list of TVI's customers. Because TVI retains these and other large multinational firms as current clients, with their large demand for the Company's material, TVI plans on steadily increasing supply of the Company's products to them as capacity allows, thereby increasing revenues and profits. The reputations of these clients provide valuable references for obtaining new customers as well. Revenues And As percentage of Consolidated Contract Revenues CUSTOMER 2001 2000 1999 Endex Polymer Additives ** 0 - 0 % $ 0 - 0 % $ 18,431 - 1 % MLPC International $300,794 - 27 % $334,694 - 25 % $341,794 - 22 % Shaw Industries Ltd. $961,610 - 58 % $749,713 - 56 % $705,282 - 43 % SNC Industrial Technologies 0 - 0 % $ 0 - 0 % $200,005 - 12 % **Note Item 3 - Legal Proceedings - 8 - Pricing The pricing structure of existing competitors has been evaluated and the products and compounding services are priced at the median. Since our products do not form a major part in the pricing of the finished goods, it is felt that the performance and product support will contribute most in the buying decision. TVI has more to offer customers with respect to product performance and the technical support staff that can assist customers applications. Warranties & Service Contracts The product is supplied with a certificate of analysis confirming that it meets the required specifications, which is one mandatory requirement of ISO 9000 companies. No warranties are attached since TVI cannot monitor the processing conditions of use. There are no service contracts necessary, however, the Company's technical staff will assist customers if requested to do so. Marketing Market Niche TVI has positioned itself to pursue niche markets where the following standards are essential: 1. The ability to achieve superior dispersion of powders into the resins. 2. Use of air-cooled heads for moisture sensitive materials. 3. Use of nitrogen blankets for cooling in high humidity . 4. Fast turn around of small orders. 5. Equipment designed for ease of cleaning with minimum downtime and wastage. In this market there are three distinct advantages: equipment, personnel, and size. The equipment was selected to achieve good dispersion in the proprietary polymer and composite technology. Company personnel, consulting scientists and chemists enable it to work closely and cooperatively with customers to meet their specific needs. The Company's size allows it to direct immediate attention to existing and potential customers in a cost- effective and timely manner. Market Research Market research has been concentrated on the endothermic foaming agents business and it was established that this represented the fastest growing segment of the market. Further marketing research pertaining to customer needs and competition is discussed later in this section. TVI has identified over 400 potential customers from trade sources. Further, over 500 potential users have been located in a specific region of the United States. All of these are potential clients, and has been aggressively seeking business through the introduction of their products to these users. Responses from these companies have been favorable and will lead to a larger customer base. - 9 - The results of our pre-marketing survey established that the market was not well served. This information was obtained by test marketing reports and meetings with potential customers. This has convinced TVI that their timing in this market is opportune. Research was also conducted on product performance with specific attention pertaining to competition, our products out perform the competitors in most aspects. These factors give the ability to leap the barriers to en ter and penetrate this market. The customer base will grow with direct proportion to the rate the company can grow to suit the needs of those customers. Market Growth Market review indicates that growth in plastic consumption is solid over the five years researched. The market size data shows the diversity of the market potential as well as the size of the opportunity. Competition Many competitive products have been evaluated in our laboratory and in the field by potential customers, and TVI's performance surpassed the competition's. Our products will have the competitive edge of performance and price, with special attention being paid to our technical support program, which builds brand equity among the customers. The research and development effort has been geared toward a superior product at a competitive price. The Company's own manufacturing controls the processing cost. Therefore, as the business becomes further developed, lower overheads and less costly distribution channels are anticipated for TVI. Furthermore, during test marketing it was found that the large competitors were relying on distributors and agents that had limited technical experience in plastics. Once again, TVI will have the advantage over the competitors building long-term relationships and customers directly. Competative Advantages Corporations such as Exxon, DuPont, Union Carbide, Raychem and Megalon re present the most widely recognized competition with our polymer technology; all are substantially larger in terms of financial, marketing and research and development resources. Dow Chemical purchased some of TVI's technology in 1998. Lucent Technologies has assigned the product the highest quality rating, after subjecting the product to a five year rating program. The application of the polymer technology in wallboard is still the only plastic in its field to pass certain fire codes for high rise buildings. Additionally, in other applications where the product is being tested, customers observed that TVI's polymer technology out performs the competition. In regard of composite technology; the Company has been able to achieve the highest filler levels to obtain maximum specific gravity and has no competition. There is patent protection through a licensing agreement with DuPont Canada, as it pertains to fishing sinkers and lures. The Company's composite for bushings for copiers and fax machines provides the scenario that is extremely difficult if not impossible to reverse engineer. However, as the product becomes more technical compounders such as L&P and others exist and continue to develop, as does the Company. - 10 - Compounding, Specialty (Contract); in this market there are three distinct advantages, equipment, personnel and size. The equipment was selected to affect good dispersion in the proprietary polymer technology and composite technology. Company personnel and associations with consulting scientists and chemist enables it to work closely and co-operatively with customers to meet their needs. Company size allows it to direct immediate attention to existing and potential customers in a cost effective and timely manner. Efforts are directed to "niche" markets where the following criterion is essential: fast turn around of small orders, equipment designed for ease of cleaning at minimum downtime and wastage, air cooled die heads for moisture sensitive materials, excellent dispersion of powders into the resins and nitrogen blankets for cooling in high humidity. Backlog Information: At June 30, 2001 there waS a backlog of orders totalling $112,562 US. Item 2. Properties TVI currently leases 17,300 square feet of office and production facilities at 3411 McNicoll Avenue, Scarborough, Ontario. With a total monthly base rent of $7,967 (Canadian) exclusive of real estate tax escalations. The current leases [2] expire on March 31, 2002. -11- Item 3. Legal Proceedings A legal action was commenced against the Corporation, its subsidiary , Mortile Industries Ltd., their President, Frank Mortimer and the Dow Chemical Company, on June 4,1999 in the Ontario Superior Court of Justice (Commerical List); by a former customer, Endex Polymer Additives Inc., Endex Polymer Additives Inc. (USA), Endex International Limited and G. Mooney And Associates. The Dow Chemical Company is defending separately. The claims allege breach of secrecy agreements, fiduciary duty and misuse of Endex confidential information. The Plaintiffs are seeking CND $10 Million compensatory damages, further punitive damages of CND $1 Million and interlocutory and permanent injunctions. Based on prior written legal opinions from its patent attorneys that the allegations are without merit, the Corporation retained a law firm specializing in Intellectual Property Law and is vigorously defending the action. After submission of the Defendants' evidence, the Plaintiffs abandoned their claim for an interim injunction. The Defendants have moved for an expeditious trial. The Court has ordered the parties to combine the examinations for injunction proceedings with those for the preparation for trial. On September 16-17, 1999, at the hearing of the interlocutory injunction motion, the parties agreed, on consent, to adjourn the motion until trial. The parties agreed to expedite the matter to trial with an original target date of about December 1999. At June 30, 2001 no further direction had been received by the company's counsel as to when the matter might proceed to trial nor had any direction been received at the date of filing this report. Item 4. Submission of Matters to a Vote of Security Holders None -12- PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters Market Information: The Company's common stock has been publicly traded since March 21, 1986 on the over-the- counter market. The following table sets forth the quarterly high and low bid quotations as reported by the National Quotation Bureau Incorporated, a registered securities association: Quarter Low High June 1999 $0.105 $0.330 Sept. 1999 0.125 0.330 Dec. 1999 0.115 0.250 Mar. 2000 0.130 0.840 June 2000 0.200 1.070 Sept. 2000 0.180 0.300 Dec. 2000 0.050 0.215 Mar. 2001 0.050 0.080 June 2001 0.040 0.075 Sept. 2001 0.030 0.070 These prices do not reflect retail mark-up, mark down or commissions and may not represent actual transactions. Holders: As of June 30, 2001, there were approximately 1,000 shareholders of record. Dividends: To date no dividends have been paid to its shareholders. The Board of Directors of the Company will consider the payment of dividends when it deems it appropriate to do so, taking into account current and potential Federal and State regulatory restrictions, the Company's income and financial condition, economic conditions and other factors. However, no assurance can be given that dividends will ever be paid to shareholders. -13- Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources GOING CONCERN (Note 1), Significant operating losses have been sustained since its inception and there is substantial doubt as to the ability to continue as a going concern. Continued existence is dependent upon the ability to generate sufficient cash flow to meet obligations on a timely basis. It is not expected that cash flows from operations in the immediate future will be sufficient to meet the requirements and as a result additional financing is required. During the year ended June 30, 2001, the operating loss was funded primarily by working capital provided by a Canadian Tax Refund, shareholder loans and an increase in accounts payable and accrued expenses. Continued operating losses and monthly debt service requirements hinders the ability to meet monthly cash flow requirements. During fiscal 2001 tax refunds of $45,203 were received. A claim for fiscal 2001 of approximately $23,000 will be filed. The tax department has notified of their intent to audit all such claims submitted. Two long term debt financing arrangements, Note 4, are in arrears, as such these debt's continue to be reflected as current liabilities on the June 30, 2001 balance sheet. The long term debt in default, including both principal and accrued interest is as follows: ODC [formerly IOC] is $636,310 CND; FBX Holdings $202,056 CND. Debtor FBX Holdings, clearly understands the position and as such has verbally agreed to a moratorium on principal repayments until a financial position exists allowing a payment [s] or, alternatively, suggest an acceptable method[s] of settlement; On April 9th, 2001 notification was received that the Ontario Development Corporation [ODC] had accepted, subject to the execution and delivery of definitive agreements, the offer to extinguish the ODC's investment in the Company's 70% owned subsidiary (Mortile). The offer to purchase the portfolio for an aggregate amount of $130,000. CND. The amount is payable as follows: $50,000 CND - 120 days from the closing under the definitive agreements and $80,000. CND - 245 days from the closing under the definitive agreement. The agreement sets out a first payment of $50,000 CND which is payable on October 23, 2001 and the final payment of $80,000 CND is due and payable on February 25, 2001. Additionally, interest of 8% per annum, calculated monthly, including default and judgement, until such time as actual payment plus interest is made. The purchase will be funded through investment in the company. During fiscal year 2001, a total of 2,315,975 Restricted Common Shares, were issued. Eliminating $157,646 long term debt, $49,061 in principal and accrued interest of an 8% Debenture holder and, additionally, paying $32,072 in operating expenses. - 14 - Management does not consider these sources of funds (assuming the above tax refund claims are accepted) to be a long-term solution to financial needs and efforts are being made to complement these funds with additional debt or equity financing. TVI continues to explore all opportunities in respect of it's financial requirements. Additionally, if it is deemed to be in the best interest of its stockholders, serious consideration will be given to raising additional funds through private or public equity issuance's in the future. In this regard concluded in late January 1999, a Private Offering under Regulation D of the Securities Act of 1933. The offering consisting of 8% Convertible Debentures in the aggregate of $225,000 US; additionally as part thereof, Non RedeemableWarrants of a three[3] year term, allowing the investor to purchase shares of the Corporation's Common Stock. In addition the offering provided for a subscription agreement and registration agreement. Cash flow resulting from the debenture offering was used to reduce current trade payables and sustain on going operating expenses. Accordingly the appropriate number of shares from the authorized and unissued shares of Common Stock for issuance (i) upon conversion of the Debentures and exercise of the Warrants issued in connection with the offering and had prepared and filed with the Securities Exchange Commission, a Registration Statement on Form SB-2 to register the shares of the Corporation's common stock underlying the Debentures, Warrants and the shares of common stock issued for legal services rendered and for services rendered in relation to the private offering. Conversion price of the debenture is equal to 75% of the "Market Price". "Market Price" being defined as the average of the closing bid prices of the Common Stock during the 10 trading days immediately preceding conversion, but not more than the "Fixed Conversion Price" which is defined as the 100% of the average of the closing bid price during the 10 trading days prior to the closing date ("Closing Price"). The Non Redeemable Warrants [ three year term] will allow the investor to acquire a number of shares equal to the total investment amount divided by the closing price multiplied by 10%; with an exercise price equal to the Fixed Conversion Price. Additional expenses associated with this transaction are as follows; finder's fee equal to 8% of gross proceeds raised or $18,400, legal expenses for both and of approximately`$15,000., payable on closing. Should any Registration Statement filed relative to this offering not be effective within 120 days from the closing payment to the investor of 2% of the principal amount of the Debenture for each 30 day period thereafter [prorated for partial periods] until the registration statement is effective, becomes an obligation. In that regard and and in accordance with the Private Offering, a Registration Statement on Form SB-2. was filed with the Securities Exchange Commission, on April 8, 1999. Additionally, in response to S.E.C. comments and in aggregate, 3 amendments were made to the Registration Statement Form SB-2, with the last amended filing being completed in April 2000. S.E.C. comments regarding the last filing were received in June 2000. At the date of this report no further amendments or responses have been filed and therefore the registration statement had not become effective and application for withdrawal has been completed. - 15 - No significant capital expenditures are anticipated during fiscal 2001, however, if the market develops to the extent indicated by introduction of the Company's new product "Morfoam" to many various potential customers, it will necessitate immediate expansion of existing warehouse facilities by approximately 30% and consideration of acquiring additional manufacturing equipment necessary to performing a relative manufacturing function in house rather than contracting the work to an outside firm. Significant property and equipment purchases and/or expansion of facilities will only be considered if demand for Company products warrant such expansion and the financing of such expansion would not adversely effect the Company's financial condition. Based on projections provided by existing customers, management expects increased sales in all areas of it's expertise, during fiscal 2002. Additionally, on September 19, 2000 reached agreement in principal to acquire control of Multi-Web Lamination Inc. a Canadian corporation located in Woodbridge, Ontario, Canada; in consideration of certain commitments, to take place over the next 30 - 60 days, one of which being a Definitive Agreement to be concluded by no later than November 1, 2000. Multi-Web Lamination will survive as a corporation, as a wholly owned subsidiary of. Multi-Web currently has annual sales of $1 Million CND and is forecasting sales of $2 Million CND during the current financial year. A Letter of Intent was signed on October 1, 2000 outlining the basic agreement, subject to the purchase being effected in accordance with a negotiated definitive agreement containing representations and other terms, in which will acquire control of all outstanding shares of Multi-Web Laminations Inc. in exchange for 2,125,000 Restricted Common Shares of Technical Ventures Inc. . Talks with Multi-Web were put on hold during the final stages of negotiations with the Ontario Development Corporation, these talks have now resumed to explore the feasibility of a merger or strategic alliance. Multi-Web has sales of $1.5 million but is limited to the Canadian market due to the cost of raw materials in the USA. Technical Venture's in co-operation with Multi-Web, manufacturers of CushionAir underlay, have an excellent opportunity to enter into this segment of the market with it's large potential for consumption of the unique underlay on offer from the new venture. Multi-web currently supplies large box stores like Home Depot, and has generated a lot of interest from the carpet industry. Additionally, the patented rotary mould with it's well tested and proven benefits, offers a product destined to generate a great deal of market acceptance. Multi-web is looking for resources to expand. The cross linked polyethylene product has superior attributes over urethanes and rubber under- cushion, the main competitors. The product contains no clay fillers or latex, nor is there any presence of cyanide or formaldehyde present in some products currently in use. Furthermore, after passing through the rotary mould, cushionaire has 280% more support capacity than the best high-end rebound product on the market. Cross linked polyethylene products are closed cell and therefore waterproof. This prevents the mildew and mold growth where moisture is present. The underlay will therefore not absorb excess carpet cleaning chemicals or spills as well as soiling. - 17 - Results of Operations - Comparison of Fiscal 2001 To Fiscal 2000: For the fiscal year ending June 30, 2001, TVI incurred a loss of ($327,696) on net sales of $1,281,848 million. Net sales revenues decreased 6 % when compared to fiscal 2000. The majority decrease taking place in specialty compounding work, however, this decrease was partially offset by a major increase [116 %] in sales revenues from proprietary products. In comparison, fiscal 2000 incurred a loss of ($784,270) on net sales of $1,367,450. Reflecting the extrordinary income of tax refunds for Research & Development, the operating loss becomes $372,556 in fiscal 2001. Similarly in fiscal 2000, reflecting the extraordinary tax refunds, the operating loss became $808,468. Gross margins of $252,243 in fiscal 2001, as a percentage of net sales, decreased to 20 % from $311,174 or 23 % for the year ended June 30, 2000. The decline in gross margins is due in part to the mix of customers, with a major portion of the revenue earned in fiscal 2001 coming from clients for which the purchases the raw materials and compounding is provided, charging the client accordingly; margins for this segment of the business are lower because of very competitive circumstances and, as well, the increase in the company's proprietary products`sales. Sales by geographic area for the fiscal year ended June 30, 2001 and 2000, in US$ are as follows: Geographic Area 2001 2000 United States $205,096 $ 73,801 Canada 769,110 964,611 France 307,642 329,038 $1,281,848 $1,367,450 Sales by product line for the fiscal year ended June 30, 2001 and 2000, in US$ are as follows: Product Line 2001 2000 Specialty Compounding $1,083,313 $1,258,814 (including Composite) Polymer Technology 182,426 98,618 Miscellaneous 16,109 10,018 $ 1,281,848 $1,367,450 Net sales revenues for the period ending June 30, 2001 and 2000 are catagorised as follows: Category 2001 2000 Proprietary -Thermo Plastic $ 0 $ 7,415 Proprietary - Morfoam 182,426 91,203 Compounding With Materials 650,985 814,223 Compounding Without Materials 432,328 444,591 Miscellaneous Without Materials 16,109 10,018 $1,281,848 $1,367,450 - 17 - Administrative expense decreased $341,584 during fiscal 2001 to $245,693 as there was much less repetative expenses related to the search for financing and financial consulting which took place in fiscal 2000 and which had been compensated for by the issue of restricted common shares. Financial and Interest Expense increased 4.5 % in fiscal 2001 when compared to those for the corresponding period of the previous year. The increase being attributable to a increase`in interest expense related to the company's debt. R&D Expenses decreased $19,756 [25.4%] as resources were diverted to the manufacturing and sales effort required for the Company's products and services. Selling expenses decreased by $15,346 [10 %] in fiscal 2001 over comparative fiscal 2000; as some US selling expenses were reduced. With the intended acquisition or merger with Multi-Web as detailed under Item 6 - Liquidity and Capital Resources, additional sales revenue should result in the company's majority owned subsidiary Mortile Industries Ltd., as Mortile's new products and services compliments Multi-Web's existing product lines. Customer projections for the current year anticipate a continued growth of sales revenues. Such growth is anticipated to take place in all areas of the Company's expertise and technology. However, there can be no assurance in this regard. The sales launch of the new product for the rubber and plastic industry commenced in early June of 1998 and response to the product exceeded all expectations. This product provides not only significant cost reductions by reducing the amount of plastic consumed but also provided many other advantages to the Industry. The market is not only significant in terms of potential revenues and profits in North America but will open many export potentials in Europe. Although there has been widely accepted response to the product, actual sales had been nomimal, however a 115 % increase in these revenues during fiscal 2001 occurred over fiscal 2000. TVI enters its current fiscal year with confidence, that the technological advantage obtained over the past years will enable it to obtain a significant market share for its products at satisfactory selling prices, thereby enabling growth and the ability to meet the anticipated demand for its products, although there can be no assurance of this. The company has been involved over the last 14 months in a Research & Development program with foamed polyethylene's at densities between 1.5 lb. and 6 lb. per cubic foot. Although this technology has been used in the manufacturing of "Buns" for some time the objectives were to eliminate at least four [4] manufacturing steps and produce a finished part in a one step manufacturing process. For competitive reasons no in information will be made public until potential patent positions have been explored. The first commercial production run was completed on October 10th, 2001 and it represents a milestone in company long term objectives. The success of this run is the result of many years of research and pilot production to prove the viability of the process which is a necessity of it's business objectives. Additionally this success has resulted in a substantial market opportunity, which could generate revenues in excess of $2 M within the next twelve to fifteen months. Several other market opportunities of similar potential could be achieved. - 18 - Additionally this success has resulted in a substantial market opportunity, which could generate revenues in excess of $2 M within the next twelve to fifteen months. Several other market opportunities of similar potential could be achieved. Forward Looking Statements: This Form 10-QSB contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company's actual results could differ materially from those set forth in the forward looking statements. Item 7. Financial Statements and Supplementary Data See Part IV, Item 13 for Index to Consolidated Financial Statements and Schedules. Item 8. Changes in and Disagreements on Accounting and Financial Disclosures None - 19 - -PART III- Item 9. Directors and Executive Officers of the Registrant The directors and officers at June 30, 1998 are as follows: Name Age Position with Company Frank Mortimer 62 Director, President Bryan Carter 80 Director, Vice President Larry Leverton 62 Director, Secretary Treasurer Frank Mortimer has been President and a Director of since April 1986. He is also President of Fam Tile Restoration Services Ltd. ("FAM"), a company specializing in the restoration of acoustical ceilings. Fam is a wholly owned subsidiary of Mortile Industries Ltd. From 1967 to 1982 Mr. Mortimer managed several export companies in South Africa. Mr. Mortimer is an associate member of the Institute of Materials Handling (London UK). Bryan Carter has been a director of since April 1986. In 1982 he formed Bryan Carter and Associates, a firm which offers international consulting and marketing services to the plastics industry and small business. From 1954 to 1962 he was in charge of the North American base of Rosedale Assoc. Manufacturers of London (UK.) in Toronto, Canada. From 1962 to 1982 he was President and part owner of Rosedale Plastics, a rotational moulding company. Mr. Carter has extensive international business experience including work in Lebanon, Haiti and Australia, on behalf of various organizations. Mr. Carter pioneered the rotational moulding industry in North America and in 1982 served as the International President of Rotational Moulders. Larry Leverton has been Secretary and Treasurer since April 1986. Since 1983 he has been president of L.R. Leverton Enterprises' Inc., a transportation consulting firm. In 1982 he was vice-president of Newman Harbour Terminals and Transportation. Item 10 - Executive Compensation Frank Mortimer, the Company's Principal Executive Officer, received salary of $59,247, $61,085, $61,615 for the years ended June 30, 2001, 2000 and 1999, respectively. These amounts constituted Mr. Mortimer's sole compensations. Amounts presented are expressed in US dollars and have been converted from Canadian dollars using the average exchange rate for the periods presented. No executive officer of received a total salary and bonus in excess of $100,000 during any of the three year period ended June 30, 2001. - 20 - Item 11 - Security Ownership of Certain Beneficial Owners and Management The following table indicates the name of each person who is kown to be a beneficial owner of more than five-percent of its common stock as of June 30, 2001, the ownership of those persons on such date, and the stock ownership of all officers and directors of as a group. The address of all persons listed is in care of Technical Ventures. Number of Shares Name of Beneficially Percent of Beneficial Owner Owned (1) Common Stock Frank Mortimer 1,900,733 (2) 7.1 % L.R. Leverton Enterprises 591,448 (3) 2.2 % Bryan Carter 165,000 0.6 % All Officers & Directors As A Group 2,657,181 (4) 10.0 % (1) Unless otherwise indicated, each such beneficial owner holds the sole voting power and investment power over the shares beneficially owned. (2) Includes 354,020 shares owned by Mr. Mortimer's wife, Anne Mortimer and 200,000 shares owned by Mr. Mortimer's son, Roger Mortimer. (3) L.R. Leverton Entprs.' Inc., is a corporation owned and controlled by Larry Leverton, Secretary, Treasurer and Director of the Registrant. (4) Excludes the effects on total outstanding shares which would result from exercise of stock purchase options and conversion of debt. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the executive officers and directors of and persons who own more than ten percent of the Company's Common Stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Such executive officers, directors and greater than ten-percent stockholders are required by SEC regulations to furnish with copies of all Section 16(a) filings. Based solely on review of the copies of such forms furnished and other information which has been made available to, management believes that during the year ended June 30, 2001. All Section 16(a) filing requirements applicable to the executive officers and directors and greater than ten-percent beneficial owners were complied with. - 21 - Item 12. Certain Relationships and Related Transactions During fiscal year 2001, a total of 2,315,975 Restricted Common Shares, were issued at an average selling price per share of $0.10 . The average market price per share being $0.15 as determined on the date of each transaction. The variance between the selling price and market price representing a 33% discount to the market price and were distributed as follows: 527,260 Restricted Common Shares were issued shareholders in exchange for services in the amount of $32,072, at a price per share equal to $0.06 . In this instance the value of the consideration was known and the number of shares issued was based on a discount, to fair market value of the equity instrument, on the date of conversion; 1,313,715 Restricted Common Shares were issued for debt reduction. As such, the issue, at a price of $0.12 US per share eliminated a $157,646 long term liability. The value of the consideration being known, the number of shares issued was based on a discount, to fair market value of the equity instrument, on the date of consideration; 475,000 Restricted Common Shares were issued to a holder of one of the company's 8 % debentures. The holder agreed to convert both principal and accrued interest into shares at a price of $0.10 per share. Thereby eliminating $49,061 outstanding debenture principal and interest debt. The market value equity instrument [shares] on the date of issue was $0.07. All of the shares indicated in the preceding information were issued in private transactions pursuant to Section 4(2) of the Securities Act Of 1933. Shares issued were in exchange for services provided based on the date of consideration for the debenture, service for an invoice provided and in consideration of debt owed to an existing shareholder. All shares issued bore a Restrictive Legend restricting their transfer and may only be publicly traded when and if registered for sale by means of a duly processed registration, filed with the Securities And Exchange Commission; or, alternatively, pursuant to Rule 144. Due to the Restrictions of the instruments issued, the value of the shares issued, other than the debenture, is based on a discount of 30 - 40 % to the average market price on the date of the consideration. The aggregate number of Restricted Common Shares issued to June 30 Th of fiscal year 2001, 2,315,975. The total number of shares issued and outstanding 27,163,006. Please reference the Company's Financial Statements for detailed information; Page F5 "Consolidated Statement Of Changes In Stockholders Deficiency" and Page F16,17 and F18, Financial Note 14, "Capital Stock". - 22 - PART IV Item 13. Exhibits, Financial Statements, and Reports on Form 8-K (A) (1) Financial Statements: See index to financial statements on Page F-1 (3) Exhibits: (a) Exhibit 21 Subsidiaries of the Registrant are as follows: Mortile Industries Ltd., a Canadian Private Corporation and majority- owned subsidiary of the Registrant Fam Tile Restoration Services Ltd., a Canadian Private Corporation and wholly-owned subsidiary of Mortile Industries Ltd. MPI Perlite Ltd., a Canadian Private Corporation and wholly-owned subsidiary of Mortile Industries Ltd. (B) Item -5- Reports on Form 8K None - 23 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TECHNICAL VENTURES INC. Dated : October 12, 2001 By: /s/Frank Mortimer Frank Mortimer, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: October 12, 2001 By: /S/Frank Mortimer Frank Mortimer, President Principal Executive Officer and Director Dated: October 12, 2001 By: /S/Bryan Carter Bryan Carter, Vice President Director Dated: October 12, 2001 By: /S/Larry Leverton Larry Leverton, Secretary Treasurer and Principal Accounting Officer and Director - 24 - TECHNICAL VENTURES INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2001 AND 2000 TOGETHER WITH REPORT OF INDEPENDENT AUDITORS TECHNICAL VENTURES INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2000 TOGETHER WITH REPORT OF INDEPENDENT AUDITORS TABLE OF CONTENTS Report of Independent Auditors F - 2 Consolidated Balance Sheets at June 30, 2001 and 2000 F - 3 Consolidated Statements of Operations for the years ended June 30, 2001, 2000 and 1999 F - 4 Consolidated Statements of Changes in Stockholders' Deficiency for the years ended June 30, 2001,2000 and 1999 F - 5 Consolidated Statements of Cash Flows for the years ended June 30, 2001,2000 and 1999 F - 6 - F - 7 Notes to Consolidated Financial Statements F - 8 - F - 25 F - 1 Schwartz Levitsky Feldman llp CHARTERED ACCOUNTANTS TORONTO, MONTREAL, OTTAWA REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Technical Ventures Inc. We have audited the accompanying consolidated balance sheets of Technical Ventures Inc. (incorporated in New York State) as of June 30, 2001 and 2000 and the related consolidated statements of operations, cash flows and changes in stockholders' deficiency for each of the years ended June 30, 2001, 2000 and 1999. 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 generally accepted auditing standards in the United States of America. Those standards required that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Technical Ventures Inc. as of June 30, 2001 and 2000 and the results of its operations and its cash flows for each of the years ended June 30, 2001,2000 and 1999 in conformity with generally accepted accounting principles in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Toronto, Ontario /S/Schwartz Levitsky Feldman llp October 12, 2001 1167 Caledonia Road Toronto, Ontario M6A 2X1 Tel: 416 785 5353 Fax: 416 785 5663 F - 2 TECHNICAL VENTURES INC. Consolidated Balance Sheets As of June 30 (Amounts expressed in U.S. Dollars) 2001 2000 $ $ ASSETS CURRENT ASSETS Cash 22,960 4,963 Accounts receivable (note 3) 94,127 135,538 Inventory (note 4) 72,702 61,535 189,789 202,036 DEPOSITS 46,213 14,710 ADVANCES TO STOCKHOLDERS (note 5) - 51,632 PROPERTY AND EQUIPMENT (note 6) 114,964 132,571 350,966 400,949 TECHNICAL VENTURES INC. Consolidated Balance Sheets As of June 30 (Amounts expressed in U.S. Dollars) 2001 2000 $ $ LIABILITIES CURRENT LIABILITIES Accounts payable and accrued expenses (note 7) 791,798 643,310 Current portion of notes payable (note 8) 366,943 370,051 Capital lease obligations (note 9) 74,678 76,362 Loans from private lenders (note 10) 66,925 61,718 Current portion of loans from stockholders, unsecured, interest free (note 11) 270,263 198,006 1,570,607 1,349,447 LONG-TERM DEBT, net of current portion Convertible debentures (note 14 (h)) 248,267 278,267 Notes payable (note 8) - 36,693 Loans from stockholders (note 11) 122,344 254,205 Other (note 12) 25,893 26,475 396,504 595,640 MINORITY INTEREST (note 13) - - STOCKHOLDERS' DEFICIENCY CAPITAL STOCK (note 14) 271,630 248,470 ADDITIONAL PAID IN CAPITAL (note 14) 5,342,204 5,126,586 ACCUMULATED OTHER COMPREHENSIVE INCOME (note 15) 327,035 310,124 DEFICIT (7,557,014) (7,229,318) (1,616,145) (1,544,138) 350,966 400,949 See notes to consolidated financial statements. F - 3 TECHNICAL VENTURES INC. Consolidated Statements of Operations For the years ended June 30 (Amounts expressed in U.S. Dollars) 2001 2000 1999 $ $ $ NET SALES 1,281,848 1,367,450 1,131,279 COST OF SALES 1,029,605 1,056,276 763,922 GROSS MARGIN 252,243 311,174 367,357 EXPENSES Administration 245,492 587,059 690,672 Interest and other 180,630 172,847 197,466 Research and development 57,961 78,285 80,498 Selling 139,975 154,654 90,746 Contingent related legal expenses 742 126,797 - 624,800 1,119,642 1,059,382 LOSS BEFORE INCOME TAX RECOVERY (372,557) (808,468) (692,025) Income tax recovery (note 16) 44,861 25,055 5,658 NET LOSS (327,696) (783,413) (686,367) BASIC LOSS PER COMMON SHARE (note 17) (0.01) (0.03) (0.03) FULLY DILUTED LOSS PER COMMON SHARE (note 17) (0.01) (0.03) (0.03) See notes to consolidated financial statements. F - 4 TECHNICAL VENTURES INC. Consolidated Statements of Changes in Stockholders' Deficiency For the years ended June 30 (Amounts expressed in U.S. Dollars) Common Stock Issued and Accumulated outstanding Additional Other Number of Paid in Comprehensive Shares Amount Capital Deficit Income $ $ $ $ Balance, June 30, 1998 14,711,341 147,113 4,056,744 (5,759,538) 306,571 Issued in exchange for services 5,250,000 52,500 420,913 - - Issued for cash 116,670 1,167 13,833 - - Issued for debt reduction 2,120,000 21,200 189,240 - - Issue of warrants (note 15(i)) - - 21,733 - - Net loss - - - (686,367) - Cumulative translation adjustment - - - - 6,748 Balance, June 30, 1999 22,198,011 221,980 4,702,463 (6,445,905) 313,319 Issued in exchange for services 2,145,000 21,450 373,721 - - Issued for debt reduction 504,020 5,040 50,402 - - Net loss - - - (783,413) - Cumulative translation adjustment - - - - (3,195) Balance, June 30, 2000 24,847,031 48,470 5,126,586 (7,229,318) 310,124 Issued in exchange for services 527,260 5,273 26,799 - - Issued for debt reduction 1,788,715 17,887 188,819 - - Net loss - - - (327,696) - Cumulative translation adjustment - - - - 16,911 Balance, June 30, 2001 27,163,006 271,630 5,342,204 7,557,014 327,035
See notes to consolidated financial statements. F - 5 TECHNICAL VENTURES INC. Consolidated Statements of Cash Flows For the years ended June 30 (Amounts expressed in U.S. Dollars) 2001 2000 1999 $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net loss (327,696) (783,413) (686,367) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 23,633 29,410 ` 30,079 Gain on disposition of property and equipment - - (1,373) Discounts on convertible debentures [note 14(h)] - - 75,000 Issue of Common Stock for compensation and finance charges - 359,838 515,320 Issue of Common Stock for Services 32,072 24,400 80,513 (Increase) decrease in accounts receivable 38,421 (12,615) (6,035) Decrease in prepaid expenses 1,198 - - Increase in inventory (12,524) (16,972) (10,404) Increase (decrease) in accounts payable and accrued expenses 162,681 363,654 (101,661) (82,215) (35,698) (104,928) CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in deposits (33,025) 14,392 (2,472) Repayments by (advances to) stockholders 50,494 10,723 (26,363) Property and equipment acquisition (8,950) (8,338) (9,565) Proceeds from sale of property and equipment - - 3,321 8,519 16,777 (35,079) See notes to consolidated financial statements. F - 6 TECHNICAL VENTURES INC. Consolidated Statements of Cash Flows For the years ended June 30 (Amounts expressed in U.S. Dollars) 2001 2000 1999 $ $ $ CASH FLOWS FROM FINANCING ACTIVITIES Repayments of note payable to Cooper Financial Crop. (32,352) (23,430) (26,960) Repayments of note payable to Dow Chemical Canada - - (35,375) Repayments of capital lease obligations - - (718) Repayments of other loans payable - - (26,212) Proceeds from (repayments of) private lenders 5,470 - (14,061) Proceeds from (repayments of) stockholders' loans 127,078 18,429 (9,352) Proceeds from issue of common stock for cash - - 15,000 Proceeds from issue of convertible debentures and warrants - - 225,000 100,196 (5,001) 127,322 EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES (8,503) 15,002 8,963 NET INCREASE (DECREASE) IN CASH BALANCE FOR THE YEAR 17,997 (8,920) (3,722) Cash balance, beginning of year 4,963 13,883 17,605 Cash balance, end of year 22,960 4,963 13,883 PAYMENTS MADE DURING THE YEAR FOR INTEREST 17,504 15,923 19,745 INCOME TAXES PAID - - - Notes To Consolidated financial statements. F - 7 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 1. GOING CONCERN The Company has sustained significant operating losses since its inception and there is substantial doubt as to the Company's ability to continue as a going concern. The Company's continued existence is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis. It is not expected that cash flows from operations in the immediate future will be sufficient to meet the Company's requirements. As a result the Company is in need of additional financing. No adjustment has been made to the value of the Company's assets in consideration of its financial condition. The Company continues to assess completing a private or public stock offering. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Principles of Consolidation The consolidated financial statements include the accounts of Technical Ventures Inc. ("the Company") and its majority-owned subsidiaries, Mortile Industries Ltd. ("Mortile"), Fam Tile Restoration Services Ltd. and MPI Perlite Ltd. All material intercompany transactions and balances have been eliminated. b) Organization and Operations Mortile, a Canadian corporation, which was organized on February 12,1985, is involved primarily in the development and manufacture of plastic compounds. On April 14, 1986, the Company acquired all of the issued and outstanding common stock of Mortile. The Company's other two subsidiaries Fam Tile Restoration Services Ltd. and MPI Perlite Ltd. are currently inactive. c) Revenue Recognition Sales are recognized when goods and services are delivered. d) Inventory Inventory is stated at the lower of cost or market. Cost is determined by the first-in, first-out method. e) Property and Equipment Property and equipment are recorded at cost and are depreciated or amortized over their estimated useful lives or related lease terms using the straight-line and accelerated methods. The estimated useful lives for property and equipment range from 5 to 8 years. F - 8 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) f) Investment Tax Credits Refundable foreign investment tax credits related to research and development activities are recognized as income in the year they are received. g) Fair Value Presentation The Company has financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at June 30, 2001 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying balance sheet. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. h) Concentration of Credit Risks The Company's receivables are unsecured and are generally due in 45 days. The Company's receivables do not represent significant concentrations of credit risk as at June 30, 2001 due to the wide variety of customers, markets and geographic areas to which the Company's products are sold. i) Income Taxes The Company accounts for income tax under the provisions of Statement of Financial Accounting Standards No. 109, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income taxes are provided using the liability method. Under the liability method, deferred income taxes are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities. j) Net Income Per Share Basic income per share is computed based on the average number of common shares outstanding during the year. Diluted income per share reflects the potential dilution that could occur if securities, or other contracts to issue common stock, were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income of the Company. Such securities or contracts are not considered in the calculation of diluted income per share if the effect of their exercise or conversion would be antidilutive. F - 9 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) k) Stock Based Compensation In December 1995, SFAS No. 123, Accounting for Stock-Based Compensation, was issued. It introduced the use of a fair value-based method of accounting for stock-based compensation. It encourages, but does not require, companies to recognize compensation expense for stock-based compensation to employees based on the new fair value accounting rules. Companies that choose not to adopt the new rules will continue to apply the existing accounting rules contained in Accounting Principles Board Opinion No. 25, Accounting for Stock issued to employees. However, SFAS No. 123 requires companies that choose not to adopt the new fair value accounting rules to disclose pro-forma net income and earnings per share under the new method. SFAS No. 123 is effective for financial statements for fiscal years beginning after December 15, 1995. The Company has adopted the disclosure provisions of SFAS No. 123. l) Foreign Currency Translation Mortile maintains its books and records in Canadian dollars. Foreign currency transactions are reflected using the temporal method. Under this method, all monetary items are translated into Canadian funds at the rate of exchange prevailing at balance sheet date. Non-monetary items are translated at historical rates. Income and expenses are translated at the rate in effect on the transaction dates. Transaction gains and losses are included in the determination of earnings for the year. The translation of the financial statements of this wholly-owned subsidiary from Canadian dollars into United States dollars is performed for the convenience of the reader. Balance sheet accounts are translated using closing exchange rates in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during each reporting period. No representation is made that the Canadian dollar amounts could have been or could be realized at the conversion rates. Adjustments resulting from the translation are included in the accumulated other comprehensive income in stockholders' deficiency. m) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount 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. n) Contingent Liability Costs The Company reflects legal costs incurred for any contingencies as a charge to operations of the year in which the expenditures are determined. F - 10 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) o) Impairment The Company's policy is to record an impairment loss against the balance of a long-lived asset in the period when it is determined that the carrying amount of the asset may not be recoverable. This determination is based on an evaluation of such factors as the occurrence of a significant event, a significant change in the environment in which the business assets operate or if the expected future non-discounted cash flows of the business was determined to be less than the carrying value of the assets. If impairment is deemed to exist the assets will be written down to fair value, management also evaluates events and circumstances to determine whether revised estimates of useful lives are warranted. As of June 30, 2001, management expects its long-lived assets to be fully recoverable. p) Recent Accounting Pronouncements In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in financial Statements". SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues. The adoption of this standard would not have a material impact on the company's financial position, results of operations or cash flows. In June 2000, the Financial Accounting Standards Board ("FASB") issued statement No 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, An Amendment of FASB Statement No. 133". SFAS No. 133, as amended, is effective for fiscal periods beginning after June 15, 2000 and establishes accounting and reporting standards for derivative instruments and hedging activities. The adoption of this standard would not have a material impact on the company's financial position, results of operations or cash flows. In September 2000, FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This statement is effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after March 31,2001. SFAS No. 140 also includes provisions that require additional disclosures in the financial statements for fiscal years ending after December 15, 2000. The adoption of this standard would not have a material impact on the company's financial position, results of operations or cash flows. This standard will be adopted in connection with an agreement between a debtholder and the company [see note 8 (i)]. 3. ACCOUNTS RECEIVABLE 2001 2000 $ $ Accounts receivable 94,127 135,538 Less: Allowance for doubtful accounts - - Accounts receivable, net 94,127 135,538 F - 11 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 4. INVENTORY Inventory at June 30, 2001 and 2000 are comprised almost entirely of raw materials. 5. ADVANCES TO STOCKHOLDERS The advances to stockholders were unsecured, were non-interest bearing, were not subject to specified terms of repayments and were not expected to be collected before July 1, 2001. 6. PROPERTY AND EQUIPMENT Property and equipment at June 30, 2001 and 2000 are comprised as follows: 2001 2000 $ $ Equipment under capitalized leasing arrangements 227,547 230,360 Equipment 371,261 373,367 Furniture and fixtures 39,400 40,239 Leasehold improvements 4,626 4,217 642,834 648,183 Less: Accumulated depreciation 527,870 515,612 114,964 132,571 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES 2001 2000 $ $ Trade payable 178,417 234,914 Accrued expenses 613,381 408,396 791,798 643,310 F - 12 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 8. NOTES PAYABLE 2001 2000 $ $ Notes payable consist of the followings: Innovation Ontario Corp. ("I.O.C.") outstanding balance of $330,249, repayable in quarterly instalments of $20,675 including interest at 8%. The Company is in default and the entire balance is past due (i) 330,249 337,699 Cooper Financial Corp.'s note, repayable $3,150 monthly including interest at 10%, due August, 2002 (ii) 36,694 69,045 366,943 406,744 Less: Current portion (366,943) (370,051) - 36,693 i) In accordance with the I.O.C. loan provisions, I.O.C. acquired a 15% interest in Mortile in March 1995 and an additional 15% interest in July 1995. Mortile had previously been a wholly- owned subsidiary of the Company. I.O.C. investment in Mortile is reflected in the financial statements as a minority interest. The Company has been unable to meet payments in respect of this loan. Accordingly the outstanding balance is reflected as a current liability in these financial statements. The I.O.C. note is collateralized by all previously unsecured assets of the Company. Interest in the amount of $90,034 has been accrued on the note payable based on the original loan depreciation table, even though no payments have been made with respect to the loan principal. This amount is being reflected on the financial statements in Accounts Payable and Accrued Expenses. On June 25, 2001, I.O.C. agreed, on the basis of two payments from the company totalling U.S.$86,000 (Canadian $130,000) plus interest by February 25, 2002, to discharge its security on its note and to assign its 15% interest in Mortile to Mortile for cancellation. In accordance with SFAS No. 140, this transaction would be treated as a sale and the resulting gain would be recorded in the fiscal year ending June 30, 2002 should the payments be made by February 25, 2002 and the company be released from its obligations. F - 13 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 8. NOTES PAYABLE (cont'd) ii) In August 1999, the Company refinanced its obligation to Cooper Financial Corp. A refinancing charge was assessed, increasing the then outstanding principal balance of $91,208 to $95,999. The terms of the refinancing require 35 monthly payments of $3,150 including interest and a final payment of $954. Interest is at 10% Notes payable mature as follows: 2002 $ 366,943 9. CAPITAL LEASE OBLIGATIONS 2001 2000 $ $ Capital lease obligations consist of the following: Obligations under capitalized leasing arrangements, payable in monthly instalments of $9,981 net of amount representing interest of $2,790; the Company is in default and the entire balance is past due 74,678 76,362 10. LOANS FROM PRIVATE LENDERS 2001 2000 $ $ Loans from private lenders are due on demand and consist of the following: Private investors: Interest free 16,925 11,718 Unsecured demand loans: Interest at 10% 25,000 25,000 Interest free, convertible into 50,000 shares of common stock 25,000 25,000 66,925 61,718 F - 14 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 11. LOANS FROM STOCKHOLDERS Loans from stockholders as at June 30, consist of the following: Current Non-Current Total $ $ $ a) June 30, 2001 Unsecured stockholders notes, loans and other payable balances: Subordinate to notes payable to Cooper Financial Corp. interest at the greater of prime or 10 % - 22,608 22,608 Subordinate to note payable, I.O.C. - 2,018 2,018 Interest free - notes and loans 270,263 - 270,263 Accrued compensation - 97,718 97,718 270,263 122,344 392,607 b) June 30, 2000 Unsecured stockholders notes, loans and other payable balances: Subordinate to notes payable to Cooper Financial Corp. interest at the greater of prime or 10 % - 23,118 23,118 Subordinate to note payable, I.O.C. - 17,045 17,045 Interest free - notes and loans 198,006 - 198,006 Accrued compensation - 153,552 153,552 198,006 254,205 452,211 c) As at June 30, 2001 loans from stockholders mature as follows: 2002 $ 270,263 2003 - 2004 `- 2005 - 2006 - After 2006 122,344 $ 392,607 F - 15 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 12. OTHER LOANS 2001 2000 $ $ Other loans consist of the following: Unsecured loans, private investor, interest at 10%, not subject to specified terms of repayments 25,893 26,475 13. MINORITY INTEREST Innovation Ontario Corp. has a 30% interest in Mortile (see note 8). As Mortile was in a capital deficiency position as at June 30, 2001 and 2000, the minority interest was $nil as at June 30, 2001 and 2000. 14. CAPITAL STOCK a) Authorized 50,000,000 Common stock $0.01 par value (note 14 (b)) Issued Shares Amount $ June 30, 2001 27,163,006 271,630 June 30, 2000 24,847,031 248,470 b) On July 22, 1999, stockholders of the Company approved an amendment increasing the authorized common stock from 15,000,000 shares to 50,000,000 shares. F - 16 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 14. CAPITAL STOCK (cont'd) c) Common stock issued during the years ended June 30, 2001 and 2000 were as follows: Additional Capital paid in Number stock capital $ $ i. During the year ended June 30, 2001, 527,260 shares of common stock were issued for services rendered 527,260 5,273 26,799 During the year ended June 30, 2001, 1,313,715 shares of common stock were issued in exchange for repayment of loans from stockholders of $157,646 1,313,715 13,137 144,509 During the year ended June 30, 2001, convertible debentures of $30,000 plus interest were exchanged for 475,000 shares of common stock 475,000 4,750 44,310 2,315,975 23,160 215,618 ii. During the year ended June 30, 2000, 2,145,000 shares of common stock were issued for services rendered 2,145,000 21,450 373,721 During the year ended June 30, 2000, 504,020 shares of common stock were issued in exchange for repayment of loans from stockholders of $55,442 504,020 5,040 50,402 2,649,020 26,490 424,123 iii. These issued shares of common stock were recorded at their fair market values on the dates of issuance. iv. The Company does not have a formal stock-based compensation plan. Stock-based compensation was negotiated on an individual basis. F - 17 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 14. CAPITAL STOCK (cont'd) d) The Company concluded in late January 1999, a Private Offering under Regulation D of the Securities Act of 1933. The offering consisting of 8% Convertible Debentures in the aggregate of $225,000 [see note 14 (h)]; additionally as part thereof, Non-Redeemable Warrants of a three year term [see note 14 (i)] allowing the investor to purchase shares of the Corporation's Common Stock. The SB-2 registration filed and prepared in accordance with this private offering has been withdrawn and may be reconsidered at a later date. However, purchasers of the convertible debentures may avail themselves of the conversion rights, acquiring our restricted common stock. Accordingly the Company has set aside the appropriate number of shares from the authorized and unissued shares of common stock for issuance upon conversion of the Debentures and exercise of the Warrants issued in connection with the offering. e) The numbers of common shares reserved for convertible debt, stock purchase options and warrants are as follows: June 30, June 30, 2001 2000 For convertible debt 50,000 50,000 For common stock purchase options 50,000 50,000 For convertible debentures 6,498,167 8,625,512 For warrants 127,840 127,840 6,726,007 8,853,352 f) Stock Purchase Option In January 1990, the Company granted a stock purchase option to a convertible debtholder, which would allow the debtholder to purchase 50,000 shares of the Company's common stock at an exercise price at the then fair market value of $0.50 per share. There is no termination date on the options. The Company does not have a formal stock purchase option plan other than the above. F - 18 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 14. CAPITAL STOCK (cont'd) g) Convertible Debt Since January 27, 1990, the Company has outstanding a $25,000 principal amount promissory note which is payable upon demand of the holder thereof. Such note is convertible, at any time, at the option of the holder thereof, into 50,000 shares of the Company's common stock at the then fair market value of $0.50 per share. h) Convertible Debentures On February 8, 1999, the Company issued an aggregate of $225,000 of 8% convertible debentures. Interest on the debentures is payable quarterly and the principal on the debentures is due on January 31, 2002. From and after the time that such principal amount on the debentures shall have become due and payable (whether at maturity or by acceleration), interest shall be payable, to the extent permitted by law, at the rate equal to the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum rate permitted by law, on the entire unpaid principal amount of this debenture. Unpaid principal plus all accrued and unpaid interest and penalties on the debentures is convertible at a conversion price that is the lesser of $0.176 per share or 75% of the average closing bid price of the common stock on the 10 days prior to when a debenture is presented for conversion. Thus, the debentures are convertible into a minimum of 1,704,545 shares of common stock. In the event the registration statement covering the shares of common stock issuable upon conversion of the debentures is not declared effective by June 8, 1999, the Company shall pay to the holders of the debentures a penalty of one-fifteenth of one percent of the principal amount of the notes for each day beyond such date until such registration statement is declared effective. As at August 31, 2001, the said registration statement has not been declared effective. The Company has recorded the cost of the said penalty to June 30, 2001 in these financial statements as an interest and other expense. As the conversion feature of the convertible debentures represented a minimum of $75,000 discounts to the debentureholders, the Company had recorded the transaction as follows: Face value of debentures $ 225,000 Discounts 75,000 Less: value assigned to warrants (see note 16 (i)) (21,733) $ 278,267 The discounts were expensed during the year ended June 30, 1999. On March 27, 2001, $30,000 of convertible debentures, plus interest, were converted into 475,000 shares of common stock of the company. F - 19 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 14. CAPITAL STOCK (cont'd) i) Warrants On February 8, 1999, the Company issued warrants representing the right to purchase common stock. There will be 127,840 shares of common stock underlying the warrants at an exercise price of $0.176 per share. The expiration date of the warrants is January 31, 2002. Using the Black-Scholes method, the Company has calculated and assigned a value of $21,733 to the warrants. The Company has reserved from its authorized but unissued shares a sufficient number of shares of our common stock for issuance. The exercise price of the warrants were determined by negotiation and, upon notice to warrant holders, the Company has the right to reduce the exercise price or extend the expiration date of the warrants. The warrants do not confer upon the warrant holder any voting or other rights of a stockholder of the Company. The warrants provide for customary anti-dilution provisions in the event of certain events which may include mergers, consolidations, reorganizations, recapitalizations, stock dividends, stock splits and other changes in our capital structure. 15. COMPREHENSIVE LOSS AND ACCUMULATED OTHER COMPREHENSIVE INCOME The Company has adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" as of January 1, 1999 which requires standards for reporting and display of comprehensive income and its components in the financial statements. However, it does not affect net loss or total stockholders' deficiency. The components of comprehensive loss are as follows: 2001 2000 $ $ Net loss (327,696) (783,413) Other comprehensive income: foreign currency translation adjustments 16,911 (3,195) Comprehensive loss (310,785) (786,608) F - 20 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 15. COMPREHENSIVE LOSS AND ACCUMULATED OTHER COMPREHENSIVE INCOME (cont'd) The components of accumulated other comprehensive income as at June 30, 1999, 2000 and 2001 are as follows: Accumulated other comprehensive income, June 30, 1998 $ 306,571 Foreign currency translation adjustments for the year ended June 30, 1999 6,748 Accumulated other comprehensive income, June 30, 1999 313,319 Foreign currency translation adjustments for the year ended June 30, 2000 (3,195) Accumulated other comprehensive income, June 30, 2000 $ 310,124 Foreign currency translation adjustments for the year ended June 30, 2001 16,911 Accumulated other comprehensive income, June 30, 2001 $ 327,035 The foreign currency translation adjustments are not currently adjusted for income taxes since the Company is situated in Canada and the adjustments relate to the translation of the financial statements from Canadian dollars into United States dollars is done only for the convenience of the reader as disclosed in note 2 (l). 16. INCOME TAXES During the year ended June 30, 2001, the Company received $22,906 and $22,297 respectively from research and development refundable tax credits claims filed for the years ended June 30, 1999 and 2000. A claim for approximately $23,000 will be filed for 2001. It is anticipated that the claim for 2001 will be subject to audit and there can be no assurance that the amount claimed will be honoured. Consequently, the Company does not record the benefits of this claim until it is received. Recovery of income taxes for the year ended June 30, 2001 consists entirely of a current recovery of Canadian income taxes resulting from the aforementioned tax refund received in the year. F - 21 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 16. INCOME TAXES (cont'd) The following is a summary of the tax effects of significant temporary differences which comprise the Company's deferred tax asset at June 30, 2001. U.S. State & Federal Local Foreign at 34% at 8.5% at 43% $ $ $ Loss carry forwards 772,000 193,000 158,715 Credits carry forwards: Non-refundable credits - - 2,897 Refundable credits - - 23,000 Valuation allowance (772,000) (193,000) (184,612) - - - Aggregate net operating loss carry forwards and tax credit carry forwards and their expirations are summarized as follows: Foreign Research & Expiring Net Operating Loss Carry forward Development June 30, US Federal State & Local Foreign Tax Credits $ $ $ $ 2002 225,000 225,000 - 1,018 2003 21,000 21,000 43,024 1,889 2004 150,000 150,000 90,097 - 2005 102,000 102,000 - - 2006 90,000 90,000 - - Thereafter 1,684,000 1,684,000 235,983 - TOTAL 2,272,000 2,272,000 369,104 2,907 F - 22 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 17. NET LOSS PER COMMON STOCK Net loss per share has been calculated as follows: 2001 2000 1999 $ $ $ Basic loss per share: Net loss per common stock (327,696) (783,413) (686,367) Weighted average number of shares of common stock outstanding 26,313,152 23,580,902 20,237,097 Net loss per share of common stock (0.01) (0.03) (0.03) Diluted loss per share: Net loss per common stock (327,696) (783,413) (686,367) Interest on dilutive convertible debt - - - Interest on dilutive stock purchase options - - - Interest on dilutive convertible debentures - - - Interest on dilutive warrants - - - Net loss attributable to common stock assuming dilution (327,696) (783,413) (686,367) Weighted average number of shares of common stock outstanding 26,313,152 23,580,902 20,237,097 Assumed conversion of dilutive convertible debt - - - Assumed conversion of dilutive stock purchase options - - - Assumed conversion of dilutive convertible debentures - - - Assumed exercise of dilutive warrants - - - Weighted average number of shares of common stock outstanding, assuming dilution 26,313,152 23,580,902 20,237,097 Net loss per share of common stock assuming dilution (0.01) (0.03) (0.03) F - 23 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 18. FOREIGN OPERATIONS The following table summarizes certain information regarding the Company's US and Canadian operations for the years ended June 30, 2001, 2000 and 1999: US Canadian Consolidated $ $ $ Year ended June 30, 2001 Revenue from unaffiliated customers - 1,281,848 1,281,848 Loss from operations (216,007) (111,689) (327,696) Identifiable assets at end of year - 350,966 350,966 Year ended June 30, 2000 Revenue from unaffiliated customers - 1,367,450 1,367,450 Loss from operations (624,961) (158,452) (783,413) Identifiable assets at end of year - 400,949 400,949 Year ended June 30, 1999 Revenue from unaffiliated customers - 1,131,279 1,131,279 Income (loss) from operations (721,158) 34,791 (686,367) Identifiable assets at end of year - 431,351 431,351 F - 24 TECHNICAL VENTURES INC. Notes to Consolidated Financial Statements (Amounts expressed in U.S. Dollars) 19. MAJOR CUSTOMERS One customer accounted for 50% and 56% of the Company's consolidated revenues for fiscal 2001 and 2000, respectively; another customer accounted for 23% and 45% of consolidated revenues for these respective periods. The loss of one or more of these customers would have a detrimental effect on the Company's operating results. 20. CONTINGENT LIABILITY The Company is contingently liable under a breach of secrecy agreement, fiduciary duty and misuse of confidential information lawsuit by one of its customers. Management of the Company is of the opinion that this legal action will not materially affect the Company's financial position, results of operations or cash flows. No provision has been recorded in the accounts for possible losses or gains. Should any expenditures be incurred by the Company for the resolution of this lawsuit, they will be charged to the operations of the year in which such expenditures are incurred. 21. ACQUISITION - LETTER OF INTENT On October 1, 2000, the Company entered into a letter of intent to acquire by November 1, 2000, all of the outstanding shares of an unrelated company in exchange for the issuance of 2,125,000 shares of common stock of the Company at fair market value on the date of closing. Subsequently, both parties agreed to postpone the closing date and currently negotiations are still on-going. This acquisition, if completed, will be accounted for as a purchase. The acquire company is a manufacturer of industrial products compatible to the Company's operations. 22. RELATED PARTY TRANSACTIONS For the year ended June 30, 2001, 2,238,715 common shares were issued to the Company's stockholders for services rendered and debt reduction. For the year ended June 30, 2000, 2,649,020 common shares were issued to the company's stockholders for services rendered and debt reduction. The Company has recorded these shares at fair market value with a corresponding charge to expenses for the difference between the fair market value and the issuance price. 23. LEASES At June 30, 2001, under a real property lease classified as an operating lease, which expires in March, 2002, the Company's future annual minimum rental payments (excluding real estate taxes) are as follows: 2002 $ 47,452 Rent expense was $62,879, $63,526 and $49,965 for 2001, 2000 and 1999 respectively. F - 25