U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 or other jurisdiction of (I.R.S. employer identification No.)
Incorporation or organization)
55 West 200 North, Provo, UT 84601
(Address of principal executive offices)
Registrant's telephone no., including area code: (801) 377-1758
897 North Artistic Circle, Springville, Utah 84663
(Former Name or Former Address, if changed since last Report)
Securities Registered under Section 12(b) of the Exchange Act: None
Name of Each Exchange on Which Registered: None
Securities Registered under 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.
(1) Yes X No(2) Yes X No
<PAGE>
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Company's knowledge, in definitive proxy of information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year: December 31, 1997 - 0
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.
January 31, 1998 - $3,890,327. There are approximately 555,761 shares of
common voting stock of the Company held by non-affiliates. The Company has
valued these shares on the basis of the bid price for the Company's common
stock on the OTC Bulletin Board on such date, which was $7 per share.
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:
January 31, 1998
4,559,761
DOCUMENTS INCORPORATED BY REFERENCE
A description of "Documents Incorporated by Reference" is contained in
Item 13 of this Report.
Transitional Small Business Issuer Format Yes X No
<PAGE>
PART I
Item 1. Description of Business
Business Development.
Kara International, Inc. (the "Company") was organized under the laws of
the State of Nevada on April 22, 1985. Detailed information respecting its
history is contained in the Company's 10-KSB Annual Report for the fiscal year
ended December 31, 1996, which has been previously filed with the Securities
and Exchange Commission, and is incorporated herein by reference. See Item 13
of this Report.
The only material business operations conducted by the Company during the
past year involved seeking and reviewing prospective business ventures which
could be acquired by acquisition, reorganization or merger.
The following material developments occurred during the fiscal year ended
December 31, 1997, to-wit:
Corporate Charter Amendments. Effective April 11, 1997, the Company
reverse split its outstanding voting securities on the basis of one common
share for five common shares, while retaining the authorized capital at
50,000,000 shares of $0.001 par value common voting, with appropriate
adjustments in the additional paid in capital and stated capital accounts of
the Company. A copy of the Certificate respecting this reverse split was
attached to the Company's 8-K Current Report dated April 11, 1997, which has
been previously filed with the Securities and Exchange Commission, and is
incorporated herein by reference. See Item 13 of this Report. All
computations hereinbelow take into account this reverse split.
Stock Issuances and Changes in Control. Pursuant to resolutions of the
Board of Directors adopted on February 28, 1997, the following "unregistered"
and "restricted" shares of the Company's common stock were issued for the
following consideration, to-wit: David C. Merrell, 50,000 shares, in
consideration of services valued at $1,250; and Michael C. Brown, 50,000
shares, in consideration of services valued at $1,250.
Effective February 28, 1997, the directors also resolved to issue 50,000
shares, for the following consideration, to certain consultants pursuant to a
written compensation agreement styled as the "Consultant Compensation
Agreement No. 1," as follows, to-wit: Leonard W. Burningham, Esq., 35,000
shares, in consideration of services valued at $825; Branden T. Burningham,
Esq., 10,000 shares, in consideration of services valued at $250; Sheryl Ross,
4,000 shares, in consideration of services valued at $100; and Brad
Burningham, 1,000 shares, in consideration of services valued at $25. A copy
of the Consultant Compensation Agreement No. 1 was filed as an exhibit to the
Company's S-8 Registration Statement which has been previously filed with the
Securities and Exchange Commission, and is incorporated herein by reference.
See Item 13 of this Report.
In an Action by Unanimous Consent of the Board of Directors and the
Majority Stockholder (David C. Merrell, who was then the President and a
director of the Company) taken pursuant to Sections 78.315 and 78.320 of the
Nevada Revised Statutes, resolutions were adopted to issue 4,000,000
"unregistered" and "restricted" shares of the Company's common voting stock to
David N. Nemelka, in consideration of the sum of $20,000. In connection with
the issuance of these shares of common stock, the directors and executive
officers of the Company, who were David C. Merrell, President and a director,
Michael C. Brown, Secretary/Treasurer and a director, resigned, and Mr.
Nemelka was designated, in seriatim, to serve as the sole director and the
President and Secretary of the Company. An 8-K Current Report dated April 11,
1997, describing this "change in control" has been previously filed with the
Securities and Exchange Commission, and is incorporated herein by reference.
See Item 13 of this Report.
Current Negotiations. The Company is currently negotiating to acquire
all of the outstanding voting securities of a privately held enterprise with
which it formerly had a Letter of Intent; the Letter of Intent has expired.
See the 8-K Current Report dated October 1, 1997, which has been previously
filed with the Securities and Exchange Commission, and is incorporated herein
by reference.
Business.
The only material business operations conducted by the Company during the
past year involved seeking and reviewing prospective business ventures which
could be acquired by acquisition, reorganization or merger. To
the extent that the Company intends to continue to seek the acquisition of the
assets, property or business that may benefit the Company and its
stockholders, the Company is essentially a "blank check" company. Because the
Company conducts no business and has no employees, management anticipates that
any such acquisition would require the Company to issue shares of its common
stock as the sole consideration for the acquisition. This may result in
substantial dilution of the shares of current stockholders. The Company's
Board of Directors shall make the final determination whether to complete any
such acquisition; the approval of stockholders will not be sought unless
required by applicable laws, rules and regulations, the Company's Articles of
Incorporation or Bylaws, or contract. Even if stockholder approval is sought,
David N. Nemelka, the Company's President, Secretary and sole director,
beneficially owns approximately 87% of the outstanding shares
of common stock of the Company, and could approve any acquisition,
reorganization or merger he deems acceptable. The Company makes no assurance
that any future enterprise will be profitable or successful.
The Company is not currently engaging in any substantive business
activity and has no plans to engage in any such activity in the foreseeable
future. In its present form, the Company may be deemed to be a vehicle to
acquire or merge with a business or company. The Company does not intend to
restrict its search to any particular business or industry, and the areas in
which it will seek out acquisitions, reorganizations or mergers may include,
but will not be limited to, the fields of high technology, manufacturing,
natural resources, services, research and development, communications,
transportation, insurance, brokerage, finance and all medically related fields
among others. The Company recognizes that the number of suitable potential
business ventures that may be available to it may be extremely limited, and
may be restricted to entities who desire to avoid what these entities may deem
to be the adverse factors include substantial time requirements, legal and
accounting costs, the inability to obtain an underwriter who is willing to
publicly offer and sell shares, the lack of or the inability to obtain the
required financial statements for such an undertaking, limitations on the
amount of dilution to public investors in comparison to the stockholders of
any such entities, along with other conditions or requirements imposed by
various federal and state securities laws, rules and regulations. Any of
these types of entities, regardless of their prospects, would require the
Company to issue a substantial number of shares of its common stock to
complete any such acquisition, reorganization or merger. For acquiring
companies with little or no assets, this usually amounts to between 80% to 95%
of the outstanding shares of a company similar to this Company
following the completion of any such transactions; because this Company
currently has substantial assets, management expects that the amount of common
stock to be issued will more than likely be based upon the relative assets of
the Company and any prospective acquisition, reorganization or merger
candidate, but will still be enough to transfer control of the Company to the
former principals of the acquired entity. Accordingly, investments in any
such private entity, if available, may tend to be much more favorable than any
investment in the Company.
In the event that the Company engages in any transaction resulting in a
change of control of the Company and/or the acquisition of a business, the
Company will be required to file with the Securities and Exchange Commission a
Current Report on Form 8-K within 15 days of such transaction. A filing on
Form 8-K also requires the filing of audited financial statements of the
business acquired, as well as pro forma financial information consisting of a
pro forma condensed balance sheet, pro forma statements of income and
accompanying explanatory notes. Management intends to consider a number of
factors prior to making any decision as to whether to participate in any
specific business endeavor, none of which may be determinative or provide any
assurance of success. These may include, but will not be limited to an
analysis of the quality of the entity's management personnel; the anticipated
acceptability of any; new products or marketing concepts; the merit of
technological changes; its present financial condition, projected growth
potential and available technical, financial and managerial resources; its
working capital, history of operations and future prospects; the nature of its
present and expected competition; the quality and experience of its management
services and the depth of its management; its potential for further research,
development or exploration; risk factors specifically related to its business
operations; its potential for growth, expansion and profit; the perceived
public recognition or acceptance of its products, services, trademarks and
name identification; and numerous other factors which are difficult, if not
impossible, to properly or accurately analyze, let alone describe or identify,
without referring to specific objective criteria.
Regardless, the results of operations of any specific entity may not
necessarily be indicative of what may occur in the future, by reason of
changing market strategies, plant or product expansion, changes in product
emphasis, future management personnel and changes in innumerable other
factors. Further, in the case of a new business venture or one that is in a
research and development mode, the risks will be substantial, and there will
be no objective criteria to examine the effectiveness or the abilities of its
management or its business objectives. Also, a firm market for its products
or services may yet need to be established, and with no past track record, the
profitability of any such entity will be unproven and cannot be predicted with
any certainty.
Management will attempt to meet personally with management and key
personnel of the entity sponsoring any business opportunity afforded to the
Company, visit and inspect material facilities, obtain independent analysis or
verification of information provided and gathered, check references of
management and key personnel and conduct other reasonably prudent measures
calculated to ensure a reasonably thorough review of any particular business
opportunity; however, due to time constraints of management, these activities
may be limited.
The Company is unable to predict the time as to when and if it may
actually participate in any specific business endeavor. The Company
anticipates that proposed business ventures will be made available to it
through personal contacts of directors, executive officers and principal
stockholders, professional advisors, broker dealers in securities, venture
capital personnel, members of the financial community and others who may
present unsolicited proposals. In certain cases, the Company may agree to pay
a finder's fee or to otherwise compensate the persons who submit a potential
business endeavor in which the Company eventually participates. Such persons
may include the Company's directors, executive officers, beneficial owners or
their affiliates. In the event, such fees may become a factor in negotiations
regarding a potential acquisition and, accordingly, may present a conflict of
interest for such individuals.
The possibility exists that the Company may acquire or merge with a
business or company in which the Company's executive officers, directors,
beneficial owners or their affiliates may have an ownership interest. Current
Company policy does not prohibit such transactions. Because no such
transaction is currently contemplated, it is impossible to estimate the
potential pecuniary benefits to these persons.
Further, substantial fees are often paid in connection with the
completion of these types of acquisitions, reorganizations or mergers, ranging
from a small amount to as much as $500,000. These fees are usually divided
among promoters or founders, after deduction of legal, accounting and other
related expenses, and it is not unusual for a portion of these fees to be paid
to members of management or to principal stockholders as consideration for
their agreement to retire a portion of the shares of common stock owned by
them. It is not expected that such fees will be paid to management of the
Company in connection with any such transaction. However, in the event that
such fees are paid, they may become a factor in negotiations regarding any
potential acquisition by the Company and, accordingly, may present a conflict
of interest for such individuals.
Principal Products and Services.
The limited business operations of the Company, as now contemplated,
involve those of a "blank check" company. The only activities to be conducted
by the Company are to manage its current assets and to seek out and
investigate the acquisition of any viable business opportunity by purchase and
exchange for securities of the Company or pursuant to a reorganization or
merger through which securities of the Company will be issued or exchanged.
Distribution Methods of the Products or Services.
Management will seek out and investigate business opportunities through
every reasonable available fashion, including personal contracts,
professionals, securities broker dealers, venture capital personnel, members
of the financial community and others who may present unsolicited proposals;
the Company may also advertise its availability as a vehicle to bring a
company to the public market through a "reverse" reorganization or merger.
Status of any Publicly Announced New Product or Service.
None; not applicable.
Competitive Business Conditions.
Management believes that there are literally thousands of "blank check"
companies engaged in endeavors similar to those engaged in by the Company;
many of these companies have substantial current assets and cash reserves.
Competitors also include thousands of other publicly-held companies whose
business operations have proven unsuccessful, and whose only viable business
opportunity is that of providing a publicly-held vehicle through which a
private entity may have access to the public capital markets. There is no
reasonable way to predict the competitive position of the Company or any other
entity in the strata of these endeavors; however, the Company, having
virtually no operating history, will likely be at a competitive disadvantage
in competing with entities which have recently completed IPO's and have
operating histories when compared with the extremely limited operating history
of the Company.
Sources and Availability of Raw Materials and Names of Principal Suppliers.
None; not applicable.
Dependence on One or a Few Major Customers.
None; not applicable.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or
Labor Contracts.
None; not applicable.
Need for any Governmental Approval of Principal Products or Services.
None; not applicable.
Effect of Existing or Probable Governmental Regulations on Business.
The integrated disclosure system for small business issuers adopted by
the Securities and Exchange Commission in Release No. 34-30968 and effective
as of August 13, 1992, substantially modified the information and financial
requirements of a "Small Business Issuer," defined to be an issuer that has
revenues of less then $25 million; is a U.S. or Canadian issuer; is not an
investment company; and if a majority-owned subsidiary, the parent is also a
small business issuer; provided, however, an entity is not a small business
issuer if it has a public float (the aggregate market value of the issuer's
outstanding securities held by non-affiliates) of $25 million or more.
The Securities and Exchange Commission, state securities commissions and
the North American Securities Administrators Association, Inc. ("NASAA") have
expressed an interest in adopting policies that will streamline the
registration process and make it easier for a small business issuer to have
access to the public capital markets. The present laws, rules and regulations
designed to promote availability to the small business issuer of these capital
markets and similar laws, rules and regulations that may be adopted in the
future will substantially limit the demand for "blank check" companies like
the Company, and may make the use of these companies obsolete.
Research and Development.
None; not applicable.
Cost and Effects of Compliance with Environmental Laws.
None; not applicable. However, environmental laws, rules and regulations
may have an adverse effect on any business venture viewed by the Company as an
attractive acquisition, reorganization or merger candidate, and these factors
may further limit the number of potential candidates available to the Company
for acquisition, reorganization or merger.
Number of Employees.
None.
Item 2. Description of Property.
The Company has virtually no assets, property or business; its principal
executive office address and telephone number are the office address and
telephone number of its President, David N. Nemelka, and are currently
provided at no cost. Because the Company has no business, its activities will
be limited to keeping itself in good standing in the State of Nevada and to
preparing and filing the appropriate reports with the Securities and Exchange
Commission. These activities have consumed an insubstantial amount of
management's time.
Item 3. Legal Proceedings.
The Company is not a party to any pending legal proceeding. To the
knowledge of management, no federal, state or local governmental agency is
presently contemplating any proceeding against the Company. No director,
executive officer or affiliate of the Company or owner of record or
beneficially of more than five percent of the Company's common stock is a
party adverse to the Company or has a material interest adverse to the Company
in any proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this Report.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information.
The Company's common stock was only recently listed on the OTC Bulletin
Board of the NASD under the symbol "KARA" on December 2, 1996; and there was
no listing or any market whatsoever for the Company's securities for at least
the five previous fiscal years.
No assurance can be given that any "established public market" will
develop in the common stock of the Company, regardless of whether the Company
is successful in completing any acquisition, reorganization or merger deemed
by management to be beneficial for the Company, or if any such market does
develop, that it will continue or be sustained for any period of time. Sales
of "restricted" securities by current and past members of management under
Rule 144 could also have an adverse effect on any market that does develop in
the future; this is also the case with respect to the shares issued to certain
consultants pursuant to an S-8 Registration Statement filed with the
Securities and Exchange Commission. See the heading "Business Development" of
Item 1 of this Report.
The following table sets forth the high and low bid prices for the Common
Stock based on closing transactions during each specified period as reported
by the Over-the-Counter Bulletin Board, which prices reflect inter-dealer
prices without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions:
Fiscal 1997 High Low
1st Quarter .125 .125
2nd Quarter .50 .50
3rd Quarter N/A N/A
4th Quarter $5.00 $4.00
Holders.
The number of record holders of the Company's common stock as of the date
of this Report is approximately 395.
Dividends.
The Company has not declared any cash dividends with respect to its
common stock and does not intend to declare dividends in the foreseeable
future. The future dividend policy of the Company cannot be ascertained with
any certainty, and until the Company completes any acquisition, reorganization
or merger, as to which no assurance may be given, no such policy will be
formulated. There are no material restrictions limiting, or that are likely
to limit, the Company's ability to pay dividends on its common stock.
Item 6. 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 calendar year ended December 31, 1997.
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 calendar
year ended December 31, 1997, nor the year ended December 31, 1996. General
and administrative expenses for the period ended December 31, 1996, were $
5,841, compared with $ 21,754 for the period ended December 31, 1997. These
increased expenses related primarily to bringing the Company's financial
statements current and related expenses.
Liquidity.
During the year ended December 31, 1997, 4,000,000 shares of the
Company's "unregistered" and "restricted" common stock were issued to David N.
Nemelka in consideration of $20,000.
Other Information.
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 7. Financial Statements.
Financial Statements for the years ended December 31, 1997 and 1996.
Independent Auditor's report.
Balance Sheets - December 31, 1997 and 1996.
Statements of Operations, for the years ended December 31, 1997 and 1996,
and for the cumulative period from January 1, 1989 Through December 31, 1997.
Statements of Stockholders' Equity (Deficit) for the cumulative period
from January 1, 1989 through December 31, 1997.
Statements of Cash Flows for the years ended December 31, 1997 and 1996,
and for the cumulative period from January 1, 1989 through December 31, 1997.
Notes to the Financial Statements.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There has been no change in the principal accountants of the Company
during the past three years.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Identification of Directors and Executive Officers.
The following table sets forth the names of all current directors and
executive officers of the Company and those persons who served as directors
and executive officers of the Company during the fiscal year ended December
31, 1997. These persons will serve until the next annual meeting of the
stockholders (to be held within 180 days after the end of each fiscal year) or
until their successors are elected or appointed and qualified, or their prior
resignation or termination.
Date of Date of
Election or Termination
Name Held Designation or Resignation
David N. Nemelka Director and 4/11/97 *
Pres/Sec/Treasurer
David C. Merrell Director and 5/4/94 4/11/97
President
Michael C. Brown Director and
Sec/Treasurer 5/4/94 4/11/97
* This person presently serves in the capacities indicated.
Business Experience.
David N. Nemelka Since December 1994, he has been the President and CEO
of McKinley Capital, an investment consulting company. From June 1993 to July
1994, he was an Assistant Brand Manager at Proctor and Gamble in Cincinnati,
Ohio. From September 1991 to May 1993, he attended the Wharton Business
School at the University of Pennsylvania from which he earned a MBA. From
August 1989 to August 1991, he served as CEO of Northstar Adventures, an
Alaska based fishing lodge, which he co-founded. From January 1989 to July
1994, he served as President of Tri-Nem, Inc. a public company that was merged
in July 1994 with Innovus Multimedia, Inc., a software development company.
From August 1988 to August 1991, he served as President and co-founder of
Certified Share Transfer Company, a stock transfer company. Mr. Nemelka
received his B.S. in business finance from Brigham Young University and his
MBA in finance from the Wharton Business School.
Significant Employees.
The Company has no employees who are not executive officers, but who are
expected to make a significant contribution to the Company's business.
Family Relationships.
There are no family relationships between any directors or executive
officer of the Company, either by blood or by marriage.
Involvement in Certain Legal Proceedings.
Except as stated below, during the past five years, no director, person
nominated to become a director, executive officer, promoter or control person
of the Company:
(1) was a general partner or executive officer of any business against
which any bankruptcy petition was filed, either at the time of the bankruptcy
or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses);
(3) Was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking
activities; or
(4) was found by a court of competent jurisdiction (in a civil action),
the Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities law,
and the judgement has not been reversed, suspended or vacated.
Compliance with Section 16(a) or the Exchange Act.
The Company is not subject to Section 16(a) of the Securities Exchange
Act of 1934, as amended, as the Company files its Reports pursuant to Section
15(d) thereof.
Item 10. Executive Compensation.
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the periods indicated:
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur- All
Other ities Other
Name and Year or Annual Rest- Under- LTIP Com-
Principal Period Salary Bonus Compen- ricted lying Pay- pensa-
Position Ended ($) ($) sation Stock Options out tion*
David N.
Nemelka, 12/31/97 0 0 0 0 0 0 0
President
Sec/Treas
Director
David C. 12/31/96 0 0 0 0 0 0 0
Merrell, 12/31/97 0 0 0 * 0 0 0
President,
Director
Michael C.
Brown, 12/31/96 0 0 0 0 0 0 0
Sec/Treas 12/31/97 0 0 0 * 0 0 0
Director
* For information regarding compensation paid to Messrs. Merrell and
Brown by the issuance of "unregistered" and "restricted" securities of the
Company, see the heading "Business Development" of Item 1 of this Report.
No other cash compensation, deferred compensation of long-term incentive
plan awards were issued or granted to the Company's management during the
calendar years ending December 31, 1997 or 1996, or the period ending on the
date of this Report.
Compensation of Directors.
There are no standard arrangements pursuant to which the Company's
directors are compensated for any services provided as director. No
additional amounts are payable to the Company's directors of Committee
participation or special assignments.
There are no arrangements pursuant to which any of the Company's
directors was compensated during the Company's last completed fiscal year for
any service provided as director.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements.
There are no employment contracts, compensatory plans or arrangements,
including payments to be received from the Company, with respect to any
director or executive officer of the Company which would in any way result in
payments to any such person because of his or her resignation, retirement or
other termination or employment with the Company or any subsidiary, any change
in control of the Company, or a change in the person's responsibilities
following a change in control of the Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Certain Beneficial Owners.
The following table sets forth the shareholdings of those persons who own
more than five percent of the Company's common stock as of December 31, 1997,
and to the date of this Report, with the computations being based upon
4,559,761 shares of common stock being outstanding:
Number of Number of
Shares Shares
Beneficially Percent Beneficially Percent
Name and Address Owned - 12/31/97 of Class Owned - 2/13/97 of Class
David N. Nemelka 4,004,000 87.7% 4,004,000 87.7%
897 South Artistic Cr.
Springville, UT 84663
*Summer Ventures, Inc. 259,000 5.7% 184,600 4%
1310 East 1600 South
Mapleton, UT 84664
* Summer Ventures is wholly-owned by David R. Nemelka, the father of
David N. Nemelka. David R. Nemelka disclaims an "affiliate" status because
these persons do not reside together, each make his own investment decisions
and David N. Nemelka owns sufficient voting securities of the Company to elect
all directors and executive officers.
Security Ownership of Management.
The following table sets forth the shareholdings of the Company's
directors and executive officers as of December 31, 1997, and to the date of
this Report, with the computations being based upon 4,559,761 shares of common
stock being outstanding:
Number of Shares
Beneficially Owned Percentage of
As of 12/31/97 Class
David N. Nemelka* 4,004,000 87.7%
897 S. Artistic Circle
Springville, UT 84663
All officers and directors
as a group (1) 4,004,000 87.7%
* See Item 9 of this Report for information concerning the offices or
other capacities in which the foregoing person served with the Company.
Changes in Control.
There are no present arrangements or pledges of the Company's securities
which may result in a change in control of the Company.
Item 12. Certain Relationships and Related Transactions.
Transactions with Management and Others.
Except as indicated under Item 1 of this Report, there have been no
material transactions, series of similar transactions, currently proposed
transactions, or series of similar transactions, to which the Company or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any director or executive officer, or any
security holder who is known to the Company to own of record or beneficially
more than five percent of the Company's common stock, or any member of the
immediate family of any of the foregoing persons, had a material interest.
Certain Business Relationships.
Except as indicated under Item 1 of this Report, there have been no
material transactions, series of similar transactions, currently proposed
transactions, or series of similar transactions, to which the Company or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any director or executive officer, or any
security holder who is known to the Company to own of record or beneficially
more than five percent of the Company's common stock, or any member of the
immediate family of any of the foregoing persons, had a material interest.
Parents of the Issuer.
The Company has no parents.
Transactions with Promoters.
Except as indicated under Item 1 or this Report, there have been no
material transactions, series of similar transactions, currently proposed
transactions, or series of similar transactions, to which the Company or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any promoter or founder, or any member of the
immediate family of any of the foregoing persons, had a material interest.
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) (i) Documents Incorporated Herein by Reference.
Where Incorporated
In This Report
10-KSB Annual Report for the Part I
fiscal year ended December 31, 1996
Initial Articles of Incorporation of
R & D Connections, Inc.
Articles of Amendment regarding name
change to "Kara International, Inc."
Certificate of Amendment regarding
reverse split
Financial Data Schedule
S-8 Registration Statement Part I
Opinion regarding Legality
Consent of Leonard W. Burningham, Esq.
Consent of Pritchett, Siler & Hardy,
Certified Public Accountants
Consultant Compensation Agreement No. 1
8-K Current Report dated April 11, 1997 Part I
Certificate of Amendment respecting
reverse split
(ii) Exhibits.
Exhibit
Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K.
8-K Current Report dated September 16, 1997.
News Release
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:2/13/98 By /s/ David N. Nemelka
President, Secretary and Director
<PAGE>
KARA INTERNATIONAL, INC.
[A Development Stage Company]
FINANCIAL STATEMENTS
December 31, 1997 AND 1996
PRITCHETT, SILER & HARDY, P.C.
INDEPENDENT AUDITORS' REPORT
Board of Directors
KARA INTERNATIONAL, INC.
Salt Lake City, Utah
We have audited the accompanying balance sheets of Kara International, Inc. [a
development stage company] at December 31, 1997 and 1996, and the related
statements of operations, stockholders' equity (deficit) and cash flows for
the years ended December 31, 1997 and 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test bases,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements audited by us present fairly, in all
material respects, the financial position of Kara International, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years ended December 31, 1997 and 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 6 to the financial
statements, the Company has suffered losses since inception, has a
stockholders' deficit and has expended most of its working capital, raising
substantial doubt about its ability to continue as a going concern.
Managements' plans in regards to these matters are also described in Note 6.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
/s/ Pritchett, Siler & Hardy, P.C.
<PAGE>
<TABLE>
KARA INTERNATIONAL, INC.
[A Development Stage Company]
BALANCE SHEETS
<CAPTION>
ASSETS
Dec. 31, 1997 Dec. 31, 1996
<S> <C> <C>
CURRENT ASSETS:
Cash $ 491 163
Total Current Assets 491 163
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable 3,804 723
Advance from shareholder - 4,749
Total Current Liabilities 3,804 5,472
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value,
50,000,000 shares authorized,
2,048,810 shares issued and
Outstanding 4,560 410
Capital in excess of par
value 1,141,367 1,121,767
Retained earnings (deficit)(1,134,783) (1,134,783)
Earnings (deficit)
accumulated during the
development stage (14,457) 7,297
Total Stockholders'
Equity (Deficit) (3,313) (5,309)
$ 491 $ 163
</TABLE>
<TABLE>
KARA INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENTS OF OPERATIONS
For the Year For the Year Cumulative From
Ended Ended January 1, 1989
Dec. 31 Dec. 31 through Dec. 31
1997 1996 1997
<S> <C> <C> <C>
REVENUE:
Interest income $ -- $ -- $ --
EXPENSES:
General and
administration 21,754 5,841 28,962
Interest Expense -- -- 161,459
Total Expenses: 21,754 5,841 190,421
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS (21,754) (5,841) (190,421)
CURRENT INCOME TAX EXPENSE -- -- --
DEFERRED INCOME TAX EXPENSE -- -- --
(LOSS) BEFORE DISCONTINUED
OPERATIONS (21,754) (5,841) (190,421)
(LOSS) FROM OPERATIONS OF
DISCONTINUED SUBSIDIARY
(NO TAX EFFECT) -- -- (27,426)
GAIN ON DISPOSAL OF DISCONTINUED
SUBSIDIARY -- -- 203,390
NET INCOME (LOSS) $(21,754) $(5,841) $(14,457)
INCOME (LOSS) PER COMMON SHARE
(Loss) from continuing
Operations $ (.01) $ (.00) $ (.40)
(Loss) from discontinued
Operations .00 .00 (.06)
Gain on disposal of
discontinued operations .00 .00 .43
INCOME (LOSS) PER COMMON SHARE: $(.01) $ (.00) $ (.03)
</TABLE>
<PAGE>
<TABLE>
KARA INTERNATIONAL, INC.
[A development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE CUMULATIVE PERIOD FROM JANUARY 1, 1989
THROUGH DECEMBER 31, 1997
<CAPTION>
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 13,952 $ 14 $ 688,805 $(1,134,783) $ --
Net income for the
period ended
December 31, 1989 -- -- -- -- 160,520
BALANCE,
December 31, 1989 13,952 14 688,805 (1,134,783) 160,520
Net loss for the
year ended
December 31, 1990 -- -- -- -- (31,300)
BALANCE,
December 31, 1990 13,952 14 688,805 (1,134,783) 129,220
Net loss for the
year ended
December 31, 1991 -- -- -- -- (31,300)
BALANCE,
December 31, 1991 13,952 14 688,805 (1,134,783) 97,920
Net loss for the
year ended
December 31, 1992 -- -- -- -- (31,300)
BALANCE,
December 31, 1992 13,952 14 688,805 (1,134,783) 66,620
Net loss for the
year ended
December 31, 1993 -- -- -- -- (31,300)
BALANCE,
December 31, 1993 13,952 14 688,805 (1,134,783) 35,320
Issuance of 16,000
shares to a related
party as payment for a
judgment related to a
note payable and
related interest
November, 1994 16,000 16 431,443 -- --
Net loss for the
year ended
December 31, 1994 -- -- -- -- (21,895)
BALANCE,
December 31, 1994 29,952 30 1,120,248 (1,134,783) 13,425
Issuance of 379,810
shares to officers and
shareholders to repay
amounts previously
advanced for
investments at $.005
per share
January, 1995 379,810 380 1,519 -- --
Net loss for the
year ended
December 31, 1995 -- -- -- -- (287)
BALANCE,
December 31, 1995 409,761 410 1,121,767 (1,134,783) 13,138
Net loss for the
period ended
December 31, 1996 -- -- -- -- (5,841)
BALANCE,
December 31, 1996 409,761 410 1,121,767 (1,134,783) 7,297
Issuance of 150,000
shares in payment of
consulting fees at
$.005 per share 150,000 150 3,600 -- --
Issuance of 4,000,000
shares for cash at
$.005 per share, to an
officer/director of
the Company 4,000,000 4,000 16,000 -- --
Net loss for the
year ended
December 31, 1997 -- -- -- -- (21,754)
BALANCE,
December 31, 1997 4,559,761 4,560 1,141,367 $(1,134,783) $(14,457)
</TABLE>
<TABLE>
KARA INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Year For the Year Cumulative from
Ended Ended January 1, 1989
December 31 December 31 December 31
1997 1996 1997
<S> <C> <C> <C>
Cash Flows to operating Activities:
Net income (loss) $(21,754) $ (5,841) $ 7,297
Adjustments to reconcile net
Income to net cash used by
Operating activities:
Non-cash expenses (income) -- -- (14,505)
Changes in assets and liabilities:
Accounts payable 3,081 723 723
Net Cash Flows to Operating
Activities (18,673) (5,118) (6,485)
Cash Flows from Investing
Activities -- -- --
Net Cash Flows used by
Investing Activities -- -- --
Net Cash From Financing Activities:
Proceeds from common
stock issuance 23,750 -- --
Advances by shareholders (4,749) 4,668 6,648
Net Cash From Financing
Activities 19,001 4,668 6,648
Net Increase (Decrease) in Cash 328 (450) 163
Cash at Beginning of Period 163 613 --
Cash at End of Period $ 491 $ 163 $ 163
Supplemental Disclosures of Cash Flow information:
Cash paid during the period for:
Interest $ -- $ -- $ --
Income taxes $ -- $ -- $ --
</TABLE>
Supplemental schedule of Non-cash Investing and Financing Activities:
For the period ended December 31, 1997:
The Company issued 150,000 shares of common stock in payment of consulting
services rendered, valued at $3,750 or $.001 per share
For the period ended December 31, 1996:
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 confectionary
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 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.
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 1996 have
been reclassified to conform to the titles and headings used in the 1996
financial statements.
Stock Split - During April, 1997, the Board of Directors authorized a 1 for
5 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 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.
NOTE 2 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". FASB
109 requires the Company to provide a net deferred tax asset/liability equal
to the expected future tax benefit/expenses of temporary reporting differences
between book and tax accounting methods and any available operating loss or
tax credit carryforwards.
The Company has available at December 31, 1997, unused operating loss
carryforwards of approximately $1,000,000 which may be applied against future
taxable income and which expire in various years from 1999 through 2012.
However, due to substantial changes in the Company's ownership, there will be
limitations on the actual amount of net operation 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 tax effect of the current periods 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 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 its operations, there were 13,952 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 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. However, 50,000
shares each were issued to two former officers and directors as compensation
during February, 1997, valued at $1,250 each or $.005 per share. per share.
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 the unpaid balance owing the shareholder/officer was $ 81.
During 1996, a shareholder made advances of $ 4,668 to the Company. During
1997, the Company repaid advances totaling $4,749 to an officer/shareholder.
At December 31, 1997 the advances owing a shareholder/officer amounted to $0.
Stock Issued - In January, 1995, the Company issued 379,810 shares to
shareholders and officers to reduce shareholder advances, valued at $.005 per
share.
NOTE 5 - COMMON STOCK
During April, 1997, the Company issued 4,000,000 shares of common stock to an
officer/director of the Company for $20,000 cash or $.005 per share.
During February, 1997, the Company issued 50, 000 shares of common stock to
consultants of the Company for compensation, valued at $1,250 or $.005 per
share.
During February, 1997, the Company issued 100,000 shares of common stock to
former officers/directors of the Company for compensation, valued at $2,500 or
$.005 per share
Public Stock Offering - The Company previously completed a public offering of
2,123 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 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 379,810 shares of
common stock to shareholders and officers to repay previous advances made by
the shareholders.
Stock Split - On April 9, 1997, the Board of Directors authorized a 1 for 5
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 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 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 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 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 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 8 - SUBSEQUENT EVENTS
Proposed Business Acquisition
The Company continues to investigate and seek potential investments or
business acquisitions, which would likely be structured as a stock-for-stock
business acquisition.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 491
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 491
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 491
<CURRENT-LIABILITIES> 3804
<BONDS> 0
0
0
<COMMON> 4560
<OTHER-SE> (7873)
<TOTAL-LIABILITY-AND-EQUITY> 491
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 21754
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (21754)
<INCOME-TAX> 0
<INCOME-CONTINUING> (21754)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21754)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
