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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 March 31, 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
May 10, 1997.
This Form 10-QSB consists of 12 pages and no exhibits.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KINETIC VENTURES LTD.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
MARCH 31, DECEMBER 31,
1997 1996
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 8,442 $ 105,204
ACCOUNTS RECEIVABLE-NET 379,873
INVENTORY 1,519,099
PREPAID EXPENSES 43,641
------------ ------------
TOTAL CURRENT ASSETS 8,442 $ 2,047,817
FURNITURE & EQUIPMENT (NET) 322,360
DEPOSITS 6,223
------------ ------------
$ 8,442 $ 2,376,400
------------ ------------
------------ ------------
LIABILITIES
CURRENT LIABILITIES
OBLIGATION UNDER CAPITAL LEASE, CURRENT PORTION $ 0 $ 2,065
NOTES PAYABLE - BALLARD MEDICAL PRODUCTS 134,142 3,260,000
ACCOUNTS PAYABLE & ACCRUED EXPENSES 444,648
------------ ------------
134,142 3,706,713
OBLIGATION UNDER CAPITAL LEASE, NET OF
CURRENT PORTION 4,026
------------ ------------
TOTAL LIABILITIES 134,142 3,710,739
------------ ------------
CONVERTIBLE REDEEMABLE PREFERRED STOCK,
REDEEMED ON MARCH 20, 1997 FOR $2,281 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 (15,831,713) (17,060,352)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (125,700) (3,202,134)
------------ ------------
$ 8,442 $ 2,376,400
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The accompanying notes are an integral part of the financial statements.
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KINETIC VENTURES LTD.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
THREE MONTHS AND YEAR TO DATE
ENDED
MARCH 31,
--------------------------------
1997 1996
SALES $345,450 $749,311
COST OF GOODS SOLD 253,974 548,481
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91,476 200,830
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OPERATING EXPENSES:
RESEARCH AND DEVELOPMENT 110,919 299,923
SALES AND MARKETING 315,137 427,733
GENERAL AND ADMINISTRATIVE 209,527 247,829
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635,583 975,485
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OTHER INCOME (EXPENSE):
INTEREST EXPENSE (NET) (68,613) (6,420)
GAIN ON SALE OF ASSETS 1,828,338
OTHER 13,021
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1,772,746 (6,420)
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INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 1,228,639 (781,075)
PROVISION FOR STATE INCOME TAXES 3,000 3,000
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NET INCOME (LOSS) $1,225,639 ($784,075)
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------------- --------------
NET INCOME (LOSS) PER COMMON SHARE $0.12 ($0.08)
------------- --------------
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 9,933,733 9,933,733
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The accompanying notes are an integral part of the financial statements.
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KINETIC VENTURES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
THREE MONTHS AND YEAR
TO DATE
ENDED
MARCH 31,
---------- ----------
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) FOR THE PERIOD $1,225,639 ($784,075)
---------- ----------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED BY OPERATING ACTIVITIES:
NET EFFECT FROM SALE OF ASSETS TO BALLARD (1,828,338)
DEPRECIATION AND AMORTIZATION 25,283 22,737
DECREASE (INCREASE) IN ACCOUNTS RECEIVABLE 182,982 (183,877)
(INCREASE) DECREASE IN INVENTORY 59,074 (86,138)
DECREASE IN PREPAID EXPENSES 11,695 20,377
INCREASE (DECREASE) IN ACCOUNTS
PAYABLE AND ACCRUED EXPENSES (46,185) (64,028)
---------- ----------
(1,595,489) (162,873)
---------- ----------
NET CASH USED BY OPERATING ACTIVITIES (369,850 (946,948)
---------- ----------
CASH USED BY INVESTING ACTIVITIES:
(INCREASE) IN DEPOSITS (2,750)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (4,310) (2,750)
---------- ----------
CASH PROVIDED BY FINANCING ACTIVITIES:
PROCEEDS FROM NOTES PAYABLE 280,000 780,000
PAYMENTS & CURRENT MATURITIES OF
CAPITAL LEASE OBLIGATION (321) (414)
DEFERRED ISSUANCE COSTS (748)
REDEMPTION OF PREFERRED STOCK (2,281)
---------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 277,398 778,838
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NET DECREASE IN CASH AND
CASH EQUIVALENTS (96,762) (170,860)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 105,204 280,115
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $8,442 $109,255
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The accompanying notes are an integral part of the financial statements
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KINETIC VENTURES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period Ending March 31, 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 $15,831,713 at March 31, 1997. These matters raise
substantial doubt about the Company's ability to continue as a going
concern.
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2. Inventory:
Inventories are stated at the lower of cost (first-in, first-out) or market
and consists of the following:
(Unaudited)
March 31, December 31,
1997 1996
----------- ------------
Raw materials $0 $445,890
Work in process 0 113,211
Finished goods 0 497,600
-- ------------
$0 $1,056,701
-- ------------
-- ------------
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)
March 31, December 31,
1997 1996
----------- ------------
Office furniture $0 $216,867
Equipment 0 240,764
Leasehold improvements 0 93,452
-- --------
0 551,083
Less, Accumulated depreciation
and amortization 0 (229,775)
-- --------
$0 $321,308
-- --------
-- --------
All Property and Equipment were sold on March 20, 1997, as part of the sale
of assets (see Note 5).
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4. Notes Payable:
Notes payable consist of the following:
(Unaudited)
March 31, 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% $134,142 $3,260,000
-------- ----------
-------- ----------
A substantial portion of the note payable to Ballard was applied to the
purchase price of the 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 in 1995 for the option under the Option Agreement,
$198,631 of liabilities assumed, $3,671,471 of 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 deficiency of $134,142 in the payment of the purchase price
is represented by the Company's 10% promissory note due on demand. Such
note is secured by substantially all of the Company's assets. Concurrently
with the sale of the Company's assets, pursuant to authorization granted by
the stockholders at the special meeting held on
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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 will
offset any current tax liability from the sale of the Company's assets to
Ballard, accordingly, no provision for income taxes has been recorded at
March 31, 1997.
7. COMMITMENTS:
The Companies 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 From 10-KSB for the year ended December
31, 1996 and its Current Report on Form 8-K for March 20, 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 $345,450 for the three months and year to date
ended March 31, 1997 as compared to $749,311 for the three months and
year to date ended March 31, 1996 a decrease of 54%. For the quarter and
year to date, the decrease in sales is 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. In
addition, because of the closing of the sale of the Company's assets on
March 20, 1997, the Company had no revenues subsequent to March 20, 1997.
9
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GROSS PROFIT
Gross Profit decreased to $91,476 for the three months and year to date
ended March 31, 1997 as compared to $200,830 for the three months and
year to date ended March 31, 1996 a decrease of 54%. 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 $110,919 for the three
months and year to date ended March 31, 1997 as compared to $299,923 for
the three months and year to date ended March 31, 1996 a decrease of 63%.
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 $315,137 for the three months and year
to date ended March 31, 1997 as compared to $427,733 for the three months
and year to date ended March 31, 1996 a decrease of 26%. This decrease
was related to lower sales volume.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $209,527 for the three months
and year to date ended March 31, 1997 as compared to $247,829 for the
three months and year to date ended March 31, 1996 a decrease of 15%. 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.
NET INCOME (LOSS)
Net Income for the three months and year to date ended March 31, 1997 was
$1,228,639 as compared to a net loss of $784,075 for the three months and
year to date ended March 31, 1996 an increase of $2,012,714. The increase
for the three months and year to date is primarily attributable to the
gain on sale of the Company's assets on March 20, 1977 (see Note 5 to the
financial statements).
LIQUIDITY AND CAPITAL RESOURCES
Working capital was a deficit of ($125,700) at March 31, 1997 as compared
to working capital of $646,375 at March 31, 1996 or a decrease of
10
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$772,075. The Company's cash resources at March 31, 1997 were minimal and
the Company has an outstanding demand loan due to Ballard Medical
Products of $134,142. Such loan is secured by substantially all of the
Company's assets.
The Company had, at March 31, 1997, no commitments for any other credit
facilities such as revolving loans or lines of credit that could provide
additional working capital.
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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 dated February 26, 1997 and
March 20, 1997, respectively, both in connection with the sale of the
Company's assets under an existing option. The former report was filed
in response to Items 5 and 7 and the latter report was filed in response
to Items 2 and 7.
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: MAY 15, 1997 BY: /S/ BRIAN BAYLEY
-----------------------------
BRIAN BAYLEY, PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
12
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,442
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,442
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,442
<CURRENT-LIABILITIES> 134,142
<BONDS> 0
0
0
<COMMON> 9,934
<OTHER-SE> (135,634)
<TOTAL-LIABILITY-AND-EQUITY> 8,442
<SALES> 345,450
<TOTAL-REVENUES> 345,450
<CGS> 253,974
<TOTAL-COSTS> 253,974
<OTHER-EXPENSES> 635,583
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,613
<INCOME-PRETAX> 1,228,639
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 1,225,639
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,225,639
<EPS-PRIMARY> 0.12
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