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, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission File No. 000-50295
Two Moons Kachinas Corp.
------------------------
(Exact name of Small Business Issuer as specified in its Charter)
NEVADA 87-0656515
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(State or Other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9005 Cobble Canyon Lane
Sandy, Utah 84093
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(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
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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:
June 30, 2004
660,300
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Transitional Small Business Disclosure Format: Yes X No
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Financial Statements of the Company 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
Company.
TWO MOONS KACHINAS, CORP.
[A Development Stage Company]
UNAUDITED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004
TWO MOONS KACHINAS, CORP.
[A Development Stage Company]
CONTENTS
PAGE
Unaudited Condensed Balance Sheets,
June 30, 2004 and December 31, 2003 2
Unaudited Condensed Statements of Operations,
for the three months and six months ended
June 30, 2004 and 2003 and for the period
from inception on May 19, 2000 through
June 30, 2004 3
Unaudited Condensed Statements of Cash Flows,
for the six months ended June 30, 2004
and 2003 and for the period from inception on
May 19, 2000 through June 30, 2004 4
Notes to Unaudited Condensed Financial Statements 5 - 9
TWO MOONS KACHINAS, CORP.
[A Development Stage Company]
UNAUDITED CONDENSED BALANCE SHEETS
ASSETS
June 30, December 31,
2004 2003
___________ ___________
CURRENT ASSETS:
Cash $ 5,298 $ 7,759
Interest receivable 2 1
Inventory 50,500 50,500
Prepaid expenses 543 126
___________ ___________
Total Current Assets 56,343 58,386
PROPERTY AND EQUIPMENT, net 2,881 3,896
OTHER ASSETS:
Website development, net - -
___________ ___________
$ 59,224 $ 62,282
___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 20,585 $ 9,428
Advances from shareholder 6,653 6,173
___________ ___________
Total Current Liabilities 27,238 15,601
___________ ___________
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value,
5,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, $.001 par value,
50,000,000 shares authorized,
660,300 shares issued and
outstanding 660 660
Capital in excess of par value 113,400 113,400
Deficit accumulated during the
development stage (82,074) (67,379)
___________ ___________
Total Stockholders' Equity 31,986 46,681
___________ ___________
$ 59,224 $ 62,282
___________ ___________
Note: The balance sheet as of December 31, 2003 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.
F-2
TWO MOONS 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,
2004 2003 2004 2003 2004
REVENUE $ - $ - $ - $ - $ 10,876
COST OF GOODS SOLD - - - - 7,000
-------- --------- ------- ------- ---------
GROSS PROFIT - - - - 3,876
OPERATING EXPENSES:
Selling - - - - 5,144
General and
administrative 5,460 1,699 14,706 10,171 81,693
--------- -------- -------- ------- ---------
Total Operating
Expenses 5,460 1,699 14,706 10,171 86,837
--------- -------- -------- ------- ---------
LOSS FROM OPERATIONS (5,460) (1,699) (14,706) (10,171) (82,961)
--------- -------- -------- ------- ---------
OTHER INCOME:
Interest income 5 11 11 31 887
--------- -------- -------- ------- ---------
Total Other Income 5 11 11 31 887
--------- -------- -------- ------- ---------
LOSS BEFORE INCOME TAXES (5,455) (1,688) (14,695) (10,140) (82,074)
CURRENT TAX EXPENSE - - - - -
DEFERRED TAX EXPENSE - - - - -
--------- -------- -------- -------- ---------
NET LOSS $ (5,455) $ (1,688) $(14,695) $(10,140) $ (82,074)
--------- -------- -------- -------- ---------
LOSS PER COMMON SHARE $ (.01) $ (.00) $ (.02) $ (.02) $ (.14)
--------- -------- -------- -------- ---------
The accompanying notes are an integral part of these unaudited condensed
financial statements.
F-3
TWO MOONS 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,
2004 2003 2004
__________ __________ __________
Cash Flows from Operating
Activities:
Net loss $ (14,695) $ (10,140) $ (82,074)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Depreciation and
amortization 1,015 1,141 7,823
Non-cash services paid by
issuance of stock - - 2,500
Changes in assets and
liabilities:
(Increase) decrease in
interest receivable (1) 5 (2)
(Increase) in inventory - - (50,500)
(Increase) in prepaid
expenses (417) (538) (543)
Increase in accounts
payable 11,157 4,058 38,210
__________ __________ __________
Net Cash (Used) by
Operating Activities (2,941) (5,474) (84,586)
__________ __________ __________
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 480 28 6,653
Proceeds from issuance of
common stock - - 104,800
Payments for stock
offering costs - - (10,865)
__________ __________ __________
Net Cash Provided by
Financing Activities 480 28 100,588
__________ __________ __________
Net Increase (Decrease) in Cash (2,461) (5,446) 5,298
Cash at Beginning of Period 7,759 12,701 -
__________ __________ __________
Cash at End of Period $ 5,298 $ 7,255 $ 5,298
__________ __________ __________
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, 2004:
None
For the six months ended June 30, 2003:
None
The accompanying notes are an integral part of these unaudited condensed
financial statements.
F-4
TWO MOONS 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 June 30, 2004 and 2003 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, 2003 audited
financial statements. The results of operations for the periods ended
June 30, 2004 and 2003 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 June 30, 2004 and December 31,
2003, respectively, inventory consists of Kachina dolls and related
artwork valued at $50,500 and $50,500. The Company has estimated that
no allowance for slow moving or obsolete inventory was necessary at June
30, 2004 and December 31, 2003.
F-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 June 30, 2004, 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, 2004 and 2003.
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 six months ended June 30, 2004 and 2003,
respectively, advertising costs amounted to $0 and $0.
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. 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. 149 and
150 have no current applicability to the Company or their effect on the
financial statements would not have been significant.
F-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:
June 30, December 31,
2004 2003
___________ ___________
Computer and office equipment $ 10,171 $ 10,171
Less: accumulated depreciation (7,290) (6,275)
___________ __________
$ 2,881 $ 3,896
___________ __________
Depreciation expense for the six months ended June 30, 2004 and 2003
amounted to $1,015 and $1,009, respectively.
NOTE 3 - OTHER ASSETS
The following is a summary of other assets at cost, less accumulated
amortization at:
June 30, December 31,
2004 2003
___________ ___________
Website development $ 533 $ 533
Less: accumulated amortization (533) (533)
___________ __________
$ - $ -
___________ __________
Amortization expense for the six months ended June 30, 2004 and 2003
amounted to $0 and $132, respectively.
NOTE 4 - CAPITAL STOCK
Preferred Stock - In March 2004, the Company amended its Articles of
Incorporation to authorize 5,000,000 shares of preferred stock, $.001 par
value, with such rights, preferences and designations and to be issued in
such series as determined by the Board of Directors. No shares are issued
and outstanding at June 30, 2004.
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.
F-7
TWO MOONS KACHINAS, CORP.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 4 - CAPITAL STOCK [Continued]
In September 2003, the Company issued 70,500 shares of its previously
authorized but unissued common stock to pay for legal services that had
previously been accrued as 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 for services rendered valued at $2,500
(or $.25 per share).
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, 2004, operating loss carryforwards of approximately
$83,000, which may be applied against future taxable income and which
expire in various years through 2024.
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 $12,400 and $10,300 as of June 30, 2004 and December 31,
2003, respectively, with an offsetting valuation allowance of the same
amount. The change in the valuation allowance during the six months ended
June 30, 2004 is approximately $2,100.
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 June 30, 2004 and December 31, 2003, respectively, the
Company owed the shareholder $6,653 and $6,173. The advances bear no
interest and are due on demand.
F-8
TWO MOONS KACHINAS, CORP.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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.
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,
2004 2003 2004 2003 2004
_______________________________________________
Loss from operations
available to common
shareholders (numerator) $(5,455) $(1,688) $(14,695) $(10,140) $ (82,074)
_______ _______ ________ ________ _________
Weighted average number
of common shares
outstanding for the
period (denominator) 660,300 579,800 660,300 579,800 566,564
_______ _______ ________ ________ _________
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.
NOTE 9 - CONCENTRATIONS
Geographic Region - During the three months ended June 30, 2004, all of the
Company's sales and operations were located in and around Salt Lake City,
Utah including all of the Company's inventory and property.
F-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 or jewelry 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 balance of the minimum gross proceeds of $60,000 that we realized from our
public offering. We plan to keep our expenses low and to keep our inventory
rolling over.
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.
----------------------------------
As of the end of the period covered by this Quarterly Report, we carried
out an evaluation, under the supervision and with the participation of our
President, of the effectiveness of our disclosure controls and procedures.
Based on this evaluation, our President concluded that our disclosure controls
and procedures are effective in timely alerting them to material information
required to be included in our periodic Securities and Exchange Commission
reports. It should be noted that the design of any system of controls is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions, regardless of how remote.
In addition, we reviewed our internal controls over financial reporting, and
there have been no changes in our internal controls or in other factors in the
last fiscal quarter that has materially affected or is reasonably likely to
materially affect our internal control over financial reporting.
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
In accordance with the requirements of the Exchange Act, the Registrant
caused this Quarterly Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Two Moons Kachinas, Corp.
Date: 8/16/2004 By /s/ David C. Merrell
-------------- -------------------------------------
David C. Merrell
President and Director