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: June 30, 2002
[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
June 30, 2002
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
June 30, 2002
(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
June 30, December 31,
2002 2001
------------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash in Bank $ 17,508 $ 27,101
Accounts Receivable 2,147 2,050
Inventory 9,866 10,901
Prepaid Expenses 500 -
Deposit 10 10
------------- -------------
Total Current Assets 30,031 40,062
------------- -------------
OTHER ASSETS:
Fixed assets 1,593 1,593
Less accumulated depreciation (649) (354)
------------- -------------
Total Other Assets 944 1,239
------------- -------------
TOTAL ASSETS $ 30,975 $ 41,301
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable 160 243
Advances by officer/stockholder 284 -
------------- -------------
Total Current Liabilities 444 243
------------- -------------
Shareholders' equity
Common Stock, $0.001 par value
authorized 50,000,000 shares; 111,744 and
111,744 shares issued and outstanding 112 112
Paid in Capital 75,814 75,814
Accumulated deficit (45,395) (34,868)
------------- -------------
Total Stockholders' Equity 30,531 41,058
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,975 $ 41,301
============= =============
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 Six For the Six Inception
Months Ended Months Ended Months Ended Months Ended (March 28,2000)
June 30, June 30, June 30, June 30, to June 30,
2002 2001 2002 2001 2002
-------------- ------------- ------------- ------------- -------------
<s> <c> <c> <c> <c> <c>
Revenues $ 417 $ - $ 1,287 $ - $ 6,373
Cost of Goods Sold (281) - (983) - (4,873)
-------------- ------------- ------------- ------------- -------------
Gross Profit 136 - 304 - 1,500
COSTS AND EXPENSES:
General administrative 2,725 14,651 5,343 15,281 30,170
Travel and entertainment 1,652 1,906 2,819 2,329 10,565
Professional fees 273 1,345 2,669 1,345 5,160
Organizational expenses - - - - 1,000
-------------- ------------- ------------- ------------- -------------
Total Expenses 4,650 17,902 10,831 18,955 46,895
-------------- ------------- ------------- ------------- -------------
NET LOSS $ (4,514) $ (17,902) $ (10,527) $ (18,955) $ (45,395)
============== ============= ============= ============= =============
Net loss per share,
basic and diluted $ (0.04) $ (0.21) $ (0.09) $ (0.31)
============== ============= ============= =============
Weighted average shares
outstanding 111,744 84,546 111,744 60,777
============== ============= ============= =============
See accompanying notes to financial statements
4
KUBLA KHAN, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Period from
For the six For the six Inception
Months Ended Months Ended (March 28,2000)
June 30, June 30, to June 30,
2002 2001 2002
------------- ------------- --------------
<s> <c> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (10,527) $ (18,955) $ (45,395)
Non-cash expenses:
Depreciation 295 89 649
Capital contribution of services
and facilities by officers - 1,213 3,943
------------- ------------- --------------
Net cash used in operations (10,232) (17,653) (40,803)
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable (83) (1,266) 160
Decrease (increase) in accounts receivable (97) - (2,147)
Decrease (increase) in inventory 1,035 - (9,866)
Decrease (increase) in prepaid expenses (500) - (500)
Decrease (increase) in deposits - - (10)
------------- ------------- --------------
Net Cash Used By Operating Activities (9,877) (18,919) (53,166)
------------- ------------- --------------
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 82,500
Offering costs charged to capital - (10,517) (10,517)
Decrease in deferred offering costs - 7,350 -
Increased (decrease) in advances by shareholders 284 (606) 284
------------- ------------- --------------
Net Cash From Financing Activities 284 71,227 72,267
------------- ------------- --------------
Net Increase (Decrease)in Cash (9,593) 50,715 17,508
Cash, at Beginning of Period 27,101 25 -
------------- ------------- --------------
Cash at End of Period $ 17,508 $ 50,740 $ 17,508
============= ============= ==============
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 June 30, 2002 and June 30,
2001 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, 2001
audited financial statements. The results of operations for the period ended
June 30, 2002 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 $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 $40,881 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
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 use 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.
6
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 $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 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
We were incorporated under the laws of the state of Utah on March 28,
2000, as Kubla Khan, Inc., for the purpose of engaging in the business of the
sale of "distressed" merchandise (closeouts, factory overruns and retail
overstocks) primarily to retailers. Upon completion of our public stock
offering on May 4, 2001, we commenced acquiring closeout merchandise and
selling it to retailers or individuals. During our third quarter 2001, we
began realizing minimal revenues. Management continues to investigate
potential sources of revenues and merchandise.
Financial Condition
Since inception we have operated at a loss with a loss of $10,527 in our
first half of 2002. Up through our second quarter of 2001, our losses were a
result of expenses associated with finding product sources and retail clients,
rent and service expenses, as well as professional fees. During our third
quarter of 2001, we began incurring expenses associated with purchase of
inventory as a result of commencement of operations. We have realized only
minimal revenues and have conducted limited operations since our inception; we
are therefore considered a development stage company.
We had $30,975 in assets at June 30, 2002: $17,508 in cash (the balance of
the proceeds from our offering which closed on May 4, 2001 with maximum
offering proceeds of $75,000); inventory of $9,866 consisting mainly of
leather jackets; accounts receivable of $2,147; office equipment of $944 (net
after depreciation of $649) and prepaid expenses of $500. As of June 30, 2002,
our liabilities of $444 were comprised of professional fees payable in the
amount of $160 and an amount totaling $284 advanced to Kubla Khan Inc. by our
president in payment of certain expenses.
Prior to the completion of our offering, we expensed services performed
by Bill Roberts, our president, and rent on space provided by Bill Roberts.
Mr. Roberts was not and will not be repaid and this has been reflected on our
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 initial stages of operations. We
commenced paying Mr. Roberts $500 per month for the use of office space upon
the completion of our offering and continued to do so during the second
quarter of 2002. No salaries or compensation have been paid by us since June
30, 2001 at which time the maximum allowable salaries to be paid out of
offering proceeds of $10,000 had been reached.
Since inception, management has actively initiated contacts and developed
relationships with various entities which purchase factory overstocks and
overruns from manufacturers and distressed merchandise from retailers at a
discount; management has also made every effort to resell the same to various
8
resellers in Utah. We have never had a profitable quarter since the
commencement of actual operations during the third quarter of 2001. During the
first half of 2002, sales were only $1,287 and cost of goods sold was $983
resulting in a gross profit margin of approximately 24%. Since the
commencement of actual operations our sales have totaled $6,373 with cost of
goods sold totaling $4,873 resulting in a gross profit margin of approximately
24%. This is not indicative of a positive cash flow situation since we
operated at a net loss of $7,132, $3,971, $6,013 and $4,514 for the third and
fourth quarters of 2001 and the first and second quarters of 2002,
respectively. Unless we are able to gear up our operations significantly, the
24% gross profit margin experienced during our first four quarters of
operations is not sufficient to cover the other costs and expenses incurred by
the Company. Nor will it be sufficient to provide us with the ability to
purchase sufficient merchandise to increase our cash flows. It will be
difficult to increase our sales volume sufficiently to achieve a profit in the
coming year. Although better than average prices on wholesale goods are
available to us, we do not have sufficient cash resources to take advantage of
these lower prices. Our lack of cash flows has dictated that we make
inventory purchases based on pre-sales, which is difficult to achieve in a
cautious economy.
Plan of Operation.
Our plan of operation for the next 12 months is to vigorously pursue
sources of bargain priced closeout, overstock and overrun merchandise and
retail outlets seeking such merchandise. We will minimize acquiring inventory
on "speculation" and will focus primarily on matching buyers with what sellers
have to offer. In this way we shall focus on conserving our financial
resources. We will also investigate other business opportunities if they
become known to us and we remain open to a change of business direction.
During the next 12 months, our only foreseeable cash requirements will
relate to overhead items. We have approximately $17,500 in cash available to
us for the next 12 months. We can expect minimum day to day operating
expenses during the next year of approximately $15,000 including rent of
$6,000, $2,000 in travel expenses related to locating inventory and customers,
$1,200 in telephone expenses, and storage expenses of $1,236; in addition, we
will require approximately $5,000 for legal and accounting necessary to
maintain compliance with our reporting obligations under the Exchange Act. We
believe the funds available to us will be sufficient to conduct operations as
well as pursue our business purpose so long as we minimize our inventory
purchases as indicated above and are able to liquidate our present inventory.
We will be dependent on cash flow generated from the sale of our current
inventory to continue implementing our business plan through the purchase and
sale of additional inventory. Management will use every effort to minimize
expenses and has no plans for additional employees until or unless warranted
due to business needs.
If we cannot increase our limited revenues in the next twelve months, we
could be forced to discontinue operations unless we are able to raise
additional capital. It may be difficult to secure additional financing. We may
be able to attract some private investors, or our officers and directors may
be willing to make additional cash contributions, advancements or loans.
However, there are no agreements with our officers and directors obligating
them to make additional cash contributions. We 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.
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGE IN SECURITIES
We have not issued any unregistered securities during the three months
ended June 30, 2002.
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, our registration statement filed on Form SB-2 was
declared effective; to which the Securities and Exchange Commission assigned
the file number 333-46114. Pursuant to the registration statement, we
registered a maximum of 75,000 shares of common stock for sale to the public
through our 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 June 30, 2002 we
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:
. our directors, officers, or general partners or their associates;
. persons owning 10% or more of any class of our equity securities; or
. our affiliates.
The net offering proceeds available to us after deducting expenses of the
offering were $64,483. As of June 30, 2002, we had used the actual net
offering proceeds in the following manner:
. Merchandise Inventory........................$ 9,866
. Storage Unit.................................$ 1,147
. Rent(1)......................................$ 7,500
. Working Capital (including travel)(2)........$26,204
. Salaries(3)..................................$10,396
. Office equipment.............................$ 1,593
-------
Total net proceeds expended at June 30,2002..$55,113 (4)
========
(1) Paid to Mr. William Roberts as agreed upon at a rate of $500 per
month for use of his home as our office
10
(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, an officer, for services
performed at a rate of $15.00 per hour until the maximum allowable $10,000 was
reached.
(4) The balance of the proceeds remain on deposit in our bank account.
Except those expenses footnoted above, all other expenses were incurred
to parties other than:
. our directors, officers, or general partners or their associates;
. persons owning 10% or more of any class of our equity securities, or
. our affiliates.
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.
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 quarter ended June 30,
2002.
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: August 14, 2001 BY: /s/ William S. Roberts
_________________________________________
President and Principal Financial Officer
11
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Kubla Khan, Inc.(the
"Company") on Form 10-QSB for the period ended June 30, 2002 (the "Report"),
I, William S. Roberts, President and Chief Executive Officer of the Company,
hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ William S. Roberts
_____________________________
William S. Roberts, President
and Chief Executive Officer
Date: August 14, 2002
12
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Kubla Khan, Inc. (the
"Company") on Form 10-QSB for the period ended June 30, 2002 (the "Report"),
I, William S. Robert, Chief Financial Officer of the Company, hereby certify
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ William S. Roberts
__________________________________
William S. Roberts
Chief Financial Officer
Date: August 14, 2002