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 June 30, 2002
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
KINSHIP SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0648148
(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
(Address of principal executive officers)
(801) 521-8636
(Registrant's telephone number, including area code)
Not Applicable
(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 June 30, 2002, No Par Value.
Authorized - 50,000,000 common voting shares. The company has only one class of
shares.
1
INDEX
Kinship Systems, Inc.
For The Quarter Ending June 30, 2002
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited) - June 30, 2002 and
December 31, 2001 3
Condensed Statements of Operations (Unaudited ) for the Three
and Six Months Ended June 30, 2002 and 2001, and for the
Period from February 1, 2000 (Date of Inception) through
June 30, 2002 4
Condensed Statements of Cash Flows (Unaudited) for the Six
Months Ended June 30, 2002 and for the Period from February
1, 2000 Date of Inception) through June 30, 2002 4
Notes to Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Matters 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
Part I - Financial Information
Item 1. Financial Statements
KINSHIP SYSTEMS, INC.
(A Development Stage Enterprises)
CONDENSED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
2002 2001
-------- ---------
ASSETS
Current Assets
Cash and cash equivalents $ 5,997 $ 6,553
Investment in securities available-for-sale 43,245 59,488
Trade accounts receivable - 472
-------- ---------
Total Assets $ 49,242 $ 66,513
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,374 $ 2,863
-------- ---------
Total Current Liabilities 1,374 2,863
-------- ---------
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 (1,408) (488)
Deficit accumulated during the development stage (49,408) (34,546)
-------- ---------
Total Stockholders' Equity 47,868 63,650
-------- ---------
Total Liabilities and Stockholders' Equity $ 49,242 $ 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)
For the Three Months For the Six Months Inception)
Ended June 30, Ended June 30, Through
--------------------- --------------------- June 30,
2002 2001 2002 2001 2002
--------- --------- --------- --------- ----------
Revenue $ -- $ -- $ -- $ -- $ 866
Selling, general and administrative
expenses 9,773 4,180 15,977 7,035 53,219
--------- --------- --------- --------- ---------
Loss from operations (9,773) (4,180) (15,977) (7,035) (52,353)
Interest and Dividend Income 658 725 1,115 725 2,945
--------- --------- --------- --------- ---------
Net Loss $ (9,115) $ (3,455) $ (14,862) $ (6,310) $ (49,408)
========= ========= ========= ========= =========
Basic and Diluted Loss Per Share $ (0.01) $ (0.00) $ (0.01) $ (0.00)
========= ========= ========= =========
Weighted Average Number of Shares
Outstanding 1,372,750 1,338,876 1,372,750 1,304,628
========= ========= ========= =========
See accompanying notes to unaudited condensed financial statements.
4
KINSHIP SYSTEMS, INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Period
February 1,
2000 (Date of
For the Six Months Inception)
Ended June 30, Through
--------------------- June 30,
2002 2001 2002
--------- --------- ---------
Cash Flows From Operating Activities
Net loss $ (14,862) $ (6,310) $ (49,408)
Loss on sale of securities available for sale 395 - 395
Adjustments to reconcile net loss to net
cash used by operating activities
Trade accounts receivable 472 - -
Accounts payable (1,489) 358 1,374
Stock issued for services - - 813
--------- --------- ---------
Net Cash Used by Operating Activities (15,484) (5,952) (46,826)
--------- --------- ---------
Cash Flows From Investing Activities
Proceeds from sale of securities available for sale 14,928 - 14,928
Purchase of securities available for sale - - (59,976)
--------- --------- ---------
Net Cash Used By Investing Activities 14,928 - (45,048)
--------- --------- ---------
Cash Flows From Financing Activities
Deferred offering costs - (22,120) (29,879)
Proceeds from issuance of common stock - 102,750 127,750
--------- --------- ---------
Net Cash Provided by Financing Activities - 80,630 97,871
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (556) 74,678 5,997
Cash and Cash Equivalents at Beginning of Period 6,553 10,955 -
--------- --------- ---------
Cash and Cash Equivalents at End of Period $ 5,997 $ 85,633 $ 5,997
========= ========= =========
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 six month period ended June 30, 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 six
months ended June 30, 2002 and the period from February 1, 2000 (date of
inception) through June 30, 2002, the Company incurred net losses of $14,862 and
$49,408, respectively. As of June 30, 2002, the Company has had minimal revenues
and the accumulated deficit from inception totaled $49,408. 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 June 30, 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 June 30, 2002 available-for-sale securities consisted of the
following:
June 30, 2002
-------------------------------------------
Gross Unrealized Unrealized
Amortized Holding Holding Market
Cost Gains Losses Value
--------- -------- -------- ---------
Mutual funds $ 44,653 $ - $ 1,408 $ 43,245
Money market funds 1,356 - - 1,356
--------- -------- -------- ---------
Total Investment in Securities
Available-for-Sale 46,009 - 1,408 44,601
Less: Amounts classified
as cash equivalents (1,356) - - (1,356)
--------- -------- -------- ---------
Net Investment in Securities
Available-for-Sale $ 44,653 $ - $ 1,408 $ 43,245
========= ======== ======== ==========
Proceeds from sales of marketable securities and the resulting gross realized
gains and losses were as follows at June 30, 2002:
Proceeds From Sales of Marketable Securities $ 14,928
========
Realized Loss From Sale of Marketable Securities $ (395)
========
Other comprehensive loss consists of the change in net unrealized holding gain
and loss on marketable securities as follows at June 30, 2002:
Unrealized net holding losses $ (1,803)
========
Reclassification adjustment for realized losses of
marketable securities included in net income 395
--------
Other Comprehensive Loss $ (1,408)
========
7
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 February 1, 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
$49,408 as of June 30, 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 has determined that mass
marketing of its accident reconstruction and related software is not a
viable enterprise and has further resolved not to expend additional scarce
capital resources on continuing marketing efforts of this software.
Kinship expended approximately $8,000 of its gross offering proceeds o n its
initial mailing effort, or about 8% of its cash capital. Kinship has determined
to marshal its remaining capital to sustain its minimal operations and to pay
for maintaining the Company as a public reporting company while its management
pursues various alternative business activities through a potential new business
merger or acquisition.
In the interim, the remaining net proceeds of the offering as of June 30, 2002,
are approximately $46,000, which funds constitute all liquid capital of the
Company. 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.
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 $26,870, leaving estimated net operating proceeds to be employed
in future operations of approximately $46,000 as of June 30, 2002.
8
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 36 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 by
Kinship.
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 36 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 June 30, 2002 on marketing and operations - $26,870.
4. Net proceeds for future operations - $46,000.
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
99.1 Certification under Section 906 of the Sarbanes-Oxley Act
(18 U.S.C. SECTION 1350)
10
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: August 7, 2002 By: /s/ Terry Deru
----------------------
Mr. Terry Deru
President
Date: August 7, 2002 By: /s/ Andrew Limpert
----------------------
Mr. Andrew Limpert
Chief Financial and Accounting Officer
11