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 September 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 September 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 September 30, 2002
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited) - September 30, 2002
and December 31, 2001 3
Condensed Statements of Operations (Unaudited ) for the Three
and Nine Months Ended September 30, 2002 and 2001, and for
the Period from February 1, 2000 (Date of Inception) through
September 30, 2002 4
Condensed Statements of Cash Flows (Unaudited) for the Nine
Months Ended September 30, 2002 and for the Period from
February 1, 2000 (Date of Inception) through September
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
Item 4. Controls and Procedures. 10
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)
September December
30, 2002 31, 2001
--------- ---------
ASSETS
Current Assets
Cash and cash equivalents $ 3,997 $ 6,553
Investment in securities available-for-sale 38,399 59,488
Trade accounts receivable - 472
--------- ---------
Total Assets $ 42,396 $ 66,513
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 4,124 $ 2,863
--------- ---------
Total Current Liabilities 4,124 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 gain (loss) 153 (488)
Deficit accumulated during the development stage (60,565) (34,546)
--------- ---------
Total Stockholders' Equity 38,272 63,650
--------- ---------
Total Liabilities and Stockholders' Equity $ 42,396 $ 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
For the Three For the Nine (Date of
Months Ended Months Ended Inception)
September 30, September 30, through
--------------------- -------------------- September 30,
2002 2001 2002 2001 2002
--------- ---------- --------- --------- ----------
Revenue $ - $ - $ - $ - $ 866
Loss on sale of marketable securities 1,802 - 1,802 - 1,802
Selling, general and administrative
expenses 9,745 16,327 25,722 23,362 62,964
--------- ---------- --------- --------- ----------
Loss from operations (11,547) (16,327) (27,524) (23,362) (63,900)
Interest and dividend income 390 554 1,505 1,279 3,335
--------- ---------- --------- --------- ----------
Net Loss $ (11,157) $ (15,773) $ (26,019) $ (22,083) $ (60,565)
========= ========= ========= =========
Basic and Diluted Loss Per Share $ (0.01) $ (0.01) $ (0.02) $ (0.02)
========= ========= ========= =========
Weighted Average Number of
Shares Outstanding 1,372,750 1,372,750 1,372,750 1,327,585
========= ========= ========= =========
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 Nine Inception)
Months Ended through
--------------------September 30,
2002 2001 2002
--------- --------- ---------
Cash Flows From Operating Activities
Net loss $ (26,019) $ (22,083) $ (60,565)
Loss on sale of securities available
for sale 1,802 - 1,802
Adjustments to reconcile net loss to net
cash used by operating activities
Trade accounts receivable 472 - -
Stock issued for services - - 813
--------- --------- ---------
Net Cash Used by Operating Activities (22,484) (22,674) (53,826)
--------- --------- ---------
Cash Flows From Investing Activities
Proceeds from sale of securities available
for sale 63,149 - 63,149
Purchase of securities available for sale (43,221) - (103,197)
--------- --------- ---------
Net Cash Used By Investing Activities 19,928 - (40,048)
--------- --------- ---------
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 (2,556) 57,956 3,997
Cash and Cash Equivalents at Beginning
of Period 6,553 10,955 -
--------- --------- ---------
Cash and Cash Equivalents at End of Period $ 3,997 $ 68,911 $ 3,997
========= ========= =========
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 nine month period ended September 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 nine
months ended September 30, 2002 and the period from February 1, 2000 (date of
inception) through September 30, 2002, the Company incurred net losses of
$26,019 and $60,565, respectively. As of September 30, 2002, the Company has had
minimal revenues and the accumulated deficit from inception totaled $60,565. 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 September 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 September 30, 2002 available-for-sale securities consisted of the
following:
September 30, 2002
Gross Unrealized Unrealized
Amortized Holding Holding Market
Cost Gains Losses Value
--------- --------- --------- ---------
Mutual funds $ 38,246 $ 153 $ - $ 38,399
Money market funds 1,747 - - 1,747
--------- --------- --------- ---------
Total Investment in Securities
Available-for-Sale 39,993 153 - 40,146
Less: Amounts classified
as cash equivalents (1,747) - - (1,747)
--------- --------- --------- ---------
Net Investment in Securities
Available-for-Sale $ 38,246 $ 153 $ - $ 38,399
========= ========= ========= =========
Proceeds from sales of marketable securities and the resulting gross realized
gains and losses were as follows at September 30, 2002:
Proceeds From Sales of Marketable Securities $ 63,149
========
Realized Loss From Sale of Marketable Securities $ (1,802)
========
Other comprehensive gain consists of the change in net unrealized holding gain
and loss on marketable securities as follows at September 30, 2002:
Unrealized net holding losses $ (1,161)
Reclassification adjustment for realized losses of
marketable securities included in net income 1,802
--------
Other Comprehensive Gain $ 641
========
NOTE 4 - LETTER OF INTENT AND STOCK EXCHANGE AGREEMENT
On September 10, 2002, the Company entered into a Letter of Intent with
Caribbean Clubs International, Inc. ("CCI"), by which the Company will fully
acquire CCI stock in exchange for the issuance of restricted shares of common
stock of the Company, which when completed will equal approximately 90% of the
total issued and outstanding shares of common stock of the Company. Also in
connection with the transaction, the existing officers and directors of the
Company will resign and be replaced by CCI appointees.
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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.
Kinship has an accumulated deficit during the development stage resulting from
organizational, general, administrative selling expenses. The deficit was
$60,565 as of September 30, 2002.
Kinship acquired the licensing rights to an accident reconstruction software
known as ProSource. Kinship 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. In the wake of September
11th, Kinship determined that mass marketing of its accident reconstruction and
related software to municipalities was not a viable enterprise and has further
resolved not to expend additional capital resources on continuing marketing
efforts of this software. As part of the acquisition of CCI discussed below,
Kinship will "spin out" any remaining license interest in the Prosource software
to a trust for current shareholders. It is not believed there is any remaining
value in the license to this software; but if determined to have value, it will
be distributed to current shareholders of Kinship.
During the nine month period ending September 30, 2002, the Company incurred a
loss on the sale of marketable securities of $1,802, and selling, general and
administrative expenses of $25,722. These results contrast with $23,362 in
selling, general and administrative expenses for the comparable prior period.
No loss on securities was recorded for the prior period. Kinship is not
certain as to the subsequent monthly costs of operations as the new CCI managers
take control over the next thirty days.
In the interim, the remaining net proceeds of the offering as of September 30,
2002, were approximately $42,296, 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. As of the date of this report,
the Company had approximately $30,000 remaining in net proceeds.
8
Liquidity and Sources of Capital
As noted above, Kinship conducted an initial public offering which closed on
April 30, 2001, and 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. Kinship
has not engaged in business operations to date, except to complete its initial
marketing efforts, which have since been terminated.
As of September 30, 2002, the Company's working capital was $38,272, and as of
December 31, 2002, the Company's working capital was $63,650.
As discussed above, the Company has terminated its marketing efforts regarding
its ProSource software, and concentrated its efforts in maintaining its public
status and seeking to acquire all or part of other business opportunities by
merger or share exchange. In this regard, as reported on its Form 8-K filed on
October 19, 2002, the Company entered into a letter of intent with Caribbean
Clubs International, Inc. ("CCI") to acquire all of the issued and outstanding
shares of CCI. In exchange, the Company will issue to the CCI shareholders
shares of its common stock, which when completed will equal approximately 90% of
the total issued and outstanding shares of common stock of the Company. CCI
intends to acquire resort properties located in the Caribbean. No assurance or
warranty can be given that the transaction will be completed. This proposal
was approved by shareholder vote on November 1, 2002 and Articles of Share
Exchange and Name Change are pending filing in the state of Utah. When the
transaction with CCI is completed, CCI will be required to raise additional
funds, in the form of debt or equity, to acquire its resort properties. A
subsequent 8-K will be filed providing details of the closing of this
transaction and new management within the next 15 days.
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. It is not
possible to reasonably project continuing expenses upon the completion of the
acquisition of CCI which should be implemented over the next thirty (30) days.
At present, the Company has approximately $30,000 in liquid capital reserves.
Mr. Limpert has been 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 and Mr.
Deru were paid a minimal stipend of $500/month during this reporting period.
Prior management have terminated their services as of November 1, 2002 and new
CCI management have not yet established compensation arrangements.
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 its newly acquired activities through
CCI, 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 fund start-up
activities of CCI.
Item 3. CONTROLS AND PROCEDURES.
(a) The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. Based upon their evaluation of those
9
controls and procedures performed within 90 days of the filing date of this
report, the chief executive officer and the principal financial officer of the
Company concluded that the Company's disclosure controls and procedures were
adequate.
(b) Changes in internal controls. The Company made no significant changes in
its internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the chief
executive officer and principal financial officer.
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
None
Item 3. Defaults upon Senior Securities.
None
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.
Item 6. Exhibits and Reports on Form 8-K
99.1 Certification under Section 906 of the Sarbanes-Oxley Act
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: November 14, 2002 By: /s/ Terry Deru
----------------------
Mr. Terry Deru
President
Date: November 14, 2002 By: /s/ Andrew Limpert
----------------------
Mr. Andrew Limpert
Chief Financial and Accounting Officer
10
CERTIFICATION
I, Terry Deru. certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Kinship Systems,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Terry Deru
_______________________
Terry Deru
President
11
CERTIFICATION
I, Andrew Limpert, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Kinship Systems,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Andrew Limpert
_______________________
Andrew Limpert
Chief Financial and Accounting Officer
12