UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE PERIOD ENDED March 31, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD From to
...
Commission File Number 333-40954
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KINSHIP SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0648148
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
22 East 100 South, Suite 400
Salt Lake City, Utah 84111
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(Address of principal executive officers)
(801) 521-8636
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (l) 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 periods that the registrant was
required to file such reports), X Yes No; and (2) has been subject to such
filing requirements for the past 90 days: X Yes No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes No Not Applicable
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock: 1,372,750 shares issued as of March 31, 2002, No Par Value.
Authorized - 50,000,000 common voting shares. The company has only one class of
shares.
INDEX
Kinship Systems, Inc.
For The Quarter Ending March 31, 2002
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited) - March 31, 2002 and
December 31, 2001 3
Condensed Statements of Operations (Unaudited ) for the Three Months
Ended March 31, 2002 and 2001, and for the Period from February 1,
2000 (Date of Inception) through March 31, 2002 4
Condensed Statements of Cash Flows (Unaudited) for the Three Months
Ended March 31, 2002 and for the Period from February 1, 2000
(Date of Inception) through March 31, 2002 4
Notes to Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Matters
Item 6. Exhibits and Reports on Form 8-K
Signatures
Part I - Financial Information
Item 1. Financial Statements
KINSHIP SYSTEMS, INC.
(A Development Stage Enterprises)
CONDENSED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2002 2001
---------- ----------
ASSETS
Current Assets
Cash and cash equivalents $ 2,991 $ 6,553
Investment in securities available for sale 53,477 59,488
Trade accounts receivable 472 472
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Total Current Assets 56,940 66,513
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Deferred Offering Costs - -
---------- ----------
Total Assets $ 56,940 $ 66,513
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $ - $ 2,863
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Total Current Liabilities - 2,863
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Stockholders' Equity
Common stock, no par value; 50,000,000 shares
authorized; 1,372,750 shares issued and outstanding 98,684 98,684
Other comprehensive loss (1,451) (488)
Deficit accumulated during the development stage (40,293) (34,546)
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Total Stockholders' Equity 56,940 63,650
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Total Liabilities and Stockholders' Equity $ 56,940 $ 66,513
========== ==========
See accompanying notes to unaudited condensed financial statements.
3
KINSHIP SYSTEMS, INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Period
February 1,
2000
(Date of
Inception)
For the Three Months through
Ended March 31, March 31,
2002 2001 2002
---------- ---------- ---------
Revenue $ -- $ -- $ 866
Selling, general and administrative expenses 6,204 2,855 43,446
---------- ---------- ---------
Loss from operations (6,204) (2,855) (42,580)
Interest and Dividend Income 457 -- 2,287
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Net Loss $ (5,747) $ (2,855) $ (40,293)
========== ========== =========
Basic and Diluted Loss Per Share $ (0.00) $ (0.00)
========== ==========
Weighted Average Number of Shares Outstanding 1,372,750 1,338,876
========== ==========
See accompanying notes to unaudited condensed financial statements.
4
KINSHIP SYSTEMS, INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
February 1,
2000
(Date of
For the Three Months Inception)
Ended March 31, through
--------------------- March 31,
2002 2001 2002
--------- --------- ---------
Cash Flows From Operating Activities
Net loss $ (5,747) $ (2,855) $ (40,293)
Loss on sale of securities available for sale 72 72
Adjustments to reconcile net loss to net
cash used by operating activities
Trade accounts receivable - - (472)
Accounts payable (2,863) (310) -
Stock issued for services - - 813
--------- --------- ---------
Net Cash Used by Operating Activities (8,538) (3,165) (39,880)
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Cash Flows From Investing Activities
Proceeds from sale of securities available for sale 4,976 - 4,976
Purchase of securities available for sale - - (59,976)
--------- --------- ---------
Net Cash Used By Investing Activities 4,976 - (55,000)
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Cash Flows From Financing Activities
Deferred offering costs - (642) (29,879)
Proceeds from issuance of common stock - - 127,750
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Net Cash Provided by Financing Activities - (642) 97,871
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (3,562) (3,807) 2,991
Cash and Cash Equivalents at Beginning of Period 6,553 10,955 -
--------- --------- ---------
Cash and Cash Equivalents at End of Period $ 2,991 $ 7,148 $ 2,991
========= ========= =========
See accompanying notes to unaudited condensed financial statements.
5
KINSHIP SYSTEMS, INC.
(A Development Stage Enterprises)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements-The accompanying financial statements are
unaudited. In the opinion of management, all necessary adjustments (which
include only normal recurring adjustments) have been made to present fairly the
financial position, results of operations and cash flows for the periods
presented. Certain information and 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 Company's financial statements and
notes thereto included in the Form 10-KSB dated December 31, 2001. The results
of operations for the three month period ended March 31, 2002 are not
necessarily indicative of the operating results to be expected for the full
year.
Basis of Presentation - The accompanying financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. During the three
months ended March 31, 2002 and the period from February 1, 2000 (date of
inception) through March 31, 2002, the Company incurred net losses of $5,747 and
$40,293, respectively. As of March 31, 2002, the Company has had no revenues and
the accumulated deficit from inception totaled $40,293. The Company commenced
its initial marketing activities during September of 2001, however, it appears
from initial comments received back from various law enforcement agencies that
there has been a general deferral of any discretionary spending since the
tragedy of the September 11, 2001 terrorist attacks. As a result, Kinship
believes that its ability to market in the current environment may be
substantially impaired by the redirection of law enforcement agencies to
homeland security and away from discretionary spending for accident
reconstruction software.
These factors, among others, indicate that the Company may be unable to continue
as a going concern. The accompanying financial statements do not include any
adjustments relating to the carrying amount and classification of recorded
assets or the amount and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The Company
completed its initial public offering on April 30, 2001 which raised a net of
$72,871 in additional capital. The Company's ability to continue as a going
concern is dependent upon its ability to generate sufficient cash flows to meet
its obligations on a timely basis, to obtain additional financing and ultimately
to attain successful operations. Accordingly, management of Kinship believes its
present focus should be directed to seeking alternative business opportunities.
It will pursue this course by attempting to find suitable opportunities through
development, acquisition or potential mergers.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Company entered into an agreement with the president to provide a $1,000
stipend per month to him for his services. During June of 2001, the board of
directors voted to modify this agreement to split the $1,000 per month to $500
to the president and $500 to the secretary for their services. For the three
months ended March 31, 2002, the Company paid $3,000 associated with this
agreement.
6
NOTE 3 -- INVESTMENT IN MARKETABLE SECURITIES AND OTHER
COMPREHENSIVE INCOME
Marketable securities are classified as available-for-sale and are stated at
fair value. At March 31, 2002 available-for-sale securities consisted of the
following:
March 31, 2002
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Gross Unrealized Unrealized
Amortized Holding Holding Market
Cost Gains Losses Value
--------- ---------- --------- ---------
Mutual funds $ 54,928 $ $ 1,451 $ 53,477
Money market funds 765 - - 765
--------- ---------- --------- ---------
Total Available-for-Sale
Investments 55,693 1,451 54,242
Less: Amounts classified
as cash equivalents (765) - - (765)
--------- ---------- --------- ---------
Net Available-for-Sale
Investments $ 54,928 $ - $ 1,451 $ 53,477
========= ========== ========= =========
Proceeds from sales of marketable securities and the resulting gross realized
gains and losses were as follows at March 31, 2002:
Proceeds From Sales of Marketable Securities $ 4,976
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Realized Loss From Sale of Marketable Securities $ (72)
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Other comprehensive loss consists of the change in net unrealized holding gain
and loss on marketable securities as follows at March 31, 2002:
Unrealized net holding losses $ (1,523)
Reclassification adjustment for realized losses of
marketable securities included in net income 72
--------
Other Comprehensive Loss $ (1,451)
========
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Information
Certain statements in this Section and elsewhere in this report are forward-
looking in nature and relate to trends and events that may affect the Company's
future financial position and operating results. Such statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "expect," "anticipate," "intend," and "project"
and similar words or expressions are intended to identify forward-looking
statements. These statements speak only as of the date of this report. The
statements are based on current expectations, are inherently uncertain, are
subject to risks, and should be viewed with caution. Actual results from
experience may differ materially from the forward-looking statements as a result
of many factors, including changes in economic conditions in the markets served
by the company, increasing competition, fluctuations in raw materials and energy
prices, and other unanticipated events and conditions. It is not possible to
foresee or identify all such factors. The company makes no commitment to update
any forward-looking statement or to disclose any facts, events, or circumstances
after the date hereof that may affect the accuracy of any forward-looking
statement.
Results of Operations
Kinship was incorporated in Utah on February1, 2000 and has been involved
exclusively to this point in start-up operations including incorporation,
initial organization, initial public offering ("IPO") of its shares and initial
operations. The IPO was closed on April 30, 2001. In this IPO, Kinship raised
gross proceeds of $102,750 less offering costs of $29,879 by selling 102,750 of
its common voting shares at $1.00/share to 28 investors, most of whom reside in
Utah. The use of proceeds from the IPO are more particularly described under
Part II, Item 2 of this Report.
Kinship has an accumulated deficit during the development stage resulting from
organizational, general, administrative selling expenses. The deficit was
$40,293 as of March 31, 2002
Kinship has completed its initial marketing activities by a mass mailing of
advertising materials and a description of its products to law enforcement
agencies within several western states.
Kinship anticipated commencing its mass mailing of software product descriptions
earlier in the summer of 2001, but was unable to do so because of unforseen
delays. It was unable to commence any significant mailing of these materials
until mid-September, 2001. Initial comments received back from various law
enforcement agencies to which its software programs were mailed are of a general
deferral of any discretionary spending by those offices, which included spending
on Kinship's proprietary software for accident reconstruction and analysis. As
a result, Kinship believes that its ability to market these products in the
current environment may be substantially impaired by the redirection of law
enforcement agencies to homeland security and away from discretionary spending
for accident reconstruction software. Accordingly, management of Kinship
believes its present focus should be directed to seeking alternative business
opportunities. It will pursue this course by attempting to find suitable
opportunities through new product development, acquisition or potential mergers.
Kinship expended approximately $8,000 of its gross offering proceeds on this
initial mailing effort, or about 8%. Approximately 15,000 pieces were mailed
to various law enforcement agencies across the United States with little
positive response. The Company must now reconsider expenditure of its remaining
offering proceeds as to this type of product or marketing activity. Presently
under consideration is whether Kinship ought to change its business purpose or
marketing efforts to other types of software programs or consider pursuing
unrelated business activities. All of these matters are presently under
consideration by the Board of Directors and may constitute a significant change
in business direction for the Company.
In the interim, the remaining net proceeds of the offering as of March 31, 2002,
are approximately $55,700. These funds are invested in short term instruments by
the Company awaiting a reconsideration of business development and marketing
efforts by the Board of Directors as generally discussed above.
8
Liquidity and Sources of Capital
As noted above, Kinship has not engaged in business operations to date, except
to complete its initial marketing efforts. From its IPO proceeds of $102,750,
Kinship has accrued and paid obligations for offering related costs to the
accountants, legal counsel as well as miscellaneous printing and filing costs of
approximately $29,880, and post offering marketing and operating expenses of
approximately $17,170, leaving estimated net operating proceeds to be employed
in future operations of approximately $55,700 as of March 31, 2002.
As noted above, Kinship is presently determining how to modify its original
business plan. With the remaining net proceeds of its completed IPO, it will
have limited options should it determine to develop and market alternative
software products or engage in other business activities as generally outlined
above. No assurance or warranty that the Company will continue or be successful
in its marketing efforts can be made or is implied. Further, if Kinship is not
successful in reaching a state of profitability from the use of the net
remaining offering proceeds, there is no presently committed or determined
alternative source or means of financing.
It is possible that Kinship could seek subsequent private placement financing
funds or other means to continue its business operations and/or to develop or
market new products, though no assurance or warranty that funds will be
available, or that the Company would deem it as feasible or appropriate to seek
such alternative financing, can be made if the initial IPO proceeds are not
sufficient to sustain continuing operations.
Plan of Operation
While the Company has attempted to minimize overhead expenses during this
transition period by paying minimal salaries or other compensation, Kinship does
continue to incur minimal operating expenses for salaries, legal and accounting
compliance and other costs of approximately $1,500 per month. At the present
rate of overhead expenses and assuming no other capital expenditures, the
Company would exhaust its remaining net proceeds from the Initial Public
Offering in approximately 40 months. Mr. Terry Deru who is the President of the
Company is continuing to serve the Company on a strictly as needed basis for
$500 month, but with an informal understanding and agreement by the Board that
he will be paid a deferred compensation in cash or stock rights or some
combination of both for actual efforts when and if the Company achieves any
future revenues.
Mr. Limpert is also active in pursuing, on a time allowed basis, various
potential merger, acquisition, or new business opportunities for the Company, as
well as supervising accounting and reporting requirements. Mr. Limpert has the
same informal compensation arrangement with Kinship as does Mr. Deru. Mr.
Limpert has also met with ProSource and TM Design representatives regarding
extension of existing contracts and potential alternative software concepts in
marketing activities related to the security industry. No specific commitments,
undertakings or arrangements have been derived from such alternative marketing
activities to date. Mr. Limpert is also paid a monthly stipend of $500.
Because of the Company's lack of business activities at the present time and
continuing overhead costs the auditors have been required to express an opinion
that the Company may not be considered "a Going Concern," see note 1 to the
accompanying Condensed Financial Statements. Management of Kinship must concur
that unless the Company is successful in finding some alternative business
activities in approximately 40 months at its current rate of maintenance
expenditure, the Company will have to cease any continuing activities requiring
physical space or facilities or current operating expenses. Further, the
Company most likely will expend some or all of its remaining capital to explore
potential acquisition or merger possibilities, and/or to acquire and market
other products and services. No current proposal for alternative or future
business activities is presently formulated. It is the intent of Kinship to
continue to actively explore principally through Mr. Limpert, alternative
businesses or merger or acquisition possibilities. The Company can make no
warranty or representation that will be able to continue in its present status
and may have to delist itself as a public company and cease operations as an
on-going business entity should it not be able to find alternative business
activities or alternative financing. Each prospective shareholder of the
Company should consider the present situation as constituting significant risk
factors.
9
Part II - Other Information
Item 1. Legal Proceedings
Kinship is not presently engaged in any legal proceedings, nor does it know of
any claims for or against the company by any party which would result in
litigation.
Item 2. Changes in Securities and Use of Proceeds
The company has not had any change in its securities since its last report
filing on Form 10-KSB.
In accordance with SEC Rule 463 the company reports the use of proceeds to
date from its initial public offering "IPO" completed on April 30, 2001:
1. Gross proceeds sold - $102,750.
2. Accrued offering related costs including printing, accounting, legal and
related filing fees - $29,880.
3. Amount expended to March 31, 2002 on marketing and operations - $17,170.
4. Net proceeds for future operations - $55,700.
Item 4. Submission of Matters to a Vote of Security Holders
During the present quarter there has been no matter submitted to security
holders for a vote. Kinship presently anticipates holding its first annual
shareholders meeting at a date to be designated in the fourth quarter of 2002
for the election of directors and other routine matters, but has not presently
set a definitive date for such meeting. Shareholders will be independently
advised of any such formal annual meeting date.
Item 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
REGISTRANT: KINSHIP SYSTEMS, INC.
Date: May 13, 2002 By: /s/ Terry Deru
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Mr. Terry Deru
President
Date: May 13, 2002 By: /s/ Andrew Limpert
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Mr. Andrew Limpert
Chief Financial and Accounting Officer
10