<PAGE>
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, 1998
[ ] 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
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(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
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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 39,933,733 shares of the issuer's Common Stock outstanding as of
November 4, 1998.
This Form 10-QSB consists of 11 pages and no exhibits.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
KINETIC VENTURES LTD.
Balance Sheets
<TABLE>
<CAPTION>
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September 30, December 31,
1998 1997
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,032 179,228
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Total assets $ 1,032 179,228
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 36,444 13,412
Notes payable - 139,000
Income tax payable - 22,553
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36,444 174,965
Shareholders' deficit:
Common stock, $0.001 par value, 39,934 39,934
40,000,000 shares authorized; 39,933,733 shares outstanding
Additional paid in capital 15,895,073 15,895,073
Accumulated deficit (15,970,419) (15,930,744)
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(35,412) 4,263
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$ 1,032 179,228
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</TABLE>
The accompanying notes are an integral part of the financial statements.
2
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KINETIC VENTURES LTD.
Statements of Income (Loss)
For the nine months and three months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ - - - 345,450
Cost of goods sold - - - 253,974
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- - - 91,476
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Operating expenses:
Research and development - - - 110,919
Sales and marketing - - - 315,137
General and administrative 17,203 10,108 38,768 251,198
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17,203 10,108 38,768 677,254
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Other income (expense):
Interest expense, net - (3,391) - (75,496)
Gain on sale of assets - - - 1,828,338
Other - 4,343 - 17,364
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- 952 - 1,770,206
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Net income (loss) before provision for
income taxes (17,203) (9,156) (38,768) 1,184,428
Provision for state income taxes - - (907) (3,000)
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (17,203) (9,156) (39,675) 1,181,428
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Net income (loss) per common share $ - - - 0.12
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Weighted average number of
common shares outstanding 39,933,733 9,933,733 39,933,733 9,933,733
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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KINETIC VENTURES LTD.
Statements of Cash Flows
For the nine months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) for the period $ (39,675) 1,181,428
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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
Decrease in accounts receivable - 182,982
Decrease in inventory - 59,074
Decrease in prepaid expenses - 11,695
Increase in accounts payable and accrued liabilities 23,032 87,386
Decrease in note payable (139,000) -
Decrease in income tax payable (22,553) -
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(138,521) (1,461,918)
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Net cash used by operating activities (178,196) (280,490)
Cash provided by financing activities:
Net proceeds from notes payable - 180,000
Payments & current maturities of capital lease obligations - (321)
Redemption of preferred stock - (2,281)
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- 177,398
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Decrease in cash (178,196) (103,092)
Cash, beginning of period 179,228 105,204
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Cash, end of period $ 1,032 2,112
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</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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KINETIC VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
For the Period Ending September 30, 1998
(Unaudited)
1. Summary of Significant Accounting Policies:
BASIS OF PRESENTATION:
Although unaudited, the interim 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 financial
statements, but does not include all disclosures required by generally
accepted accounting principles. These financial statements should be read
in conjunction with the Company's audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997.
The Company has experienced recurring losses from operations and has an
accumulated deficit of $15,970,419 at September 30, 1998. These matters
raise substantial doubt about the Company's ability to continue as a going
concern.
PROPOSED BUSINESS PLANS:
As of September 30, 1998, the Company has no active business operations.
Management intends to attempt to seek to have the Company enter into
further business operations. Management is currently reviewing various
alternatives relating to further business activities for the Company, but
no specific business activities have been identified and no agreements or
agreements in principle have been entered into whereby the Company will
again be engaged in any business activities. In addition, management has
made no decision as to any specific industries or geographical areas where
any such future business activities may be undertaken. Although management
believes that its future business activities will be the result of the
acquisition of an existing business, there can be no assurance with respect
thereto and the Company may become engaged in such activities through other
means. Management may seek to raise additional capital to enable it to
become engaged in further business activities to finance an acquisition of
an existing business or it may effectuate the acquisition through a merger,
consolidation or other issuance of shares of the Company's common stock.
5
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KINETIC VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
For the Period Ending September 30, 1998
(Unaudited)
There can be no assurance that the Company will be successful in effecting
the acquisition of any further business operations. In addition, there can
be no assurance that the terms of such acquisition may not be dilutive to
the Company's existing stockholders or that such terms will be advantageous
to the Company. There can be no assurance that the Company will be
successful in its attempts to enter into any further business activities.
Until such time as the Company is successful in entering into further
business activities, it should be expected that the Company will not
realize any material revenues.
2. Note Payable:
Note payable consists of the following:
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1998 1997
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<S> <C> <C>
Note payable due on demand, and
non-interest bearing $0 $139,000
</TABLE>
3. Income Taxes:
At December 31, 1997, the Company had net operating loss carryforwards for
federal and state purposes of approximately $15,300,000 and $6,130,000
respectively. In addition, the Company had research and experimentation
credit carryforwards for federal and state purposes of approximately
$323,000 and $139,000, respectively. The federal credit carryforward
expires beginning in 2006. The utilitzation of net operating losses and
credit carryforwards may be limited under the provisions of Internal
Revenue Code Section 382 when a change of ownership occurs.
6
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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, 1997 for a description of the transaction and the Company's future
business plans. As a result of the disposition of the Company's assets,
and until such time, if ever, that the Company enters into further business
operations, the Company will not realize any sales and does not expect to
incur any related expenses.
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 herein and
in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997 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.
7
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NET SALES
The sale of the Company's assets which was completed on March 20, 1997
resulted in there being no sales activity in the current year. Net Sales
decreased to $Nil for the three months and the nine months ended September
30, 1998 as compared to $Nil for the three months and $345,450 for the nine
months ended September 30, 1997, a year to date decrease of 100%.
GROSS PROFIT
The sale of the Company's assets which was completed on March 20, 1997
resulted in there being no sales activity in the current year. Gross
Profit decreased to $Nil for the three months and the nine months ended
September 30, 1998 as compared to $Nil for the three months and $91,476 for
the nine months ended September 30, 1997 a year to date decrease of 100%.
RESEARCH AND DEVELOPMENT
Research and Development expenses represented the Company's investment in
the advancement of less invasive technology in the fields of neuro and
vascular surgery. No such expenses were incurred subsequent to March 20,
1997. These expenses decreased to $Nil for the three months and the nine
months ended September 30, 1998 as compared to $Nil for the three months
and $110,919 for the nine months ended September 30, 1997, a year to date
decrease of 100%. This decrease was due to a decrease in personnel and
related benefit costs and a 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 the nine
months ended September 30, 1998 as compared to $Nil for the three months
and $315,137 for the nine months ended September 30, 1997, a year to date
decrease of 100%. This decrease was the result of the discontinuance of
these activities after the sale of the Company's assets in March, 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $17,203 for the three months and
$38,768 for the nine months ended September 30, 1998 as compared to $10,108
for the three months and $251,198 for the nine months ended September 30,
1997, a increase of 70% and a decrease of 85% respectively. The increase
for the three months was due to Management's attempt to locate further
business activities, and the year to date decrease was due to the sale of
the Company's business on March 20,1997.
8
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NET INCOME (LOSS)
Net loss was $17,203 for the three months and $39,675 for the nine months
ended September 30, 1998. Net loss was $9,156 for the three months and net
income was $1,184,428 for the nine months ended September 30, 1997, a
decrease of $8,047 and $1,224,103 respectively. The prior year income is
primarily attributable to the gain on sale of the Company's assets.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was a deficit of $35,412 at September 30, 1998 as compared
to working capital deficiency of $172,911 at September 30, 1997 or an
decrease of $137,499. The Company's cash resources at September 30, 1998
were minimal.
The Company had, at September 30, 1998, no commitments for any other credit
facilities such as revolving loans or lines of credit that could provide
additional working capital.
9
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its annual meeting of shareholders on July 14, 1998.
(b) Management's nominees: Brian E. Bayley, A. Murray Sinclair and Jennine M.
Ballard were elected directors of the Company at the meeting.
(c) (i) A proposal was submitted to a vote of shareholders at the meeting to
amend the Certificate of Incorporation to effect a 1:6 reverse stock split
of the issued and outstanding shares of the Company's Common Stock. A vote
on the proposal was taken and the holders of 34,090,165 shares voted in
favor of the proposal, the holders of 13,606 shares voted against the
proposal and the holders of 23,200 shares had abstained. The reverse stock
split will become effective on a date in the future to be determined.
(ii) A proposal was submitted to a vote of shareholders at the meeting to
amend the Certificate of Incorporation to change the name of the Company to
Kinetic Technologies Corp., or such other name as the Board of Directors
may approve. A vote on the proposal was taken and the holders of 34,114,971
shares voted in favor of the proposal, there were no holders of shares
which voted against the proposal and the holders of 12,000 shares
abstained.
ITEM 5. OTHER INFORMATION
On October 30, 1998, the Company entered into a share purchase agreement (the
"Agreement") with Northfield Capital Corporation and 284085 B.C. Ltd.
(collectively the "Vendors") pursuant to which the Company will purchase and the
Vendors will sell all of the issued and outstanding common shares (the "Shares")
of i5ive communications inc., a British Columbia corporation ("i5ive") with its
principal office in Vancouver, British Columbia, Canada. Under the terms of the
Agreement, the purchase price for the Shares will be the issuance of 3,405,622
shares of Common Stock (after reflecting a 1-for-6 reverse stock split of the
Company's outstanding shares) and the sum of approximately US$65,000
(Cdn$100,000) deposited with i5ive on execution of the Agreement to be applied
towards the purchase price.
The closing of the transaction is to occur on or before January 29, 1999 subject
to the fulfillment of a number of conditions. Reference is made to the
Company's Current Report on Form 8-K for October 30, 1998.
10
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits - none
b) The Company did not file any Current Report on Form 8-K during the quarter
ended September 30, 1998.
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 13, 1998 Y: /s/ BRIAN BAYLEY
--------------------------------
BRIAN BAYLEY, PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER AND
PRINCIPAL FINANCIAL OFFICER)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF INCOME FOUND IN THE COMPANY'S 10QSB FOR THE YEAR-TO-DATE
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,032
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,032
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,032
<CURRENT-LIABILITIES> 36,444
<BONDS> 0
0
0
<COMMON> 39,934
<OTHER-SE> (75,346)
<TOTAL-LIABILITY-AND-EQUITY> 1,032
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 38,768
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 38,768
<INCOME-TAX> 907
<INCOME-CONTINUING> 39,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,675
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
