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: SEPTEMBER 30, 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.
-----------------------------------------------
(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
- -----------------------------------------------------------------------------
(Address of principal executive offices and Zip Code)
(801) 567-0111, Ext. 6315
---------------------------------------------------------------
(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 [X] No [ ]
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 $0.001 111,744
----------------------------------- ---------------------------------
Title of Class Number of Shares Outstanding as of
September 30, 2001
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SEPTEMBER 30, 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
September 30, December 31,
2001 2000
------------- -------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash in bank $ 27,550 $ 25
Petty Cash 265 -
Accounts Receivable 2,950 -
Inventory 13,009 -
Deposits 10 -
------------- -------------
Total Current Assets 43,784 25
------------- -------------
OTHER ASSETS:
Deferred offering costs - 7,350
Fixed assets 1,593 -
Less accumulated depreciation (265) -
------------- -------------
Total Other Assets 1,328 7,350
------------- -------------
TOTAL ASSETS $ 45,112 $ 7,375
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Advances by officer/stockholder $ - $ 606
Professional fees payable - 1,349
Payroll tax payable 84 -
------------- -------------
Total Current Liabilities 84 1,955
------------- -------------
Shareholders' equity
Common Stock, $0.001 par value
authorized 50,000,000 shares; 111,744 and
36,744 shares issued and outstanding as of
September 30, 2001 and December 31, 2000,
respectively 112 37
Paid in Capital 75,814 10,193
Accumulated deficit (30,898) (4,810)
------------- -------------
Total Stockholders' Equity 45,028 5,420
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,112 $ 7,375
============= =============
See accompanying notes to financials statements.
3
KUBLA KHAN, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
Period from
For the Three For the Three For the Nine Inception Inception
Months Ended Months Ended Months Ended (Mar.28, 2000) (March 28,2000)
September 30, September 30, September 30, to Sept 30, to Sept 30,
2001 2000 2001 2000 2001
-------------- -------------- -------------- ------------- ---------------
REVENUES $ 3,178 $ - $ 3,178 $ - $ 3,178
COST OF GOODS SOLD (2,479) - (2,479) - (2,479)
-------------- -------------- -------------- ------------- ---------------
GROSS PROFIT 699 - 699 - 699
-------------- -------------- -------------- ------------- ---------------
COSTS AND EXPENSES:
General administrative 3,099 1,846 18,875 2,437 21,734
Travel and entertainment 3,687 104 6,016 - 6,966
Professional fees 1,045 40 1,896 - 1,896
Organizational expenses - - - 1,000 1,000
-------------- -------------- -------------- ------------- ---------------
Total Expenses 7,831 1,990 26,787 3,437 31,596
-------------- -------------- -------------- ------------- ---------------
NET LOSS $ (7,132) $ (1,990) $ (26,088) $ (3,437) $ (30,897)
============== ============== ============== ============= ===============
Net loss per share,
basic and diluted $ (0.064) $ (0.054) $ (0.24) (0.094)
============== ============== ============== =============
Weighted average shares
outstanding 111,744 36,744 111,744 36,744
============== ============== =============== ============
See accompanying notes to financial statements
4
KUBLA KHAN, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Inception (March 28, 2000) Through September 30, 2001
Common Additional Total
Stock $.001 Paid-in Accumulated Stockholders'
Shares Par Value Capital Deficit Equity
-------- ------------ ----------- ------------ -------------
Beginning Balance - $ - $ - $ - $ -
Issuance of
36,744 shares
of common stock
for $7,500 cash 36,744 37 7,463 - 7,500
Capital
contribution of
services at $1,980
and facilities at
$750 - - 2,730 - 2,730
Net loss for the
period from
inception -(March
28, 2000) to
December 31, 2000 - - - (4,810) (4,810)
-------- ------------ ----------- ------------ -------------
Balance -
December 31, 2000 36,744 37 10,193 (4,810) 5,420
Capital
contribution
of services
at $880 and
facilities
at $333
(unaudited) - - 1,213 - 1,213
Stock issued
in public
offering at
$1.00 per
share net of
offering costs
of $10,517 75,000 75 64,408 - 64,483
(Unaudited)
Net loss
for nine
months ended
September 30,
2001 (Unaudited) - - - (26,088) (26,088)
-------- ------------ ----------- ------------ -------------
Balance at
September 30,
2001
(Unaudited) 111,744 $ 112 $ 75,814 $ (30,898) $ 45,028
======== ============ =========== ============ =============
See accompanying notes to financials statements.
5
KUBLA KHAN, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Period from
For the Nine Inception Inception
Months Ended (Mar.28,2000) (March 28,2000)
September 30, to Sept 30, to Sept 30,
2001 2000 2001
------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (26,088) $ (3,437) $ (30,897)
Non-cash expenses:
Depreciation 265 - 265
Capital contribution of services
and facilities by officers 1,213 1,820 3,943
------------- ------------- --------------
Net cash used in operations (24,610) (1,617) (26,689)
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable (1,265) - 83
Decrease (increase) in accounts receivable (2,950) - (2,930)
Increase in prepaid legal fees - - -
Decrease (increase) in Inventory (13,009) - (13,029)
Decrease (increase) in petty cash (265) - (265)
Decrease (increase) in deposits (10) - (10)
------------- ------------- --------------
Net Cash Used By Operating Activities (42,109) (1,617) (42,840)
------------- ------------- --------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of office equipment (1,593) - (1,593)
------------- ------------- --------------
Net Cash Used in Investing Activities (1,593) - (1,593)
------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock for cash 75,000 7,500 82,500
Offering costs charged to capital (10,517) - (10,517)
Decrease in deferred offering costs 7,350 (6,000) -
Increased (decrease) in advances by shareholders (606) 553 -
------------- ------------- --------------
Net Cash From Financing Activities 71,227 2,053 71,983
------------- ------------- --------------
Net Increase in Cash 27,525 436 27,550
Cash, at Beginning of Period 25 - -
------------- ------------- --------------
Cash at End of Period $ 27,550 $ 436 $ 27,550
============= ============= ==============
Supplemental Cash Flow Disclosures:
Interest paid $ - $ - $ -
Income taxes paid $ - $ - $ -
See accompanying notes to financial statements
6
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 September 30, 2001 and
September 30,2000 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 period ended
September 30, 2001 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 began conducting operations on
May 4, 2001 and prior to that 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 $1,000
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 $30,898 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.
Estimates - 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.
NOTE 3 - RELATED PARTY TRANSACTIONS - ADVANCES FROM OFFICER/STOCKHOLDER AND
RENTAL OF PERSONAL RESIDENCY
Prior to May 4, 2001 the President of the company paid all company
travel and entertainment costs which was reimbursed by the company without
7
interest. Since inception to May 4, 2001, the Company's president provided
190.7 hours of service valued at $2,860 capital contribution) to the formation
and initial marketing efforts of the Company; he also provided the office
facilities for the use of the Company valued at $1,083 from inception through
April 30, 2001. Both the services and facilities used have been reflected as
a capital contribution by the president as he will not receive reimbursement
for these services and expenses. The Company now pays $500 per month for the
space. The Company began paying rent and salaries effective May 1, 2001.
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 quarter ended March 31, 2001, an
additional $1,933 in deferred offering costs were recorded by the Company.
During the second quarter 2001, $1,234 in offering costs were incurred. All
deferred offering costs were charged to Paid in Capital at the completion of
the offering which was May 4, 2001.
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. On May 4, 2001 the public stock offering was sold out and the
Company received gross offering proceeds totaling $75,000. The Company has
offset the offering costs of $10,517 against the proceeds of the offering in
the second quarter to paid in capital.
8
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
(closeouts, factory overruns and retail overstocks) primarily to retailers.
Upon completion of its public stock offering on May 4, 2001, the Company began
operations in acquiring closeout merchandise and selling it to retailers or
individuals. During its third quarter, the Company began realizing minimal
revenues and continues to investigate potential sources of revenues and
merchandise.
Financial Condition
Since inception the Company has operated at a loss with a net loss of
$7,132 in its third quarter and a $26,088 net loss for the nine months ended
September 30, 2001. Up through the Company's second quarter of 2001, these
losses were a result of expenses incurred with finding product sources and
retail clients, rent and service expenses, as well as professional fees.
During its third quarter the Company also began incurring expenses associated
with purchase of inventory as a result of commencement of operations. The
Company has had minimal revenues and only limited operations since its
inception in March 2000 and is considered a development stage company.
The Company had $45,112 in assets at September 30, 2001: $27,550 in cash
(the balance of the proceeds from its offering which closed on May 4, 2001
with maximum offering proceeds of $75,000); inventory of $13,009 consisting
mainly of leather goods and watches, and an accounts receivable of $2,950. As
of September 30, 2001, the Company had $84 in liabilities comprised solely of
a payroll tax.
Prior to the completion of its offering, the Company expensed services
performed by Bill Roberts, the Company's president, and rent on space
provided by Bill Roberts for the Company's use. Mr Roberts was not and will
not be repaid and this has been reflected 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 prorated at a value of $ 250 per quarter due to its
limited use during the Company's initial stages of operations. Subsequent to
the close of the offering, the Company began paying $500 per month to Mr.
Roberts for rent of office space in his home; it also paid $15.00 per hour to
both Mr. Roberts and another director for services rendered. No compensation
was paid to officers/directors during the third quarter nor were any services
9
expensed. The same will be aggregated with services expensed during the
fourth quarter.
From its inception until the completion of its offering, 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. During the third quarter
the Company commenced actual operations and began purchasing inventory for
resale. The Company's profit during its limited third quarter operations was
approximately 22% with the cost of goods equaling $2,479 and revenues from the
same of $3,178. However, due to the extremely limited operations of the
Company to date, Management does not believe that the results of the third
quarter can be deemed indicative of future results of operations. Nor is it
indicative of a positive cash flow situation since the Company operated at a
net loss for the third quarter of $7,132. Unless the Company gears up its
operations significantly, the profit margin it experienced during its first
quarter of operations is not sufficient to cover the other costs and expenses
incurred by the Company.
Plan of Operation
The Company's goal continues to be that of seeking merchandise/
inventory that is both high quality and below existing wholesale prices.
During the next twelve months, Management will continue 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.
. 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.
10
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 $24,000 for the next 12 month for
day to day operating expenses which does not include the funds needed for
inventory purchases. Management believes the $27,000 available to it (balance
of net proceeds from its offering which closed on May 4, 2001) will be
sufficient to cover general operating expenses although the Company will be
dependent from cash flow generated from sale of its current inventory to
continue implementing its business plan through the purchase and sale of
additional inventory as well as pay officers and directors for their services.
There is no guarantee, however, 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.
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
believes is a discounted price, the Company could have difficulty in reselling
11
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
third 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 May 4,
2001 with maximum proceeds. The offering price was $1.00 per share.
Between March 29, 2001 (commencement of offering) and September 30, 2001
the Company incurred approximately $10,517 in expenses in connection with the
issuance and distribution of securities in the offering for the following
items:
. underwriting discounts and commissions................ -0-
. finders' fees......................................... -0-
. expenses paid to or for underwriters.................. -0-
. other expenses: prepaid offering expenses
including legal, accounting and EDGAR fees............$ 9,283
. other offering expenses (not prepaid).................$ 1,234
-------
TOTAL OFFERING EXPENSES........$10,517
All of these expenses were incurred to parties other than:
. directors, officers, or general partners of the Company or their
associates;
12
. persons owing 10% or more of any class of equity securities of
the Company ; or
. affiliates of the Company
The net offering proceeds to Kubla Khan, Inc. after deducting expenses of
the offering were $64,483. As of September 30, 2001, the Company had used the
actual net offering proceeds in the following manner:
. Merchandise Inventory........................$13,029
. Storage Unit.................................$ 218
. Rent(1)......................................$ 2,500
. Working Capital (including travel)(2)........$17,519
. Salaries(3)..................................$10,396
. Office equipment.............................$ 1,593
-------
Total net proceeds expended at Sept 30,2001..$45,255 (4)
========
(1) Paid to Mr. William Roberts as agreed upon at a rate of $500 per
month for use of his home as the Company's office
(2) Most of these expenses were incurred by Mr. Roberts in his efforts
to locate suppliers and acquire inventory
(3) Paid to Mr. Roberts and Kristine Ramsey for services performed to
the Company at a rate of $15.00 per hour; the Company will pay no
more salaries from offering proceeds; additional compensation to
officers/directors will be paid from revenues from operations, if
any.
(4) The balance of the proceeds remain on deposit in the Company's bank
account.
Except those expenses footnoted above, all other expenses were incurred
to parties other than:
. directors, officers, or general partners of the Company or their
associates;
. to persons owing 10% or more of any class of equity securities of
the Company ; or
. affiliates of the Company
Management believes that those expenses paid to or incurred by Mr.
Roberts/Ms. Ramsey are equal to or less than if the same were incurred or paid
to a non-related party.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
13
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
During the Company's third quarter, on August 1, 2001, the Company
filed a Current Report on Form 8-K, Item 5, reporting the close of its
offering.
14
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: November 12, 2001 BY: /s/ William S. Roberts
_________________________________________
President and Principal Financial Officer
15