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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[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 Under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the transition period from _____ to _____
Commission File Number 0-25136
KINETIC VENTURES, LTD
-----------------------------------------------------------
(Name of Small Business Issuer as specified in its charter)
DELAWARE 33-0464753
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1095 Pender Street, Suite 850, Vancouver, British Columbia V6E 2M6
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (604) 689-1428
Check whether the issuer (1) has filed all reports required 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 [ ]
There were 9,933,733 shares of the issuer's Common Stock outstanding as of
July 25, 1997.
This Form 10-QSB consists of 12 pages and no exhibits.
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KINETIC VENTURES LTD.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
Assets
Current Assets
Cash And Cash Equivalents $ 2,077 $ 105,204
Accounts Receivable-Net 0 379,873
Inventory 0 1,519,099
Prepaid Expenses 0 43,641
------------ ------------
Total Current Assets 2,077 $ 2,047,817
Furniture & Equipment (Net) 0 322,360
Deposits 0 6,223
------------ ------------
$ 2,077 $ 2,376,400
------------ ------------
------------ ------------
Liabilities
Current Liabilities
Obligation Under Capital Lease, Current Portion $ 0 $ 2,065
Notes Payable - Ballard Medical Products 137,495 3,260,000
Accounts Payable & Accrued Expenses 28,337 444,648
------------ ------------
165,832 3,706,713
Obligation Under Capital Lease, Net Of Current
Portion 0 4,026
------------ ------------
Total Liabilities 165,832 3,710,739
------------ ------------
Convertible Redeemable Preferred Stock,
Redeemed on March 20, 1997 for $2,281 0 1,867,795
Stockholders' Deficit:
Common Stock, $0.001 Par Value, 40,000,000
Shares Authorized, 9,933,733 Outstanding 9,934 9,934
Additional Paid In Capital 15,696,079 13,848,284
Accumulated Deficit (15,869,768) (17,060,352)
------------ ------------
Total Stockholders' Deficit (163,755) (3,202,134)
------------ ------------
$ 2,077 $ 2,376,400
------------ ------------
------------ ------------
The accompanying notes are an integral part of the financial statements.
2
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KINETIC VENTURES LTD.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS
JUNE 30 ENDED
JUNE 30
1997 1996 1997 1996
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Sales 0 557,613 345,450 1,306,924
Costs Of Goods Sold 0 341,935 253,974 890,416
--------- --------- --------- -----------
0 215,678 91,476 416,508
--------- --------- --------- -----------
Operating Expenses:
Research Development 0 223,451 110,919 523,374
Sales and Marketing 0 457,357 315,137 885,090
General and Administrative 31,563 197,023 241,090 444,852
--------- --------- --------- -----------
31,563 877,831 667,146 1,853,316
--------- --------- --------- -----------
Other Income (Expense):
Interest Expense, Net (3,492) (35,028) (72,105) (41,448)
Gain on Sale of Assets 0 0 1,828,338 0
Other 0 1,201 13,021 1,201
--------- --------- --------- -----------
(3,492) (33,827) 1,769,254 (40,247)
--------- --------- --------- -----------
Income (Loss) Before Provision for
Income Taxes (35,055) (695,980) 1,193,584 (1,477,055)
Provision for State Income Taxes 0 (600) (3,000) (3,600)
--------- --------- --------- -----------
Net Income (Loss) (35,055) (696,580) 1,190,584 (1,480,655)
--------- --------- --------- -----------
--------- --------- --------- -----------
Net Income (Loss) Per Common Share $0 ($0.07) $0.12 ($0.15)
--------- --------- --------- -----------
--------- --------- --------- -----------
Weighted Average Number of
Common Shares Outstanding 9,933,733 9,933,733 9,933,733 9,933,733
---------- --------- --------- -----------
---------- --------- --------- -----------
The accompanying notes are an integral part of the financial statements.
3
</TABLE>
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KINETIC VENTURES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
SIX MONTHS AND YEAR
TO DATE
ENDED
JUNE 30,
1997 1996
-------------------------
Cash Flows From Operating Activities:
Net Income (Loss) For The Period $1,190,584 ($1,480,655)
---------- -----------
Adjustments To Reconcile Net Loss To Net
Cash Used By Operating Activities:
Net Effect From Sale Of Assets To Ballard (1,828,338) 0
Depreciation And Amortization 25,283 45,474
Decrease (Increase) In Accounts Receivable 182,982 (120,848)
(Increase) Decrease In Inventory 59,074 (147,680)
Decrease In Prepaid Expenses 11,695 32,292
(Decrease) in Accounts Payable and
Accrued Expenses 78,195 (210,848)
---------- -----------
(1,471,109) (401,610)
---------- -----------
Net Cash Used By Operating Activities (280,525) (1,882,265)
---------- -----------
Cash Used By Investing Activities:
(Increase) In Deposits 0 (8,150)
---------- -----------
Cash Provided By Financing Activities:
Net Proceeds From Notes Payable 180,000 1,635,000
Payments & Current Maturities Of
Capital Lease Obligation (321) (844)
Deferred Issuance Costs 0 (748)
Redemption of Preferred Stock (2,281) 0
---------- -----------
Net Cash Provided By Financing Activities 177,398 1,633,408
---------- -----------
Net (Decrease) In Cash And
Cash Equivalents (103,127) (257,007)
Cash And Cash Equivalents,
Beginning Of Period 105,204 280,115
---------- -----------
Cash And Cash Equivalents,
End Of Period $2,077 $23,108
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---------- -----------
The accompanying notes are an integral part of the financial statements
4
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KINETIC VENTURES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ending June 30, 1997
(Unaudited)
1. Summary of Significant Accounting Policies:
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Endovascular, Inc., a California
corporation. All intercompany accounts and transactions have been
eliminated in consolidation.
Although unaudited, the interim consolidated financial statements in this
report reflect all adjustments, consisting of normal recurring accruals,
which are, in the opinion of management, necessary for a fair statement
of financial position, results of operations and cash flows for the
interim periods covered and of the financial condition of the Company
at the interim balance sheet dates. The results of operations for the
interim periods presented are not necessarily indicative of the results
expected for the entire year.
The year-end balance sheet information was derived from audited
consolidated financial statements, but does not include all disclosures
required by generally accepted accounting principles. These
consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1996.
The Company has experienced recurring loses from operations and has an
accumulated deficit of $15,869,768 at June 30, 1997. These matters raise
substantial doubt about the Company's ability to continue as a going
concern.
5
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KINETIC VENTURES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
For the Period Ending June 30, 1997
(Unaudited)
2. Inventory:
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
(Unaudited)
June 30, December 31,
1997 1996
----------- ------------
Raw materials $0 $ 605,996
Work in process 0 43,898
Finished goods 0 869,205
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$0 $1,519,099
----------- ------------
----------- ------------
All inventories were sold on March 20, 1997, as part of the sale of assets
(see Note 5).
3. Property And Equipment:
Property and equipment consist of the following:
(Unaudited)
June 30, December 31,
1997 1996
----------- ------------
Office furniture $0 $ 216,867
Equipment 0 432,086
Leasehold improvements 0 93,452
----------- ------------
0 742,405
Less, Accumulated depreciation
and amortization 0 (420,045)
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$0 $ 322,360
----------- ------------
----------- ------------
All property and equipment were sold on March 20, 1997, as part of the
sale of assets (see Note 5).
6
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KINETIC VENTURES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
For the Period Ending June 30, 1997
(Unaudited)
4. Notes Payable:
Notes payable consist of the following:
(Unaudited)
June 30, December 31,
1997 1996
----------- ------------
Note payable to Ballard Medical
Products, due on demand collateralized by
substantially all assets of the
Company, bearing interest at 10% $137,495 $3,260,000
----------- ------------
----------- ------------
A substantial portion of the note payable to Ballard was applied to the
purchase price of assets sold on March 20, 1997 (see Note 5).
5. Acquisition or Distribution of Assets:
On February 28, 1997, Ballard, through a wholly owned subsidiary,
delivered notice to the Company of its exercise of its option to purchase
all the Company's assets pursuant to the Stock Purchase and Option
Agreement entered into on July 17, 1995 as amended (the "Option
Agreement"). The Option Agreement was approved by the Company's
stockholders at special meeting which took place on November 13, 1995. On
March 20, 1997, Neuro Navigational Corporation, now known as Kinetic
Ventures Ltd., a Delaware Corporation, completed the sale of substantially
all of its assets to Ballard Medical Products, a Utah corporation.
The purchase price for the assets was $4,245,422, plus an adjustment for
prepaid rent of $2,233. Deducted from the purchase price were the
$500,000 consideration paid for the option under the Option Agreement,
$198,631 of liabilities assumed, $3,671,471 principal and interest owing
by the Company to Ballard and liquid assets of $11,695, or a net purchase
price deficiency of $134,142.
7
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KINETIC VENTURES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
For the Period Ending June 30, 1997
(Unaudited)
The Company's 200,000 shares of Series A Preferred Stock were redeemed and
retired. The Company paid the deficiency of $134,142 in the payment of
the purchase price by issuing to Ballard at the closing its 10% promissory
note due on demand. Concurrently, pursuant to authorization granted by
the stockholders at the special meeting held on November 13, 1995, the
Company changed it name to Kinetic Ventures Ltd.
6. Income Taxes:
At December 31, 1996 the Company had net operating loss carryforwards for
federal and state purposes of approximately $16,490,000 and $8,290,000,
respectively. In addition, the Company had research and experimentation
credit carryforwards for federal and state purposes of approximately
$350,000 and $132,000, respectively. These tax loss carryforwards are
more than adequate to negate any current tax liability from the sale
of the Company's assets to Ballard, accordingly no provision for
income taxes has been recorded at June 30, 1997.
7. Commitments:
The Company's noncancelable operating leases for office space and
equipment were assumed by Ballard as part of the sale of the assets
on March 20, 1997.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On March 20, 1997 the Company completed the sale, pursuant to a Stock
Purchase and Option Agreement dated July 17, 1995, of substantially all its
assets to Ballard Medical Products ("Ballard"). Reference should be made to
the Company's Annual Report on Form 10-KSB for the year ended December 31,
1996 and its Current Report on Form 8-K for March 31, 1997 for a description
of the transaction and the Company's future business plans.
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this Quarterly Report on
Form 10-QSB. In addition the Company desires to take advantage of certain
provisions of the Private Securities Litigation Reform Act of 1995 that
provide a "safe harbor" for forward looking statements made by or on behalf
of the Company. Except for the historical information contained herein, the
matters discussed herein are forward looking statement, the accuracy of which
is necessarily subject to risks and uncertainties. Specifically, the Company
wishes to alert readers that the information set forth in "Item 1.
Description of Business--Proposed business Plans," and the Company's
intentions and efforts to enter into further business activities contained in
the Company's Annual Report on Form 10-KSB for the year ended December 31,
1996 are forward looking statements. Various factors, including the inability
of management to identify, locate and acquire in a timely manner future
business activities, among other matters discussed in this Report, may
adversely affect the Company's ability to remain in existence. Failure to
locate further business activities could lead to the dissolution of the
Company.
Until the company is successful in entering into further business activities,
it can be expected that its revenues will be nominal.
NET SALES
- ---------
Net Sales decreased to $Nil for the three months and $345,450 for the six
months ended June 30, 1997 as compared to $557,613 for the three months and
$1,306,924 for the six months June 30, 1996 a decrease of 100% and 73%
respectively. For the first quarter of the year, the decrease in sales was
attributable to a decrease in sales through an international distributor and
the uncertainty in the marketplace due to the impending sale of the Company's
assets. The sale was completed on March 20, 1997 which resulted in there
being no sales activity for the quarter ended June 30, 1997.
9
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GROSS PROFIT
- ------------
Gross Profit decreased to $Nil for the three months and $91,476 for the six
months ended June 30, 1997 as compared to $215,678 for the three months and
$416,508 for the six months ended June 30, 1996 a decrease of 100% and 78%
respectively. This decrease in both the quarter and year to date was due to
lower sales volume.
RESEARCH AND DEVELOPMENT
- ------------------------
Research and Development expenses represent the Company's investment in the
advancement of less invasive technology in the fields of neuro and vascular
surgery. These expenses decreased to $Nil for the three months and $110,919
for the six months ended June 30, 1997 as compared to $223,451 for the three
months and $523,374 for the six months ended June 30, 1996 a decrease of 100%
and 79% respectively. This decrease was due to a decrease in personnel and
related benefit costs and an reduced spending in expenses related to the
Company's vascular products including clinical and regulatory submissions.
SALES AND MARKETING EXPENSES
- ----------------------------
Sales and Marketing expenses were $Nil for the three months and $315,137 for
the six months and ended June 30, 1997 as compared to $457,357 for the three
months and $885,090 for the six months and ended June 30, 1996 a decrease of
100% and 64% respectively. This decrease was related to lower sales volume.
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expenses were $31,563 for the three months and
$241,090 for the six months ended June 30, 1997 as compared to $197,023
for the three months and $444,852 for the six months ended June 30, 1996 a
decrease of 83% and 46% respectively. The decrease for the three months
and year to date was due primarily to reduced insurance premiums for
product liability coverage and Directors and Officers liability insurance
and the sale of the business on March 20, 1997.
10
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NET INCOME (LOSS)
- -----------------
Net loss was $35,055 for the three months and net income was $1,190,584 for
the six months ended June 30, 1997. Net loss was $696,580 for the three
months and $1,480,655 for the six months ended June 30, 1996, a decrease of
$661,525 and an increase of $2,671,239 respectively. The increase for the
three months and year to date is primarily attributable to the gain on sale
of the Company's assets.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital was a deficit of $163,755 at June 30, 1997 as compared to
working capital deficiency of $1,658,896 at June 30, 1996 or a decrease of
$1,495,141. The Company's cash resources at June 30, 1997 were minimal and
the Company has an outstanding demand loan due to Ballard Medical Products of
$137,495.
The Company had, at June 30, 1997, no commitments for any other credit
facilities such as revolving loans or lines of credit that could provide
additional working capital.
11
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PART II - OTHER INFORMATION
ITEMS 1,2,3,4, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) No exhibits have been filed with this Report.
b) The Company filed two reports on Form 8-K on March 14, 1997
and April 24, 1997 both in connection with the sale of the
Company's assets under an existing option.
SIGNATURES
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 thereunto duly authorized.
KINETIC VENTURES LTD.
DATED: AUGUST 12, 1997 BY: /S/ BRIAN BAYLEY
-------------------------------
BRIAN BAYLEY, PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
12
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,077
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,077
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,077
<CURRENT-LIABILITIES> 165,832
<BONDS> 0
0
0
<COMMON> 9,934
<OTHER-SE> (173,689)
<TOTAL-LIABILITY-AND-EQUITY> 2,077
<SALES> 345,450
<TOTAL-REVENUES> 345,450
<CGS> 253,974
<TOTAL-COSTS> 253,974
<OTHER-EXPENSES> 667,146
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,105
<INCOME-PRETAX> 1,193,584
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 1,190,584
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,190,584
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