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, 2003
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
CARIBBEAN CLUBS INTERNATIONAL, 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.)
405 Park Avenue, 10th Floor,
New York, New York 10022
(Address of principal executive officers)
(212) 421-1400
--------------
(Registrant's telephone number, including area code)
Kinship Systems, Inc.
---------------------
(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
1
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.
The number of shares issued and outstanding of our common stock, no par value,
as of June 30, 2003 was 11,319,411.
2
INDEX
Caribbean Clubs International, Inc.
For The Period Ending June 30, 2003
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) - June 30, 2003
and December 31, 2002 3
Condensed Consolidated Statements of Operations (Unaudited )
for the Three Months And Six Months ended June 30, 2003 and 2002,
and for the Period from January 11, 2001 (Date of Inception)
through June 30, 2003 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for
the Six Months Ended June 30, 2003 and 2002 for the Period from
January 11, 2001 (Date of Inception) through June 30, 2003 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Controls and Procedures. 13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Matters 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Part I - Financial Information
Item I. Financial Statements:
The condensed financial statements included herein have been prepared 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 accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures are adequate
to make the information presented not misleading.
In the opinion of the Company, all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial position of the
Company and the results of its operations and its cash flows have been made. The
results of its operations and its cash flows for the six months ended June 30,
2003 are not necessarily indicative of the results to be expected for the year
ending December 31, 2003.
4
CARIBBEAN CLUBS INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2003 2002
- -------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 134,484 $ 631,112
Interest receivable 1,000 -
Employee advance 11,250 -
Deposits 17,700 17,700
- -------------------------------------------------------------------------------------------------
Total Current Assets 164,434 648,812
- -------------------------------------------------------------------------------------------------
Note Receivable 60,000 -
- -------------------------------------------------------------------------------------------------
Total Assets $ 224,434 $ 648,812
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 31,381 $ 12,754
Accrued expenses 21,667 16,939
- -------------------------------------------------------------------------------------------------
Total Current Liabilities 53,048 29,693
- -------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock - no par value; 50,000,000 shares
authorized; 11,319,411 shares and 10,719,411 shares outstanding 1,220,661 1,220,061
Stock subscription receivable (600) -
Deficit accumulated during the development stage (1,048,675) (600,942)
- -------------------------------------------------------------------------------------------------
Total Stockholders' Equity 171,386 619,119
- -------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 224,434 $ 648,812
=================================================================================================
See accompanying notes to unaudited condensed
consolidated financial statements.
5
CARIBBEAN CLUBS INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the period
January 11, 2001
(Date of
For the Three For the Three For the Six For the Six Inception)
Months Ended Months Ended Months Ended Months Ended through
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002 June 30, 2003
- --------------------------------------------------------------------------------------------------------------
Revenue $ - $ - $ - $ - $ -
- --------------------------------------------------------------------------------------------------------------
General and administrative expenses 196,898 14,399 459,401 49,990 1,061,977
- --------------------------------------------------------------------------------------------------------------
Loss from Operations (196,898) (14,399) (459,401) (49,990) (1,061,977)
Interest income 2,990 - 11,668 - 13,302
- --------------------------------------------------------------------------------------------------------------
Net Loss $ (193,908) $ (14,399) $ (447,733) $ (49,990) $(1,048,675)
==============================================================================================================
Basic and Diluted Loss per Share $ (0.02) $ (0.01) $ (0.04) $ (0.04)
==============================================================================================================
Weighted Average Number of Common
Shares Outstanding 10,719,411 1,372,750 10,719,411 1,372,750
==============================================================================================================
See accompanying notes to unaudited condensed
consolidated financial statements.
6
CARIBBEAN CLUBS INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
January 11, 2002
For the Six For the Six (Date of Inception)
Months Ended Months Ended through
June 30, 2003 June 30, 2002 June 30, 2003
- ----------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net loss $ (447,733) $ (49,990) $ (1,048,675)
Adjustments to reconcile net loss to net cash
from operating activities
Issuance of common stock for services - - 145,900
Interest receivable (1,000) - (1,000)
Employee advance (11,250) - (11,250)
Deposits - (8,300) (17,700)
Accounts payable 18,627 - 31,381
Accrued expenses 4,728 - 21,667
- ----------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (436,628) (58,290) (879,677)
- ----------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Issuance of note receivable (400,000) - (400,000)
Payments received on note receivable 340,000 - 340,000
- ----------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (60,000) - (60,000)
- ----------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock - 15,000 1,348,626
Cash paid for offering costs - - (148,993)
Contribution of capital with no issuance of shares - 50,000 2,220
Net fair value of assets and liabilities
acquired from Kinship - - (127,692)
- ----------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities - 65,000 1,074,161
- ----------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents (496,628) 6,710 134,484
Cash and Cash Equivalents, Beginning of Period 631,112 1,110 -
- ----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 134,484 $ 7,820 $ 134,484
================================================================================================================
Supplemental Noncash Transactions:
On June 30, 2003, the Company issued 600,000 shares of stock in exchange for a
stock subscription receivable for $600.
See accompanying notes to unaudited condensed
consolidated financial statements.
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CARIBBEAN CLUBS INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Condensed Financial Statements - The accompanying condensed financial statements
have been prepared by the Company and are unaudited. In the opinion of
management, the accompanying unaudited financial statements contain all
adjustments necessary for fair presentation, consisting of normal recurring
adjustments, except as disclosed herein.
The accompanying unaudited interim financial statements have been condensed
pursuant to the rules and regulations of the Securities and Exchange Commission;
therefore, certain information and disclosures generally included in financial
statements have been condensed or omitted. The condensed financial statements
should be read in conjunction with the Company's annual financial statements
included in its annual report on Form 10-KSB as of December 31, 2002. The
financial position and results of operations for the six months ended June 30,
2003 are not necessarily indicative of the results to be expected for the full
year ending December 31, 2003.
Organization and Nature of Business - The Company was incorporated in Utah on
February 1, 2000 under the name of Kinship Communications, Inc. The name was
subsequently changed as of March 2, 2000 to Kinship Systems, Inc. On May 4,
2000, Kinship entered into a product distribution agreement with ProSource
Software to distribute a vehicle accident analysis and reconstruction software
to municipalities. In April 2001, the Company completed an initial pubic
offering of its common stock and raised gross proceeds of $102,750 in connection
with the sale of 102,750 shares of common stock. Due to the events of September
11, 2001, the Company believed that municipalities became more focused on
homeland security issues, and became less interested in a ProSource type
software product. Existing management made a determination to terminate its
efforts to sell the ProSource software, and, in the beginning of fiscal 2002,
existing management pursued various potential merger, acquisition, or new
business opportunities for the Company.
In this regard, effective November 18, 2002, the Company entered into a share
exchange agreement with Caribbean Clubs International, Inc., a Delaware
corporation ("CCI-Delaware"). Pursuant to the agreement, all of the shareholders
of CCI-Delaware exchanged their shares for common stock of Kinship on a 1 for
11.8139 ratio (rounded to whole shares). The transaction was approved by the
majority of shareholders of Kinship. As part of that transaction, the then
officers and directors of Kinship resigned and were replaced by the Company's
current officers and directors, and Kinship Systems, Inc. changed its name to
Caribbean Clubs International, Inc. On November 21, 2002, CCI-Delaware changed
its name to CCI Resort Development Corporation, and is a wholly owned subsidiary
of the Company. CCI-Delaware was incorporated in the State of Delaware on
January 11, 2001.
CCI-Delaware received approximately 86% of the voting rights in the combined
entity; therefore, in accordance with Statement of Financial Accounting
Standards No. 141, "Business Combinations," CCI-Delaware was determined to be
the acquiring entity. As a result, the effect of the Acquisition Agreement, for
financial reporting purposes, was the reorganization of CCI-Delaware at the
historical cost of its assets and liabilities in a manner similar to a stock
split. The accompanying financial statements reflect the operations of CCI-
Delaware for all periods presented and have been restated to reflect the common
shares issued in the reorganization as though they had been issued on the dates
capital was contributed to CCI-Delaware.
8
Since Kinship was in the development stage at the date of the Acquisition
Agreement and had not commenced planned principal operations, Kinship was not
considered a business, in accordance with EITF 98-3, "Determining Whether a
Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business."
Accordingly, the 1,492,750 common shares that remained outstanding were
accounted for as issued on November 18, 2002 in exchange for the assets and
liabilities of Kinship and were recorded at the fair value of the assets and
liabilities on November 18, 2002. At the date of acquisition, the estimated fair
value of the assets acquired was $32,308 of cash. In addition, CCI-Delaware
incurred $160,000 of liabilities in connection with the transaction. The results
of Kinship's operations have been included in the accompanying financial
statements from November 18, 2002.
Consolidation - The accompanying consolidated financial statements include the
accounts and transactions of CCI-Delaware for all periods presented and the
accounts and transactions of Kinship (now Caribbean Clubs International, Inc.)
from the date of its acquisition. Intercompany accounts and transactions have
been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Business Condition - 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. As shown in the
financial statements for the period from January 11, 2001 (date of inception)
through June 30, 2003, the Company earned only nominal revenue and incurred a
net loss of $1,048,675. The lack of revenue and the loss from operations raise
substantial doubt about the Company's ability to continue as a going concern for
a reasonable period of time. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded assets
or the amount and classification of liabilities which might be necessary should
the Company be unable to continue as a going concern. The Company's continuation
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
as may be required, and ultimately to attain successful operations. The
Company's management intends to raise additional equity capital for operations
and to begin acquiring and operating resort properties in the Caribbean. There
is no assurance additional capital will be obtained.
Cash and Cash Equivalents - Cash and cash equivalents include highly liquid debt
investments with original maturities of three months or less, readily
convertible to known amounts of cash.
Deferred Offering Costs - The Company capitalizes direct costs associated with
the acquisition of equity financing which are netted against the actual equity
proceeds.
Income Taxes - The Company recognizes the amount of income taxes payable or
refundable for the current year and recognizes deferred tax assets and
liabilities for the future tax consequences attributable to differences between
the financial statement amounts of certain assets and liabilities and their
respective tax bases. Deferred tax assets and deferred liabilities are measured
using enacted tax rates expected to apply to taxable income in the years those
temporary differences are expected to be recovered or settled. Deferred tax
assets are reduced by a valuation allowance to the extent that uncertainty
exists as to whether the deferred tax assets will ultimately be realized.
9
Basic and Diluted Loss Per Share - Basic loss per common share is computed by
dividing net loss by the weighted-average number of common shares outstanding
during the period. Diluted loss per share is calculated to give effect to
potentially issuable common shares except during loss periods when those
potentially issuable common shares would increase income or decrease loss per
common share. At June 30, 2003, there were 1,046,580 potentially issuable
shares.
NOTE 2 - NOTE RECEIVABLE
On January 2, 2003, the Company made an investment by purchasing a short tem
corporate note with a face value of $400,000. The note bears interest at 10
percent and is due in full in December 2004. The amount remaining on the note at
June 30, 2003 was $60,000.
NOTE 3 - ISSUANCE OF STOCK
On June 30, 2003, McGinn, Smith & Co., Inc. exercised its right to purchase the
Company's stock at $0.001 per share and purchased 600,000 shares of stock for
$600. A stock subscription receivable reflects the amount owing for the shares
at June 30, 2003.
NOTE 4 - RELATED PARTY TRANSACTION
During the six months ended June 30, 2003, the Company advanced its officer
$11,250. The advance is due on demand and bears no interest.
Item 2. Management's Discussion and Analysis.
Results of Operations.
- ---------------------
The following discussion should be read in conjunction with our Condensed
Consolidated Financial Statements, including the Notes thereto, appearing
elsewhere in this report.
Overview.
- --------
We were incorporated in Utah on February 1, 2000 under the name of Kinship
Communications, Inc. We changed our name to Kinship Systems, Inc on March 2,
2000.
On May 4, 2000, we entered into a product distribution agreement to distribute a
vehicle accident analysis and reconstruction software to municipalities. In
April 2001, we completed an initial public offering of our common stock and
raised gross proceeds of $102,750 in connection with the sale of 102,750 shares
of our common stock. Due to the events of September 11, existing management
believed that municipalities became more focused on homeland security issues,
and became less interested in an accident reconstruction software product.
During the first quarter of 2002, existing management decided to terminate our
efforts to sell the software product, and, pursued various potential merger,
acquisition, or new business opportunities.
10
Effective November 18, 2002, as discussed above, we entered into a share
exchange agreement with Caribbean Clubs International, Inc., a Delaware
corporation. Pursuant to the agreement, all of the shareholders of CCI-Delaware
exchanged their common shares for our common shares on a 1 for 11.8139 ratio
(rounded to whole shares). The transaction was approved by the majority of our
shareholders. As part of that transaction, our then officers and directors
resigned and were replaced by our current officers and directors. We also
changed our name to Caribbean Clubs International, Inc. On November 21, 2002,
CCI-Delaware changed its name to CCI Resort Development Corporation, and is our
wholly owned subsidiary. CCI-Delaware was incorporated in the State of Delaware
on January 11, 2001.
During November 2002, CCI-Delaware completed a private placement of its common
stock pursuant to which it sold 411,000 shares and received $1,133,633 in net
offering proceeds after deducting offering costs of $148,937.
Plan Of Operations.
- ------------------
We are a development stage corporation, and intend to develop a network of
boutique style resort hotels located in the Caribbean. We may acquire an equity
or a leasehold interest in a resort property. In most instances, we expect to
manage properties acquired, and we also may seek to manage other resort
properties pursuant to management agreement wherein we may not maintain an
equity or leasehold interest. Our ability to manage resort properties will be
dependent upon hiring personnel experienced in resort operations. We have
conducted discussions with a resort management team, however, a formal agreement
has not been consummated as this time. Once a property has been acquired or is
under management, we expect to solicit and sell our membership plan to these
properties. We can not project when we will be able to start realizing revenues
from sales of our membership plan, nor can we project the amount of such
revenues from such membership sales, if any.
Our operations to date have included conducting due diligence of a number of
resort properties, negotiating the acquisition or leasehold terms of selected
properties, hiring personnel of our subsidiary to facilitate the sale of
memberships and resort marketing. We expect to acquire an equity or leasehold
interest in our first resort property during 2003.
We will be required to raise additional funds in order to acquire our initial
resort properties. Our cash requirements for the next 12 months are estimated to
be $5,000,000. Of this amount, we have allocated approximately $4,200,000 as the
cash portion to acquire two resorts, $250,000 for membership and resort
marketing, and the balance for our working capital needs. As stated above, we
may acquire equity or leasehold interests in resort properties. Equity interests
11
may be complete or partial ownership. If we acquire complete equity ownership in
a property, we expect to acquire such property through a combination of cash and
seller financing. The amount financed will be paid over time under terms
negotiated by the parties. The amount financed is expected to be subject to
annual interest of rates of between 8 to 12%, which amount will be secured by
the resort property. Presently, we are negotiating the acquisition terms of two
properties, however, the respective parties have not entered into formal
agreements. The amount allocated for membership and resort marketing includes
the initiation of our membership sales campaign and salary to the vice president
of marketing of our subsidiary. The amount allocated for working capital
includes salaries payable to existing personnel, projected salaries to personnel
to manage resort properties, office overhead for our New York office, and
projected professional fees. Presently, other than the vice president of
marketing of our subsidiary (included in the membership and resort marketing
allocation), we employ our president and the president of our subsidiary.
We are seeking to raise funds that will meet our cash requirements described
above. We have entered into an agreement with a broker-dealer to raise the
stated capital on a best efforts basis through the sale of subordinated notes.
We expect to commence the offering during the third quarter of 2003. We cannot
predict whether the offering will be successful in raising the required capital.
If we are unsuccessful in this regard, we may not be able to complete our plan
of operations as discussed above.
For each property acquired, we expect to retain existing employees of the
predecessor owner or landlord. We intend to acquire boutique-style resorts
generally having less than 50 rooms. Consequently, the staff at each resort will
be limited, ranging from 25 to 75 employees. It is conceivable that with respect
to a specific property, we may elect not to manage the property, and instead, we
may seek to contract with independent hotel operators or management companies to
conduct the day to day operations, which would include managing our on-site
staff. Based upon discussions we have had with a number of entities, we believe
independent hotel operators or management companies are available to operate
such resorts, if necessary. In the industry, hotel operators are typically
compensated by receiving 3% to 4% of gross revenues and 8% to 10% of net
revenues, of the managed resort. We would expect these rates to apply to our
properties, if we enter into such an arrangement.
We have no material commitments for capital at this time other than as described
above. In addition, we do not expect to incur research and development costs
within the next 12 months.
Off Balance Sheet Arrangements.
- ------------------------------
We have no off balance sheet arrangements that have or are reasonably likely to
have a current or future material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
12
Disclosure Regarding Forward Looking and Cautionary Statements.
- --------------------------------------------------------------
Forward Looking Statements.
Certain of the statements contained in this Quarterly Report on Form 10-QSB
includes "forward looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-QSB regarding the
Company's financial position, business strategy, and plans and objectives of
management for future operations and capital expenditures, and other matters,
are forward looking statements. These forward-looking statements are based upon
management's expectations of future events. Although we believe the expectations
reflected in such forward looking statements are reasonable, there can be no
assurances that such expectations will prove to be correct. Additional
statements concerning important factors that could cause actual results to
differ materially from our expectations ("Cautionary Statements") are disclosed
in the Cautionary Statements section and elsewhere in our Form 10-KSB for the
period ended December 31, 2002. Readers are urged to refer to the section
entitled "Cautionary Statements" and elsewhere in our Form 10-KSB for a broader
discussion of these statements, risks, and uncertainties. All written and oral
forward looking statements attributable to us or persons acting on our behalf
subsequent to the date of this Form 10-QSB are expressly qualified in their
entirety by the referenced Cautionary Statements.
Item 3. CONTROLS AND PROCEDURES.
(a) We maintain controls and procedures designed to ensure that information
required to be disclosed in the reports that we file or submit 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 controls and
procedures performed within 90 days of the filing date of this report, our chief
executive officer and the principal financial officer concluded that our
disclosure controls and procedures were adequate.
(b) Changes in internal controls. We made no significant changes in our
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.
13
Part II - Other Information
Item 1. Legal Proceedings
None
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
None
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: Caribbean Clubs International, Inc.
Date: August 8, 2003
By:
/s/ Fred W. Jackson, Jr.
Fred W. Jackson, Jr.
President and Chief Financial Officer
14