U. S. Securities and Exchange Commission Washington, D. C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to -------------- --------------- Commission File No. 000-50295 Two Moons Kachinas Corp. ------------------------ (Exact name of Small Business Issuer as specified in its Charter) NEVADA 87-0656515 ------ ---------- (State or Other Jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9005 Cobble Canyon Lane Sandy, Utah 84093 ----------------- (Address of Principal Executive Offices) Issuer's Telephone Number: (801) 942-0555 APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Not applicable. Check whether the Registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: September 30, 2004 660,300 ------- Transitional Small Business Disclosure Format: Yes X No --- --- PART I - FINANCIAL INFORMATION Item 1. Financial Statements. The Financial Statements of the Company required to be filed with this 10-QSB Quarterly Report were prepared by management, and commence on the following page, together with Related Notes. In the opinion of management, the Financial Statements fairly present the financial condition of the Company. TWO MOONS KACHINAS CORP. [A Development Stage Company] UNAUDITED CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 2004 TWO MOONS KACHINAS CORP. [A Development Stage Company] CONTENTS PAGE Unaudited Condensed Balance Sheets, September 30, 2004 and December 31, 2003 2 Unaudited Condensed Statements of Operations, for the three and nine months ended September 30, 2004 and 2003 and for the period from inception on May 19, 2000 through September 30, 2004 3 Unaudited Condensed Statements of Cash Flows, for the nine months ended September 30, 2004 and 2003 and for the period from inception on May 19, 2000 through September 30, 2004 4 Notes to Unaudited Condensed Financial Statements 5 - 9 TWO MOONS KACHINAS CORP. [A Development Stage Company] UNAUDITED CONDENSED BALANCE SHEETS ASSETS September 30, December 31, 2004 2003 ___________ ___________ CURRENT ASSETS: Cash $ 2,974 $ 7,759 Interest receivable 2 1 Inventory 50,500 50,500 Prepaid expenses 333 126 ___________ ___________ Total Current Assets 53,809 58,386 PROPERTY AND EQUIPMENT, net 2,369 3,896 OTHER ASSETS: Website development, net - - ___________ ___________ $ 56,178 $ 62,282 ___________ ___________ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 20,511 $ 9,428 Advances from shareholder 6,653 6,173 ___________ ___________ Total Current Liabilities 27,164 15,601 ___________ ___________ STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued and outstanding - - Common stock, $.001 par value, 50,000,000 shares authorized, 660,300 shares issued and outstanding 660 660 Capital in excess of par value 113,400 113,400 Deficit accumulated during the development stage (85,046) (67,379) ___________ ___________ Total Stockholders' Equity 29,014 46,681 ___________ ___________ $ 56,178 $ 62,282 ___________ ___________ Note: The balance sheet as of December 31, 2003 was taken from the audited financial statements at that date and condensed. The accompanying notes are an integral part of these unaudited condensed financial statements. F-2 TWO MOONS KACHINAS CORP. [A Development Stage Company] UNAUDITED CONDENSED STATEMENTS OF OPERATIONS For the Three For the Nine From Inception Months Ended Months Ended On May 19, September 30, September 30, 2000 Through ________________ _______________ September 30, 2004 2003 2004 2003 2004 ________________ _______________ _____________ REVENUE $ 2,500 $ - $ 2,500 $ - $ 13,376 COST OF GOODS SOLD 2,000 - 2,000 - 9,000 _______ _______ ________ ________ ________ GROSS PROFIT 500 - 500 - 4,376 OPERATING EXPENSES: Selling - - - - 5,144 General and administrative 3,479 16,606 18,185 26,777 85,172 _______ _______ ________ ________ ________ Total Operating Expenses 3,479 16,606 18,185 26,777 90,316 _______ _______ ________ ________ ________ LOSS FROM OPERATIONS (2,979) (16,606) (17,685) (26,777) (85,940) _______ _______ ________ ________ ________ OTHER INCOME: Interest income 7 5 18 36 894 _______ _______ ________ ________ ________ Total Other Income 7 5 18 36 894 _______ _______ ________ ________ ________ LOSS BEFORE INCOME TAXES (2,972) (16,601) (17,667) (26,741) (85,046) CURRENT TAX EXPENSE - - - - - DEFERRED TAX EXPENSE - - - - - _______ _______ ________ ________ ________ NET LOSS $(2,972)$(16,601) $(17,667) $(26,741)$(85,046) _______ _______ ________ ________ ________ LOSS PER COMMON SHARE $ (.00) $ (.03) $ (.03) $ (.05)$ (.15) _______ _______ ________ ________ ________ The accompanying notes are an integral part of these unaudited condensed financial statements. F-3 TWO MOONS KACHINAS CORP. [A Development Stage Company] UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS NET INCREASE (DECREASE) IN CASH For the Nine From Inception Months Ended On May 19, September 30, 2000 Through _____________________ September 30, 2004 2003 2004 __________ __________ __________ Cash Flows from Operating Activities: Net loss $ (17,667)$ (26,741) $ (85,046) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 1,527 1,700 8,335 Non-cash services paid by issuance of stock - 2,500 2,500 Changes in assets and liabilities: (Increase) decrease in interest receivable (1) 6 (2) (Increase) in inventory - - (50,500) (Increase) in prepaid expenses (207) (324) (333) Increase in accounts payable 11,083 15,423 38,136 __________ __________ __________ Net Cash (Used) by Operating Activities (5,265) (7,436) (86,910) __________ __________ __________ Cash Flows from Investing Activities: Purchase of property and equipment - - (10,171) Payments for website development - - (533) __________ __________ __________ Net Cash (Used) by Investing Activities - - (10,704) __________ __________ __________ Cash Flows from Financing Activities: Advances from shareholder 480 697 6,653 Proceeds from issuance of common stock - - 104,800 Payments for stock offering costs - - (10,865) __________ __________ __________ Net Cash Provided by Financing Activities 480 697 100,588 __________ __________ __________ Net Increase (Decrease) in Cash (4,785) (6,739) 2,974 Cash at Beginning of Period 7,759 12,701 - __________ __________ __________ Cash at End of Period $ 2,974 $ 5,962 $ 2,974 __________ __________ __________ Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ - $ - $ - Income taxes $ - $ - $ - Supplemental Schedule of Non-cash Investing and Financing Activities: For the nine months ended September 30, 2004: None For the nine months ended September 30, 2003: In September 2003, the Company issued 70,500 shares of common stock to repay accounts payable of $17,625 and the Company issued 10,000 shares of stock for services valued at $2,500. The accompanying notes are an integral part of these unaudited condensed financial statements. F-4 TWO MOONS KACHINAS CORP. [A Development Stage Company] NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization - Two Moons Kachinas Corp. ("the Company") was organized under the laws of the State of Nevada on May 19, 2000. The Company sells Hopi Kachina Dolls and related artwork. The Company has not yet generated significant revenues from its planned principal operations and is considered a development stage company as defined in Statement of Financial Accounting Standards No. 7. The Company has, at the present time, not paid any dividends and any dividends that may be paid in the future will depend upon the financial requirements of the Company and other relevant factors. Condensed Financial Statements - The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 30, 2004 and 2003 and for the periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2003 audited financial statements. The results of operations for the periods ended September 30, 2004 and 2003 are not necessarily indicative of the operating results for the full year. Cash and Cash Equivalents - The Company considers all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents. Accounts and Loans Receivable - The Company records accounts and loans receivable at the lower of cost or fair value. The Company determines the lower of cost or fair value of nonmortgage loans on an individual asset basis. The Company recognizes interest income on an account receivable based on the stated interest rate for past-due accounts over the period that the account is past-due. The Company recognizes interest income on a loan receivable based on the stated interest rate over the term of the loan. The Company accumulates and defers fees and costs associated with establishing a receivable to be amortized over the estimated life of the related receivable. The Company estimates allowances for doubtful accounts and loan losses based on the aged receivable balance and historical losses. The Company records interest income on delinquent accounts and loans receivable only when payment is received. The Company first applies payments received on delinquent accounts and loans receivable to eliminate the outstanding principal. The Company charges off uncollectible accounts and loans receivable when management estimates no possibility of collecting the related receivable. The Company considers accounts and loans receivable to be past-due or delinquent based on contractual terms. Inventory - Inventory is carried at the lower of cost or market using the specific identification method. At September 30, 2004 and December 31, 2003, respectively, inventory consists of Kachina dolls and related artwork valued at $50,500 and $50,500. The Company has estimated that no allowance for slow moving or obsolete inventory was necessary at September 30, 2004 and December 31, 2003. F-5 TWO MOONS KACHINAS CORP. [A Development Stage Company] NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued] Property and Equipment - Property and equipment are stated at cost. Expenditures for repairs and maintenance are charged to operating expense as incurred. Expenditures for additions and betterments that extend the useful lives of property and equipment are capitalized upon being placed in service. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization is removed from the accounts and any resulting gain or loss is included in operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets of five years. Website Costs - The Company has adopted the provisions of Emerging Issues Task Force 00-2, "Accounting for Web Site Development Costs." Costs incurred in the planning stage of a website are expensed as research and development while costs incurred in the development stage are capitalized and amortized over the life of the asset, estimated to be two years. As of September 30, 2004, the Company has capitalized a total of $533 of website costs. The Company did not incur any planning costs and did not record any research and development costs for the nine months ended September 30, 2004 and 2003. Revenue Recognition - The Company recognizes revenue upon delivery of the product. Revenue derived from sales through art dealers and galleries is recorded net of any commissions to the dealers or galleries. Advertising Costs - Advertising costs, except for costs associated with direct-response advertising, are charged to operations when incurred. The costs of direct-response advertising are capitalized and amortized over the period during which future benefits are expected to be received. During the nine months ended September 30, 2004 and 2003, respectively, advertising costs amounted to $0 and $0. Loss Per Share - The computation of loss per share is based on the weighted average number of shares outstanding during the period presented in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimated. Recently Enacted Accounting Standards - Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities", and SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", were recently issued. SFAS No. 149 and 150 have no current applicability to the Company or their effect on the financial statements would not have been significant. F-6 TWO MOONS KACHINAS CORP. [A Development Stage Company] NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS NOTE 2 - PROPERTY AND EQUIPMENT The following is a summary of property and equipment at cost, less accumulated depreciation at: September 30, December 31, 2004 2003 ___________ ___________ Computer and office equipment $ 10,171 $ 10,171 Less: accumulated depreciation (7,802) (6,275) ___________ ___________ $ 2,369 $ 3,896 ___________ ___________ Depreciation expense for the nine months ended September 30, 2004 and 2003 amounted to $1,527 and $1,522, respectively. NOTE 3 - OTHER ASSETS The following is a summary of other assets at cost, less accumulated amortization at: September 30, December 31, 2004 2003 ___________ ___________ Website development $ 533 $ 533 Less: accumulated amortization (533) (533) ___________ ___________ $ - $ - ___________ ___________ Amortization expense for the nine months ended September 30, 2004 and 2003 amounted to $0 and $178, respectively. NOTE 4 - CAPITAL STOCK Preferred Stock - In March 2004, the Company amended its Articles of Incorporation to authorize 5,000,000 shares of preferred stock, $.001 par value, with such rights, preferences and designations and to be issued in such series as determined by the Board of Directors. No shares are issued and outstanding at September 30, 2004. Common Stock - In May 2000, in connection with its organization, the Company issued 500,000 shares of its previously authorized but unissued common stock. The shares were issued for cash of $25,000 (or $.05 per share). In November 2001, the Company issued 79,800 shares of its previously authorized but unissued common stock. The shares were issued for cash of $79,800 (or $1.00 per share). Stock offering costs of $10,865 were netted against the proceeds. F-7 TWO MOONS KACHINAS CORP. [A Development Stage Company] NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS NOTE 4 - CAPITAL STOCK [Continued] In September 2003, the Company issued 70,500 shares of its previously authorized but unissued common stock to pay for legal services that had previously been accrued as accounts payable of $17,625 (or $.25 per share). In September 2003, the Company issued 10,000 shares of its previously authorized but unissued common stock for services rendered valued at $2,500 (or $.25 per share). NOTE 5 - INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". SFAS No. 109 requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards. The Company has available at September 30, 2004, operating loss carryforwards of approximately $86,000, which may be applied against future taxable income and which expire in various years through 2024. The amount of and ultimate realization of the benefits from the operating loss carryforwards for income tax purposes is dependent, in part, upon the tax laws in effect, the future earnings of the Company, and other future events, the effects of which cannot be determined. Because of the uncertainty surrounding the realization of the loss carryforwards, the Company has established a valuation allowance equal to the tax effect of the loss carryforwards and, therefore, no deferred tax asset has been recognized for the loss carryforwards. The net deferred tax assets are approximately $12,900 and $10,300 as of September 30, 2004 and December 31, 2003, respectively, with an offsetting valuation allowance of the same amount. The change in the valuation allowance during the nine months ended September 30, 2004 is approximately $2,600. NOTE 6 - RELATED PARTY TRANSACTIONS Management Compensation - The Company has not paid any compensation to any officer or director of the Company. Office Space - The Company has not had a need to rent office space. An officer/shareholder of the Company is allowing the Company to use his offices as a mailing address, as needed, at no expense to the Company. Advances from a shareholder - An officer/shareholder of the Company has made advances to the Company and has directly paid expenses on behalf of the Company. At September 30, 2004 and December 31, 2003, respectively, the Company owed the shareholder $6,653 and $6,173. The advances bear no interest and are due on demand. F-8 TWO MOONS KACHINAS CORP. [A Development Stage Company] NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS NOTE 7 - GOING CONCERN The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company was recently formed and has not yet been successful in establishing profitable operations. These factors raise substantial doubt about the ability of the Company to continue as a going concern. In this regard, management is proposing to raise any necessary additional funds not provided by operations through loans or through additional sales of its common stock. There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. NOTE 8 - LOSS PER SHARE The following data shows the amounts used in computing loss per share: For the Three For the Nine From Inception Months Ended Months Ended On May 19, September 30, September 30, 2000 Through ________________ _________________ September 30, 2004 2003 2004 2003 2004 ________________ _________________ __________ Loss from operations available to common shareholders (numerator) $(2,972)$(16,601)$(17,667)$(26,741) $ (85,046) _______ ________ ________ ________ __________ Weighted average number of common shares outstanding for the period (denominator)660,300 586,800 660,300 582,159 571,970 ________ _______ ________ ________ __________ Dilutive loss per share was not presented, as the Company had no common stock equivalent shares for all periods presented that would affect the computation of diluted loss per share. NOTE 9 - CONCENTRATIONS Geographic Region - During the nine months ended September 30, 2004, all of the Company's sales and operations were located in and around Salt Lake City, Utah including all of the Company's inventory and property. F-9 Item 2. Management's Discussion and Analysis or Plan of Operation. Plan of Operation. ------------------ Our plan of operation for the next 12 months is to continue sales of Kachina dolls, both through our own web site and through Internet auction sites and consignment to specialty stores. We have placed photographs of the Kachinas on our web site and may consider putting one or two Kachinas up for auction, with a minimum bid price, on an Internet auction site. We also have arrangements with two retail specialty stores; we attended the Marin County American Indian Arts Show which was held on February 21-23, 2003; and are actively researching the availability of similar events to showcase our products. As we sell Kachinas, we plan to use the proceeds to buy additional Kachinas or jewelry for resale. Our President provides us with rent-free office space, and our management has verbally agreed not to accept any compensation until we are operating profitably. Because of our low overhead, we believe that we can finance our needs for the next 12 months from current resources. We plan to keep our expenses low and to keep our inventory rolling over. Results of Operations --------------------- Three Months ended September 30, 2004 versus September 30, 2003. ---------------------------------------------------------------- We had revenues from operations of $2,500 in the three months ended September 30, 2004, with $2,000 in cost of goods sold for a gross profit of $500. We had $0 revenues from operations in the three months ended September 30, 2003. Our general and administrative expenses for the quarter ended September 30, 2004, were $3,479, and for the quarter ended September 30, 2003, were $16,606, which resulted in a loss from operations of ($2,979) and ($16,606), respectively. We had interest income for the quarter ended September 30, 2004, of $7 and for the quarter ended September 30, 2003, of $5. Our Company's net loss was ($2,972) for the quarter ended September 30, 2004, and ($16,601) for the quarter ended September 30, 2003. Nine Months ended September 30, 2004 versus September 30, 2003. --------------------------------------------------------------- For the nine months ended September 30, 2004, we had revenues from operations of $2,500, with $2,000 in cost of goods sold for a gross profit of $500. We had $0 revenues from operations in the nine months ended September 30, 2003. Our general and administrative expenses for the nine months ended September 30, 2004 and 2003, were $18,185 and $26,777, respectively, which resulted in a loss from operations of ($17,685) and ($26,741), respectively. For the nine months ended September 30, 2004 and 2003, we had interest income of $18 and $36 and a net loss of ($17,667) and ($26,741), respectively. Liquidity --------- We had cash on had at September 30, 2004, of $2,974, which we believe will be sufficient to continue our operations for the next 12 months. In the event we feel we need to raise additional funds not provided by operations, we plan on doing so through loans or through additional sales of our common stock. We also have received advances from an officer as of September 30, 2004, of $6,653. Forward-Looking Statements. --------------------------- Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business of our Company, including, without limitation, (i) our ability to gain a larger share of the Kachina doll industry, our ability to continue to develop products acceptable to the industry, our ability to retain relationships with suppliers, our ability to raise capital, and the growth of the Native American arts and crafts industry, and (ii) statements preceded by, followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets" or similar expressions. Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our Company's control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, in addition to those contained in our Company's reports on file with the Securities and Exchange Commission; general economic or industry conditions, nationally and/or in the communities in which our Company conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, changes in the Native American arts and crafts industry, the development of products and that may be superior to the products and services offered by our Company, demand for Kachina dolls, competition, changes in the quality or composition of our Company's products, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our Company's operations, products, services and prices. Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. Our Company does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements. Item 3. Controls and Procedures. ---------------------------------- As of the end of the period covered by this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our President, of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our President concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic Securities and Exchange Commission reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. In addition, we reviewed our internal controls over financial reporting, and there have been no changes in our internal controls or in other factors in the last fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting. PART II - OTHER INFORMATION Item 1. Legal Proceedings. ---------------------------- None; not applicable. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. ---------------------------------------------------------------------- None; not applicable. Item 3. Defaults Upon Senior Securities. ------------------------------------------ None; not applicable. Item 4. Submission of Matters to a Vote of Security Holders. -------------------------------------------------------------- None; not applicable. Item 5. Other Information. ---------------------------- None; not applicable. Item 6. Exhibits and Reports on Form 8-K. ------------------------------------------- (a) Exhibits. 31.1 302 Certification of David C. Merrell 32 906 Certification (b) Reports on Form 8-K. None. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized. Two Moons Kachinas Corp. Date: 10/29/2004 By /s/ David C. Merrell ----------- ------------------------------------- David C. Merrell President and Director