<PAGE>
U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 002-97690-D
KARA INTERNATIONAL, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 87-0421191
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(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
9005 Cobble Canyon Lane
Sandy, Utah 84093
--------------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (801) 942-0555
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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.
(1) Yes X No (2) Yes X No
--- --- --- ---
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
February 28, 1997
2,048,804*
---------
* Does not include 750,000 shares authorized to be
issued by the Board of Directors on February 28, 1997.
See the heading "Business Development" of Item 1 of
the Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1996, which is being
simultanteously filed with the Securities and Exchange
Commission and which is incorporated herein by
reference.
PART I - 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, and commence on the
following page, together with Related Notes. In the opinion of management,
the Financial Statements fairly present the financial condition of the
Registrant.
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<TABLE>
KARA INTERNATIONAL, INC.
[A Development Stage Company]
BALANCE SHEETS
ASSETS
<CAPTION>
Nine Months
Ended
September 30,
1996 December 31,
(Unaudited) 1995
<S> <C> <C>
CURRENT ASSETS:
Cash in bank $ 180 $613
$ 180 $613
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable 2,500 -
Advance from shareholder 1,869 81
Total Current Liabilities 4,369 81
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value,
50,000,000 shares authorized,
2,048,810 shares issued and
outstanding 2,049 2,049
Capital in excess of par value 1,120,128 1,120,128
Retained earnings (deficit) (1,134,783) (1,134,783)
Earnings accumulated during
development stage 8,417 13,138
Total Stockholders' Equity (Deficit) (4,189) 532
$ 180 $613
</TABLE>
<TABLE>
KARA INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENTS OF OPERATIONS
<CAPTION>
Cumulative from
For the Nine For the Year January 1, 1989
Months Ended Ended Through
September 30, 1996 December 31, September30, 1996
(Unaudited) 1995 (Unaudited)
<S> <C> <C> <C>
REVENUE:
Interest income $ - $ - $ -
EXPENSES:
General and administrative 4,721 287 6,088
Interest Expense - - 161,459
Total Expenses 4,721 287 167,547
(LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES AND DISCONTINUED
OPERATIONS (4,721) (287) (167,547)
CURRENT INCOME TAX EXPENSE - - -
DEFERRED INCOME TAX EXPENSE - - -
(LOSS) BEFORE DISCONTINUED
OPERATIONS (4,721) (287) (167,547)
(LOSS) FROM OPERATIONS OF
DISCONTINUED SUBSIDIARY
(NO TAX EFFECT) - - (27,426)
GAIN (LOSS) ON DISPOSAL OF
DISCONTINUED SUBSIDIARY - - 203,390
NET INCOME (LOSS) $ (4,721) $ (287) $8,417
INCOME (LOSS) PER COMMON SHARE
(Loss) from continuing
operations $ (.00) $ (.00) $(.46)
(Loss) from discontinued
operations .00 .00 (.08)
Gain on disposal of
discontinued operations .00 .00 .58
INCOME (LOSS) PER COMMON
SHARE: $ (.00) $ (.00) $.04
</TABLE>
<TABLE>
KARA INTERNATIONAL, INC.
[A Development Stage Company]
<CAPTION>
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE DATE OF INCEPTION ON JANUARY 1, 1989
THROUGH DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
[UNAUDITED]
Earnings
Accumulated
Common Stock Capital in Retained During the
Excess of Earnings Development
Shares Amount Par Value (Deficit) Stage
<S> <C> <C> <C> <C> <C>
BALANCE,
January 1, 1989 69,762 $ 70 $688,749 $(1,134,783)$ -
Net income for the
period ended December 31,
1989 - - - - 160,520
BALANCE,
December 31, 1989 69,762 70 688,749 (1,134,783) 160,520
Net loss for the year
ended December 31, 1990 (31,300)
BALANCE,
December 31, 1990 69,762 70 688,749 (1,134,783) 129,220
Net loss for the year
ended December 31, 1991 (31,300)
BALANCE,
December 31,1991 69,762 70 688,749 (1,134,783) 97,920
Net loss for the year
ended December 31, 1992 (31,300)
BALANCE,
December 31, 1992 69,762 70 688,749 (1,134,783) 66,620
Net loss for the year
ended December 31, 1993 (31,300)
BALANCE,
December 31, 1993 69,762 70 688,749 (1,134,783) 35,320
Issuance of 80,000
shares to a related
party as payment for a
judgment related
to a note payable and
related interest,
November, 1994 80,000 80 431,379 - -
Net loss for the year
ended December 31, 1994 (21,895)
BALANCE,
December 31,1994 149,762 150 1,120,128 (1,134,783) 13,425
Issuance of 1,899,048
shares to officers &
shareholders to repay
amounts previously
advanced for investments,
January, 1995, at $.001
per share 1,899,048 1,899 - - -
Net loss for the year
ended December 31, 1995 - - - - (287)
BALANCE,
December 31,1995 2,048,810 2,049 1,120,128 (1,134,783) 13,138
Net loss for the period
ended September 30,
1996 (Unaudited) - - - - (4,721)
BALANCE,
September 30,1996
(Unaudited) 2,048,810 $ 2,049 $1,120,128 $(1,134,783) $ 8,417
</TABLE>
<TABLE>
KARA INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENTS OF CASH FLOWS
<CAPTION>
Cumulative from
For the Nine For the Year January 1, 1989
Months Ended Ended Through
September 30, 1996 December 31, September 30, 1996
(Unaudited) 1995 (Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating
Activities:
Net income (loss) $ (4,721) $ (287) $ 8,417
Adjustments to reconcile
net loss to net cash used
by operating activities:
Non-cash expenses (income) - - (14,505)
Changes in assets and
liabilities:
Accounts payable 2,500 - 2,500
Net Cash Flows Used by
Operating Activities (2,221) (287) (3,588)
Cash Flows from Investing
Activities - - -
Net Cash Used by Investing
Activities - - -
Cash Flows from Financing
Activities:
Proceeds from common stock
issuance - - -
Advances by shareholders 1,788 900 3,768
Net Cash Provided by Financing
Activities - 900 3,768
Net Increase (decrease) in Cash (433) 613 180
Cash at Beginning of Period 613 - -
Cash at End of Period $ 180 $ 613 $ 180
Supplemental Disclosures of Cash Flow information:
Cash paid during the period for:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
</TABLE>
Supplemental schedule of Noncash Investing and Financing
Activities:
For the period ended August 31, 1996 (unaudited):
None
For the year ended December 31, 1995:
The Company issued 1,899,048 shares of common stock in payment
of advances by shareholders in the amount of $1,899.
KARA INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 [See Note 5]. 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 confectionery
products. The Company abandoned its subsidiary operation during the last
quarter of 1988 [See Note 3]. The Company is not currently engaged in any
business activity, but is seeking potential investments or business
acquisitions and consequently is considered a development 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.
Income (Loss) Per Share - The computation of income (loss) per share is based
on the weighted average number of shares outstanding during the period
presented.
Statement of Cash Flows - For purposes of the statement of cash flows, the
Company considers all highly liquid debt investments purchased with a maturity
of three months or less to be cash equivalents.
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.
Reclassification - The financial statements for periods prior to 1995 have
been reclassified to conform to the titles and headings used in the 1996
financial statements.
Stock Split - During January 1995, the Board of Directors authorized a 1 for
250 stock reverse 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. The financial statements for all periods presented
have been restated to reflect the effect of the common stock split.
NOTE 2 - INCOME TAXES
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" which requires the
liability approach for the effect of income taxes. The financial statements
for prior years have not been restated and the cumulative effect of the change
in accounting principle is included in determining net income for 1994. Such
effect was not material in 1994 or for prior years.
The Company has available at December 31, 1995, unused operating loss
carryforwards of approximately $1,000,000, which may be applied against future
taxable income and which expire in various years beginning in 1999 through
2010. However, due to substantial changes in the Company's ownership, there
will be annual limitations on the amounts of net operating loss carryforwards
which can be utilized by the Company.
The amount of and ultimate realization of the benefits from the operating loss
carryforwards for income tax purposes is dependent, in part, upon the tax laws
in effect, the future earnings of the Company, and other future events, the
effects of which cannot be determined. Because of the uncertainty surrounding
the realization of the loss carryforwards the Company has established a
valuation allowance equal to the amount of the loss carryforwards and,
therefore, no deferred tax asset has been recognized for the loss
carryforwards. The change in the valuation allowance is equal to
the current period's net loss.
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 35,967 "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 its operations, there were 69,762 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 80,000 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 - 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.
Management Compensation - During the periods presented the Company did not pay
any compensation to its officers and directors.
Advance from Shareholder - During 1994, a shareholder/officer advanced $1,080
to the Company. An additional advance of $900 was made during 1995. At
December, 31, 1995 and 1994 the unpaid balance owing the shareholder/officer
was $81 and $1,869, respectively. At September 31, 1996 (Unaudited) the
advances owing a shareholder/officer amounted to $1,869. During October, 1996,
a shareholder/officer advanced $2,500 to the Company.
Stock Issued - In January, 1995, the Company issued 1,899,048 shares to
shareholders and officers to reduce shareholder advances.
NOTE 5 - COMMON STOCK
Public Stock Offering - The Company completed a public offering of 10,615
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 80,000 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 1,899,048 shares of
common stock to shareholders and officers to repay previous advances made by
the shareholders.
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. The financial statements for all periods
presented have been restated to reflect the reverse split.
NOTE 6 - 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 proposed acquisition of another company by issuing common stock. There is
no assurance that the Company will be successful in raising of 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 7 - 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 340 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 8 - SUBSEQUENT EVENTS
Proposed Quasi Reorganization - The Company is proposing to perform a quasi
reorganization which would result in a restatement of its accumulated deficit
as though the Company were just commencing operations. The Company would also
change its name and may restructure its capital structure. Management believes
the reorganization would assist the Company in its efforts to attract new
investors and to develop new business operations. The proposed reorganization
requires the approval of the shareholders of the Company.
Related Party Transaction - During October, 1996, a shareholder/officer
advanced $2,500 to the Company.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
- --------------------------------------------------------------------
Plan of Operation.
- ------------------
The Company has not engaged in any material operations
since its inception or during the quarterly period ended September 30, 1996.
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
quarter ended September 30, 1996, nor the year ended December 31, 1995.
General and administrative expenses for the period ended December 31, 1995,
were $287, compared with $4,721 for the period ended September 30, 1996.
These increased expenses related primarily to bringing the Company's financial
statements current and related expenses.
Liquidity.
- ----------
During December 31, 1995, 1,899,048 shares of the Company's
"unregistered" and "restricted" common stock were issued in consideration of
advances by shareholders in the amount of $1,899. Shareholder advances for
the period ended September 30, 1996, amounted to $1,869, and these funds
represented substantially all of the cash proceeds received by the Company to
defray expenses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
- ----------------------------
None; not applicable.
Item 2. Changes in Securities.
- --------------------------------
None; not applicable.
Item 3. Defaults Upon Senior Securities.
- ------------------------------------------
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
- --------------------------------------------------------------
None; not applicable.
Item 5. Other Information.
- ----------------------------
None; not applicable.
Item 6. Exhibits and Reports on Form 8-K.
- -------------------------------------------
(a) Exhibits.
Financial Data Schedule.
Form 10-KSB Annual Report for the year ended
December 31, 1996, filed simulataneously herewith,
is incorporated herein by reference.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
KARA INTERNATIONAL, INC.
Date: By /s/ David C. Merrell
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David C. Merrell
Director and President
Date: By /s/ Michael C. Brown
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Michael C. Brown
Director and Secretary/Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000769346
<NAME> KARA INTERNATIONAL, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 180
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 180
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 180
<CURRENT-LIABILITIES> 4369
<BONDS> 0
0
0
<COMMON> 2049
<OTHER-SE> (6238)
<TOTAL-LIABILITY-AND-EQUITY> 180
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4721
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4721)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4721)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
