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, 2003
[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. 315
---------------------------------------------------------------
(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
October 11, 2003
-1-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(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,
2003 2002
------------- -------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash in bank $ 4,675 $ 9,138
Inventory 9,521 9,830
Prepaid Expenses - 500
Deposits 10 10
------------- -------------
Total Current Assets 14,206 19,478
------------- -------------
Property & Equipment-Net of Depreciation
Of $1,337 and $1,003 256 590
------------- -------------
TOTAL ASSETS $ 14,462 $ 20,068
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ - 199
------------- -------------
Total Current Liabilities - 199
------------- -------------
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 79,407 75,814
Accumulated deficit (65,057) (56,057)
------------- -------------
Total Stockholders' Equity 14,462 19,869
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,462 $ 20,068
============= =============
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 For the Nine Inception
Months Ended Months Ended Months Ended Months Ended (March 28,2000)
September 30, September 30, September 30, September 30, to Sept 30,
2003 2002 2003 2002 2003
-------------- -------------- -------------- ------------- ---------------
<s> <c> <c> <c> <c> <c>
REVENUES $ - $ 42 $ 390 $ 1,329 $ 6,805
COST OF GOODS SOLD - (36) (309) (1,019) (5,218)
-------------- -------------- -------------- ------------- ---------------
GROSS PROFIT - 6 81 310 1,587
-------------- -------------- -------------- ------------- ---------------
COSTS AND EXPENSES:
General administrative 2,130 2,996 7,018 8,775 45,317
Travel and entertainment 137 1,249 967 4,068 13,373
Professional fees 294 680 1,096 2,914 6,954
Organizational expenses - - - - 1,000
-------------- -------------- -------------- ------------- ---------------
Total Expenses 2,561 4,925 9,081 15,757 66,644
-------------- -------------- -------------- ------------- ---------------
NET LOSS $ (2,561) $ (4,919) $ (9,000) $ (15,447) $ (65,057)
============== ============== ============== ============= ===============
Net loss per share,
basic and diluted $ (0.023) $ (0.044) $ (0.081) $ (0.138)
============== ============== ============== =============
Weighted average shares
outstanding 111,744 111,744 111,744 111,744
============== ============== =============== ============
See accompanying notes to financial statements
-4-
KUBLA KHAN, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Period from
For the Nine For the Nine Inception
Months Ended Months Ended (March 28,2000)
September 30, September 30, to Sept 30,
2003 2002 2003
-------------- ------------- --------------
<s> <c> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (9,000) $ (15,447) $ (65,057)
Non-cash expenses:
Depreciation 334 472 1,337
Capital contribution of services
and facilities by officers 3,593 - 7,536
-------------- ------------- --------------
Net cash used in operations (5,073) (14,975) (56,184)
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable (199) (243) -
Decrease (increase) in accounts receivable - (139) -
Decrease (increase) in Inventory 309 1,072 (9,521)
Decrease (increase) in prepaid expenses 500 (500) -
Decrease (increase) in deposits - - (10)
-------------- ------------- --------------
Net Cash (Used) By Operating Activities (4,463) (14,785) (65,715)
-------------- ------------- --------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of office equipment - - (1,593)
-------------- ------------- --------------
Net Cash Used in Investing Activities - (14,785) (1,593)
-------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock for cash - - 82,500
Offering costs charged to capital - - (10,517)
-------------- ------------- --------------
Net Cash From Financing Activities - - 71,983
-------------- ------------- --------------
Net Increase (Decrease) in Cash (4,463) (14,785) 4,675
Cash, at Beginning of Period 9,138 27,101 -
-------------- ------------- --------------
Cash at End of Period $ 4,675 $ 12,316 $ 4,675
============== ============= ==============
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 September 30, 2003 and
September 30, 2002 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, 2002
audited financial statements. The results of operations for the period ended
September 30, 2003 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 $65,057 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
-6-
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 has been paying $500 per month for
the space. The Company began paying rent and salaries effective May 1, 2001.
Effective April 1, 2003 our president, William Roberts, has donated office
rental of $3,000, telephone expense of $551 and $42 in internet access
charges, all of which have been reflected as a capital contribution by the
president as he will not receive reimbursement for these expenses.
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 $9,000 in our
first nine months of 2003; $2,561 of that loss occurred in the current
quarter. 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 $15,254 in assets at September 30, 2003: $4,896 in cash, inventory
of $9,521 consisting mainly of leather jackets; office equipment of $256 (net
after depreciation of $1,337); and deposits of $10. As of the end of the
second quarter of this year all funds raised in our offering had been
expended. As of September 30, 2003, we had no liabilities.
Results of Operations - Comparable periods
- -------------------------------------------
We have never had a profitable quarter since the commencement of actual
operations during the third quarter of 2001. During the second and third
quarters of 2003, the company realized no sales. During the first nine months
of 2003, sales were only $390 and cost of goods sold was $309 resulting in a
gross profit margin of approximately 21%; all of these sales occurred in the
first quarter. In the first nine months of 2002, we had sales of $1,329. As
opposed to this years sales, most of our revenues last year were generated in
the second quarter. Cost of sales for the first nine months of 2002 were
$1,019 with an approximate gross profit margin of 23%. We have, therefore,
experienced both an overall reduction in our already nominal revenues and an
increase of associated costs of those sales. This can be attributed to a
weaker economy resulting in less consumer spending and more cautious purchases
by retailers. We are also experiencing more competition for purchasers of our
-8-
distressed merchandise and our current focus on pre-sales has made sales
generation much more difficult.
Expenses during the first nine months of 2002 were considerably higher
when comparing 2002 and 2003, $15,757 for the nine months ended September 30,
2002 as opposed to $9,081 in first nine months of 2003. The first nine months
of 2003 demonstrated general and administrative expenses which were nearly
similar to the first nine months of 2002, with large reductions in travel
related expenses and professional fees between the comparable periods.
Liquidity
- ---------
Since the commencement of actual operations, our sales have totaled
$6,805 with cost of goods sold totaling $5,218 resulting in a gross profit
margin of approximately 23%. This is not indicative of a positive cash flow
situation since we operated at a net loss of $7,132 and $3,971 for the third
and fourth quarters of 2001 respectively, a net loss of $21,189 for the year
ended December 31, 2002 and a net loss of $9,000 for the first nine months of
2003. In addition, despite our efforts to increase our cash flows, we had no
revenues during the second and third quarters of 2003. Unless we are able to
gear up our operations significantly, begin realizing revenues again and at a
significantly higher rate than in previous quarters, we will not have
sufficient funds to cover our other costs and expenses.
Management believes that it will be difficult to achieve a sales volume
sufficient to provide us with liquidity 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.
Uncertainties and Trends Affecting our Business
- -----------------------------------------------
There is no assurance that we will ever be successful in our current
business of acquiring factory overruns or overstock merchandise for resale at
discount prices. We do not know whether we will ever be able to operate
profitably in the business we have chosen to develop. So far we have had
difficulty locating customers for our merchandise. Since September 11, 2001,
the economy has suffered downturns; world events have also contributed to an
uncertain economy which has been both good and bad for us. Although we are
seeing a more plentiful supply of closeout, overstock and overrun merchandise,
retailers have been extremely cautious about ordering inventory due to
softened public demand. During our last fiscal year, any potential benefits of
an increase in available overstock merchandise have been far outweighed by our
inability to attract retailers to our products. We presently have inventory
acquired at very favorable costs but it has been hard to convince retailers to
purchase this inventory for resale. Our inability to establish a customer base
has dictated our decision to purchase inventory primarily only if it is pre-
sold. Two main factors make this very difficult. First of all, when closeout
merchandise is made available to us, it is generally gone within a day or two
which is not enough time for us to pre-sell those items to retailers. The
majority of retailers we have been in touch with do not make snap judgements
in their purchasing process and typically take days or even weeks to make a
decision. The other factor making success in this industry difficult to
achieve is the fact that our decisions are made by a management team that has
had no prior experience in the industry. With our limited financial resources
we anticipate that we could possibly be out of liquid resources by year end
unless we look at other alternatives. If management is made aware of any
-9-
opportunities that we feel should be adopted, we will notify our shareholders
and present any such proposal to our shareholders for their approval. In
short, at this point in time management has less than an optimistic outlook in
regards to our near term results.
Plan of Operation
- -----------------
Our plan of operation for the next 12 months is to continue 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 $4,675 in cash available to us
for the next 12 months. Our president, Bill Roberts, has agreed to donate
office rental, telephone expenses, office expenses and travel expenses which,
accordingly beginning April 1, 2003 have been booked as capital contributions
by Mr. Roberts. We can expect minimum day to day cash operating expenses
during the next year of approximately $1,260 consisting of storage fees; in
addition, we will require approximately $5,000 for legal and accounting
necessary to maintain compliance with our reporting obligations under the
Exchange Act. Accordingly, based on these estimates, we believe the funds
available to us will not be sufficient to conduct operations as well as pursue
our business purpose for the coming twelve months. We will be dependent upon
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.
ITEM 3: CONTROLS AND PROCEDURES
Our President, who is our Chief Executive Officer and acts in the
capacity of our principal financial officer, caused disclosure controls and
procedures to be designed and established to ensure that material information
is made known to him in a timely manner by others within the company. Our
President reevaluated the effectiveness of these disclosure controls and
procedures as of the end of the period covered by this report and determined
that there continued to be no significant deficiencies in these procedures.
Also, our President evaluated the design and operation of our internal
control over financial reporting which relates to our ability to record,
process, summarize and report financial information. He did not find any
significant deficiency or material weakness which would require changes to be
made or corrective actions to be taken related to our internal control over
financial reporting. Nor did he identify fraud that involved management or
other employees who had a significant role in our internal control over
financial reporting.
-10-
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 September 30, 2003.
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*
31.1 Section 302 Chief Executive Officer Certification
31.2 Section 302 Chief Financial Officer Certification
32.1 Section 906 Certification - Chief Executive and Financial
Officer
* 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 September
30, 2003.
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 1, 2003 BY: /s/ William S. Roberts
_________________________________________
President, Chief Executive Officer
and Chief Financial Officer
-11-