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 June 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 87-0421191
(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 August 8, 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
June 30, 1997 Dec. 31, 1996
__________ ___________
<S> <C> <C>
CURRENT ASSETS:
Cash 9,591 163
Total Current Assets 9,591 163
OTHER ASSETS: - -
___________ ___________
$ 9,591 163
___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 547 723
Advance from shareholder 4,749 4,749
___________ ___________
Total Current Liabilities 5,296 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) (1,134,783) (1,134,783)
Earnings (deficit)
accumulated during the
development stage (3,099) 7,297
Total Stockholders' Equity
(Deficit) 4,295 (5,309)
___________ ___________
$ 9,591 $ 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
June 30 June 30 through June 30,
1997 1996 1997 1996 1997
______ ______ _____ _____ ____________
<S> <C> <C> <C> <C> <C>
REVENUE $ -- $ -- $ --
______________ ______________ ____________
EXPENSES:
General and administration 9,024 1,342 10,396 1,365 17,424
Interest Expense -- -- 161,459
_____________ _______________ ____________
Total Expenses 9,024 1,342 10,396 1,365 195,585
_____________ _______________ ____________
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS (9,024) (1,342) (10,396) (1,365) (195,585)
CURRENT INCOME TAX EXPENSE -- -- --
DEFERRED INCOME TAX EXPENSE -- -- --
(LOSS) BEFORE DISCONTINUED
OPERATIONS ________________ ________________ ___________
(9,024) (1,342) (10,396) (1,365) (195,585)
(LOSS) FROM OPERATIONS OF
DISCONTINUED SUBSIDIARY
(NO TAX EFFECT) -- -- (10,904)
GAIN ON DISPOSAL OF
DISCONTINUED SUBSIDIARY -- -- 203,390
________________ _________________ ____________
NET INCOME (LOSS) $(9,024) (1,342) (10,396) (1,365) $ (3,099)
</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 Six For the Six From Inception On
Months Ended Months Ended January 1, 1989
June 30, 1997 June 30, 1997 June 30, 1997
______________ _____________ _________________
<S> <C> <C> <C>
Cash Flows to Operating Activites
Net income (loss) $ (10,396) $ (1,365) $ (3,099)
Adjustments to reconcile net loss
Non-cash expenses (income) -- -- (14,505)
Changes in Assets and Liabilities
Accounts Payable (154) 1,325 1,795
Net Cash Flows to Operating Activities (10,550) (40) (15,809)
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 -- -- 6,648
Net Cash From Financing Activities 20,000 -- 26,648
Net Increase (Decrease) in Cash 9,450 (40) 9,591
Cash at Beginning of Period 141 163 --
_______ ______ ________
Cash at End of Period $ 9,591 $ 573 $ 9,591
</TABLE>
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 and results of operations at June 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
June 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. The financial statements for all periods
presented have been restated to reflect the effect of the common stock split.
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.
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.
Stock Issued - In January, 1995, the Company issued 1,899,048 shares to
shareholders and officers to reduce shareholder advances.
5
<PAGE>
KARA INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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 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 all of its candy manufacturing end 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 - COMMON STOCK
Public Stock Offering - The Company previously 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. Pursuant to a resolution dated February 28, 1997, the
company issued 2500 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. The financial statements for all periods
presented have been restated to reflect the reverse split. 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.
Stock Issuance - During April 1997, the Company issued pre-split 250,000 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.
6
<PAGE>
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 liabl
e 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 7 - SUBSEQUENT EVENTS
None
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 June 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.
7
<PAGE>
Results of Operations
The Company did not engage in any business activities during the quarters
ended June 30, 1997 and 1996, nor the year ended December 31, 1996. General
and administrative expenses for the three months ended June 30, 1997 and 1996
were $9,024 and $1,342, respectively, and for the six months ended June 30,
1997 and 1996, were $10,396 and $1,365, respectively. These increased
expenses related primarily to bringing the Company's financial statements
current, legal fees handling the stock purchase by David N. Nemelka and
related expenses.
Liquidity
During the period ended June 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 $20,000 paid by personal check from Mr.
Nemelka. These funds represented substantially all of the cash proceeds
received by the Company to defray expenses during these periods.
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
None
ITEM 2 Change in Securities
None
ITEM 3 Defaults on Senior Securities
None
ITEM 4 Submission on Matters to a Vote of Security Holders
None
ITEM 5 Other Information
Effective April 11, 1997, David C. Merrell and Michael C. Brown resigned as
directors and executive officers of the Registrants, in seriatim, and David N.
Nemelka, was designated as the sole Director, President and Secretary. See
Exhibit Item 6 in the included 8-K.
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K; Filed April 11, 1997
ITEM 1. Changes in Control of Registrant
(a) On April 10, 1997, the Board of Directors of the Registrant adopted,
ratified and approved a resolution to issue 4,000,000 post-split (see Item 5
below respecting a reverse split of the outstanding voting securities of the
registrant [all computations herein reflect such reverse split])
"unregistered" and "restricted" shares of its one mill ($.001) par value
common voting stock to David N. Nemelka, in consideration of the sum of
$20,000 paid by personal check to Mr. Nemelka. The issuance of these
securities was subsequent to the filing of a Certificate with the Secretary of
State of Nevada, respecting such reverse split; this Certificate was filed on
April 11, 1997. See Item 7.
The former principal stockholders of the Registrant and their percentage
of ownership of the outstanding voting securities of the Registrant prior to
the adoption of the resolution were, to-wit:
8
<PAGE>
<TABLE>
Amount of Nature Percent
Of Beneficial Of
Name Title Ownership Class
<S> <C> <C> <C>
David C. Merrell President and 393,864* 70%
9005 Cobble Canyon Ln. Director
Sandy, Utah 84093
Michael C. Brown Secretary/Treasurer 54,000 9.6%
2159 Alta Cove Cr. And Director
Sandy, Utah 84093
</TABLE>
*Of this amount, 327,808 shares are hold in the name of Chiricahua
Company, a sole proprietorship owned by David C. Merrell, and 16,056 shares
are held in the name of Corie Merrell, who is the wife of David C. Merrell.
Mr. Nemelka used his personal funds to purchase these securities; and the
basis of the "control" by Mr. Nemelka is stock ownership. See the table below
under Paragraph (b) of this Item.
(b)The following table contains information regarding shareholdings of
the Registrant's directors and executive officers and those persons or
entities who beneficially own more than 5% of the Registrant's common stock,
after taking into account the adoption of the resolution to issue 4,000,000
"unregistered" and "restricted" shares to Mr. Nemelka:
<TABLE>
Amount of Nature Percent
Of Beneficial Of
Name Title Ownership Class
<S> <C> <C> <C>
David N. Nemelka President, Director 4,000,000 87.7%
897 S. Artistic Circle and Stockholder
Springville, UT 84663
David C. Merrell Stockholder 393,864* 8.6%
9005 Cobble Canyon Ln.
Sandy, UT 84093
All officers and directors
as a group (1) 4,000,000 87.7%
</TABLE>
Item 2. Acquisition or Disposition of Assets.
Except as indicated under Item 1, none; not applicable.
Item 3. Bankruptcy or Receivership.
None; not applicable.
Item 4. Changes in Registrant's Certifying Accountant.
None; not applicable.
Item 5. Other Events.
Effective April 11, 1997, the Registrant's outstanding common voting
stock was reversed split on a basis of one for five, while retaining the
authorized shares at 50,000,000 and the par value at $0.001, with appropriate
adjustments in the stated capital and additional paid in capital accounts of
the Registrant. A copy of the Certificate respecting this reverse split which
was filed with the Secretary of State of Nevada on April 11, 1997, is attached
hereto and incorporated herein by reference. See Item 7.
Item 6. Resignations of Directors and Executive Officers.
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.
9
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
None; not applicable.
(b)Pro Forma Financial Information.
None; not applicable.
(c)Exhibits.
Exhibit
Description of Exhibit* Number
Certificate Respecting Reverse Split 3
* Summaries of any exhibit are modified in their entirety by this
reference to each exhibit.
Item 8. Change in Fiscal Year.
None; not applicable.
Item 9. Sales of Equity Securities Pursuant to Regulation S.
None; not applicable.
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: 8/8/97By /s/ David N. Nemelka
President, Secretary and Director
10
<PAGE>
CERTIFICATE OF KARA INTERNATIONAL, INC.,
A NEVADA CORPORATION,
PURSUANT TO SECTION 78.207 (4) OF THE
NEVADA REVISED STATUTES
FIRST: The name of the corporation is Kara International, Inc. (the
"Company").
SECOND: On April 9, 1997, the Board of Directors of the Company and the
majority stockholder unanimously consented to a reverse split of the Company's
outstanding common stock in the ratio of one new share for every five shares
outstanding as of the date of filing of this Certificate, with fractional
shares being rounded up to the next whole share, while retaining the current
authorized shares and par value, with appropriate adjustments to the
additional paid in capital and stated capital accounts of the Company.
THIRD: The number of authorized shares and the par value of the Company's
common stock immediately before the above-referenced resolutions were
50,000,000 shares at one mill ($0.001), respectively.
FOURTH: The number of authorized shares and the par value of the
Company's common stock immediately after the above-referenced resolutions were
50,000,000 shares and one mill ($0.001), respectively.
FIFTH: The number of shares of the Company's common stock to be issued
after the reverse split in exchange for each pre-split share of common stock
is 1/5 of one share.
SIXTH: No fractional shares will be issued as a result of the reverse
split. There is no provision for the payment of money or the issuance of scrip
to stockholders otherwise entitled to a fraction of a share as a result of the
reverse split.
SEVENTH: The approval of the affected stockholders is not required and
has not been sought; however, persons who own a majority of the outstanding
voting securities of the Company have adopted, ratified and approved the
reverse split.
EIGHTH: The above-referenced resolutions will be effective as of the date
of filing of this Certificate with the Secretary of State of the State of
Nevada.
IN WITNESS WHEREOF, the undersigned executive officers of the Company
hereby execute this Certificate on the 10th day of April, 1997.
/s/ David C. Merrell,
President
/s/ Michael C. Brown,
Secretary/Treasurer
STATE OF UTAH }
} ss
COUNTY of SALT LAKE }
David C. Merrell and Michael C. Brown, hereby acknowledge that they are
the President and Secretary/Treasurer, respectively, of Kara International,
Inc., that they have read the foregoing information, and of their personal
knowledge, represent and warrant that such information is true and correct in
every material respect.
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,591
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,591
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,591
<CURRENT-LIABILITIES> 5,296
<BONDS> 0
0
0
<COMMON> 4,560
<OTHER-SE> (265)
<TOTAL-LIABILITY-AND-EQUITY> 9,591
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 9,024
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,024)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,024)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,024)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
