UNITED STATES
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 Quarter Ended: MARCH 31, 2001
[X] Transition Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from ______________ to _____________
Commission File Number: 333-46114
KUBLA KHAN, INC.
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(Name of Small Business Issuer in its Charter)
Utah 87-0650976
- ------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6990 So. Park Centre Drive, Suite 315, Salt Lake City, Utah 84121
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(Address of principal executive offices and Zip Code)
(801) 567-0111, Ext. 6315
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. (1) Yes [ X] No [ ]
(2) Yes [ ] No [ X ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, Par Value $0.001 36,744
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Title of Class Number of Shares Outstanding as of
March 31, 2001
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KUBLA KHAN, INC.
FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
However, in the opinion of management, all adjustments (which include only
normal recurring accruals) necessary to present fairly the financial position
and results of operations for the periods presented have been made. These
financial statements should be read in conjunction with the accompanying
notes, and with the historical financial information of the Company.
2
KUBLA KHAN, INC.
(A Development Stage Company)
BALANCE SHEETS
March 31, December 31,
2001 2000
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(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash in bank $ 11 $ 25
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Total Current Assets 11 25
OTHER ASSETS:
Deferred offering costs 9,283 7,350
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TOTAL ASSETS $ 9,294 $ 7,375
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Advances by officer/stockholder $ 2,329 $ 606
Professional fees payable 1,993 1,349
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Total current liabilities 4,322 1,955
Shareholders' equity
Common Stock, $0.001 par value
authorized 50,000,000 shares;
36,744 shares issued and outstanding 37 37
Paid in Capital 11,103 10,193
Accumulated deficit (6,168) (4,810)
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Total Stockholders' Equity 4,972 5,420
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 9,294 $ 7,375
============= =============
See accompanying notes to financial statements.
3
KUBLA KHAN, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
Period from Period from
For the Three Inception Inception
Months Ended (March 28,2000)(March 28,2000)
March 31 to March 31, to March 31
2001 2000 2001
-------------- -------------- --------------
REVENUE: $ - $ - $ -
COSTS AND EXPENSES:
General administrative 935 - 3,795
Travel and entertainment 423 - 1,373
Organizational expenses - 1,000 1,000
-------------- -------------- --------------
Total Expenses 1,358 1,000 6,168
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NET LOSS $ (1,358) $ (1,000) $ (6,168)
============== ============== ==============
Net loss per share,
basic and diluted $ (0.04) $ (0.03)
============== ==============
Weighted average shares
outstanding 36,744 36,744
============== ===============
See accompanying notes to financial statements
4
KUBLA KHAN, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Period from Period from
For the Three Inception Inception
Months Ended (Mar 28,2000) (March 28,2000)
March 31, to March 31, to March 31
2001 2000 2001
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Cash Flows Used In Operating Activities:
Net Loss $ (1,358) $ (1,000) $ (6,168)
Capital contribution of services
and facilities by stockholder 910 - 3,640
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Net cash used by Operating Activities (448) (1,000) (2,528)
Changes in operating assets and liabilities:
Increase in accounts payable 644 - 1,993
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Net cash provided by operations 196 (1,000) (535)
Cash Flows from Financing Activities:
Issuance of common stock for cash - 7,500 7,500
Deferred offering costs incurred (1,933) - (9,283)
Advances by officer/stockholder 1,723 - 2,329
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Net cash from financing activities (210) 7,500 546
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Net increase in cash (14) 6,500 11
Cash, at Beginning of Period 25 - -
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Cash at End of Period $ 11 $ 6,500 $ 11
============= ============= ==============
Supplemental Cash Flow Disclosures:
Interest paid $ - $ - $ -
============= ============= ==============
Income taxes paid $ - $ - $ -
============= ============= ==============
See accompanying notes to financial statements
5
KUBLA KHAN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - 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, 2001 and March 31,
2000 and for all periods presented 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, 2000
audited financial statements. The results of operations for the periods ended
March 31, 2001 and March 31, 2000 are not necessarily indicative of the
operating results for the full year.
NOTE 2 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Kubla Khan, Inc. was incorporated on March 28,
2000 in the state of Utah. The Company has not conducted any operations as of
March 31, 2001 and has incurred only expenses for travel and entertainment for
the review of various business opportunities and marketing strategies.
Intangibles - Organizational costs consisting of legal fees of $1000
have been expensed in accordance with the AICPA's Statement of Position (SOP)
98-5 which requires that costs incurred in the organization of a new entity be
expensed rather than amortized over a period of years.
Income Taxes - The Company has no deferred tax assets or liabilities.
A tax loss carryforward of $6,168 has occurred and is available for
carryforward to offset future profits for the next 20 years. No tax benefit
for the loss carryforward has been established due to the Company's lack of
operating history and it's ability to demonstrate that it can realize a profit
from future operations.
Estimate - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amount os revenue and
expenses during the reporting period. Actual amounts could differ from those
estimates.
Per Share Information - Per share information has been computed using
the weighted average number of common shares outstanding during the period.
6
NOTE 3 - RELATED PARTY TRANSACTIONS - ADVANCES FROM OFFICER/STOCKHOLDER AND
RENTAL OF PERSONAL RESIDENCY
The President of the company has paid all company travel and
entertainment costs, which will be eventually reimbursed by the company
without interest. Since inception, the Company's president has provided 176
hours of service valued at $3,640 capital contribution, 44 hours of which
valued at $660 during the three month period ended March 31, 2001, to the
formation and initial marketing efforts of the Company and has provided the
office facilities for the use of the Company valued at $1,000 since inception
($250 for the quarter ended March 31, 2001). Both the services and facilities
use have been reflected as a capital contribution by the president as he will
not reimbursement for these services and expenses. The Company intends to
eventually pay $500 per month for the space. The Company will not begin
paying rent until it raises a minimum of $18,240 in its proposed public stock
offering (see Note 5). The Company's president has agreed to take rent
proportionate to its offering proceeds received and will accrue the balance if
maximum proceeds are not raised until such time as the Company begins earning
revenues from operations.
NOTE 4 - COMMON STOCK/PREPAID LEGAL FEES/DEFERRED OFFERING COSTS
The Company issued 36,744 shares for $7,500 in cash from four
shareholders. The Company advanced $7,000 to its legal counsel, who then
incurred organizational costs of $1,000 which was recorded as an expense. The
balance of $6,000 was recorded as deferred offering costs. During the fourth
quarter of 2000, an additional $1,350 in offering costs were recorded as
deferred offering costs; during the current quarter, an additional $1,933 in
deferred offering costs were recorded by the Company.
NOTE 5 - PUBLIC STOCK OFFERING
On November 29, 2000 the Company filed a Form SB-2 with the United States
Securities and Exchange Commission in anticipation of a proposed public stock
offering. The Offering was for the sale of a total of 75,000 shares of
previously unissued common stock at a price of $1.00 per share. On March 28,
2001 the Company was notified by the Securities and Exchange Commission that
the Registration Statement and proposed public stock Offering were effective
on that date. Subsequent to the quarter ended March 31, 2001, the public
stock offering was sold out and the Company received gross offering proceeds
of $75,000. The Company will offset the deferred offering costs of $9,283
($1,933 incurred in the current quarter) against the proceeds of the offering
in the second quarter to paid in capital.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
This periodic report contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition , results of operations, business
strategies, operating efficiencies or synergies, competitive positions, growth
opportunities for existing products, and plans and objectives of management.
Statements in this periodic report that are not historical facts are hereby
identified as "forward-looking statements" for the purpose of the safe harbor
provided by Section 21E of the Exchange Act and Section 27A of the Securities
Act.
General
Kubla Khan, Inc., a Utah corporation (the "Company"), was incorporated
under the laws of the state of Utah on March 28, 2000. The Company was
organized to engage in the business of the sale of "distressed" merchandise
(factory overruns and retail overstocks) primarily to retailers. As of March
31, 2001 the Company had not engaged in any business in regards to the sale of
merchandise since the Company was waiting for capitalization from its proposed
stock offering in order to begin operations.
Financial Condition
The Company has had no revenues and only limited operations since its
inception in March 2000 and is therefore considered a development stage
company. It had $9,294 in assets at March 31, 2001, the majority of which are
comprised of deferred offering costs. Subsequent to that date it closed its
offering with maximum proceeds of $75,000. As of March 31, 2001, the Company
had $4,322 in liabilities comprised of advances from officers and directors
and professional fees payable. Up through the Company's first quarter of
2001, it incurred only incidental expenses associated with finding product
sources and retail clients as well as some minimal rent and service expenses.
During this the quarter ended March 31, 2001, the Company expensed $910 for
services performed by Bill Roberts, the Company's president, and for rent on
space donated by Bill Roberts for the Company's use. Mr Roberts will not be
repaid and this has been reflected this on the Company's books as a
contribution to capital. Services were performed at a rate of $15.00 per hour
and the office space was valued at $ 250 during the Company's first quarter
ended March 31, 2001. The value of the rent is based on the extremely limited
use of the space during the start-up phase of the Company's operations and
will increase to $500 per month during the next quarter.
Plan of Operation
Prior to its offering (which commenced on March 29, 2001), the Company
dedicated its time to initiating contacts and developing relationships with
various entities which purchase factory overruns from manufacturers and
distressed merchandise from retailers at a discount. The Company's goal has
been to seek merchandise/inventory that is both high quality and below
existing wholesale prices. During the next twelve months, Management intends
to
. aggressively pursue these relationships in an effort to acquire high
quality merchandise overruns and distressed merchandise for
immediate resale to retailers; attempt to develop these
relationships in the Western US, primarily in California; resell this
merchandise in the Western US, primarily in Utah.
8
. purchase merchandise at quantities and at prices that will average
approximately 30% - 50% off the standard wholesale cost for such
product in the industry; make every effort to stay within these
discount percentages in order to be competitive (discount estimates
are based on meetings/contacts with California wholesalers/
manufacturers); make every effort to resell the merchandise at the
highest possible profit margin.
. pursue some limited retail sales on a "test the market" basis (mostly
at swap meets and flea market and expo marts in the greater Salt Lake
locale.
. limit overhead by (a) paying only nominal rent to William (Bill)
Roberts for use of an office in his home; (b) by limiting payroll and
administrative expenses and (c) by the use of sales incentive bonuses
of 2.5% of net profits to two of our officers each month.
During the next twelve months, the Company's cash requirements will
include the following:
. $500 per month office rent;
. compensation to two officers of approximately $15.00 per hour plus
2.5% of the Company's net profits not to exceed an aggregate of
$10,000 in the next twelve month period unless generated from
operating revenues
. legal and accounting expenses associated with compliance with SEC
reporting obligations, estimated at $ 5,000
. miscellaneous overhead of approximately $3,000;
. cash to purchase inventory.
The Company will require a minimum of $27,000 for the next 12 month for
day to day operating expenses which does not include the $40,000 needed for
initial inventory purchases. Management believes the $67,000 in net proceeds
from its offering which closed on April 23, 2001 will be sufficient to cover
both general operating expenses as well as implementing the Company's
business plan through the purchase of inventory.
Even with maximum proceeds received, there is no guarantee that the funds
available to the Company will be sufficient to achieve its goal of
penetrating the highly competitive market of retail and wholesale sales. The
Company will encounter substantial competition in the market from other
"jobbers" and intermediaries who have much more experience in the industry as
well as established relationships with wholesalers/manufacturers and
retailer/end users. The Company will also suffer competition from wholesalers
and manufacturers themselves who deal with discount retailers directly.
Management believes the Company's main method of competition will be to make
every effort to purchase inventory at least 30% below normal wholesale prices;
to keep our overhead low; and to initially limit its market to one
geographical locale. Management will use every effort to minimize expenses
during its first year of operations and has no plans for additional employees
until or unless warranted due to business needs.
9
If the Company does not succeed in seeing limited revenues or, at
minimum, the potential of limited revenues, in the next twelve months, it
could be forced to discontinue operations unless it is able to raise
additional capital. Management is not experienced in developmental companies
and may not have correctly estimated its inventory needs for a start up
company such as Kubla Khan nor anticipated purchase prices and resale prices
accurately. Even if the Company succeeds in purchasing inventory at what it
believe is a discounted price, the Company could have difficulty in reselling
the same for prices which are profitable. Profit margins on resales of goods
could prove to be insufficient to cover operating expenses. It is possible
that the Company may need additional funds even if it begins generating
revenues; the Company may also require additional financing for expansion.
It may be difficult to securing additional financing. The Company may be able
to attract some private investors, or officers and directors may be willing to
make additional cash contributions, advancements or loans. However, there are
no agreements with the Company's officers and directors obligating them to
make additional cash contributions. The Company could also attempt some form
of debt or equity financing. There is no guarantee that any of the foregoing
methods of financing would be successful.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGE IN SECURITIES
The Company has not issued any unregistered securities during its first
quarter of 2001.
The following information is provided in accordance with Rule 701(f)
regarding Use of Proceeds of a registration in effect during the quarter being
reported on:
On March 28, 2001, a registration statement filed by the Company on Form
SB-2 was declared effective. The Securities and Exchange Commission file
number assigned to the registration statement is 333-46114. Pursuant to the
registration statement, the Company registered a maximum of 75,000 shares of
its common stock for sale to the public through its President, Mr. William
Roberts, in a self-underwritten offering. No selling shareholders participated
in the offering which commenced on March 29, 2001, and closed on April 23,
2001 with maximum proceeds. The offering price was $1.00 per share.
Between March 29, 2001 (commencement date of offering) and March 31, 2001
the Company did not receive any proceeds from the offering and had an
aggregate of $9,283 in deferred offering costs which will be charged against
the offering proceeds in the second quarter.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS AN FORM 8-K
(a) Exhibits.
3.1.1 Articles of Incorporation *
3.1.2 Amendment to Articles of Incorporation*
3.2 By-laws*
* Filed with the Securities and Exchange Commission on September 19, 2000 as
part of the Company's initial Registration Statement on Form SB-2.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter of 2001.
11
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.
KUBLA KHAN, INC.
[Registrant]
Dated: May 21, 2001 BY: /s/ William S. Roberts
President and Principal Financial Officer