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 September 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
-------------- ---------------
Commission File No. 333-60906
Two Moons Kachinas Corp.
------------------------
(Exact name of Small Business Issuer as specified in its Charter)
NEVADA 87-0656515
------ ----------
(State or Other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9005 Cobble Canyon Lane
Sandy, Utah 84093
-----------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (801) 942-0555
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date:
September 30, 2003
660,300
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Transitional Small Business Disclosure Format: Yes X No
--- ---
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
SEPTEMBER 30, 2003
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
CONTENTS
PAGE
Unaudited Condensed Balance Sheets,
September 30, 2003 and December 31, 2002 2
Unaudited Condensed Statements of Operations,
for the three and nine months ended September
30, 2003 and 2002 and for the period from
inception on May 19, 2000 through September 30, 2003 3
Unaudited Condensed Statements of Cash Flows,
for the nine months ended September 30, 2003 and 2002
and for the period from inception on May 19, 2000
through September 30, 2003 4
Notes to Unaudited Condensed Financial Statements 5 - 9
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
UNAUDITED CONDENSED BALANCE SHEETS
ASSETS
September 30, December 31,
2003 2002
___________ ___________
CURRENT ASSETS:
Cash $ 5,962 $ 12,701
Interest receivable 2 8
Inventory 53,000 53,000
Prepaid expenses 341 17
----------- ---------
Total Current Assets 59,305 65,726
PROPERTY AND EQUIPMENT, net 4,408 5,930
OTHER ASSETS:
Website development, net - 178
----------- ---------
$ 63,713 $ 71,834
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,035 $ 10,237
Advances from shareholder 6,017 5,320
----------- ---------
Total Current Liabilities 14,052 15,557
----------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value,
50,000,000 shares authorized,
660,300 and 579,800 shares issued
and outstanding, respectively 660 580
Capital in excess of par value 113,400 93,355
Deficit accumulated during the
development stage (64,399) (37,658)
----------- ---------
Total Stockholders' Equity 49,661 56,277
----------- ---------
$ 63,713 $ 71,834
=========== =========
Note: The Balance Sheet as of December 31, 2002 was taken from the audited
financial statements at that date and condensed.
The accompanying notes are an integral part of these unaudited condensed
financial statements.
2
TWO MOON KACHINAS, CORP.
[A Development Stage Company]
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
For the Three For the Nine From Inception
Months Ended Months Ended On May 19,
September 30, September 30, 2000 Through
September 30,
2003 2002 2003 2002 2003
REVENUE $ - $ 3,300 $ - $3,300 $ 7,676
COST OF GOODS SOLD - 2,000 - 2,000 4,500
--------- --------- -------- ------ ---------
GROSS PROFIT - 1,300 - 1,300 3,176
OPERATING EXPENSES:
Selling - - - 4,748 5,144
General and
administrative 16,606 2,603 26,777 15,217 63,302
--------- --------- -------- ------ ---------
Total Operating
Expenses 16,606 2,603 26,777 19,965 68,446
--------- --------- -------- ------ ---------
LOSS FROM OPERATIONS (16,606) (1,303) (26,777)(18,665) (65,270)
OTHER INCOME:
Interest 5 26 36 126 871
--------- --------- -------- ------ ---------
Total Other Income 5 26 36 126 871
--------- --------- -------- ------ ---------
LOSS BEFORE INCOME TAXES (16,601) (1,277) (26,741)(18,539) (64,399)
CURRENT TAX EXPENSE - - - - -
DEFERRED TAX EXPENSE - - - - -
--------- --------- -------- ------ ---------
NET LOSS $ (16,601)$ (1,277) $(26,741)(18,539) $ (64,399)
========= ========= ======== ====== =========
LOSS PER COMMON SHARE $ (.03)$ (.00) $ (.05) $ (.03) $ (.12)
========= ========= ======== ====== =========
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
For the Nine From Inception
Months Ended On May 19,
September 30, 2000 Through
September 30,
2003 2002 2003
Cash Flows From Operating Activities:
Net loss $ (26,741) $ (18,539) $ (64,399)
Adjustments to reconcile net loss
to net cash used by
operating activities:
Depreciation and amortization 1,700 1,721 6,296
Non-cash services paid by issuance
of stock 2,500 - 2,500
Changes in assets and liabilities:
(Increase) decrease in
interest receivable 6 34 (2)
(Increase) in inventory - (16,500) (53,000)
(Increase) in prepaid expenses (324) (67) (341)
Increase in accounts payable 15,423 2,160 25,660
---------- ---------- ---------
Net Cash Used by
Operating Activities (7,436) (31,191) (83,286)
---------- ---------- ---------
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 697 18,098 6,017
Proceeds from issuance of
common stock - - 104,800
Payments for stock offering costs - - (10,865)
---------- ---------- ---------
Net Cash Provided by
Financing Activities 697 18,098 99,952
---------- ---------- ---------
Net Increase (Decrease) in Cash (6,739) (13,093) 5,962
Cash at Beginning of Period 12,701 22,441 -
---------- ---------- ---------
Cash at End of Period $ 5,962 $ 9,348 $ 5,962
========== ========== =========
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 nine months ended September 30, 2003:
In September 2003, the Company issued 70,500 shares of common stock to
repay accounts payable of $17,625 and the Company issued 10,000 shares of
stock for services valued at $2,500.
For the nine months ended September 30, 2002:
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 sells Hopi
Kachina Dolls and related artwork. The Company has not yet generated
significant 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 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
September 30, 2003 and 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 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, 2002 audited financial statements. The results of operations for
the periods ended September 30, 2003 and 2002 are not necessarily indicative
of the operating results for the full year.
Cash and Cash Equivalents - The Company considers all highly liquid debt
investments purchased with a maturity of three months or less to be cash
equivalents.
Accounts and Loans Receivable - The Company records accounts and loans
receivable at the lower of cost or fair value. The Company determines the
lower of cost or fair value of nonmortgage loans on an individual asset basis.
The Company recognizes interest income on an account receivable based on the
stated interest rate for past-due accounts over the period that the account is
past-due. The Company recognizes interest income on a loan receivable based
on the stated interest rate over the term of the loan. The Company
accumulates and defers fees and costs associated with establishing a
receivable to be amortized over the estimated life of the related receivable.
The Company estimates allowances for doubtful accounts and loan losses based
on the aged receivable balance and historical losses. The Company records
interest income on delinquent accounts and loans receivable only when payment
is received. The Company first applies payments received on delinquent
accounts and loans receivable to eliminate the outstanding principal. The
Company charges off uncollectible accounts and loans receivable when
management estimates no possibility of collecting the related receivable. The
Company considers accounts and loans receivable to be past-due or delinquent
based on contractual terms.
Inventory - Inventory is carried at the lower of cost or market using the
specific identification method. At September 30, 2003 and December 31, 2002,
respectively, inventory consists of Kachina dolls and related artwork of
$53,000 and $53,000.
5
TWO MOONS KACHINAS, CORP.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
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 September 30, 2003, 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 nine months ended September 30, 2003 and 2002.
Revenue Recognition - The Company recognizes revenue upon delivery of the
product. Revenue derived from sales through art dealers and galleries is
recorded net of any commissions to the dealers or galleries.
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. During the
nine months ended September 30, 2003 and 2002, respectively, advertising costs
amounted to $0 and $4,748.
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".
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. 146, "Accounting for Costs Associated with Exit or
Disposal Activities", SFAS No. 147, "Acquisitions of Certain Financial
Institutions - an Amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9", SFAS No. 148, "Accounting for Stock-Based Compensation
- Transition and Disclosure - an Amendment of FASB Statement No. 123", SFAS
No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities", and SFAS No. 150, "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity", were recently issued.
SFAS No. 146, 147, 148, 149 and 150 have no current applicability to the
Company or their effect on the financial statements would not have been
significant.
6
TWO MOONS KACHINAS, CORP.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 2 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less accumulated
depreciation at:
September 30, December 31,
2003 2002
_____________ _____________
Computer and office equipment $ 10,171 $ 10,171
Less: accumulated depreciation (5,763) (4,241)
_____________ ___________
$ 4,408 $ 5,930
============= ===========
Depreciation expense for the nine months ended September 30, 2003 and 2002
amounted to $1,522 and $1,521, respectively.
NOTE 3 - OTHER ASSETS
The following is a summary of other assets at cost, less accumulated
amortization at:
September 30, December 31,
2003 2002
_____________ ____________
Website development $ 533 $ 533
Less: accumulated amortization (533) (355)
_____________ ____________
$ - $ 178
_____________ ____________
Amortization expense for the nine months ended September 30, 2003 and 2002
amounted to $178 and $200, respectively.
NOTE 4 - CAPITAL STOCK
Common Stock - In May 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).
In November 2001, the Company issued 79,800 shares of its previously
authorized but unissued common stock. The shares were issued for cash of
$79,800 (or $1.00 per share). Stock offering costs of $10,865 were netted
against the proceeds.
In September 2003, the Company issued 70,500 shares of its previously
authorized but unissued common stock. The shares were issued to pay accounts
payable of $17,625 (or $.25 per share).
In September 2003, the Company issued 10,000 shares of its previously
authorized but unissued common stock. The shares were issued services
rendered valued at $2,500 (or $.25 per share).
7
TWO MOONS KACHINAS, CORP.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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
September 30, 2003, operating loss carryforwards of approximately $65,900,
which may be applied against future taxable income and which expire in various
years through 2023.
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 $9,900 and
$6,000 as of September 30, 2003 and December 31, 2002, respectively, with an
offsetting valuation allowance of the same amount. The change in the
valuation allowance during the nine months ended September 30, 2003 is
approximately $3,900.
NOTE 6 - RELATED PARTY TRANSACTIONS
Management Compensation - 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 September 30, 2003 and December 31, 2002, respectively, the
Company owed the shareholder $6,017 and $5,320. The advances bear no interest
and are due on demand.
NOTE 7 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America,
which contemplate continuation of the Company as a going concern. However,
the Company was recently formed and has not yet been successful in
establishing profitable operations. These factors raise substantial doubt
about the ability of the Company to continue as a going concern. In this
regard, management is proposing to raise any necessary additional funds not
provided by operations through loans or through additional sales of its common
stock. There is no assurance that the Company will be successful in raising
this additional capital or in achieving profitable operations. The financial
statements do not include any adjustments that might result from the outcome
of these uncertainties.
8
TWO MOONS KACHINAS, CORP.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 8 - LOSS PER SHARE
The following data shows the amounts used in computing loss per share:
For the Three For the Nine From Inception
Months Ended Months Ended On May 19,
September 30, September 30, 2000 Through
_________________ ________________ September 30,
2003 2002 2003 2002 2003
________ ________ ________ _______ __________
Loss from operations
available to common
shareholders (numerator)$(16,601)$ (1,277)$(26,741)$(18,539) $ (64,399)
________ ________ ________ ________ __________
Weighted average number
of common shares
outstanding for the
period (denominator) 586,800 579,800 582,159 579,800 545,666
________ ________ ________ ________ __________
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.
9
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 continue sales of
Kachina dolls, both through our own web site and through Internet auction
sites and consignment to specialty stores.
We have placed photographs of the Kachinas on our web site and may
consider putting one or two Kachinas up for auction, with a minimum bid price,
on an Internet auction site. We also have arrangements with two retail
specialty stores; we attended the Marin County American Indian Arts Show which
was held on February 21-23, 2003; and are actively researching the
availability of similar events to showcase our products.
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 needs for the next 12 months. Our officers have contacts through
which we can purchase Kachinas at below wholesale prices. We plan to keep our
expenses low and to keep our inventory rolling over, if possible.
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.
Forward-Looking Statements.
---------------------------
Statements made in this Quarterly Report 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 our 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 our 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 our Company's reports on file with the Securities and Exchange
Commission; general economic or industry conditions, nationally and/or in the
communities in which our 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 our Company, demand for Kachina dolls, competition,
changes in the quality or composition of our 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 our
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. Our 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.
Item 3. Controls and Procedures.
----------------------------------
(a) Evaluation of Disclosure Controls and Procedures
Our President, David C. Merrell, has evaluated our Company's
disclosure controls and procedures as of November 6, 2003, and he has
concluded that these controls and procedures are effective.
(b) Changes in Internal Controls
There are no significant changes in internal controls or in other
factors that could significantly affect these controls subsequent to November
6, 2003.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
----------------------------
None; not applicable.
Item 2. Changes in Securities.
--------------------------------
In September 2003, our Company issued 70,500 shares of our
previously authorized but unissued common stock. The shares were to pay
accounts payable of $17,625 or $.25 per share.
Also in September 2003, our Company issued 10,000 shares of our
previously authorized but unissued common stock. The shares were issued for
services rendered at a value of $2,500 or $.25 per share.
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.
----------------------------
Our Company's Secretary/Treasurer, R. Kip Paul, resigned as of
January 1, 2003.
Item 6. Exhibits and Reports on Form 8-K.
-------------------------------------------
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Two Moons Kachinas, Corp.
Date: 11/11/03 By /s/ David C. Merrell
-------------- -------------------------------------
David C. Merrell
President and Director