FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30,1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE EXCHANGE ACT
For the transition period from ______ to
Commission file number 0-15415
KINETIKS.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 76-0478045
(State or other jurisdiction of IRS Employer
incorporation or organization) Identification Number
c/o C. Garold Sims, 1775 Sherman Street, Suite 2015, Denver, Colorado 80203
(Address of Principal Offices) (Zip Code)
Registrant's telephone number, including area code: 303-830-6660
N/A
(Former name,former address and former fiscal year,if changed since last report)
Check whether the Issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the last 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 [ ] No [X]
As of April 27, 1999, 5,389,083 shares of Common Stock have been issued,
3,389,083 shares of Common Stock of the Registrant were outstanding.
Transitional Small Business Disclosure Format (check one) Yes[ ] No[X]
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE EXCHANGE ACT
For the transition period from ______ to
Commission file number 0-15415
KINETIKS.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 76-0478045
(State or other jurisdiction of IRS Employer
incorporation or organization) Identification Number
c/o C. Garold Sims, 1775 Sherman Street, Suite 2015, Denver, Colorado 80203
(Address of Principal Offices) (Zip Code)
Registrant's telephone number, including area code: 303-830-6660
N/A
(Former name,former address and former fiscal year,if changed since last report)
Check whether the Issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the last 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 [ ] No [X]
As of April 27, 1999, 5,389,083 shares of Common Stock have been issued,
3,389,083 shares of Common Stock of the Registrant were outstanding.
Transitional Small Business Disclosure Format (check one) Yes[ ] No[X]
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly periods ended June 30, 1997 and September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from ______ to
Commission file number 0-15415
KINETIKS.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 76-0478045
(State or other jurisdiction of IRS Employer
incorporation or organization) Identification Number
c/o C. Garold Sims, 1775 Sherman Street, Suite 2015, Denver, Colorado 80203
(Address of Principal Offices) (Zip Code)
Registrant's telephone number, including area code: 303-830-6660
N/A
(Former name,former address and former fiscal year,if changed since last report)
Check whether the Issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the last 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 [ ] No [X]
As of April 27, 1999, 5,389,083 shares of Common Stock have been issued,
3,389,083 shares of Common Stock of the Registrant were outstanding.
Transitional Small Business Disclosure Format (check one) Yes[ ] No[X]
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheets at June 30, 1997 (unaudited) and
December 31, 1996
Statements of Operations for the Three Months Ended
June 30, 1997 (unaudited) and June 30, 1996
(unaudited)
Statements of Operations for the Six Months Ended
June 30, 1997 (unaudited) and for the Six Months
Ended June 30, 1996 (unaudited)
Statements of Cash Flows for the Six Months Ended
June 30, 1997 (unaudited) and June 30, 1996
(unaudited)
Balance Sheets at September, 1997 (unaudited) and
December 31, 1996
Statements of Operations for the Three Months Ended
September 30, 1997 (unaudited) and September 30, 1996
(unaudited)
Statements of Operations for the Nine Months Ended
September 30, 1997 (unaudited) and for the Nine
Months Ended September 30, 1996 (unaudited)
Statements of Cash Flows for the Nine Months Ended
September 30, 1997 (unaudited) and September 30, 1996
(unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
PART I.FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements included herein have
been prepared by Kinetiks.com, Inc. (the "Company") without
audit, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant
to such SEC rules and regulations. In the opinion of
management of the Company the foregoing statements contain
all adjustments necessary to present fairly the financial
position of the Company as of March 31, 1997, June 30,
1997, September 30, 1997, its results of operations for the
three, six, and nine month periods ended March 31, 1997,
June 30, 1997, September 30, 1997 and its cash flows for
the three, six, and nine month periods ended March 31,
1997, June 30, 1997, September 30, 1997. The Company's
balance sheet as of December 31, 1996 included herein has
been derived from the Company's audited financial
statements as of that date included in the Company's annual
report on Form 10-KSB. The results for these interim
periods are note necessarily indicative of the results for
the entire year. The accompanying financial statements
should be read in conjunction with the financial statements
and the notes thereto filed as a part of the Company's
annual report on Form 10-KSB.
Kinetiks.com, Inc.
(A Development Stage Company)
Balance Sheets
June 30, 1997 December 31, 1996
(unaudit) (unaudited)
Assets
Current assets:
Cash 0 40,923
Short term investments 0 5,784
Accounts receivable, net 0 13,354
Prepaid expenses and other current assets 0 15,000
Total current assets 0 75,061
Property and equipment, net 0 45,145
0 120,206
Liabilities and Stockholders' (Deficit)
Current liabilities:
Judgments payable 4,750 0
Notes payable 116,500 48,042
Accounts payable 1,067,657 1,058,368
Accrued compensation 170,463 187,095
Other accrued expenses 35,763 11,244
Total current liabilities 1,395,133 1,304,749
Note payable to shareholder officer 156,210 201,263
Stockholders' (deficit):
Preferred stock, $.001 par value,
500,000 shares authorized:none issued 0 0
Common stock, $.001 par value;
20,000,000 shares authorized;
5,389,083 issued; 3,389,083
outstanding December 31, 1996 5,390 5,390
Less Treasury stock, 2,000,000 shares (2,000) (2,000)
Additional paid-in capital 5,811,272 5,790,428
Deficit accumulated during the
development stage (7,366,005) (7,179,624)
Total stockholders'(deficit) (1,551,343) (1,385,806)
0 120,206
See accompanying notes
Kinetiks.com, Inc.
(A Development Stage Company)
Statements of Operations
For the three months ended June 30,
1997 1996
(unaudited) (unaudited)
Revenue 0 352,945
Operating expenses:
Cost of revenue 0 188,868
Research and development 0 64,386
Sales and Marketing 0 1,024,586
General and administrative 0 436,951
0 1,714,791
Operating loss 0 1,361,846
Other income (expense):
Interest expense (8,068) (13,278)
Interest income 0 10,510
Net loss (8,068) (1,364,614)
Net loss per common and common
equivalent share 0 (0.25)
Shares used in computing net
loss per common and common
equivalent share 3,389,083 5,380,000
See accompanying notes
Kinetiks.com, Inc.
(A Development Stage Company)
Statements of Operations
For the six months ended June 30,
1997 1996
(unaudited) (unaudited)
Revenue 231,480 513,848
Operating expenses:
Cost of revenue 66 384,521
Research and development 0 102,125
Sales and Marketing 101,295 1,702,945
General and administrative 300,497 856,536
401,858 3,046,127
Operating loss (170,378) (2,532,279)
Other income (expense):
Interest expense (16,136) (24,654)
Interest income 133 46,132
Net loss (186,381) (2,510,801)
Net loss per common and common
equivalent share (0.05) (0.47)
Shares used in computing net
loss per common and common
equivalent share 3,389,083 5,380,000
See accompanying notes
Kinetics.com, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the six months ended June 30,
1997 1996
(unaudited) (unaudited)
Operating Activities:
Net cash used in operating activities (149,032) (2,565,428)
Investing activities:
Purchase of equipment 0 (377,072)
Proceeds from short-term
investment 3,109 1,255,283
Net cash provided by investing
activities 3,109 878,211
Financing Activities:
Proceeds from notes payable 105,000 270,000
Repayment of notes 0 (92,827)
Net cash provided by financing
activities 105,000 177,173
Net change in cash (40,923) (1,510,044)
Cash at beginning 40,923 1,896,964
Cash at end 0 386,920
Supplemental disclosure of cash flow
information:
Cash paid during the period 0 8,011
See accompanying notes
Kinetiks.com, Inc.
(A Development Stage Company)
Balance Sheets
September 30,1997 December 31,1996
(unaudited)
Assets
Current assets:
Cash 0 40,923
Short term investments 0 5,784
Accounts receivable, net 0 13,354
Prepaid expenses and
other current assets 0 15,000
Total current assets 0 75,061
Property and equipment, net 0 45,145
0 120,206
Liabilities and Stockholders' (Deficit)
Current liabilities:
Judgments payable 71,110 0
Notes payable 116,500 48,042
Accounts payable 1,001,297 1,058,368
Accrued compensation 170,463 187,095
Other accrued expenses 31,461 11,244
Total current liabilities 1,390,831 1,304,749
Note payable to shareholder officer 168,580 201,263
Stockholders' (deficit):
Preferred stock, $.001 par value,
500,000 shares authorized;none issued 0 0
Common stock, $.001 par value;
20,000,000 shares authorized;
5,389,083 issued; 3,389,083
outstanding December 31, 1996 5,390 5,390
Less Treasury stock, 2,000,000 shares (2,000) (2,000)
Additional paid-in capital 5,811,272 5,790,428
Deficit accumulated during the
development stage (7,374,073) (7,179,624)
Total stockholders' (deficit) (1,559,411) (1,385,806)
0 120,206
See accompanying notes
Kinetiks.com, Inc.
(A Development Stage Company)
Statements of Operations
For the nine months ended September 30,
1997 1996
(unaudited) (unaudited)
Revenue 231,480 803,663
Operating expenses:
Cost of revenue 66 553,816
Research and development 0 219,952
Sales and Marketing 101,295 2,363,832
General and administrative 300,497 1,339,358
401,858 4,476,958
Operating loss (170,378) (3,673,295)
Other income (expense):
Interest expense (24,204) (36,491)
Interest income 133 51,553
Net loss (194,449) (3,658,233)
Net loss per common and common
equivalent share (0.06) (0.68)
Shares used in computing net
loss per common and common
equivalent share 3,389,083 5,383,962
See accompanying notes
Kinetiks.com, Inc.
(A Development Stage Company)
Statements of Operations
For the three months ended September 30,
1997 1996
(unaudited) (unaudited)
Revenue 0 289,815
Operating expenses:
Cost of revenue 0 169,295
Research and development 0 117,827
Sales and Marketing 0 660,887
General and administrative 0 482,822
0 1,430,831
Operating loss 0 (1,141,016)
Other income (expense):
Interest expense (8,068) (11,837)
Interest income 0 5,421
Net loss (8,068) (1,147,432)
Net loss per common and common
equivalent shares 0 (0.21)
Shares used in computing net
loss per common and common
equivalent share 3,389,083 5,387,924
See accompanying notes
Kinetics.com, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the nine months ended September 30,
1997 1996
(unaudited) (unaudited)
Operating Activities:
Net cash used in operating activities (149,032) (2,929,662)
Investing activities:
Purchase of equipment 0 (377,072)
Proceeds of short-term investment 3,109 1,500,843
Net cash provided by investing
activities 3,109 1,123,771
Financing Activities:
Proceeds from notes payable 105,000 270,000
Repayment of bridge loans 0 (244,131)
Repayment of notes 0 (106,506)
Net cash provided by financing
activities 105,000 (80,637)
Net change in cash (40,923) (1,886,528)
Cash at beginning 40,923 1,896,964
Cash at end 0 10,436
Supplemental disclosure of cash flow
information:
Cash paid during the period 0 8,011
See accompanying notes
Kinetiks.com, Inc.
Notes to Financial Statements
March 31, 1997, June 30, 1997, September 30, 1997,(Unaudited)
1.Asset Sale
Danro Purchase Order
In October 1996 the Company entered into a Purchase Order
(the "Agreement") with Danro Corporation ("Danro") whereby
the Company sold to Danro essentially all of its computer
hardware assets for $200,000. The Agreement provided that
the Company would receive a downpayment of $65,000 and the
remaining $135,000 would be advanced once the Company
satisfied the following conditions: 1) execution of one or
more leases between the Company and Danro covering the
purchased items; 2) adoption by the Board of Directors of a
work-out plan; and 3) delivery of such financial
information as required by Danro.
Effective December 5, 1996 the Agreement was amended
whereby the Company and Danro agreed to adjust the purchase
price downward to $138,700, the amount which had already
been received by the Company. The Company agreed to
repurchase the equipment by January 15, 1997 and to pay
lease fees of $25,000 and legal fees incurred by Danro in
the amount of $4,000.
Effective February 5, 1997 the Company and Danro entered
into an Equipment Rental Extension Agreement (the
"Extension Agreement"). The Extension Agreement provided
an extension for the Company to repurchase its assets to
March 31, 1997 and called for immediate payment of all
rental fees due Danro from October 1,1996. The Company
additionally agreed to pay legal fees incurred by Danro in
the amount of $1,830.
The Company was unable to pay any of the required payments
pursuant to these agreements, nor was it able to ultimately
repurchase its assets. Since the Company was in default of
the Agreement and The Extension Agreement, all amounts due
to Danro were accelerated.
Trader Letter Agreement
In November 1996 the Company and Trader Publishing Company
("Trader") entered into a Letter Agreement (the "Letter
Agreement") whereby Trader would acquire substantially all
of the assets and properties used by the Company for a
purchase price of $750,000, consisting of $550,000 for the
assets being sold, $100,000 for a one-year consulting
agreement with the Company, and $100,000 for a five-year
non-compete agreement. Trader advanced the Company
$110,000 as an earnest money deposit for this Letter
Agreement. The agreement contained a provision that in the
event of a breach of the Letter Agreement that resulted
from events beyond the control of the Board of Directors or
the then, president and executive officer, and his wife,
who was an officer and director, the Company would pay
Trader a break-up fee in the amount of $35,000.
On December 19, 1996 Trader loaned the Company $110,000
pursuant to a promissory note. The note bore interest at
the prime rate plus 3% and was due January 30, 1997. The
promissory note was also subject to a security agreement
encumbering essentially all of the assets of the Company.
On March 4, 1997, the Company filed a preliminary proxy
statement with the Securities and Exchange Commission. The
Company intended to solicit proxies seeking shareholder
approval of the proposed sale of substantially all the
Company's assets to Trader pursuant to the Letter of Intent
entered into in November 1996. The Company's Board of
Directors unanimously approved the asset sale to Trader and
intended to recommend that shareholders vote in favor of
the proposed asset sale. However, the Company was unable
to obtain a "fairness opinion" from a financial advisor
regarding the fairness of the proposed asset sale, and the
proposed sale of assets to Trader failed to close and
proxies were not solicited to approve the sale. The
Company was unable to satisfy a number of conditions
required to close the proposed assets sale, including the
ability to provide audited financial statements and the
ability convey assets subject to the proposed sale free and
clear of all liens and encumbrances.
As a result of the Company and Trader being unable to
finalize a definitive agreement pursuant to the Letter of
Intent, Trader advised the Company on March 31, 1997 that
the earnest money deposit plus all sums due under the
Commercial Note, plus interest and expenses, were due and
payable. Trader also gave notice of its intent to exercise
all its rights under the security agreement unless payment
was made.
On April 9, 1997, Trader entered a confession of judgment
on the Commercial Note payable by the Company to Trader in
the Circuit Court of Norfolk, Virginia. On April 18, 1997,
Judgment was entered against the Company in the District
Court of Harris County, Texas, and a Notice of Public Sale
of the Company's assets covered by the security agreement
was posted for May 13, 1997.
In addition, Trader filed suit against the Company on April
18, 1997 alleging breach of the Letter of Understanding and
demanding repayment of the earnest money deposit of
$110,000 plus penalties ($35,000 for the break-up fee) and
expenses ($36,000 in legal fees).
Wildwood LLC
On May 19, 1997 the Company and Trader entered into a
Settlement Agreement and Release in that Wildwood Capital
LLC ("Wildwood"), a nonaffiliate whose managing member is
the owner of Danro, agreed to pay Trader $228,000 for the
right to obtain the assignment of the judgment, the
litigation, and the liens securing the assets.
Simultaneously, with the execution of the Settlement
Agreement, the Company executed and delivered to Wildwood a
bill of sale transferring, assigning, and conveying to
Wildwood and settlement of the judgment and in lieu of
foreclosure by Wildwood essentially all of the Company's
assets.
Although this transaction was not completed until May 1997,
the financial statements reflect this transaction as of
December 31, 1996 due to the nature of the transaction, a
type I subsequent event.
The Company recorded the loss on the sale of assets for the
year ended December 31, 1996, as follows:
Write-off net book value of assets assigned to Wildwood $ (414,389)
Write-off prepaid marketing (50,000)
Write-off net book value of License Agreement (148,840)
Trader deposit for Letter Agreement 110,000
Note payable to Trader 110,000
Proceeds from Danro pursuant to Purchase Agreement 138,700
$ (254,538)
2.Earnings per share
The Company used SFAS No. 128 when calculating earnings per
share. This statement replaces the presentation of primary
earnings or loss per share (EPS) with a presentation of
basic EPS. It also requires dual presentation of basic and
diluted EPS for all entities with complex capital
structures and requires reconciliation of the numerator and
denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic EPS
excludes dilution; diluted EPS 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 earnings of the entity.
3.Summary of Significant Accounting Policies
Revenue and Cost of Revenue
Revenues from the sale of advertising space are recognized
ratably over the period in which the advertisements are
displayed on the Internet. Payments received in advance of
providing advertising services and contract amounts that
have been billed but have not been earned are recorded as
deferred revenue. All costs related to revenue producing
activities are expenses as incurred. The Company recorded
revenues, and a corresponding charge to cost of revenues
from barter transactions at the estimated fair value of the
products or services received.
The Company believed that the majority of costs associated
with an advertisement were included in the set-up period
and intended to develop statistical information regarding
the advertisement cost cycle based upon experience.
However, the Company's operations ceased before meaningful
data was obtained to substantiate this belief.
Cash Equivalents and Short-term Investments
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents.
Short-term investments include a certificate of deposit
that has an original maturity ranging from four to six months.
4.Notes Payables
Notes payable consists of the following as of June 30, 1997
and September 30, 1997:
Note payable, shareholder, interest at
10.91%, no stated repayment terms and
without collateral. $ 9,000
Note payable, shareholder, interest at 8%,
principal and interest due April 1997,
without collateral. 50,000
Note payable, interest at 8%, principal and
interest due April 1997, without collateral.
5,000
Note payable, shareholder, no stated
interest, no stated repayment terms, without
collateral. 2,500
Note payable, shareholder, to a business
development company, interest at 18% (in
default), due March 30, 1997, and without 25,000
collateral.
Note payable, shareholder, venture capital
firm, interest at 10%, principal and
interest due March 1997, without collateral. 25,000
Note payable, shareholder officer, interest
at 9%, principal and interest due January
1997, without collateral. (The balance
reflected is as of September 30, 1997) 168,580
Total $285,080
The note of $9,000 represents a restructured note between
the Company and a shareholder. In January 1997 the Company
and the shareholder exchanged an existing note payable in
the amount of $30,000 and accrued interest with a new
$9,000 note payable and surrendered to the shareholder the
Company's boat, which had a net book value at the date of
this restructuring of $26,815. The new note bears interest
at 10.91%, has no stated repayment terms, and is without
collateral.
In March 1997, the Company borrowed $50,000 from a
shareholder and issued warrants to purchase 100,000 shares
of the Company's common stock at $.25 per share. In April
1997, when the Company was unable to pay this note, the
Company issued additional warrants to purchase 100,000
shares of the Company's common stock at .25 per share. The
exercise price of the warrants approximated the fair market
value of the Company's stock on the dates of these grants.
In March 1997, the Company borrowed $5,000 from a
shareholder and issued warrants to purchase 10,000 shares
of the Company's common stock at $.25 per share. In April
1997, when the Company was unable to pay this note, the
Company issued additional warrants to purchase 10,000
shares of the Company's common stock at $.25 per share. The
exercise price of the warrants approximated the fair market
value of the Company's stock on the dates of these grants.
During 1997, the Company borrowed funds from a former
employee and shareholder. The balance remaining is $2,500.
There are no repayment terms and interest does not accumulate.
In February 1997 the Company borrowed $25,000 from The
Rockies Fund (The "Fund"), a shareholder that is a
"business development company" under the Investment Company
Act of 1940. In connection with the execution of the
$25,000 note, the Company issued warrants to purchase
50,000 shares of the Company's common stock at $.25 per
share. Additionally, the note agreement requires the
Company to issue 50,000 warrants monthly for every month
that the note is in default. As of December 31, 1998, the
Company has granted 1,150,000 warrants to this shareholder.
During the period that ended December 31, 1998 the Company
borrowed an additional $61,476. This note bears interest
at 8%, has no stated repayment terms and is without
collateral. There were no warrants issued in conjunction
with this note. During the period ended March 31, 1999 the
Company borrowed an additional $29,128 from the Fund. This
note bears interest at 8%, has no stated repayment terms
and is without collateral. No warrants were issued
pursuant to this note.
As of April 1999 the president of the Fund, certain of his
family members, and other entities that are controlled by
the president of the Fund, Inc. and his wife, own shares
and warrants totaling 1,073,500 and 1,300,000,
respectively. The shares owned represent approximately 32%
of the outstanding shares of the Company. Of the shares
owned, 900,000 shares were purchased at $.05 per share
directly from the former president and vice president of
the Company in private transactions. The remaining shares
owned were purchased in open market transactions.
Beginning in 1994 the SEC began an investigation into
certain matters, including the administrative and record
keeping practices of the Fund, its securities trading
activities and those of its officers and directors. In
September 1996, the Fund received notification from the SEC
that the SEC staff was planning to recommend that an
enforcement action be brought against the Fund, its
president, and each of its directors due to certain
violations of federal securities laws. The SEC invited the
Fund to make a submission setting forth the Fund's position
and arguments regarding the SEC staff's planned
recommendation. The Fund did so in October.
1996, and at the SEC's request, the Fund supplemented its
submission in December 1996. An administrative trial was
held before the SEC's Chief Administrative Judge in
November 1998. During this trial the Fund vigorously
contested the SEC's allegations. No decision has been
rendered.
In January 1997, the Company borrowed $25,000 from Caribou
Capital, Inc. ("Caribou"), a nonaffiliate. In connection
with this borrowing, the Company issued warrants to
purchase 50,000 shares of the Company's common stock at
$.25 per share. In March 1997, when the Company was unable
to pay this note, the Company issued additional warrants to
purchase 50,000 shares of the Company's common stock at
$.25 per share. The exercise price of the warrants
approximated the fair market value of the Company's stock
on the date of grant.
The note payable to shareholder officer consisted of
amounts advanced by Mr. Carr to fund the operating and
start-up expenses of the Company and the contribution of
certain operating assets. The note bore interest at 9% per
annum and matured in January 1997. In January 1997 when
the Company was unable to pay this note, the shareholder
officer accepted as partial payment, the Company's
automobile. The net book value of the automobile
approximated $21,000, which the shareholder officer and the
Company believed to be the estimated fair market value.
During the year ended the Company reduced the principal
amount owed to the shareholder officer by $18,756 which
represented personal charges made by the shareholder
officer on the Company's credit card. As of September 30,
1997, the notes principal balance was $168,580.
Commitments and Contingencies
Leases
The Company leased its office space and certain office
equipment under noncancellable operating lease agreements
expiring through the year 2000. An officer and director
and a former officer and director personally guaranteed
certain of these leases. Due to the lack of operating
funds and the inability of the Company to raise additional
equity capital, the Company defaulted on all of its leases,
and accordingly, the lease creditors accelerated all
remaining payments. Certain of the lease creditors filed
legal proceedings against the Company during the years
ended December 31, 1997 and obtained court ordered
judgments against the Company and the officer and director
and former officer and director. As of December 31, 1997
judgments from lease creditors were $59,485 and rent
expense, including default amounts was $19,436.
Securities and Exchange Commission
The Company has failed to timely file the required Forms 10-
KSB and Forms 10-QSB as required by the SEC. The Company
and its officers and directors could be subject to certain
fines and penalties from the SEC for its failure to timely
file these reports. The Company cannot determine the
effect, if any, that this uncertainty may have on its
financial position.
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the Financial Statements and Notes thereto
appearing elsewhere in this report.
Certain statements in this Management's Discussion and
Analysis of Financial Condition and Results of Operations
which are not historical facts are forward-looking
statements such as statements relating to future operating
results, existing and expected competition, financing and
refinancing sources and availability and plans for future
development or expansion activities and capital
expenditures. Such forward-looking statements involve a
number of risks and uncertainties that may significantly
affect the Company's liquidity and results in the future
and, accordingly, actual results may differ materially from
those expressed in any forward-looking statements. Such
risks and uncertainties include, but are not limited to,
those related to effects of competition, leverage and debt
service financing and refinancing efforts, and general
economic conditions.
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and
notes thereto appearing elsewhere in this report.
In the second quarter of 1997 the Company sold all its
remaining assets to Wildwood Capital, LLC. The Company
reflected this transaction in 1996 due to the nature of the
transaction, a Subsequent Event Type I, and that it was
material (See Financial Footnotes).
On May 16, 1997 Dyann L. Carr resigned her positions with
the Company as vice-president and director. On May 19,
1997 Robert C. Newman resigned his position with the
Company as a director. On August 19, 1997 Charles S.
Powell resigned his positions as acting CEO and director.
During the quarter ended June 30, 1997, the Company
collected the accounts receivable recorded as of March 31,
1997. However, due to the asset sale May 19, 1997 the
Company ended this period with no active operations. The
Company did not file its quarterly SEC report.
During the quarter ended September 30, 1997 the Company had
no active operations and did not file its quarterly SEC report.
This inactivity of the Company continued until The Rockies
Fund, Inc. loaned the Company additional monies starting in
March 1998. These funds, totaled $61, 476 at the end of
1998, and in the quarter ended March 31, 1999 an additional
$29,128 has been loaned. These funds have been loaned to
the Company in the form of notes that accrue interest at
8%, have no collateral, and no specific repayment terms.
These funds have been used by the Company to bring its
accounting records current, prepare for the annual audits
for the years ended December 31,1996, 1997, and 1998, and
complete the independent audits for the years ended
December 31, 1996, 1997, and 1998. In addition The Rockies
Fund is working with the Company to develop its corporate
strategy; this includes strategies for eliminating the over
$1.3 million dollars in debt and discussing a possible
merger with potential candidates. Although The Rockies
Fund, Inc. has spoken to numerous potential business
partners on behalf of the Company, there are no definitive
agreements. If a favorable debt settlement can not be
reached with creditors the Company will need to consider
other alternatives.
Results of Operations for the Six Months Ended June 30,
1997 as compared to the Six Months Ended June 30, 1996:
Revenues
Revenue for the six-month period ended June 30, 1997 was
$231,480. This was the same amount of revenue recorded for
the three-month period March 31, 1997; no revenue was
related to the three-month period ended June 30, 1997.
This represents a decrease of $282,368, or a 55.0%
decrease. This is attributable to selling of all the
Company's assets during the second quarter, ended June 30,
1997. Without assets it was difficult for the Company to
generate revenue. The Company effectively ceased
operations during the latter three-month period of this six-
month period.
Expenses
Operating expenses decreased for the six-month period ended
June 30, 1997 to $401,858. This represents a decline of
$2,643,969, or 86.8%. All operating expenses were
attributed to the first three-month period since operations
ceased during the second three-month period. The drastic
reduction in operating expense was because staff had been
reduced, advertising had been eliminated, and only
essential expenditures were being made during 1997.
Interest on the unpaid notes continued to accrue during the
entire six-month period.
The net loss during this period was $(186,381), or $(.05) per share.
Liquidity and Capital resources: June 30, 1997 as compared to
December 31, 1996
As of June 30, 1997 there were no assets. This is in
comparison to $120,206 of assets as of the close of the
previous fiscal year.
The combination of judgments and accounts payable totaled
$1,072,407. Judgments represented to $4,750.
Results of Operations for the Nine Months Ended September
30, 1997 as compared to the Nine Months Ended September 30, 1996:.
Revenues
The revenue for the nine-month period ended September 30,1997
was $231,480. This is same amount of revenue recorded
for the initial three-month period of fiscal 1997 and the
first six-months of 1997. No revenue was generated during
the final three-months of this period. This represents a
decrease for the nine-month period ended September 30, 1997
of $572,183, or 71.2%. This was attributable to the
Company having no active operations for this period.
Expenses
Operating expenses for the nine-month period were $401,858.
This represents a decrease of $3,502,916, or 78.2%. The
only expense recorded during the three-month period ended,
September 30, 1997 was interest expense.
Net loss for the nine-month period was $(194,449) or ($.06) per share.
Liquidity and Capital resources: September 30, 1997 as compared
to December 31, 1996
There were no assets as of September 30, 1997 as compared
to $120, 206 in assets at the close of the previous year.
Judgments and accounts payable totaled $1,072,407. This
represents as increase in judgments payable of $66,360.
Judgments will continue to increase at a fairly rapid rate
from this point forward since creditors have begun to
realize that there were no active Company operations or
assets. The note payable to the only remaining officer and
a director continued to accrue interest bringing its
balance owed to $168,580 while all other note balances
totaled $116,500.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The initial judgment has been rendered during the second
quarter of 1997. Due to the lack of operating funds and
the inability to raise additional capital, the Company has
defaulted in its payments to a number of creditors and
former employees. Numerous persons have filed legal
proceedings against the Company during 1997 and 1998.
Claims have been asserted not only against the Company, but
also in certain instances against Gregory S. Carr and Dyann
Carr personally as guarantors of loans or leases. The
Company does not have sufficient funds to pay any of the
judgments or claims against it.
Advanta Business Services Corporation filed a complaint on
May 16, 1997 against the Company and the Carrs for non-
payment under an equipment lease. The complaint was filed
in the Superior Court of New Jersey, Camden County, New
Jersey then transferred to Dallas County Court, Dallas,
Texas. A judgment in the amount of $39,495.11 was entered
against the Company and the Carrs in August 1997.
Greentree Financial Services filed suit against the Company
and the Carrs individually for non-payment of an equipment
lease. Suit was filed on May 27, 1997, in County Civil
Court #3, Harris County, Texas. A judgment against the
Company and the Carrs was entered on January 7, 1999 in the
amount of $34,919.16.
On January 12, 1998, Lease Acceptance Corporation filed
suit against the Company and the Carrs in the Circuit Court
for the County of Oakland, Pontiac, Michigan. The suit
alleged non-payment of a lease for office furniture. The
suit was referred by the court to mediation, but was not
successfully resolved through the mediation process. A
default judgment was entered on June 1, 1998, in the amount
of $19,209.70 against the Company and the Carrs.
Berger & Co., a temporary employment agency, filed suit
against the Company in 9th Judicial District Court for
Montgomery County, Texas on May 14, 1997. Plaintiff alleged
non-payment of sums due for temporary technical personnel
used by the Company. Judgment was entered in Berger and
Company's favor. As a result of a second amended final
judgment, the court entered a judgment in favor of Berger &
Co. on June 3, 1998 in the amount of $44,435.00.
Staffware, Inc., another temporary employment agency, filed
suit for non-payment of fees for temporary staff County
Civil Court, No. 1, in Harris County, Texas on March 1,
1997. A default judgment was entered against the Company
in the amount of $26,865.11.
The Assessor's Office of Montgomery County, Texas filed
suit against the Company on November 9, 1998 in the amount
of $1,582.95 representing unpaid property taxes for 1996
and 1997. Property taxes were assessed by Montgomery
County on exhibition equipment stored in a satellite
storage facility. In addition Montgomery County filed an
additional suit representing the unpaid portion of the
property taxes representing the school district in the
amount of $3,951. The Company has no funds with which to
pay these unpaid property taxes. Judgments were entered in
December 1998.
SDX, Inc., a marketing firm, filed suit against the Company
on October 26, 1996 in Pct. 1, Pos. 2, Houston, Texas over
the disputed terms of a contract it entered into with the
Company. On June 13, 1997, the court entered judgment in
SDX, Inc.'s favor in the amount of $4,750. The company as
no available funds to satisfy the judgment.
Federal Express Corporation filed suit against the Company
on September 19, 1997 in Montgomery County District Court,
Montgomery County, Texas seeking to recover $10,274.30 plus
interest for unpaid delivery fees. A default judgment was
entered on December 16, 1997. The judgment remains
unsatisfied due to the Company's lack of available funds.
Federal Express obtained a writ of execution on December 17, 1998.
Pennebaker Designs filed suit against the Company and the
Carrs on July 2, 1997 in the District Court for Harris
County, Texas alleging damages in the amount of $12,997.50.
The case was dismissed on May 28, 1998 for non-suit.
Sanwa Leasing Corporation filed suit against the Company
and the Carrs on August 19, 1997 in the Sixth Judicial
District, Oakland County, Michigan alleging $19, 989.04. A
default judgment was entered on November 4, 1997.
Hank Savage, a former employee, filed a claim for unpaid
wages in the office of the Labor Commissioner, State of
California on April 16, 1997. The Commission awarded the
former employee a total of $6,870.93. This amount of the
award includes sums for unpaid wages, commissions due, and
a penalty. The Company has no funds available to pay the award.
Additional vendors, note holders, and former employees have
refrained from suing the Company because of its known
inability to satisfy the claims of creditors.
Item 2. Change in Securities
(b) Change in Rights of Securites
During the period ended June 30, 1997 the Board of
Directors of the Company retained voting control of
1,000,000 shares of common stock owned by its founders,
Gregory S. and Dyann L. Carr. This voting control was to
be for a period of six months. At the Board of Director's
meeting in December 1996 this matter had been voted upon.
Item 3. Defaults Upon Senior Securities
The following securities were in default as of June 30, 1997
and September 30, 1997:
Note payable, shareholder, interest
at 8%, principal and interest due
April 1997, without collateral. $ 50,000
Note payable, interest at 8%,
principal and interest due April
1997, without collateral. 5,000
Note payable, shareholder, to a
business development company,
interest at 18% (in default), due
March 30, 1997, and without
collateral. 25,000
Note payable, shareholder, venture
capital firm, interest at 10%,
principal and interest due March
1997, without collateral. 25,000
Note payable, shareholder officer,
interest at 9%, principal and
interest due January 1997, without
collateral. 168,580
Total $ 285,080
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
The Company recognizes the need to ensure its operations
will not be adversely impacted by Year 2000 software
failures. Software failures due to processing errors
potentially arising from calculations using the Year 2000
date are a known risk. The Company is addressing this risk
to the availability and integrity of financial systems and
the reliability of the operational systems.
Item 6. Exhibits
(a) Exhibit 27
(b) Reports on Form 8-K
The period ended June 30, 1997 the following were filed:
May 19, 1997 Asset Sale to Wildwood LLC
June 16, 1997 Resignation of Ernst & Young as the
Company's independent auditors.
The periods ended September 30, 1997: none
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
KINETIKS.COM, INC.
Dated: 05/19/1999 By: /s/ Gregory S. Carr
Gregory S. Carr,Secretary
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