10QSB 1 ravenmoon10qsb063005.txt PERIOD ENDED 06-30-05 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 period ended June 30, 2005 [ ] Transition report under Section 13 Or 15(d) of the Securities Exchange Act of 1934 For the transition period from to -------------- -------------- Commission file number 000-24727 Raven Moon Entertainment, Inc. ---------------------------------------------------- (Exact name of registrant as specified in its charter) Florida 59-348779 ---------------------- ---------------------------------- (State of incorporation) (I.R.S. Employer Identification No.) 120 International Parkway, Suite 220 Heathrow, Florida 32746 -------------------------------------- -------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (407) 304-4764 --------------- Securities registered pursuant to Section 12(g) of the Act: Title of Class: Name of each exchange on which registered: Common Stock, par value $.0001 None Indicate by check mark whether the Registrant (1) 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 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 |_| Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]. The number of shares outstanding of the Registrant's Common Stock as of August 18, 2005 was 15,031,047. Transitional Small Business Disclosure Format: Yes | | No |X| TABLE OF CONTENTS Page Part I FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheet June 30, 2005 unaudited 2 Consolidated Statements of Operations For the six months and three months ended June 30, 2005 and 2004 3 Consolidated Statements of Changes in Deficit in Stockholders' Equity For the six ended June 30, 2005 and 2004 unaudited 4 Consolidated Statements of Cash Flows For the six months and three months ended June 30, 2005 and 2004 unaudited 5 Notes to Consolidated Financial Statements June 30, 2005 and 2004 unaudited 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 21 Item 3. Controls and Procedures, Evaluation of Disclosure Controls and Procedures 23 Part II OTHER INFORMATION Item 1. Legal Proceedings 24 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 24 Item 3. Defaults Upon Senior Securities 24 Item 4. Submission of Matters to a Vote of Security Holders 24 Item 5. Other Information 24 Item 6. Exhibits 25 i
Part I. Item 1. Financial Statements RAVEN MOON ENTERTAINMENT, INC. Consolidated Balance Sheet June 30, 2005 (unaudited) ASSETS Cash and cash equivalents $ 26,442 Other receivables 1,000 ------------ $ 27,442 ============ LIABILITIES AND DEFICIT IN STOCKHOLDERS' EQUITY Accrued expenses payable to officers $ 1,258,622 Accrued expenses 168 Accrued interest payable 33,000 Notes payabe related party 50,000 Notes payable 60,000 Loans from shareholders 62,000 Advance from Class B Members of LLC 197,500 ------------ Total liabilities 1,661,290 COMMITMENTS AND CONTINGENCIES (see note 8) DEFICIT IN STOCKHOLDERS' EQUITY Preferred stock, $.0001 par value, authorized 16,000,000 shares; issued and outstanding 9,734 1 Convertible series B Preferred stock, $.0001 par value, authorized 2,000,000 shares; issued and outstanding 421,000 43 Common stock, $.0001 par value, authorized 5,000,000,000 shares; issued and outstanding 5,444,416 539 Additional paid-in capital 30,081,806 Accumulated deficit (31,716,237) ------------ Total deficit in stockholders' equity (1,633,848) ------------ $ 27,442 ============ See accompanying notes 2
RAVEN MOON ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the six months and three months ended June 30, 2005 and 2004 (unaudited) Six months ended Three months ended June 30, June 30, June 30, June 30, 2005 2004 2005 2004 ----------- ----------- ----------- ----------- REVENUES: Sales of plush toys and CD's $ 666 $ 1,609 $ 653 $ 1,539 COST OF GOOD SOLD 166 402 166 402 ----------- ----------- ----------- ----------- GROSS PROFIT 500 1,207 487 1,137 EXPENSES: Consulting fees 892,810 901,392 620,818 368,115 Production costs 1,947,914 2,858,213 1,372,975 1,206,669 Option rights to intellectual property 840,000 840,000 Interest 3,000 3,000 1,500 1,500 General and administrative expense 908,240 593,057 517,709 334,465 ----------- ----------- ----------- ----------- Total costs and expenses 3,751,964 5,195,662 2,513,002 2,750,749 ----------- ----------- ----------- ----------- Net (loss) before proportionate share of Clubhouse Videos, Inc.'s loss (3,751,464) (5,194,455) (2,512,515) (2,749,612) Proportionate share of Clubhouse Videos, Inc.'s loss -- (29,933) -- -- ----------- ----------- ----------- ----------- Net (loss) $(3,751,464) $(5,224,388) $(2,512,515) $(2,749,612) =========== =========== =========== =========== Net (loss) per share before proportionate share of Clubhouse Videos, Inc.'s loss $ (2.33) $ (44.55) $ (0.97) $ (19.22) =========== =========== =========== =========== Proportionate share of Clubhouse Videos, Inc.'s loss per share $ -- $ (0.26) $ -- $ -- =========== =========== =========== =========== Net (loss) per share $ (2.33) $ (44.81) $ (0.97) $ (19.22) =========== =========== =========== =========== See accompanying notes 3
RAVEN MOON ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT IN STOCKHOLDERS' EQUITY For the six months ended June 30, 2005 and 2004 (unaudited) Preferred Stock ---------------------------- Preferred Stock Series B ---------------------------- ---------------------------- Shares Amount Shares Amount ------------ ------------ ------------ ------------ Balance December 31, 2003 119,695 $ 12 -- $ Preferred stock retired (109,961) (11) -- -- Private placement -- -- 44,000 4 Common stock options granted for expenses -- -- -- -- Common stock options granted to related party -- -- -- -- Shares issued for accounts payable -- -- -- -- Shares issued for expenses -- -- -- -- Shares issued for expenses to related parties -- -- -- -- Exercise of options -- -- -- -- Exercise of options by related party -- -- -- -- Net loss for the period -- -- -- -- ------------ ------------ ------------ ------------ Balance June 30, 2004 9,734 $ 1 44,000 $ 4 ============ ============ ============ ============ Balance December 31, 2004 9,734 $ 1 421,500 $ 42 Private Placement -- -- 15,500 2 Private Placement to related parties -- -- 7,500 1 Preferred stock converted to common stock -- -- (23,500) (2) Common stock options granted for -- -- -- -- Shares issued for expenses -- -- -- -- Shares issued for expenses to related parties -- -- -- -- Exercise of options -- -- -- -- Net loss for the period -- -- -- -- ------------ ------------ ------------ ------------ Balance June 30., 2005 9,734 $ 1 421,000 $ 43 ============ ============ ============ ============ 4
RAVEN MOON ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT IN STOCKHOLDERS' EQUITY For the six months ended June 30, 2005 and 2004 (unaudited) (Continued) Common Stock Additional --------------------------- paid-in Accumulated Shares Amount capital deficit Total ------------ ------------ ------------ ------------ ------------ Balance December 31, 2003 62,288 $ 6 $ 16,908,097 $(17,321,354) $ (413,239) Preferred stock retired -- -- -- -- -- Private placement -- -- 439,996 -- 440,000 Common stock options granted for expenses -- -- 872,494 -- 872,494 Common stock options granted to related party -- -- --573,008 -- 573,008 Shares issued for accounts payable 1,816 1 82,203 -- 82,204 Shares issued for expenses 23,422 2 464,187 -- 464,189 Shares issued for expenses to related parties 32,400 3 670,799 -- 670,802 Exercise of options 30,481 3 816,657 -- 816,660 Exercise of options by related party 19,244 2 458,068 -- 458,070 Net loss for the period -- -- -- (5,224,388) (5,224,388) ------------ ------------ ------------ ------------ ------------ Balance June 30, 2004 169,651 $ 17 $ 21,285,520 $(22,545,742) $ (1,260,200) ============ ============ ============ ============ ============ Balance December 31, 2004 387,538 $ 39 $ 27,073,128 $(27,964,773) $ (891,563) Private Placement -- -- 154,998 -- 155,000 Private Placement to related parties -- -- 74,999 -- 75,000 Preferred stock converted to common stock 979,166 98 (96) -- 0 Common stock options granted for -- -- 9,367 -- 9,367 Shares issued for expenses 2,350,618 235 1,738,926 -- 1,739,161 Shares issued for expenses to related parties 1,718,511 166 1,020,147 -- 1,020,313 Exercise of options 8,583 1 10,337 -- 10,338 Net loss for the period -- -- -- (3,751,464) (3,751,464) ------------ ------------ ------------ ------------ ------------ Balance June 30., 2005 5,444,416 $ 539 $ 30,081,806 $(31,716,237) $ (1,633,848) ============ ============ ============ ============ ============ See accompanying notes 4 (Continued)
RAVEN MOON ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months and the three months ended June 30, 2005 and 2004 (unaudited) Six months ended Three months ended -------------------------- -------------------------- June 30, June 30, June 30, June 30, 2005 2004 2005 2004 ----------- ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) (3,751,464) $(5,224,388) (2,512,515) $(2,749,612) Adjustments to reconcile net loss to net cash used by operating activities: Decrease in receivables from related party 14,000 -- 14,000 -- Decrease in receivables from third party 8,200 -- 8,200 -- Increase (decrease) in accounts payable to third parties 168 (29,500) 168 -- Increase in accrued wages and salaries to officers 712,218 706,579 388,580 811,237 Increase in accrued interest to officers and related parties 3,000 3,000 1,500 1,500 Common stock options granted for expenses 9,367 872,494 -- -- Common stock options granted for expenses to related parties -- 573,008 -- -- Shares issued for expenses 1,739,161 464,189 1,282,595 457,689 Shares issued for expenses to related parties 1,020,313 670,802 776,042 670,802 ----------- ----------- ----------- ----------- Net cash (used) by operations (245,037) (1,963,816) (41,430) (808,384) ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sales of Class B Memberships -- 230,000 -- 230,000 Proceeds from private placement 230,000 440,000 -- 440,000 Proceeds from exercise of options 10,338 1,274,730 -- -- Notes payable officers 12,500 -- 50,000 -- ----------- ----------- ----------- ----------- Net cash provided by financing activities 252,838 1,944,730 50,000 670,000 ----------- ----------- ----------- ----------- Net increase (decrease) in cash 7,801 (19,086) 8,570 (138,384) Cash and cash equivalents at beginning of period 18,641 77,961 17,872 197,259 ----------- ----------- ----------- ----------- Cash and cash equivalents at end of period $ 26,442 $ 58,875 $ 26,442 $ 58,875 =========== =========== =========== =========== NON CASH FINANCING ACTIVITIES ------------------------------ Shares issued for accounts payable $ -- $ 82,204 $ -- $ -- =========== =========== =========== =========== See accompanying notes 5
RAVEN MOON ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004 (unaudited) Note 1 -- DESCRIPTION OF THE COMPANY Raven Moon Entertainment, Inc. and its wholly owned subsidiaries are primarily engaged in the production and development of Family Values television programs that convey good morals and positive attitudes to children. The market for these products is worldwide, although the Company will devote most of its efforts within the continental United States. Note 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial statements include the accounts of Raven Moon Entertainment, Inc. and its wholly owned subsidiaries JB Toys, LLC, Raven Animation, Inc. and Raven Moon Sales, Inc. (the Company). JB Toys, LLC will cease to exist on December 5, 2012. Inter-company transactions and balances have been eliminated in consolidation. REVENUE RECOGNITION -- Revenue from distribution of plush toys and CD's are recognized upon receipt of payment or delivery of product, which does not vary significantly from the time the products are shipped. Revenue from the distribution of videos is recognized as earned under the criteria established by SOP 00-2. The Company's revenue cycle is generally one to three years, with the expectation that substantially all revenue will be recognized in the first two years of individual videos. In accordance with SOP 00-2, the Company considers revenue earned when all of the following have occurred: o The Company has a valid sale or licensing agreement in place. o The video is complete and in accordance with the agreement with the customer. o The video has been delivered or is deliverable. o The license period has begun. o The revenue is fixed or determinable and collection is reasonably assured. PRODUCTION COSTS -- Production costs includes costs to develop and produce video entertainment products. These costs were paid primarily to companies and individuals hired to perform a specific task. The Company out-sources these activities in order to reduce overhead costs. Production costs are amortized by the ratio of current year's revenue bear to management's estimated ultimate revenue. Because the Company cannot demonstrate through its experience the ultimate revenue from the video entertainment products, it has elected to expense all production costs. STOCK FOR COMPENSATION -- The Company accounts for the issuance of common or preferred stock for goods and services at the fair market value of the goods or services provided or the fair market value of the common or preferred stock issued, whichever is more reliably determined. 6 RAVEN MOON ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004 (unaudited) Note 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) UNCLASSIFIED BALANCE SHEET -- In accordance with the provisions of SOP 00-2, the Company has elected to present an unclassified balance sheet. INTELLECTUAL PROPERTY -- Intellectual property is recorded at the lower of cost or net realizable value. The Company performs an impairment test of intellectual property quarterly. SFAS 142 requires the Company to compare the fair value of the intellectual property to its carrying amount to determine if there is potential impairment. If the carrying amount of the intellectual property exceeds its fair value, an impairment loss is recognized. Fair values for intellectual property are determined based on discounted cash flows, market multiples or appraised values as appropriate. Because the Company cannot demonstrate through its experience the ultimate revenue from intellectual property it has elected to expense all costs associated with intellectual property. MANAGEMENT ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. STOCK-BASED COMPENSATION -- The Company accounts for stock options issued to employees under Statement of Financial Accounting Standards 123, wherein such options are valued based upon the Black-Scholes option-pricing model. CASH EQUIVALENTS -- The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. NET (LOSS) INCOME PER SHARE -- Primary earnings-per-share computations are based on the weighted average number of shares outstanding during the period. On October 19, 2004, the Board of Directors amended the Articles of Incorporation to give full voting rights to all preferred shareholders. The weighted average number of shares outstanding was 1,609,250 and 116,600 for the six months ended June 30, 2005 and 2004, respectively. The weighted average number of shares outstanding was 2,582,710 and 143,040 for the three months ended June 30, 2005 and 2004, respectively. INCOME TAXES -- The Company has incurred approximately $31,700,000 of net operating losses which may be carried forward and used to reduce taxable income in future years. Deferred tax assets created by the net operating losses are offset by an equal valuation allowance. INVESTMENTS IN COMMON STOCK -- The investment in Clubhouse Videos, Inc. is approximately 7% of the outstanding common stock, but because the Company can significantly influence the operating and financial policies of Clubhouse Videos, Inc. the Company accounts for their investment under the equity method. 7 RAVEN MOON ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004 (unaudited) Note 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) RECLASSIFICATIONS -- Certain amounts reported in previous years have been reclassified to the 2005 financial statement presentation. CREDIT RISKS -- Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents. The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. It has not experienced any losses in such accounts. The Company believes that it is not exposed to any significant credit risk on cash and cash equivalents. STOCK SPLITS -- The Company adopted a 1000 to 1 reverse stock split on July 15, 2005 for common stock. All applicable share and per-share data in these consolidated financial statements have been restated to give effect to these stock splits. Note 3 -- BUSINESS AND OPERATIONS The Company is currently working to establish the following lines of business: Home Video and Television Productions Internet Retail Sales Music CDs Plush Toys These financial statements are prepared on a going concern basis that assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business. Accordingly, it does not give effect to adjustments, if any, that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize assets and liquidate its liabilities, contingent obligations and commitments in other than the normal course of business and the amounts which may be different from those shown in these financial statements. The ability to continue as a going concern is dependent on its ability to: Obtain additional debt and equity financing. Generate profitable operations in the future. The Company has initiated several actions to generate working capital and improve operating performances, including equity and debt financing and cost reduction measures. There can be no assurance that the Company will be able to successfully implement its plan, or if successfully implemented the Company will achieve its goals. Furthermore, if the Company is unable to raise additional funds it may be required to reduce its workforce, reduce compensation levels, reduce dependency on outside consultants, modify its growth and operating plans, and even be forced to terminate operations completely. 8 RAVEN MOON ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004 (unaudited) Note 4 -- INVESTMENT IN CLUBHOUSE VIDEOS, INC. At December 31, 2003, the Company had purchased a total of 36.8 units of Raven Moon Home Video Products, LLC for $368,000. These purchases were converted into common stock of Clubhouse Video, Inc. as a result of the spin-off of the former wholly owned subsidiary. Also, the Company has loaned Clubhouse Videos, Inc. approximately $82,000 since 2003. The investment in Clubhouse Videos, Inc. and the loan have been written-off as the Company's proportionate share of Clubhouse Videos, Inc.'s loss. The following is a schedule of ownership for the six months ended June 30, 2005 and 2004: 2005 2004 ---- ---- Percent of Ownership 7.0% 13.5% Proportionate share of Clubhouse Videos, Inc.'s loss $ - ($ 17,579) Carrying value of Investment in Clubhouse Videos, Inc. $ - $ - Underlying equity in net assets of Clubhouse Videos, Inc. $ - $ - Following is summarized information about Clubhouse Videos, Inc. assets, liabilities and results of operations as of June 30, 2005 and 2004: 2005 2004 ---- ---- Assets $ 1,000 $ 141,372 Liabilities $ 911,000 $ 984,503 Results of operations (loss) $ (57,000) $( 64,579) At June 30, 2005, Clubhouse Videos, Inc. has 115,000 shares of Preferred Stock Series A outstanding. The conversion premium for these shares is 125%. Conversion is based upon the amount invested ($115,000) divided by the average close price for the first 29 days of trading, then adjusted by the premium. Conversion is automatic on the thirtieth day of trading. The effect of this conversion cannot be determined at this time. 9 RAVEN MOON ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004 (unaudited) Note 5 -- DEBT Debt for the company consists of the following: Notes payable to third parties bear interest at 10% annually. These are demand notes, and are unsecured. Loans from shareholders are non-interest bearing, but the shareholders received additional shares of preferred stock and common stock in 2000 and are also entitled to gross revenue royalty fees of the gross revenue of the Company for ten years. The royalties range from .0125% to .5% of gross revenues. No royalties were earned in 2005 and 2004. There are two types of Class B units: 1) The cash investments for Class B members of LLC are non-interest bearing loans. The members are entitled to receive all distributions from gross profits of the LLC until the members have received an amount equal to their initial cash investment. Once the Class B members, who invested cash have been repaid, the Class B members are entitled to annually receive 85% of all gross profits of the LLC derived from the sale of products. The Company has received $275,000 of cash investments from Class B members and has repaid $77,500 as of June 30, 2005. 2) The members who exchange services or rights to intellectual property for Class B units are not entitled to receive any distributions from gross profits of the LLC until the members who invested cash have received an amount equal to their initial investment. Once the Class B members, who invested cash have been repaid, the Class B members are entitled to receive 85% of all gross profits of the LLC derived from the sale of product on an annual basis. As of June 30, 2005, the Company has exchanged 100 units to WEE-OOO, LTD, a related party, for a ten year extension of the option agreement for the rights to Gina D's, 50 units to Mike Gibilisco for the rights to the BoBo Blocks, 200 units to Bernadette DiFrancesco, a related party, for the rights to the Cuddle Bugs, 7.50 units to members of the Board of Directors for services provided in 2002, 2003 and 2004, and 15 units to Joseph and Bernadette DiFrancesco for a 10 year license for Mr. Bicycle Man. The Class B members have no voting rights. The cash advances from Class B members who contributed cash have been recorded as a liability because all advances must be repaid prior to any distributions to the parent company. 10 RAVEN MOON ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004 (unaudited) Note 6 - Common Stock The Company has amended its Articles of Incorporation to decrease the number of authorized shares of Common Stock from 20,000,000,000 to 5,000,000,000 shares. With respect to the Amendment, the Board of Directors of the Company has approved, and the shareholders owning a majority of the issued and outstanding voting shares outstanding as of June 13, 2005, have consented in writing to the Amendment. Such approval and consent are sufficient under Section 607.0704 of the Florida Business Corporation Act and the Company's Bylaws to approve the Amendments. The Amendment was effective on or about August 2, 2005. Note 7 -- RELATED PARTY TRANSACTIONS The Company is affiliated through ownership of shares of the Company's common stock by the following companies: J. & B. DiFrancesco, Inc. WEE-OOO, LTD. Beyond the Kingdom, Inc. T.V. Toys, Inc. 2221 Music Clubhouse Videos, Inc. The Company has incurred aggregate consulting, production, marketing and management fees with officers, directors and other related parties for the six months ended June 30, 2005 and 2004: 2005 2004 ---- ---- $1,218,886 $2,509,808 ========== =========== The Company paid Gina Mouery, who is the hostess for the "Gina D's Kids Club Show" and the daughter of Joseph DiFrancesco, President and Chief Executive Officer of the Company, $12,000 as an advance on future royalties for the six months ended June 30, 2005 and 2004, respectively. The advance on future royalties - related party was charged to production expense because the Company cannot demonstrate through its experience the ultimate revenue from the video entertainment products. The Company agreed to pay or reimburse Ms. Mouery $752 a month for a leased car. The Company paid approximately $4,400 for the six months ended June 30, 2005 and 2004, respectively. This reimbursement is included in the general and administrative expenses. On May 1, 2004, Gina Mouery entered into a ten-month consulting agreement with JB Toys, LLC and Raven Animation, Inc. Ms. Mouery is to assist the Company as a Co-executive Producers and Promotional Celebrity Talent for promotion and production of the Company's products and services. Ms. Mouery will be paid 11 RAVEN MOON ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004 (unaudited) Note 7 -- RELATED PARTY TRANSACTIONS (continued) $1,000,000 of registered shares of common stock in ten equal installments priced at a 50% discount from the closing bid price for the preceding ten days. On February 4, 2005, the Board of Directors amended the agreement with Gina Mouery. The Board granted a three-month extension and shall pay Gina Mouery $80,000 for the three-month period. The payments were made with registered shares of common stock at a 33% discount from the closing bid price. During the six months ended June 30, 2005, Gina Mouery was not granted options. During the six months ended June 30, 2004, Gina Mouery was granted options for 19,224,133 shares of common stock for talent fees. The fair value of these options at June 30, 2004, was $573,008 and was charged to production expense because the Company cannot demonstrate through its experience the ultimate revenue from the video entertainment products. During the six months ended June 30, 2004, Gina Mouery exercised 19,224,113 options for $458,070. During the six months ended June 30, 2005, Gina Mouery was granted 1,469,700 shares of common stock for talent fees. The fair value of these shares of common stock was $884,112. During the six months ended June 30, 2004, Gina Mouery was granted 20,361 shares of common stock. The fair value of these shares of common stock was $436,000. The fair value of the common stock was charged to production expense because the Company cannot demonstrate through its experience the ultimate revenue from the video entertainment products. On April 11, 2001, the Company entered into an agreement with Joseph and Bernadette DiFrancesco in exchange for a one year exclusive option to the program, certain cartoon characters and music publishing rights related to songs written and used in "Gina D's Kids Club Show", ("Gina D's") which were created by Joseph and Bernadette DiFrancesco, in exchange for 1,200 shares of common stock. The Company was not able to meet its requirements under the option agreement, and the option expired April 11, 2002. On May 17, 2002, the Company made an addendum to the expired Option Agreement, in exchange for $100,000 note payable to Joseph and Bernadette DiFrancesco and a non-refundable grant of 800 shares of common stock, valued at $390,000, and provided that the terms, conditions and payment due in the Agreement dated April 11, 2001, are met and fulfilled by April 11, 2003, the option agreement granted to the Company on April 11, 2001, shall be in force for a period of twenty (20) years. Because the Company cannot demonstrate through its experience the ultimate revenue from the video entertainment products it has elected to charge option rights to intellectual properties $490,000 during 2002. 12 RAVEN MOON ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004 (unaudited) Note 7 -- RELATED PARTY TRANSACTIONS (continued) On March 4, 2004, the Board of Directors approved extending the option agreement which expires April 11, 2004, with Joseph and Bernadette DiFrancesco, for rights to " Gina D's". The extension is for a ten-year period without restrictions or requirements, except for bankruptcy, insolvency or takeover of the Company by a person or entity not approved by the CEO. As part of extending the option agreement on April 10, 2004, Joseph and Bernadette DiFrancesco received 100 units of JB Toys, LLC. These units were issued to WEE-OOO, LTD, a limited partnership owned by Joseph and Bernadette DiFrancesco. (See Note 5.) Also, Joseph and Bernadette DiFrancesco received 10,000 restricted shares of Raven Moon Entertainment, Inc. common stock. Joseph and Bernadette DiFrancesco shall also receive a fee of $750,000 per year for ten years beginning in January 2004, or 10% of all gross revenues from worldwide licensing and merchandising revenues received by Raven Moon Entertainment, Inc. or JB Toys, LLC, whichever is greater. The shares of stock were valued at $195,000, and charged to intellectual property expense. On June 1, 2004, the agreement with Joseph and Bernadette DiFrancesco for the rights to "Gina D's" was further amended. If the Company grants a license to any third party for "Gina D's", the Company will pay Joseph and Bernadette DiFrancesco 50% of any revenues derived from the license. On June 1, 2004, the Company, through its subsidiary JB Toys, LLC, agreed to pay Joseph and Bernadette DiFrancesco $100,000 and 15 units of Class B memberships of JB Toys for the rights to Mr. Bicycle Man. (See Note 5.) The $100,000 was charged to option rights to intellectual property for the year ended December 31, 2004, because the Company cannot demonstrate through its experience the ultimate revenue from the video entertainment products. In addition, Joseph and Bernadette DiFrancesco are to receive 15% of the revenues of JB Toys, LLC for a ten-year period. Also, if JB Toys grants a license to any third party for Mr. Bicycle Man, the Company will pay Joseph and Bernadette DiFrancesco 50% of any revenues derived from the license. On June 1, 2004, the Company, through its subsidiary JB Toys, LLC, agreed to pay Joseph and Bernadette DiFrancesco $250,000 and 10,000 shares of common restricted stock of the Company for the rights to "The Search for the Amazon Queen." The fair value of the common stock was $195,000, which was charged to option rights to intellectual property for the year ended December 31, 2004, because the Company cannot demonstrate through its experience the ultimate revenue from the video entertainment products. In addition, Joseph and Bernadette DiFrancesco are to receive $100,000 per year beginning year two through year ten plus 25% of gross revenue derived by JB Toys for "The Search for the Amazon Queen". Also, if JB Toys grants a license to any third party for "The Search for the Amazon Queen," the Company will pay Joseph and Bernadette DiFrancesco 50% of any revenues derived from the license. 13 RAVEN MOON ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004 (unaudited) Note 7 -- RELATED PARTY TRANSACTIONS (continued) Joseph and Bernadette DiFrancesco were granted 7,818 shares of common stock during the six months ended June 30, 2005. The fair value of these shares was $11,688. During the six months ended June 30, 2004, Joseph and Bernadette DiFrancesco were not granted any shares of common stock. The fair value was charged to consulting fees because the Company cannot demonstrate through its experience the ultimate revenue from the video entertainment products. Joseph and Bernadette DiFrancesco were granted 320,000 shares of convertible preferred stock during the year ended December 31, 2004, the stock was granted to TV Toys, Inc. The fair value of these shares was $3,200,000 and the fair value was charged to consulting fees because the Company cannot demonstrate through its experience the ultimate revenue from the video entertainment products. On May 31, 2005, TV Toys, Inc converted 22,000 shares of convertible preferred stock and received 979,166 shares of restricted common stock. On April 14, 2005, the Company, through its subsidiary JB Toys, LLC, agreed to pay Bernadette DiFrancesco $100,000 per year for ten years and 3.75 units of Class B memberships of JB Toys, LLC for the rights to the "Dino Bugs." In addition Bernadette DiFrancesco is to receive 10% of all gross revenue derived by JB Toys, LLC for the "Dino Bugs." On May 1, 2004, David Mouery entered into a twelve month consulting agreement with JB Toys, LLC and Raven Animation, Inc. Mr. Mouery is to assist the Company as entertainment attorney for legal matters and contracts for the Company's products and services. Mr. Mouery will be paid $120,000 of registered shares in twelve equal installments of common stock priced at a 50% discount from the closing bid price for the preceding ten days. During the six months ended June 30, 2005 and 2004, David Mouery was not granted any options. During the six months ended June 30, 2005, David Mouery was granted 237,273 shares of common stock with a fair value of $128,464. During the six months ended June 30, 2004 David Mouery was granted 2,039 shares of common stock with a fair value of $39,762. The fair value of the common stock was charged to consulting expense because the Company cannot demonstrate through its experience the ultimate revenue from the video entertainment products. The directors were granted the following common stock options for a ten-year term: Date Common Stock Options Exercise Price per Share ---- -------------------- ------------------------ November 29, 2002 2,000 $ 130.00 These options were valued at $170,000 and charged to general and administrative expense. 14 RAVEN MOON ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004 (unaudited) Note 7 -- RELATED PARTY TRANSACTIONS (continued) The outside Board of Directors were granted 3,700 and 500 shares of common stock during the six months ended June 30, 2005 and 2004, respectively. The fair value of these shares was $3,848 and $22,750 for the six months ended June 30, 2005 and 2004, respectively. Also, the outside Board of Directors were paid $42,000 for directors fees for the six months ended June 30, 2005. The fair value of the common stock granted and director fees paid were charged to consulting fees for the six months ended June 30, 2005 and 2004. During the six months ended June 30, 2005 and 2004, loans from officers, directors, senior management and related parties are summarized as follows: 2005 2004 ---- ---- Balance at beginning of year $ 37,500 $ - Increase in loans 50,000 - Payments on loans (37,500) - -------- -------- Balance at end of period $ 50,000 $ - ======== ======== On June 1, 2004, the Company and the four songwriters (two of the songwriters are Joseph and Bernadette DiFrancesco) with 2221 Music amended their agreement. The amendment calls for each songwriter to receive 2,500 shares of common stock by September 1, 2004, and to receive $2,500 per month from September 1, 2004 through October 31, 2005. During the six months ended June 30, 2005, Raven Moon paid $70,000 to 2221 Music. The payments were charged to general and administrative expenses because the Company cannot demonstrate through its experience the ultimate revenue from the video entertainment products. On August 12, 2004, the Board of Directors granted Joseph and Bernadette DiFrancesco, the officers of the Company, a bonus of 10,000 shares of common restricted non-diluting stock to be delivered on September 1, 2004, and then each year on the first day of September for the next two years as an extension of their employment agreement. These shares were valued at $130,000 and were charged to consulting fees for the years ended December 31, 2004. Following is a schedule that summarizes the activity in accruals and payments related to Joseph and Bernadette DiFrancesco, the officers of the Company, for the six months ended June 30, 2005 and 2004: 2005 2004 ---- ---- Beginning balance $ 546,404 $ 251,697 Accrued for administrative salary 358,318 298,598 Accrued production fee 475,000 920,000 Payments to Officers (121,100) (512,020) ---------- ---------- Ending balance $1,258,622 $ 958,275 ========== ========== 15 RAVEN MOON ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004 (unaudited) Note 8 -- COMMITMENTS AND CONTINGENCIES The Company has entered into an employment contract with the officers, Joseph and Bernadette DiFrancesco. On October 19, 2004, the Board of Directors extended Joseph and Bernadette DiFrancesco's contract an additional seven years after the current contract expires in exchange for a signing bonus of non-diluting preferred shares. The preferred shares shall be convertible to common stock at a 20% discount to market based upon the previous 10 day average and will carry non-diluting rights equivalent to 40% of the common shares issued and outstanding as long as the shares are held by Joseph and Bernadette DiFrancesco or their assigns. Under the terms of the agreement, the Company is obligated to make the following annual payments through November 15, 2012: 2005 $ 734,552 2006 $ 881,462 2007 $1,057,775 2008 $1,269,306 2009 $1,523,167 2010 $1,827,800 2011 $2,193,360 2012 $2,632,032 In addition, the officers are to receive a "Founders" royalty of 10% for any entertainment revenue received by the Company for any entertainment project developed and or produced by the Company during the term of this agreement. This royalty will be paid between November 16th and December 31st in perpetuity. The Company has entered into various month-to-month verbal agreements with unrelated third parties to provide production, marketing and administrative services. Payments are made based on invoices rendered for specific services provided. On May 1, 2004, the Company entered into two consulting agreements. These agreements require the individuals to provide executive assistants advice and production services to the Company for a ten-month period. The individuals are to be paid $500,000 each. The payments will be made with registered trading shares of common stock issued in ten equal installments at a 50% discount from the closing bid price for the preceding ten days, commencing on May 1, 2004, and every month thereafter for nine months. On October 4, 2004, the Board of Directors amended these agreements increasing the compensation for November, December 2004, and January 2005 to $100,000 per month for each consulting agreement. On February 4, 2005, the Board of Directors amended these consulting agreements. The Company granted a three month extension and shall pay the consultants $100,000 each for the three-month period. The payment will be made with shares of registered common stock at a 33% discount from the closing bid price. 16 RAVEN MOON ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004 (unaudited) Note 8 -- COMMITMENTS AND CONTINGENCIES (continued) On February 4, 2005, the Board of Directors approved the following: o Three-month consulting agreement. This agreement requires the individual to provide executive assistants advice to the Company for three months. The individual is to be paid $189,000 for the three-month period. The payments will be registered common shares issued in three equal installments of common stock at a 33% discount from the closing bid price for the day prior to issuing the shares. o Three-month consulting agreement. This agreement requires Big Apple Consulting U.S.A., Inc. (Big Apple) to market and promote the Company to brokers and other investors. Big Apple is to be paid $120,000 for the three-month period. The payments will be registered common shares issued in three equal installments of common stock at a 33% discount from the closing bid price for the day prior to issuing the shares. On August 12, 2004, the Board of Directors approved a new consultant compensation plan for 90,000 registered shares of common stock for key consultants currently under contract and new consultants that may be hired in the future. The Company has amended the consultant compensation plan and has issued the following common stock under the terms of this plan: Date Shares of Common Stock August 20, 2004 20,000 September 9, 2004 20,000 October 15, 2004 30,000 November 15, 2004 33,000 December 10, 2004 49,000 January 14, 2005 95,000 February 7, 2005 196,000 March 4, 2005 287,000 March 28, 2005 287,000 April 11, 2005 1,375,650 May 31, 2005 3,091,800 August 11, 2005 12,500,000 Note 9 -- STOCK OPTION PLAN The Company established a stock option plan for its executives, consultants, key employees, directors and its affiliates. (The "2001 Stock Option Plan".) The 2001 Stock Option Plan allows for incentive stock options to be granted to future participants at a price not less than 100% of the market value per share on the date of the grant. No options have been granted to employees under this plan. 17 RAVEN MOON ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004 (unaudited) Note 9 -- STOCK OPTION PLAN (continued) Non-statutory options are granted at prices and terms determined by the board of directors. The following is a summary of options, granted, exercised, and outstanding: Weighted Average Shares Exercise Price ------ -------------- Outstanding at December 31, 2003 2,000 $125.00 Granted 49,704 $ 29.10 Exercised 49,704 $ 25.50 ------ Outstanding at December 31, 2004 2,000 $125.00 Granted 8,583 $ 1.20 Exercised 8,583 $ 1.20 ------ Outstanding at June 30, 2005 2,000 $125.00 ====== The exercise price and the market value for common stock options granted in 2005 and 2004 is as follows: Options granted Exercise Price Fair Market Value --------------- -------------- ----------------- 2005 ---- 8,583 $1.20 $ 2.20 2004 ---- 7,384 1/2 of previous 10 days average price $ 40.00 12,480 1/2 of previous 10 days average price $ 50.00 19,894 1/2 of previous 10 days average price $ 60.00 8,044 1/2 of previous 10 days average price $ 70.00 1,903 1/2 of previous 10 days average price $ 80.00 18 RAVEN MOON ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004 (unaudited) Note 9 -- STOCK OPTION PLAN (continued) The weighted average fair value of options granted during 2005 and 2004 is $1.10 and $29.10, respectively. The weighted-average remaining life of options granted is 7.42 and 8.42 years at June 30, 2005 and 2004, respectively. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2005 and 2004: Risk free interest rate of 3.0%, a dividend yield of zero and a volatility factor of .50, respectively. NOTE 10-- PRIVATE PLACEMENT OFFERING The Company has plans to raise $5,000,000 in a private placement offering to be used for working capital. The Company is offering units that consist of one share convertible Series B Preferred Stock and a warrant to purchase one-tenth of a share of common stock at a price of $10.00 per unit. The minimum purchase is $10,000. The conversion right may be exercised at any time by the holder of the shares, but shall occur automatically at the Company's discretion at any time after a registration statement to register the shares of common stock underlying both the preferred share and the warrant. Each preferred share shall convert to $10.00 in value of common stock. The value of the common stock will be based upon the average closing price of the Company's common stock for each of the ten consecutive trading days prior to the date of conversion, less a 20% discount. The preferred shares have a preference over common stock in any liquidation of the Company. The preferred shares are not entitled to any dividend or distribution in preference to common stock. The warrant, which will permit the holder to purchase one-tenth of a share of common stock at $.10 expires May 31, 2005. Also, the warrants will be subject to redemption at the Company's option for $.05 per warrant provided the closing price exceeds $.20 per share for at least thirty days ending on the third day prior to the mailing of the notice. As of June 30, 2005, the Company has sold $1,384,000 of the private placement offerings. Note 11 -SUBSEQUENT EVENT The following is a schedule of common stock issued to related parties subsequent to June 30, 2005: Related Party Shares Issued ------------- ------------- Gina Mouery 2,250,000 David Mouery 913,000 Subsequent to June 30, 2005, third parties have been issued 4,860,000 shares of common stock. 19 RAVEN MOON ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004 (unaudited) Note 11 -SUBSEQUENT EVENT (continued) On July 27, 2005, the Company entered into an agreement with Clubhouse Videos, Inc. in which Clubhouse Videos, Inc. shall transfer its inventory of "Cuddle Bugs" to the Company in exchange for the loans of approximately $82,000 made by the Company to Clubhouse Videos, Inc. On August 9, 2005 the Company entered into an agreement with David Mouery ( the son in law of Joseph DiFrancesco, Chairman of the Board) to provide legal services for three years. He is to be paid a retainer of $10,000 per month, if payment is made in S-8 stock it will be at a 25% discount of the bid price on the day the stock is issued. On August 12, 2005, the Board of Directors approved granting each shareholder of record as of August 31, 2005, a one warrant dividend for each share of stock owned. The warrant exercise price will be $.02 per share and is exercisable for a one-year period from the date of issue. 20 Item 2. Management's Discussion and Analysis of Financial Condition and Results Operations Cautionary statement identifying important factors that could cause our actual results to differ from those projected in forward looking statements. Pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, readers of this report are advised that this document contains both statements of historical facts and forward looking statements. Forward looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those indicated by the forward looking statements. Examples of forward looking statements include, but are not limited to (i) projections of revenues, income or loss, earnings per share, capital expenditures, dividends, capital structure and other financial items, (ii) statements of our plans and objectives with respect to business transactions and enhancement of shareholder value, (iii) statements of future economic performance, and (iv) statements of assumptions underlying other statements and statements about our business prospects. The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the notes thereto appearing elsewhere in this report. We are well on our way to 40 episodes of "Gina D's Kids Club (R)." We have produced 24 episodes of the half hour program. The production of "Gina D's Kids Club" has resulted in 24 DVD titles, and a music video library of over 140 original songs, and a cast of characters which are suitable for licensing and merchandising opportunities. Raven Moon's future revenue stream is dependant on its nationwide syndication of "Gina D's Kids Club" and its ability to continue to finance the production of the remaining 16 episodes of "Gina D's Kids Club". Once the company has the program in a position where it's airing 5 days a week a on stations which are considered a destination for kids, management believes there are numerous opportunities in a billion dollar licensing and merchandising market for preschool kids. In addition to "Gina D's Kids Club", Raven Moon has begun developing a "TED TV" television series and a fully animated family feature film called "Gina D & The Transistor Sisters' (R). While we have reduced our debt, we will not be able to generate significant revenues until the television programs air on television, are accepted by the viewers and attract licensing offers from major distributors, manufacturers and retailers. The "Gina D's Kids Club" began airing on television once a week in September 2004, on one station and has grown to 162 television stations through the efforts of our syndicator Role Entertainment. In order to maximize our airtime exposure to five days, we will have to produce an additional 16 half-hour episodes at an approximate cost of $3,000,000. As part of our business plan, the completion of a total of 40 episodes could create multiple revenue streams which includes worldwide licensing and merchandising opportunities for the videos, CD's, and toys that have been inspired by the show if the programs are well received by the viewers, the licensees and the retailers. Parents told us that they wanted better programming for their children, and we are committed to our goal of providing the very best in family values children's entertainment. Results of Operations - six months ended June 30, 2005 and 2004 --------------------------------------------------------------- Revenue ------- Revenues are generated from the sale of rights, licenses, and toys inspired by the children entertainment productions of Raven Moon Entertainment. 21 Total revenues for the six months ending June 30, 2005 and June 30, 2004 were $666 and $1,609 respectively. The 2005 and 2004 revenues were generated by sales of plush toys. Cost of Goods Sold ------------------ Cost of goods sold for the six months ending June 30, 2005 and June 30, 2004 were $166 and $402, respectively. Expenses -------- Expenses for the six months ending June 30, 2005 and June 30, 2004 were $3,751,964 and $5,195,662, respectively, a decrease of $1,443,698. Consulting fees and production expenses accounted for the majority of the expenses incurred by the Company. The Company only has two full time employees and relies heavily on outside consultants and production facilities to operate on a daily basis. Net Loss -------- During the six months ending June 30, 2005, the Company recorded a Net Loss of $3,751,464 or $2.33 per share, as compared to a loss $5,224,388 or $44.81 per share for the six months ending June 30, 2004. The decrease of $1,472,924 is primarily attributable to the decrease in costs and expenses. Income Taxes ------------ As a result of the loss made during the six months ending June 30, 2005, no provision was made for income taxes for the period. Assets and Liabilities ---------------------- At June 30, 2005 the Company has $26,442 in cash, total assets of $27,442. At June 30, 2005 Raven Moon's total liabilities totaled $1,661,290. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon positive cash flows from operations and ongoing financial support. Adequate funds may not be available when needed or may not be available on terms favorable to the Company. If the Company is unable to secure sufficient funding, the Company may be unable to develop or enhance its products and services, take advantage of business opportunities, respond to competitive pressures or grow the Company's business in the manner that the Company's management believes is possible. This could have a negative effect on the Company's business, financial condition and results of operations. Without such support, the Company may not be able to meet its working capital requirements and accordingly the Company and its subsidiaries may need to reorganize and seek protection from its creditors. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 supersedes Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs To Exit an Activity (Including Certain Costs Associated with a Restructuring)" and requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, as opposed to when management is committed to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair 22 value. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. The provisions of SFAS No. 146 are required to be applied prospectively after the adoption date to newly initiated exit activities. In November 2002, the FASB's Emerging Issues Task Force reached a consensus on Issue No. 00-21, "Accounting for Revenue Arrangement with Multiple Deliverables," which addresses circumstances involving the delivery or performance of multiple products, services, and/or rights to use assets, and for which performance may occur at different points in time or over different periods of time. Issue No. 00-21 also addresses whether the different revenue-generating activities, or deliverables, are sufficiently separable, and there exists sufficient evidence of their fair values to separately account for some or all of the deliverables. The issue applies to all contractual arrangements under which a vendor will perform multiple revenue-generating activities. Issue No. 00-21 is effective for all revenue arrangements entered into in fiscal periods beginning after June 15, 2003, with early adoption permitted. The Company will adopt this guidance prospectively for all revenue arrangements entered into after December 29, 2002. The Company does not expect Issue No. 00-21 to have a material impact on the financial statements. In December 2002 the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure" that amends SFAS No. 123, "Accounting for Stock-Based Compensation." The standard provides for (1) alternative methods of transition for an entity that voluntarily changes to the fair-value method of accounting for stock-based employee compensation; (2) requires more prominent disclosure of the effects of an entity's accounting policy decisions with respect to stock-based employee compensation on reported income; and (3) amends APB Opinion No. 28, "Interim Financial Reporting," to require disclosure of those effects in interim financial information. SFAS No. 148 is effective for fiscal years ending after December 15, 2002, and for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. The Company will continue to account for employee stock options using the fair value method in accordance with of SFAS No. 123 and 148. ITEM 3. CONTROLS AND PROCEDURES (a) Under the supervision and with the participation of our principal executive officer and principal financial officer, we conducted an evaluation of the design and operation of our disclosure controls and procedures, as such term is defined under Rules 13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), within 90 days of the filing date of this report. Based on that evaluation, our principal executive officer and our principal financial officer concluded that the design and operation of our disclosure controls and procedures were effective to ensure that information required to be included in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. 23 (b) In addition, there were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date, including any corrective actions with regard to significant deficiencies and material weaknesses. Part II. Item 1. Legal Proceedings None. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company plans to raise $5,000,000 in a private placement offering to be used as working capital. To that end, the Company is offering units consisting of one share convertible Series B Preferred Stock and a warrant to purchase one-tenth of a share of common stock at a price of $10.00 per unit. The conversion right may be exercised at any time by the holder of the shares, but shall occur automatically at the Company's discretion at any time after a registration statement to register the shares of common stock underlying both the preferred share and the warrant. Each preferred share shall convert to $10.00 in value of common stock. The value of the common stock will be based upon the average closing price of the Company's common stock for each of the ten consecutive trading days prior to the date of conversion, less a 20% discount. The warrant, which will permit the holder to purchase one-tenth of a share of common stock at $.10 expires May 31, 2005. The warrants are subject to redemption at the Company's option for $.05 per warrant provided the closing price exceeds $.20 per share for at least thirty days ending on the third day prior to the mailing of the notice. As of June 30, 2005, the Company has raised $1,384,000 in the private placement. Item 3. Defaults on Senior Securities None. Item 4. Submission of Matters to Vote of Security Holders On June 30, 2005, the stockholders have consented in writing to the following: (i) 1 for 1,000 reverse split of its shares of Common Stock for holders of record on July 15, 2005, and (ii) subsequent change in the authorized number of the shares of its Common Stock to 100,000,000. The additional shares will be made available to conduct a variety of corporate transactions, such as public offerings, private placements, employee and consultant compensation plans. On August 2, 2005, the stockholders have consented in writing to increase the number of authorized shares of Common Stock of the Company to 5,000,000,000 shares. Item 5. Other Information None. 24 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits and Index of Exhibits 31. Rule 13a-14(a)/15d-14(a) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32. Section 1350 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K. No reports were filed on Form 8-K for the period ended June 30, 2005. 25 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RAVEN MOON INTERNATIONAL, INC. (Registrant) Date: August 19, 2005 By: /s/ Joseph DiFrancesco -------------------------------- Joseph DiFrancesco, President 26