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 AND
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
Commission file number 002-97690-D
Kara International, Inc.
(Name of Small Business Issuer as specified in its charter)
Nevada 84-1398635
(State of other jurisdiction of (I.R.S. employer identification No.)
Incorporation or organization)
897 South Artistic Circle, Springville, UT 84663
(Address of principal executive offices)
Registrant's telephone no., including area code: (801) 489-3238
Securities registered pursuant to Section 12(b) OF The Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
Common Stock outstanding at November 13, 1997 - 4,559,761 shares at $.001 par
value Common Stock.
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1 Financial Statements
The Financial Statements of the Registrant required to be filed with this
10-QSB Quarterly Report were prepared by management together with Related
Notes. In the opinion of management, the Financial Statements fairly present
the financial condition of the Registrant.
<TABLE>
KARA INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED BALANCE SHEETS
[ Unaudited ]
<CAPTION> ASSETS
Sept. 30, 1997 Dec. 31, 1996
__________ ___________
<S> <C> <C>
CURRENT ASSETS:
Cash 1,787 163
Total Current Assets 1,787 163
OTHER ASSETS: - -
___________ ___________
$ 1,787 163
___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 2,625 723
Advance from shareholder - 4,749
___________ ___________
Total Current Liabilities 2,625 5,472
___________ ___________
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock - -
Common stock 4,560 2,049
Capital in excess of
par value 1,137,617 1,120,128
Retained Earnings (deficit) (1,134,605) (1,134,783)
Earnings (deficit)
accumulated during the
development stage (8,410) 7,297
Total Stockholders' Equity
(Deficit) (838) (5,309)
___________ ___________
$ 1,787 $ 163
___________ ___________
</TABLE>
The accompanying notes are an integral part of these financial statements.
NOTE: The balance sheet at December 31, 1996 was taken from the
audited financial statements at that date and condensed.
2
<PAGE>
<TABLE>
KARA INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED STATEMENTS OF OPERATIONS
[Unaudited]
<CAPTION>
For the Three For the Six Cumulative From
Months Ended Months Ended January 1, 1989
Sept 30 Sept 30 through Sept 30,
1997 1997 1996 1997
_____________ _____ _____ ____________
<S> <C> <C> <C> <C>
REVENUE $ -- $ -- $ --
______________ ______________ ____________
EXPENSES:
General and administration 5,311 15,885 4,721 22,913
Interest Expense -- -- 161,459
_____________ _______________ ____________
Total Expenses 5,311 15,885 4,721 184,372
_____________ _______________ ____________
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS (5,311) (15,885) (4,721) (184,372)
CURRENT INCOME TAX EXPENSE -- -- --
DEFERRED INCOME TAX EXPENSE -- -- --
(LOSS) BEFORE DISCONTINUED
OPERATIONS ________________ ________________ ___________
(5,311) (15,885) (4,721) (184,372)
(LOSS) FROM OPERATIONS OF
DISCONTINUED SUBSIDIARY
(NO TAX EFFECT) -- -- (27,428)
GAIN ON DISPOSAL OF
DISCONTINUED SUBSIDIARY -- -- 203,390
________________ _________________ ____________
NET INCOME (LOSS) $ (5,311) (15,885) (4,721) $ (8,410)
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
KARA INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine For the Nine From Inception On
Months Ended Months Ended January 1, 1989
Sept. 30, 1997 Sept. 30, 1997 Sept. 30, 1997
______________ _____________ _________________
<S> <C> <C> <C>
Cash Flows to Operating Activites
Net income (loss) $ (15,885) $ (4,721) $ (8,410)
Adjustments to reconcile net loss
Non-cash expenses (income) -- -- (14,505)
Changes in Assets and Liabilities
Accounts Payable (2,491) 2,500 (1,946)
Net Cash Flows to Operat. Activities (18,376) (2,221) (24,861)
Cash Flows to Investing Activities
Net Cash to Investing Activites -- -- --
Cash Flows from Financing Activities
Proceeds from common stock issuance 20,000 -- 20,000
Advances by shareholders -- 1,788 6,648
Net Cash From Financing Activities 20,000 -- 26,648
Net Increase (Decrease) in Cash 1,624 (433) 1,787
Cash at Beginning of Period 163 613 --
_______ ______ ________
Cash at End of Period $ 1,787 $ 180 $ 1,787
</TABLE>
Supplemental schedule of Non-cash Investing and Financing Activities:
For the three months ended September 30, 1997
None
For the three months ended September 30, 1996
None
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
KARA INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, cash flows at
September 30, 1997, and for all the periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 1996
audited financial statements. The results of operations for the period ended
September 30, 1997 are not necessarily indicative of the operation results
for the full year.
Organization - The Company was incorporated in the State of Nevada under the
name of R & D Connections on April 22, 1985. The Company completed a public
offering of common stock during 1986. On September 22, 1986, the Company
acquired all of the outstanding shares of Kara Incorporated, a Utah
Corporation, that manufactured and marketed candy, and changed its name to
Kara International, Inc. [the Company]. From September 1986, the Company
commenced operating the business of marketing and developing confectionary
products. The Company abandoned its subsidiary operation during the last
quarter of 1988. The Company is not currently engaged in any business
activity, but is seeking potential investments or business acquisitions and
consequently is considered a developmental stage company as defined in SFAS
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.
Accounting Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles 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 reporting period. Actual results could differ from those
estimated.
Stock Split - During January 1995, the Board of Directors authorized a 1 for
250 reverse stock split of the issued and outstanding common shares of the
Company. The Company retained the authorized shares at 50,000,000 shares with
the par value at $.001 per share.
During April 1997, the Board of Directors authorized a 1 for 5 reverse stock
split of all issued and outstanding common shares of the Company. The Company
retained the authorized shares at 50,000,000 shares with the par value at
$.001 per share. The financial statements for all periods presented have been
restated to reflect the effect of the common stock split.
NOTE 2 - RELATED PARTY TRANSACTIONS
Rent - The Company has not had a need to rent office space. An officer of the
Company is allowing the Company to use his address, as needed, at no expense
to the Company.
Advance from Shareholder - At December 31, 1996, the unpaid balance owing a
shareholder/officer was $4,479. The balance was paid in full on September 5,
1997.
5
<PAGE>
KARA INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Stock Issued - In January, 1995, the Company issued 379,809 (restated) shares
to shareholders and officers to reduce shareholder advances.
Management Compensation - During the periods presented the Company did not pay
any compensation to its officers and directors.
NOTE 3 - DISCONTINUED OPERATIONS
On September 22, 1986, the Company acquired all of the outstanding shares of
Kara Incorporated, a Utah corporation, by the issuance of 7,193 (restated)
shares of the Company stock to the shareholders of Kara Incorporated in a tax-
free reorganization wherein Kara Incorporated became a wholly-owned subsidiary
of the Company. The business combination was accounted for using the purchase
method of accounting. The investment in the subsidiary was recorded in the
financial statements based on the net asset value of the subsidiary at
June 30, 1986, which was $146,992. Kara Incorporated manufactured and marketed
candy. The Company operated its subsidiary candy company through 1988.
During the last quarter of 1988, the Company abandoned and discontinued all of
its candy manufacturing and marketing operations. All of the assets of the
company were foreclosed and used to satisfy liabilities at the point in time
when the company discontinued all of its candy manufacturing and marketing
operations. At the point in time when the company discontinued its
operations, there were 13,952 (restated) shares of common stock issued and
outstanding. The Company also had certain notes payable that were not
satisfied from the discontinued operation. During 1994, in settlement of a
judgment from the court, the Company issued 16,000 (restated) shares of
common stock to satisfy the notes payable including principal of $270,000 and
accrued interest of $161,459. The discontinued operations have been
segregated on the Statements of Operations. There was a $203,390 gain
recorded during 1989 for the disposal of the discontinued operations.
NOTE 4 - COMMON STOCK
Public Stock Offering - The Company previously completed a public offering of
2,123 (restated) shares of its authorized but unissued common stock. The
offering was registered on Form S-18 in accordance with the Securities Act of
1933. Total proceeds of the offering amounted to $265,360 and stock offering
costs of $68,251 were offset against capital in excess of par value.
Debt Cancellation - During November, 1994, the Company issued 16,000 (restated)
shares of common stock as payment in full for a judgment related to a note
payable of $270,000 and related accrued interest of $161,459.
Officer/Shareholder - In January, 1995, the Company issued 379,809 (restated)
shares of common stock to shareholders and officers to repay previous advances
made by the shareholders. Pursuant to a resolution dated February 28, 1997,
the company issued 100,000 (restated) shares of "unregistered and restricted"
common stock to current shareholders and officers of the company.
Stock Split - During January 1995, the Board of Directors authorized a 1 for
250 reverse stock split of all the issued and outstanding common shares of the
Company. The Company retained the authorized shares at 50,000,000 shares with
the par value at $.001 per share. During April 1997, the Board of Directors
authorized a 1 for 5 reverse stock split of all issued and outstanding common
shares of the Company. The Company retained the authorized shares at
50,000,000 shares with the par value at $.001 per share. The financial
statements for all periods presented have been restated to reflect the reverse
split.
6
<PAGE>
Stock Issuance - During April 1997, the Company issued 50,000 (restated) S-8
common shares to consultants pursuant to "Consultant Compensation Agreement
No. 1". The shares were registered on Form S-8 with the SEC on March 17, 1997.
The Company issued 4,000,000 post-split shares of its "unregistered" and
"restricted" common stock to the appointed sole officer, David N. Nemelka, in
consideration of the sum of $20,000 cash, effectively passing control (90%) to
the new officer. Consequently, the Board of Directors unanimously accepted the
resignation of all current directors and executive officers and appointed a new
officer to serve as sole director, president and secretary of the Company.
NOTE 5 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate continuation of the
Company as a going concern. However, the Company has incurred losses since
inception, has expended most of its working capital 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 additional funds
through loans and/or through additional sales of its common stock or through
the acquisition of another company by issuing common stock. There is no
assurance that the Company will be successful in raising this additional
capital.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the company be
unable to obtain additional financing or establish profitable operations.
NOTE 6 - CONTINGENCIES
During 1989, the Company discontinued the candy manufacturing and marketing
operations of its subsidiary. Management believes that the Company is not
liable for any existing liabilities related to its former operations and
subsidiary but the possibility exists that creditors and others seeking relief
from the subsidiary may also include the Company in claims and suits pursuant to
the parent subsidiary relationship which existed between the Company and its
subsidiary. The Company is not currently named in any such suits nor is it
aware of any such suits against is former subsidiary. It is the belief of
Management and their Counsel that the Company would be successful in defending
against any such claims and that no material negative impact on the financial
position of the Company would occur. Management and counsel further believe
that with the passage of time the likelihood of any such claims being raised
is becoming more remote and that various Statutes of Limitations should
provide adequate defenses for the Company. Consequently, the financial
statements do not reflect any accruals or allowances for any such claims.
The Company has approximately 68 shares of common stock outstanding for which
it is unable to identify a shareholder. The Company is contingently liable
should the unidentified shares someday be traded to a third party. The shares
are not included in the outstanding stock of the Company.
NOTE 7 - SUBSEQUENT EVENTS
None
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Plan of Operation
The Company has not engaged in material operations during the quarterly period
ended September 30, 1997, or since the last quarter of 1988 when the Company
abandoned and discontinued the operations of its wholly-owned subsidiary.
The Company's plan of operation for the next 12 months is to continue to seek
the acquisition of assets, properties or businesses that may benefit the
Company and its stockholders. Management anticipates that to achieve any such
acquisition, the Company will issue shares of its common stock as the sole
consideration for such acquisition.
During the next 12 months, the Company's only foreseeable cash requirements
will relate to maintaining the Company in good standing or the payment of
expenses associated with reviewing or investigating any potential business
venture, which the Company expects to pay from advances from management.
Results of Operations
The Company did not engage in any business activities during the quarters
ended September 30, 1997 or 1996, nor the year ended December 31, 1996.
General and administrative expenses for the three months ended September 30,
1997 were $5,311 and for the nine months ended September 30, 1997 and 1996,
were $15,885 and $4,721, respectively. These increased expenses related
primarily to bringing the Company's financial statements current, legal fees
handling the stock purchase by David N. Nemelka, investigating potential
business ventures and related expenses.
Liquidity
During the period ended September 30, 1997, 4,000,000 shares of the Company's
"unregistered" and "restricted" common stock were issued to David N. Nemelka
in consideration of the sum of $20,000 paid by personal check from Mr.
Nemelka. These funds represented substantially all of the cash proceeds
received by the Company to defray expenses during these periods.
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
None
ITEM 2 Change in Securities
None
ITEM 3 Defaults on Senior Securities
None
ITEM 4 Submission on Matters to a Vote of Security Holders
None
8
<PAGE>
ITEM 5 Other Information
Effective April 11, 1997, David C. Merrell and Michael C. Brown resigned as
directors and executive officers of the Registrants, in seriatim, and David N.
Nemelka, was designated as the sole Director, President and Secretary.
On May 1, 1997, the Internal Revenue Service issued Kara International, Inc. a
new EIN on Notice CP 576 A. The new number is 84-1398635.
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K; Filed October 1, 1997
ITEM 1. Changes in Control of Registrant
None; not applicable. However, see Item 5 on this Report, regarding a
Letter of Intent respecting a proposed reorganization between the Registrant and
International Heritage Inc., a corporation organized under the laws of the State
of North Carolina ("IHI"), which, if completed, would result in a change in
control.
ITEM 5. Other Events.
On September 16, 1997, the Registrant and IHI executed a Letter of
Intent regarding a proposed reorganization whereby it is contemplated that IHI
will become a wholly-owned subsidiary of the Registrant. The Registrant will
also exchange options to acquire shares of its common stock for currently
outstanding options of IHI, on the same terms and conditions currently governing
the IHI options.
Following the completion of the first stage of the reorganization, the
directors and executive officers of IHI shall become the directors and executive
officers of the Registrant.
ITEM 7. Financial Statements and Exhibits
(c) Exhibits.
Description of Exhibit Exhibit No.
News Release dated October 1, 1997 99
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned hereunto duly authorized.
KARA INTERNATIONAL, INC.
Date: 10/1/97 By /s/ David N. Nemelka
President, Secretary and Director
NEWS RELEASE
Kara International, Inc., a Nevada corporation (the "Company," [OTC
Bulletin Board Symbol "KARA"]), announced today that it had entered into a
Letter of Intent regarding a proposed reorganization whereby it is contemplated
that International Heritage Inc., a North Carolina corporation ("IHI"), will
become a wholly-owned subsidiary of the Company.
Following the completion of the first stage of the reorganization,
the directors and executive officers of IHI shall become the directors and
executive officers of the Company.
9
<PAGE>
IHI is principally engaged in the direct sale of fine 14K, 18K and
24K gold jewelry, precious stone jewelry, fine collectibles from some of the
world's most prestigious manufacturers, golf products and accessories and
telecommunications products and services.
October 1, 1997
cc: Dow Wire Services Fax No. 212-416-4008
Bloomberg Financial Markets Fax No. 609-279-5976
Reuters Fax No. 212-859-1717
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 3
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,787
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,787
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,787
<CURRENT-LIABILITIES> 2,625
<BONDS> 0
0
0
<COMMON> 4,560
<OTHER-SE> (5,398)
<TOTAL-LIABILITY-AND-EQUITY> 1,787
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,311
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,311)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,311)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,311)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
