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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 September 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 Identification No.)
incorporation or organization)
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
November 4, 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
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
September 30, December 31,
1997 1996
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,112 105,204
Accounts receivable, net - 379,873
Inventory - 1,519,099
Prepaid expenses - 43,641
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2,112 2,047,817
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Furniture and equipment, net - 322,360
Deposits - 6,223
- ---------------------------------------------------------------------------------------------
$ 2,112 2,376,400
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Obligation under capital lease, current portion $ - 2,065
Notes payable 140,895 3,260,000
Accounts payable and accrued liabilities 34,128 444,648
- ---------------------------------------------------------------------------------------------
175,023 3,706,713
Obligation under capital lease, net of current portion - 4,026
- ---------------------------------------------------------------------------------------------
175,023 3,710,739
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Convertible redeemable preferred stock,
Redeemed on March 20, 1997 for $2,281 - 1,867,795
Shareholders' deficit:
Common stock, $0.001 par value, 9,934 9,934
40,000,000 shares authorized;
9,933,733 shares outstanding
Additional paid in capital 15,696,079 13,848,284
Accumulated deficit (15,878,924) (17,060,352)
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(172,911) (3,202,134)
- ---------------------------------------------------------------------------------------------
$ 2,112 2,376,400
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- ---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are in integral part of the financial statements.
2
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KINETIC VENTURES LTD.
Consolidated Statements of Income (Loss)
For the nine months and three months ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ - 380,826 345,450 1,687,750
Cost of goods sold - 230,875 253,974 1,121,291
- -----------------------------------------------------------------------------------------------------------
- 149,951 91,476 566,459
- -----------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development - 257,041 110,919 780,415
Sales and marketing - 395,813 315,137 1,280,903
General and administrative 10,108 224,496 251,198 669,348
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10,108 877,350 677,254 2,730,666
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Other income (expense):
Interest expense, net (3,391) (49,202) (75,496) (90,650)
Gain on sale of assets - - 1,828,338 -
Other 4,343 6,676 17,364 7,877
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952 (42,526) 1,770,206 (82,773)
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Net income (loss) before provision for
income taxes (9,156) (769,925) 1,184,428 (2,246,980)
Provision for state income taxes - - (3,000) (3,600)
- -----------------------------------------------------------------------------------------------------------
Net income (loss) $ (9,156) (769,925) 1,181,428 (2,250,580)
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ - (0.08) 0.12 (0.23)
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- -----------------------------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding 9,933,733 9,933,733 9,933,733 9,933,733
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are in integral part of the financial statements.
3
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KINETIC VENTURES LTD.
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
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- -------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) for the period $ 1,181,428 (2,250,580)
- -------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Net effect from sale of assets to Ballard (1,828,338) -
Depreciation and amortization 25,283 68,211
Decrease in accounts receivable 182,982 128,616
Decrease (increase) in inventory 59,074 (260,682)
Decrease in prepaid expenses 11,695 27,170
Increase (decrease) in accounts payable and accrued
liabilities 87,386 (240,712)
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(1,461,918) (277,397)
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Net cash used by operating activities (280,490) (2,527,977)
Cash Used by Investing activities:
Purchase of property and equipment - (188,888)
Decrease in deposits - 84,025
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- (104,863)
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Cash provided by financing activities:
Net proceeds from notes payable 180,000 2,405,000
Payments & current maturities of capital lease obligations (321) (1,316)
Redemption of preferred stock (2,281) -
Deferred issue costs - (748)
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177,398 2,402,936
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Decrease in cash (103,092) (229,904)
Cash, beginning of period 105,204 280,115
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Cash, end of period $ 2,112 50,211
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- -------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are in integral part of the financial statements.
4
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KINETIC VENTURES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ending September 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 $15,878,924 at September 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 September 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)
September 30, December 31,
1997 1996
------------- ------------
Raw materials $0 $605,996
Work in process 0 43,898
Finished goods 0 869,205
-- -------
$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)
September 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)
-- --------
$0 $322,360
-- --------
-- --------
All property and equipment was 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 September 30, 1997
(Unaudited)
4. Notes Payable:
Notes payable consist of the following:
(Unaudited)
September 30, December 31,
1997 1996
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Note payable to Ballard Medical
Products, due on demand collateralized by
substantially all assets of the
Company, bearing interest at 10% $0 $3,260,000
Note payable due on demand, and
bearing interest at 10% 140,895 0
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$140,895 $3,260,000
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-------- ----------
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).
On July 3, 1997, the Company entered into an Assignment and Release
Agreement to transfer the legal title to the Ballard debt in the amount of
$137,495 plus interest.
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.
7
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KINETIC VENTURES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
For the Period Ending September 30, 1997
(Unaudited)
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.
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 September 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 statements, 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 nine
months ended September 30, 1997 as compared to $380,826 for the three months and
$1,687,750 for the nine months September 30, 1996 a decrease of 100% and 80%
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 September 30, 1997.
9
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GROSS PROFIT
Gross Profit decreased to $Nil for the three months and $91,476 for the nine
months ended September 30, 1997 as compared to $149,951 for the three months and
$566,459 for the nine months ended September 30, 1996 a decrease of 100% and 84%
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 nine months ended September 30, 1997 as compared to $257,041 for the three
months and $780,415 for the nine months ended September 30, 1996 a decrease of
100% and 86% 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
nine months and ended September 30, 1997 as compared to $395,813 for the three
months and $1,280,903 for the nine months and ended September 30, 1996 a
decrease of 100% and 75% respectively. This decrease was related to lower sales
volume.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $10,108 for the three months and
$251,198 for the nine months ended September 30, 1997 as compared to $224,496
for the three months and $669,348 for the nine months ended September 30, 1996 a
decrease of 95% and 62% 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 $9,156 for the three months and net income was $1,184,428 for the
nine months ended September 30, 1997. Net loss was $769,925 for the three
months and $2,250,580 for the nine months ended September 30, 1996, a decrease
of $760,769 and an increase of $3,432,008 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 $172,911 at September 30, 1997 as compared to
working capital deficiency of $877,824 at September 30, 1996 or a decrease of
$704,913. The Company's cash resources at September 30, 1997 were minimal and
the Company has an outstanding demand loan of $140,895.
The Company had, at September 30, 1997, no commitments for any other credit
facilities such as revolving loans or lines of credit that could provide
additional working capital.
SUBSEQUENT EVENT
Subject to applicable approvals, the Company announced a private placement
totalling 30,000,000 shares at a price of Cdn.$0.01 per share; proceeds from the
placement will be used to retire accounts payable and to fund future
acquisitions.
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: NOVEMBER 6, 1997 BY: /s/ BRIAN BAYLEY
----------------
BRIAN BAYLEY, PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,112
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,112
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,112
<CURRENT-LIABILITIES> 175,023
<BONDS> 0
0
0
<COMMON> 9,934
<OTHER-SE> (182,845)
<TOTAL-LIABILITY-AND-EQUITY> 2,112
<SALES> 345,450
<TOTAL-REVENUES> 345,450
<CGS> 253,974
<TOTAL-COSTS> 253,974
<OTHER-EXPENSES> 677,254
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,496
<INCOME-PRETAX> 1,184,428
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 1,181,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,181,428
<EPS-PRIMARY> .12
<EPS-DILUTED> 0
</TABLE>
