U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: June 30, 2000
-----------------------
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to _______________
Commission file number __________________________________________
Harmony Trading Corp.
---------------------------------------
(Exact name of small business issuer as
specified in its charter)
New York 13-3935933
--------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
8 Harmony Lane, Hartsdale, New York 10530
----------------------------------------------------------------------
(Address of principal executive offices)
914-686-8255
------------------------------------------
(Issuer's telephone number)
Not Applicable
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: 3,110,000
----------------------
Transitional Small Business Disclosure Format (check one).
Yes |_| No |X|
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of Harmony Trading Corp. (a development stage
company):
I have reviewed the accompanying consolidated balance sheet of Harmony Trading
Corp. (a development stage company): as of June 30, 2000, and the related
consolidated statements of operations and of cash flows for the six month
periods ended June 30, 2000 and 1999. These financial statements are the
responsibility of the Company's management.
I have conducted my review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, I do not express such an opinion.
Based on my review, I are not aware of any material modifications that should be
made to the accompanying consolidated interim financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
I previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1999, and the related
consolidated statements of operations, of changes in shareholders'equity and of
cash flows for the year then ended (not presented herein), and in our report
dated March 17, 2000, I expressed an unqualified opinion on those consolidated
financial statements. In my opinion, the accompanying consolidated balance sheet
information as of December 31, 1999, is fairly stated, in all material respects
in relation to the consolidated balance sheet from which it has been derived.
The accompanying financial statements have been prepared assuming that Harmony
Trading Corp. (a development stage company) will continue as a going concern. As
more fully described in Note 2, the Company has incurred operating losses since
the date of inception and requires additional capital to continue operations.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans as to these matters are described in Note
2. The financial statements do not include any adjustments to reflect the
possible effects on the recoverability and classification of assets or the
amounts and classifications of liabilities that may result from the possible
inability of Harmony Trading Corp. (a development stage company) to continue as
a going concern.
Thomas Monahan Certified Public Accountant
Paterson, New Jersey
August 1, 2000
<PAGE>
HARMONY TRADING CORP.
(A development stage company)
BALANCE SHEET
December 31, June 30,
1999 2000
Unaudited
----------- ---------
Assets
Current assets
Cash and cash equivalents $ 3,182 $ 3,699
------- -------
Current assets $ 3,182 3,699
Property and equipment -0- -0-
Total assets $ 3,182 $ 3,699
======= =======
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $27,000 $31,546
------- -------
Total current liabilities $27,000 31,546
Stockholders' equity
Preferred stock authorized
5,000,000 shares, $0.001 par
value each. At December 31, 1999
and March 31, 2000 there are -0-
and -0- shares outstanding respectively.
Common Stock authorized 20,000,000
shares, $0.001 par value each. At
December 31, 1999 and June 30, 2000,
there are 3,110,000 and 3,110,000 shares
outstanding respectively 3,110 3,110
Additional paid in capital 20,330 20,330
Deficit accumulated during development
stage (47,258) (51,287)
-------- --------
Total stockholders' equity (23,818) (27,847)
-------- --------
Total liabilities and stockholders' equity $ 3,182 $ 3,699
======== ========
See accompanying notes to financial statements.
<PAGE>
HARMONY TRADING CORP.
(A development stage company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the period
For the For the from inception
six months six months August 13, 1996
June 30, 1999 June 30, 2000 to June 30, 2,000
Unaudited Unaudited Unaudited
----------- ----------- -----------
<S> <C> <C> <C>
Revenue $ 6,587 $ 7,610 $ 27,528
Costs of goods sold -0- -0- -0-
----------- ----------- -----------
Gross profit $ 6,587 $ 7,610 $ 27,528
Operations:
General and
administrative 15,435 11,639 79,081
Depreciation and amortization -0- -0- -0-
----------- ----------- -----------
Total expense 15,435 11,639 79,081
Income (loss) from
operations (8,848) (4,029) (51,559)
Other income
Interest income 272
-----------
Total Other Income
Income (loss) $ (8,848) $ (4,029) $ (51,287)
=========== =========== ===========
Net income (loss)
per share - basic (0.01) (0.00) (0.02)
Number of shares
outstanding- basic 1,000,000 3,110,000 3,110,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
HARMONY TRADING CORP.
(A development stage company)
STATEMENT OF OPERATIONS
For the For the
three months three months
June 30, 1999 June 30, 2000
Unaudited Unaudited
----------- -----------
Revenue $ 3,893 $ 1,759
Costs of goods sold -0- -0-
----------- -----------
Gross profit $ 3,893 $ 1,759
Operations:
General and
administrative 10,066 4,309
Depreciation and amortization -0- -0-
----------- -----------
Total expense 10,066 4,309
Income (loss) from
operations (6,173) (2,550)
Total Other Income
Income (loss) $ (6,173) $ (2,550)
=========== ===========
Net income (loss)
per share - basic (0.01) (0.00)
Number of shares
outstanding- basic 1,000,000 3,110,000
=========== ===========
See accompanying notes to financial statements.
<PAGE>
HARMONY TRADING CORP.
(A development stage company)
STATEMENT OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during
Common Common paid in development
Date Stock Stock Capital stage Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1996
balance (1) 2,000,000 $ 2,000 $ 2,000
Net income $ (10,865) $ (10,865)
--------- --------- --------- --------- ---------
December 31, 1997
balance 2,000,000 2,000 $ (10,865) $ (8,865)
Net loss (10,785) (10,785)
--------- --------- --------- --------- ---------
December 31, 1998
balance 2,000,000 2,000 ($ 21,650) (19,650)
Sale of shares 1,010,000 1,010 24,240 25,250
Contribution of services 375 375
Issuance of shares
for legal 100,000 100 2,400 2,500
services
Less offering expenses (6,685) (6,685)
Net Loss (25,608) (25,608)
--------- --------- --------- --------- ---------
December 31, 1999
balance 3,110,000 $ 3,110 $ 20,330 $ (47,258) $ (23,818)
Unaudited
Net loss (4,029) (4,029)
--------- --------- --------- --------- ---------
Balances
June 30, 2000 3,110,000 $ 3,110 $ 20,330 (51,287) $ (27,847)
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
HARMONY TRADING CORP.
(A development stage company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
from inception
June 30, June 30, August 13, 1996
1999 2000 to June 30,
2000
Unaudited Unaudited Unaudited
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (8,848) $ (4,029) $(51,287)
Non cash transaction 4,875
Corporate taxes
Accounts payable and accrued 5,253 4,546 31,546
expenses
-------- -------- --------
TOTAL CASH FLOWS FROM (3,595) 517 (14,866)
OPERATIONS
CASH FLOWS FROM INVESTING
ACTIVITIES -0- -0- -0-
CASH FLOWS FROM FINANCING
ACTIVITIES
Decrease in marketable
securities 4,000
Officer loan payable -0- -0-
Sale of stock net of
offering expenses 18,565
-------- --------
TOTAL CASH FLOWS FROM
FINANCING ACTIVITIES 4,000 18,565
NET INCREASE (DECREASE) IN CASH 405 517 $ 3,699
CASH BALANCE BEGINNING OF PERIOD -0- 3,182 -0-
period -------- -------- --------
CASH BALANCE END OF PERIOD $ 405 $ 3,699 $ 3,699
======== ======== ========
</TABLE>
<PAGE>
HARMONY TRADING CORP.
(A development stage company)
Notes to Financial Statements
June 30, 2000
Note A - Basis of Reporting
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, such statements include all adjustments which are considered
necessary for a fair presentation of the financial position of Harmony Trading
Corp. (the "Company") at June 30, 2000 and the results of its operations, and
cash flows for the nine-month period then ended. The results of operations for
the six-month period ended June 30, 2000 are not necessarily indicative of the
operating results for the full year. It is suggested that these financial
statements be read in conjunction with the financial statements and related
disclosures for the year ended December 31, 1999 included in the Company's Form
10-SB.
Note B - Net Income Per Share of Common Stock
In 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share". Statement No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share exclude any
dilutive effects of options, warrants, and convertible securities. Dilutive
earnings per share is very similar to the previously reported fully diluted
earnings per share. The Company has adopted Statement No. 128.
Note C - Income Taxes
The Company provides for the tax effects of transactions reported in
the financial statements. The provision if any, consists of taxes currently due
plus deferred taxes related primarily to differences between the basis of assets
and liabilities for financial and income tax reporting. The deferred tax assets
and liabilities, if any represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of June 30, 2000, the Company had no
material current tax liability, deferred tax assets, or liabilities to impact on
the Company's financial position because the deferred tax asset related to the
Company's net operating loss carryforward and was fully offset by a valuation
allowance.
At June 30, 2000, the Company has net operating loss carry forwards
for income tax purposes of $51,287. This carryforward is available to offset
future taxable income, if any, and expires in the year 2010. The Company's
utilization of this carryforward against future taxable income may become
subject to an annual limitation due to a cumulative change in ownership of the
Company of more than 50 percent.
<PAGE>
The components of the net deferred tax asset as of June 30, 2000 are as
follows:
Deferred tax asset:
Net operating loss carry forward $ 17,438
Valuation allowance $ (17,438)
---------
Net deferred tax asset $ -0-
=========
The Company recognized no income tax benefit for the loss generated
in the period from inception, August 13, 1996, to June 30, 2000.
SFAS No. 109 requires that a valuation allowance be provided if it
is more likely than not that some portion or all of a deferred tax asset will
not be realized. The Company's ability to realize benefit of its deferred tax
asset will depend on the generation of future taxable income. Because the
Company has yet to recognize significant revenue from the sale of its products,
the Company believes that a full valuation allowance should be provided.
<PAGE>
Management's Discussion and Analysis / Plan of Operation
Harmony was formed on August 13, 1996, under the laws of the State of New
York. We intend to continue to be a direct seller of Doncaster apparel. The
following is our plan of operation for the next twelve months. Although Harmony
was formed in August 1996, we were unable to locate a business to engage in
until Summer 1998, when we discovered the business of direct selling Doncaster
apparel. From Summer 1998 to December 1998, we engaged in compiling a mailing
list to announce the December 1998 holiday line. We commenced operations as a
direct seller of Doncaster in December 1998. Our operations to date have
consisted of preparing for the direct selling of Doncaster by compiling a
mailing list, sending out mailings and the selling of Doncaster through trunk
shows and personal appointments.
We are in the developmental stage and our revenues are based solely on the
commission we receive from the sales of Doncaster apparel. We have also received
money from a limited offering of shares of our common stock in April 1999, which
raised $25,250.
After deducting operating expenses which consist of postage, printing and
miscellaneous office supplies of approximately $1,000 per trunk show, the two
consultants are paid their fees. Since we do not have to pay in advance for any
of the merchandise that we sell, it is not necessary to have large amounts of
cash available.
Doncaster pays us a commission of 25% of the net sales Doncaster receives
from our selling efforts. The commission that Doncaster pays to us is our total
revenue from the sales of the Doncaster apparel. The net sales are the total of
all the sales to the customers minus any returns. Of the money we receive from
Doncaster, Ms. Winley is paid 40% as a commission, from which her share of
expenses is deducted. After certain minimal expenses are charged back to Ms.
Winley, the rest of commission remains with us and is recognized as income.
The proceeds from the limited offering have been and are being used to pay
for our legal and accounting fees in connection with the preparation and filing
of our registration statement on
11
<PAGE>
Form 10-SB which was filed with the Securities and Exchange Commission on July
22, 1999, the preparation and filing of our registration statement on Form SB-2
which was filed with the Securities and Exchange Commission on December 21,
1999, the preparation and filing of our annual report, and the preparation and
filing of our quarterly reports and the year audit for the year ended December
31, 1999.
Doncaster increased its current line of apparel by adding women's sizes
(16W, 18W, 20W, 1X, 2X, etc.), in the Spring 2000 collection. We expect that
with the additional sizes available, our customer base will increase and our
revenues will increase due to the additional sales. We realize adequate revenue
after the payment of the commissions to our independent contractors, to cover
our out-of-pocket costs, and our legal and accounting expenses. In the next
twelve months we intend to:
o continue selling Doncaster apparel;
o increase our client base through mailings and word-of-mouth;
o become a direct seller of a cosmetic skin care product line,
or another product line that compliments but does not compete
with Doncaster.
We do not expect to hire any employees or engage the services of any
additional independent contractors in the next twelve months unless the number
of customers increases to an extent that an additional fashion consultant is
needed. Any additional consultants would be paid a percentage of our
commissions.
Although we would like to generate profits, at this stage, it is unlikely
we will be able to do so, unless our net sales increase. In order to do this,
our sales at Doncaster must increase or we must sell other products in addition
to Doncaster.
Our business for the next twelve months does not include any product
research and development other than investigating the manufacturers of cosmetics
and skin care products that market their merchandise through direct selling. In
order to investigate these manufacturers, we will:
o contact the Direct Selling Association for the names and
addresses of cosmetic manufacturers;
o research magazines and newspapers for advertisements placed by
cosmetic manufacturers;
o use the Internet as a search and research tool on cosmetic
manufacturers.
Once we identify a cosmetic manufacturer that we are interested in, either
Mr. Gottbetter or Mrs. Gottbetter will contact the manufacturer to discuss the
possibility of Harmony becoming a direct seller of the products. We anticipate
that it may take up to six months for us to find a company whose product
interests us.
12
<PAGE>
We do not expect to purchase any plant or significant equipment in
the next twelve months and we do not own any plant or significant equipment to
sell.
We anticipate that we will continue to operate at a loss for the
foreseeable future. Our expenses consist of general and administrative expenses,
legal fees and accounting fees.
We expect that will we be able to satisfy our current cash requirements
for the next twelve months from our revenues, and we do not expect that we will
need to raise additional capital from outside sources. If we do become the
direct seller for a cosmetic and skin care manufacturer, we will be able to use
our existing customer list, and expect our startup costs to be minimal. We do
not expect to incur any extraordinary expenses like office equipment because we
have a new computer which we previously purchased.
Since December 1998, our management had devoted the majority of its
efforts to obtaining new customers for our products, pursuing and finding a
management team to continue the process of completing its marketing goals,
marketing limited quantities of the Doncaster Line, and obtaining sufficient
working capital through loans and equity through a private placement offering.
These activities were funded by our management and investments from
stockholders.
Results of Operations for the six months ended June 30, 2000 as compared to the
six months ended June 30, 1999.
For the six months ended June 30, 2000, the Company generated net sales of
$7,610 as compared to $6,587 for the six months ended June 30, 1999 representing
an increase of $1,023. The Company's cost of goods sold for the six months ended
June 30, 2000 was $-0- as compared to $-0- for the six months ended June 30,,
1999. The Company's gross profit on sales was $7,610 for the six months ended
June 30, 2000 as compared to $1,023 for the six months ended June 30, 1999. The
decrease in gross profit is the result of reduced commission income of the
Doncaster Line in the reorganization of the Company's business.
The Company's general and administrative costs aggregated approximately
$7,330 for the six months ended June 30, 2000 as compared to $10,066 for the six
months ended June 30, 1999 representing an decrease of $2,736. Included in the
$7,330 are $3,008 in commissions, $750 in accrued rent, $1,500 in accrued
salary, and $2,072 in office expenses.
Results of Operations for the period of inception, August 13, 1996 through
June 30, 2000
For the period from our inception, August 13, 1996, through June 30, 2000,
a period of approximately 46 months, we generated net sales of $27,528 (an
average of $600 per month). Our cost of goods sold on sales was approximately $0
for the period from our inception, August 13, 1996, through M June 30, 2000. The
gross profit from sales for this 46 month period is $27,528. Management believes
the gross profit of an average of $600 for the period from inception, August 3,
1996, through June 30, 2000, will improve and stabilize once our marketing plans
become fully implemented.
Harmony's general and administrative costs aggregated approximately
$79,081 for the period from inception, August 13, 1996, through June 30, 2000.
Of these initial startup costs, approximately $31,168 is attributed to telephone
and other office expenses, $8,798 in commissions, $32,115 in salary and $7,000
in rent.
Liquidity and Capital Resources
Harmony increased liquidity by $3,699 from a cash balance at our inception
of $0 through the process of generating gross profits from sales, selling the
marketable securities, loans by our principal shareholders and the completion of
a private placement with net proceeds to Harmony aggregating $18,565.
We gained an aggregate of $517 for operating activities. In April 1999, we
sold under Rule 504 of Regulation D of the Securities Act of 1933, as amended,
an aggregate of 505,000 shares of common stock at $0.05 per share for an
aggregate cash consideration of $25,250 and the sale of 50,000 shares of common
stock in consideration for $2,500 in legal services less $6,685 in offering
expenses. On September 16, 1999, Harmony forward split the number of shares of
common stock outstanding in a ratio of 2 to 1 restating the number of shares
outstanding from 1,555,000 to 3,110,000.
Income Tax
As of June 30, 2000, Harmony had a tax loss carry-forward of $51,287. Our
ability to utilize the tax credit carry-forwards in future years will be subject
to an annual limitation pursuant to the "Change in Ownership Rules" under
Section 382 of the Internal Revenue Code of 1986, as amended. However, any
annual limitations are not expected to have a material adverse effect on our
ability to utilize our tax credit carry-forwards.
We expect our capital requirements to increase over the next several years
as we continue to develop our business, increase sales and administration
infrastructure and embark on developing in-house business capabilities and
facilities. Our future liquidity and capital funding requirements will depend on
numerous factors, including the extent to which our present management can fund
the continued capital requirements, the costs and timing of expansion of sales,
marketing activities, facilities expansion needs, and competition in the
business entered into.
14
<PAGE>
The report of our independent accountants on our December 31, 1999
financial statements contains an explanatory paragraph regarding our ability to
continue as an ongoing business.
<PAGE>
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information.
On December 22, 1999 certain selling shareholders filed a registration
statement on Form SB-2, to register 1,265,000 shares of common stock. The
registration statement was declared effective on May 2, 2000.
Item 6. Exhibits and Reports on Form 8-K
None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HARMONY TRADING CORP.
August 1, 2000 /s/ Paul G. Gottbetter
-----------------------------------------------
Paul G. Gottbetter, President and Chief
Executive Officer, and Chief Financial Officer
