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 June 30, 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.
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(Name of Small Business Issuer in its Charter)
NEVADA 87-0656515
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(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
9005 Cobble Canyon Lane
Sandy, Utah 84093
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(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:
June 30, 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
JUNE 30, 2002
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
CONTENTS
PAGE
Unaudited Condensed Balance Sheets,
June 30, 2002 and December 31, 2001 2
Unaudited Condensed Statements of Operations,
for the three and six months ended June 30, 2002
and 2001 and for the period from inception on
May 19, 2000 through June 30, 2002 3
Unaudited Condensed Statements of Cash Flows,
for the six months ended June 30, 2002 and 2001
and for the period from inception on May 19, 2000
through June 30, 2002 4
Notes to Unaudited Condensed Financial Statements 5 - 8
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
UNAUDITED CONDENSED BALANCE SHEETS
ASSETS
June 30, December 31,
2002 2001
___________ ___________
CURRENT ASSETS:
Cash $ 7,566 $ 22,441
Interest receivable 7 43
Inventory 72,500 54,000
Prepaid expenses 119 -
Total Current Assets 80,192 76,484
PROPERTY AND EQUIPMENT, net 6,955 7,964
OTHER ASSETS:
Website development, net 313 445
$ 87,460 $ 84,893
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,464 $ 693
Advances from shareholder 19,706 1,648
Total Current Liabilities 22,170 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 (28,645) (11,383)
Total Stockholders' Equity 65,290 82,552
$ 87,460 $ 84,893
The accompanying notes are an integral part of these unaudited condensed
financial statements.
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the Three For the Six From Inception
Months Ended Months Ended On May 19,
June 30, June 30, 2000 Through
June 30,
2002 2001 2002 2001 2002
REVENUE $ - $ - $ - $ - $ -
OPERATING EXPENSES:
Selling 4,498 - 4,748 - 4,748
General and
administrative 3,091 2,066 12,614 3,575 24,682
Total Operating
Expenses 7,589 2,066 17,362 3,575 29,430
LOSS FROM OPERATIONS (7,589) (2,066) (17,362) (3,575) (29,430)
OTHER INCOME:
Interest 33 19 100 72 785
Total Other Income 33 19 100 72 785
LOSS BEFORE INCOME TAXES (7,556) (2,047) (17,262) (3,503) (28,645)
CURRENT TAX EXPENSE - - - - -
DEFERRED TAX EXPENSE - - - - -
NET LOSS $ (7,556) $ (2,047) $(17,262) $(3,503) $(28,645)
LOSS PER COMMON SHARE $ (.01) $ (.00) $ (.03) $ (.00) $ (.05)
The accompanying notes are an integral part of these unaudited condensed
financial statements.
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
NET INCREASE (DECREASE) IN CASH
For the Six From Inception
Months Ended On May 19,
June 30, 2000 Through
June 30,
2002 2001 2002
Cash Flows From Operating Activities:
Net loss $ (17,262) $ (3,503) $ (28,645)
Adjustments to reconcile net loss
to net cash used by
operating activities:
Depreciation and amortization 1,141 1,008 3,436
Changes in assets and liabilities:
(Increase) decrease in
interest receivable 36 23 (7)
(Increase) in inventory (18,500) - (72,500)
(Increase) in prepaid expenses (119) - (119)
Increase in accounts payable 1,771 1,650 2,464
Net Cash (Used) by
Operating Activities (32,933) (822) (95,371)
Cash Flows From Investing Activities:
Purchase of property and equipment - - (10,171)
Payments for website development - - (533)
Net Cash (Used) by
Investing Activities - - (10,704)
Cash Flows From Financing Activities:
Advances from shareholder 18,058 - 19,706
Proceeds from issuance of
common stock - - 104,800
Payments for stock offering costs - (10,000) (10,865)
Net Cash Provided by
Financing Activities 18,058 (10,000) 113,641
Net Increase (Decrease) in Cash (14,875) (10,822) 7,566
Cash at Beginning of Period 22,441 14,063 -
Cash at End of Period $ 7,566 $ 3,241 $ 7,566
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 six months ended
June 30, 2002 and 2001:
None.
The accompanying notes are an integral part of these unaudited condensed
financial statements.
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
generated any revenues from its 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 and
related artwork. 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
June 30, 2002 and 2001 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 in the United States of America 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 June 30, 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 June 30, 2002, inventory consists of twenty
four Kachina dolls and related artwork valued at $72,500.
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 planning 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. As of June 30, 2002
the Company has capitalized a total of $533 of website costs. The Company did
not incur any planning costs and did not record any research and development
costs for the six months ended June 30, 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.
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", SFAS No. 143, "Accounting for Asset Retirement
Obligations", SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", and SFAS No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections",
were recently issued. SFAS No. 141, 142, 143, 144 and 145 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:
June 30, December 31,
2002 2001
Computer and office equipment $ 10,171 $ 10,171
Less: accumulated depreciation (3,216) (2,207)
$ 6,955 $ 7,964
Depreciation expense for the six months ended June 30, 2002 and 2001
amounted to $1,009 and $1,008, respectively.
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:
June 30, December 31,
2002 2001
Website development $ 533 $ 533
Less: accumulated amortization (220) (88)
$ 313 $ 445
Amortization expense for the six months ended June 30, 2002 and 2001
amounted to $132 and $0, respectively.
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 at $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 June
30, 2002, operating loss carryforwards of approximately $28,600, 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 $6,500 and
$3,900 as of June 30, 2002 and December 31, 2001, respectively, with an
offsetting valuation allowance of the same amount. The change in the
valuation allowance for the six months ended June 30, 2002 is approximately
$2,600.
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED
FINANCIAL STATEMENTS
NOTE 6 - RELATED PARTY TRANSACTIONS
Management Compensation - As of June 30, 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 made
advances to the Company and has directly paid expenses on behalf of the
Company. At June 30, 2002, the Company owed the shareholder $19,706. 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:
For the Three For the Six From Inception
Months Ended Months Ended On May 19,
June 30, June 30, 2000 Through
June 30,
2002 2001 2002 2001 2002
Loss from
continuing operations
available to common
shareholders
(numerator) $ (7,556) $ (2,047) $ (17,262) $ (3,503) $ (28,645)
Weighted average
number of
common shares
outstanding
used in loss per
share for the
period (denominator) 579,800 500,000 579,800 500,000 524,625
Dilutive loss per 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.
Item 2. Management's Discussion and Analysis or Plan of Operation.
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Plan of Operation.
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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 need 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. Currently we have 24 Kachinas in
inventory.
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.
We have also placed Kachinas in a jewelry store located in the
Trolley Square shopping mall in Salt Lake City, Utah. As potential buyers
express interest in the dolls, the proprietor of the store will contact the
Company and we will negotiate with him for a commission on any sales that are
made.
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. Our next trade show is
the trade show scheduled for early 2003, in Marin, California.
Results of Operations.
----------------------
During the quarterly period ended June 30, 2002 and 2001, the
Company received no revenues. During these periods, the Company
had a net loss of $(7,556) and $(2,407), respectively.
During the six months ended June 30, 2002 and 2001, the
Company received total revenues of $0 and had a net loss of $(17,262) and
$(3,503), respectively.
Liquidity.
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At June 30, 2002, the Company had $80,192 in current assets, with
total current liabilities of $22,170. Total stockholder's equity was $65,290.
We had cash on hand of only $7,566 at June 30, 2002. On August 6,
2002, which is subsequent to the period covered by this Report, we sold an Owl
Kachina for $3,300. We expect that current cash on hand will be sufficient
for us to maintain operations for at least one year even if we do not make any
additional sales during that period. After that, we will be required to raise
additional capital through the sale of securities or through loans from
directors and officers.
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.
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None; not applicable.
Item 2. Changes in Securities.
--------------------------------
None; not applicable.
Item 3. Defaults Upon Senior Securities.
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None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
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None; not applicable.
Item 5. Other Information.
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None; not applicable.
Item 6. Exhibits and Reports on Form 8-K.
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(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: 8-13-02 By /s/ David C. Merrell
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David C. Merrell
President and Director
Date: 8/13/02 By /s/ R. Kip Paul
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R. Kip Paul
Secretary, Treasurer and Director
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report of Two Moons Kachinas, Corp. (the
"Company") on Form 10-QSB for the period ending June 30, 2002, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), We,
David C. Merrell, President, and R. Kip Paul, Treasurer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge and
belief:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ David C. Merrell
--------------------
President
08/13/02
/s/R. Kip Paul
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Treasurer
08/13/02