U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 333-60906
Two Moons Kachinas Corp.
------------------------
(Name of Small Business Issuer in its Charter)
NEVADA 87-0656515
------ ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
9005 Cobble Canyon Lane
Sandy, Utah 84093
-----------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (801) 942-0555
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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.
(1) Yes X No (2) Yes X No
--- --- --- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
March 31, 2002
579,800
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Financial Statements of the Registrant required to be filed with
this 10-QSB Quarterly Report were prepared by management, and commence on the
following page, together with Related Notes. In the opinion of management,
the Financial Statements fairly present the financial condition of the
Registrant.
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
UNAUDITED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2002
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
CONTENTS
PAGE
Unaudited Condensed Balance Sheet,
March 31, 2002 2
Unaudited Condensed Statements of Operations,
for the three months ended March 31,2002 and
2001 and for the period from inception
on May 19, 2000 through March 31, 2002 3
Unaudited Condensed Statements of Cash Flows,
for the three months ended March 31, 2002 and 2001 and
for the period from inception on May 19, 2000
through March 31, 2002 4
Notes to Unaudited Condensed Financial Statements 5 - 8
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
UNAUDITED CONDENSED BALANCE SHEETS
ASSETS
March 31, December 31,
2002 2001
----------- ------------
CURRENT ASSETS:
Cash $ 18,068 $ 22,441
Interest receivable 21 43
Inventory 54,500 54,000
Prepaid expenses 170 -
----------- ------------
Total Current Assets 72,759 76,484
PROPERTY AND EQUIPMENT, net 7,462 7,964
OTHER ASSETS:
Website Development, net 379 445
----------- ------------
$ 80,600 $ 84,893
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,985 $ 693
Accounts payable-related party 3,769 1,648
----------- ------------
Total Current Liabilities 7,754 2,341
----------- ------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value,
50,000,000 shares authorized,
579,800 shares issued and
outstanding 580 580
Capital in excess of par value 93,355 93,355
Deficit accumulated during the
development stage (21,089) (11,383)
----------- ------------
Total Stockholders' Equity 72,846 82,552
----------- ------------
$ 80,600 $ 84,893
=========== ============
The accompanying notes are an integral part of this unaudited condensed
financial statement.
2
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
From Inception
On May 19,
For the Three 2000 Through
Months Ended March 31,
March 31, ---------------
2002 2001 2002
REVENUE $ - $ - $ -
-------- -------- ---------
OPERATING EXPENSES:
Selling 250 - 250
General and Administrative 9,523 1,002 21,591
-------- -------- ---------
Total Operating Expenses 9,773 1,002 21,841
-------- -------- ---------
LOSS FROM OPERATIONS (9,773) (1,002) (21,841)
-------- -------- ---------
OTHER INCOME:
Interest 67 53 752
-------- -------- ---------
Total Other Income 67 53 752
-------- -------- ---------
LOSS BEFORE INCOME TAXES (9,706) (949) (21,089)
CURRENT TAX EXPENSE - - -
DEFERRED TAX EXPENSE - - -
-------- -------- ---------
NET LOSS $ (9,706) $ (949) $ (21,089)
======== ======== =========
LOSS PER COMMON SHARE $ (.02) $ (.00) $ (.04)
======== ======== =========
The accompanying notes are an integral part of these unaudited condensed
financial statements.
3
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
NET INCREASE (DECREASE) IN CASH
From Inception
On May 19,
For the Three 2000 Through
Months Ended March 31,
March 31, ____________
2002 2001 2002
______________________________
Cash Flows Provided by Operating Activities:
Net loss $ (9,706) $ (949) $(21,089)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 568 502 2,863
Changes in assets and liabilities:
(Increase) decrease in interest receivable 22 6 (21)
(Increase) in inventory (500) - (54,500)
(Increase) in prepaid expenses (170) - (170)
Increase in accounts payable 3,292 - 3,985
__________ ________ ________
Net Cash Provided (Used) by Operating
Activities (6,494) (441) (68,932)
__________ ________ ________
Cash Flows Provided by Investing Activities:
Purchase of property and equipment - - (10,171)
Payments for website development - - (533)
__________ ________ ________
Net Cash (Used) by Investing Activities - - (10,704)
__________ ________ ________
Cash Flows Provided by Financing Activities:
Advances from shareholder 2,121 - 3,769
Proceeds from issuance of common stock - - 104,800
Payments for stock offering costs - - (10,865)
__________ ________ ________
Net Cash Provided by Financing Activities 2,121 - 97,704
__________ ________ ________
Net Increase (Decrease) in Cash (4,373) (441) 18,068
Cash at Beginning of Period 22,441 14,063 -
__________ ________ ________
Cash at End of Period $ 18,068 $ 13,622 $ 18,068
========== ======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the period ended March 31, 2002 and 2001:
None.
The accompanying notes are an integral part of these unaudited condensed
financial statements.
4
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Two Moons Kachinas, Corp. (the Company) was organized
under the laws of the State of Nevada on May 19, 2000. The Company has not
commenced planned principal operations and is considered a development stage
company as defined in Statement of Financial Accounting Standards No. 7. The
Company is planning to sell Hopi Kachina Dolls. The Company has, at the
present time, not paid any dividends and any dividends that may be paid in the
future will depend upon the financial requirements of the Company and other
relevant factors.
Condensed Financial Statements - The accompanying financial statements
have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows at March 31, 2002 and for the periods then ended have been
made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 2001
audited financial statements. The results of operations for the periods
ended March 31, 2002 and 2001 are not necessarily indicative of the operating
results for the full year.
Inventory - Inventory is carried at the lower of cost or market using
the first in, first out method. At March 31, 2002, inventory consists of
twenty five Kachina dolls and one relic valued at $54,500.
Property and Equipment - Property and equipment are stated at cost.
Expenditures for repairs and maintenance are charged to operating expense as
incurred. Expenditures for additions and betterments that extend the useful
lives of property and equipment are capitalized, upon being placed in service.
When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation or amortization is removed from the accounts and any
resulting gain or loss is included in operations. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets
of five years.
Website costs - The Company has adopted the provisions of Emerging
Issues Task Force 00-2, "Accounting for Web Site Development Costs." Costs
incurred in the planing stage of a website are expensed as research and
development while costs incurred in the development stage are capitalized and
amortized over the life of the asset, estimated to be two years. The Company
did not incur any planning costs and did not record any research and
development costs for the three months ended March 31, 2002 and 2001.
Advertising Costs - Advertising costs, except for costs associated with
direct-response advertising, are charged to operations when incurred. The
costs of direct-response advertising are capitalized and amortized over the
period during which future benefits are expected to be received.
5
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Loss Per Share - The computation of loss per share is based on the
weighted average number of shares outstanding during the period presented in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share".
Cash and Cash Equivalents - For purposes of the statement of cash
flows, the Company considers all highly liquid debt investments purchased with
a maturity of three months or less to be cash equivalents.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles in the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosures of contingent
assets and liabilities at the date of the financial statements, and the
reported amount of revenues and expenses during the reported period. Actual
results could differ from those estimated.
Recently Enacted Accounting Standards - Statement of Financial
Accounting Standards ("SFAS") No. 141, "Business Combinations", SFAS No. 142,
"Goodwill and Other Intangible Assets", and SFAS No. 143, "Accounting for
Asset Retirement Obligations", and SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", were recently issued. SFAS No.
141, 142, 143 and 144 have no current applicability to the Company or their
effect on the financial statements would not have been significant.
NOTE 2 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less
accumulated depreciation as of:
March 31, December 31,
2002 2001
------------- ------------
Computer and office equipment $ 10,717 $ 10,171
Less: accumulated depreciation (2,709) (2,207)
------------- ------------
$ 7,462 $ 7,964
============= ============
Depreciation expense for the three months ended March 31, 2002 and 2001
amounted to $502 and $502, respectively.
6
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 3 - OTHER ASSETS
The following is a summary of other assets at cost, less accumulated
amortization as of:
March 31, December 31,
2002 2001
--------- ---------
Website development $ 533 $ 533
Less: accumulated amortization (154) (88)
--------- ---------
$ 379 $ 445
--------- ---------
NOTE 4 - CAPITAL STOCK
Common Stock - During December 2000, in connection with its organization, the
Company issued 500,000 shares of its previously authorized, but unissued
common stock. The shares were issued for cash of $25,000 (or $.05 per
share).
Public Stock Offering - During November 2001, the Company completed a public
stock offering of 79,800 shares of common stock for cash of $79,800 (or $1.00
per share). Stock offering costs of $10,865 were netted against the proceeds
as a reduction to capital in excess of par value. This offering was
registered with the Securities and Exchange Commission on Form SB-2.
NOTE 5 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". SFAS
No. 109 requires the Company to provide a net deferred tax asset/liability
equal to the expected future tax benefit/expense of temporary reporting
differences between book and tax accounting methods and any available
operating loss or tax credit carryforwards. The Company has available at
March 31, 2002, an operating loss carryforwards of approximately
$21,100, which may be applied against future taxable income and which
expires in various years through 2022.
The amount of and ultimate realization of the benefits from the operating
loss carryforwards for income tax purposes is dependent, in part, upon the
tax laws in effect, the future earnings of the Company, and other future
events, the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the loss carryforwards the
Company has established a valuation allowance equal to the tax effect of
the loss carryforwards and, therefore, no deferred tax asset has been
recognized for the loss carryforwards. The net deferred tax assets are
approximately $3,200 as of March 31, 2002 with an offsetting valuation
allowance of the same amount. The change in the valuation allowance for the
three months ended March 31, 2002 is approximately $700.
7
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 6 - RELATED PARTY TRANSACTIONS
Management Compensation - As of March 31, 2002, the Company has not
paid any compensation to any officer or director of the Company.
Office Space - The Company has not had a need to rent office space. An
officer/shareholder of the Company is allowing the Company to use his
offices as a mailing address, as needed, at no expense to the Company.
Advances from a shareholder - An officer/shareholder of the Company has
directly paid expenses totaling $3,769 on behalf of the Company. At March 31,
2002, the Company owed the shareholder $3,769. No interest is being accrued
on the advances.
NOTE 7 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America,
which contemplate continuation of the Company as a going concern. However,
the Company was recently formed and has not yet been successful in
establishing profitable operations. These factors raise substantial doubt
about the ability of the Company to continue as a going concern. In this
regard, management is proposing to raise any necessary additional funds not
provided by operations through loans or through additional sales of its common
stock. There is no assurance that the Company will be successful in raising
this additional capital or achieving profitable operations. The financial
statements do not include any adjustments that might result from the outcome
of these uncertainties.
NOTE 8 - LOSS PER SHARE
The following data shows the amounts used in computing loss per share:
From Inception
For the Three On May 19,
Months Ended 2000 Through
March 31, March 31,
2002 2001 2002
Loss from continuing
operations available to
common shareholders
(numerator) $ (9,706) $ (949) $ (21,069)
---------- --------- ---------
Weighted average
number of common
shares outstanding
used in loss per
share for the period
(denominator) 579,800 500,000 517,252
---------- --------- ---------
Dilutive earnings (loss) per common share was not presented as the Company
had no common stock equivalent shares for all periods presented that would
affect the computation of diluted loss per share.
8
Item 2. Management's Discussion and Analysis or Plan of Operation.
--------------------------------------------------------------------
Plan of Operation.
------------------
Our plan of operation for the next 12 months is to sell Kachina
dolls, both through our own web site and through Internet auction
sites and consignment to specialty stores.
At the time of its public offering, management estimated that we
would needed minimum cash resources of about $60,000 to begin material
operations. We determined that amount based on the following expected
expenses:
Costs of offering - $15,000;
Web design - $1,000;
Web maintenance - $1,500
Kachinas - $30,000;
Travel - $5,000;
Working Capital - $7,500.
Net proceeds of our public offering exceeded this amount by
approximately $10,000. We have not yet identified any other source of
funding, and we can not assure you that we will have any success in this
regard if additional resources are needed.
From our public offering proceeds, we hired a web site designer to
design our retail web site, which became operational in December, 2001. We
then purchased approximately 25 collector-quality Kachinas from jobbers, who
purchased Kachinas directly from the carvers, at below wholesale prices of
$1,200 to $1,800. In some cases, we will purchase Kachinas directly from
carvers in the $1,000 to $2,000 price range.
We have placed photographs of the Kachinas on our web site and, if
sales are slow after one month, we will put one or two Kachinas up for
auction, with a minimum bid price, on an Internet auction site. We also have
contractual arrangements with two retail specialty stores, attended the
Spring 2002 San Francisco American Indian Arts Show that was held on March 23
and 24, 2002, and are actively researching the availability of similar events
to showcase our products. In order to diversify our product offerings, we
also purchased a Zuni fetish, or carving, made of antler.
As we sell Kachinas, we plan to use the proceeds to buy additional
Kachinas for resale. Our President provides us with rent-free office space,
and our management has verbally agreed not to accept any compensation until we
are operating profitably. Because of our low overhead, we believe that we can
finance our initial needs for at least 12 months from the minimum gross
proceeds of $60,000 that we realized from our public offering. Our officers
have contacts through which they can purchase Kachinas at below wholesale
prices. We plan to keep our expenses low and to keep our inventory rolling
over.
Our officers are well-informed about Kachinas and plan to stay up-
to-date on current trends through reading industry publications, visiting
trade shows and communicating with personal contacts.
Results of Operations.
----------------------
During the quarterly period ended March 31, 2002 and 2001, the
Company had no business operations. During these periods, the Company
received total revenues of $0 and had a net loss of $(9,706) and $(989),
respectively.
Liquidity.
----------
At March 31, 2002, the Company had $72,759 in current assets, with
total current liabilities of $7,754. Total stockholder's equity was $72,846.
Forward-Looking Statement.
--------------------------
Statements made in this Form 10-QSB which are not purely historical are
forward-looking statements with respect to the goals, plan objectives,
intentions, expectations, financial condition, results of operations, future
performance and business of the Company, including, without limitation, (i)
our ability to gain a larger share of the kachina doll industry, our ability
to continue to develop products acceptable to the industry, our ability to
retain relationships with suppliers, our ability to raise capital, and the
growth of the Native American arts and crafts industry, and (ii) statements
preceded by, followed by or that include the words "may", "would", "could",
"should", "expects", "projects", "anticipates", "believes", "estimates",
"plans", "intends", "targets" or similar expressions.
Forward-looking statements involve inherent risks and uncertainties, and
important factors (many of which are beyond the Company's control) that could
cause actual results to differ materially from those set forth in the
forward-looking statements, including the following, in addition to those
contained in the Company's reports on file with the SEC: general economic or
industry conditions, nationally and/or in the communities in which the Company
conducts business, changes in the interest rate environment, legislation or
regulatory requirements, conditions of the securities markets, changes in the
Native American arts and crafts industry, the development of products and that
may be superior to the products and services offered by the Company, demand
for kachina dolls, competition, changes in the quality or composition of the
Company's products, our ability to raise capital, changes in accounting
principles, policies or guidelines, financial or political instability, acts
of war or terrorism, other economic, competitive, governmental, regulatory and
technical factors affecting the Company's operations, products, services and
prices.
Accordingly, results actually achieved may differ materially from
expected results in these statements. Forward-looking statements speak only
as of the date they are made. The Company does not undertake, and
specifically disclaims, any obligation to update any forward-looking
statements to reflect events or circumstances occurring after the date of such
statements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
----------------------------
None; not applicable.
Item 2. Changes in Securities.
--------------------------------
None; not applicable.
Item 3. Defaults Upon Senior Securities.
------------------------------------------
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
--------------------------------------------------------------
None; not applicable.
Item 5. Other Information.
----------------------------
None; not applicable.
Item 6. Exhibits and Reports on Form 8-K.
-------------------------------------------
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
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.
Two Moons Kachinas, Corp.
Date: 5-20-02 By /s/ David C. Merrell
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David C. Merrell
President and Director
Date: 5/20/02 By /s/ R. Kip Paul
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R. Kip Paul
Secretary, Treasurer and Director