UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended September 30, 1998 Commission File Number 0-23236-NY
MASTER GLAZIER'S KARATE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3234110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
79 Express Street
Plainview, New York 11803
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (516) 942-0860
500 N. Broadway, Suite 240, Jericho, New York 11753
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of November 15, 1998 there were 4,070,002 shares of $.0001 par value common
stock outstanding.
Transitional Small Business Disclosure Format
Yes No X
<PAGE>
MASTER GLAZIER'S KARATE INTERNATIONAL, INC. AND SUBSIDIARIES
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INDEX TO FORM 10-QSB
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Item 1: Financial Statements:
Consolidated Balance Sheet..................................... 1.....2
Consolidated Statements of Operations.......................... 3
Consolidated Statements of Cash Flows.......................... 4
Notes to Consolidated Financial Statements..................... 5
Item 2:Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 6.....7
Signature Page................................................... 8
. . . . . . . . .
<PAGE>
Item 1: Financial Statements
MASTER GLAZIER'S KARATE INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998.
[UNAUDITED]
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Assets:
Current Assets:
Cash and Cash Equivalents $ 567,933
Cash Held in Escrow 933
Marketable Securities 167,200
Accounts Receivable - Net 72,162
Inventory 587,785
Prepaid Expenses and Miscellaneous Receivables 19,338
-----------
Total Current Assets 1,415,351
Property and Equipment:
Office Equipment 72,903
Furniture and Fixtures 86,122
Leasehold Improvements 103,385
Vehicles 32,558
-----------
Total - At Cost 294,968
Less: Accumulated Depreciation 194,427
Property and Equipment - Net 100,541
-----------
Other Assets:
Loan Receivable - Officer 321,070
Security Deposits 74,860
Total Other Assets 395,930
Total Assets $ 1,911,822
===========
The Accompanying Notes are an Integral Part of These Financial Statements.
1
<PAGE>
MASTER GLAZIER'S KARATE INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998.
[UNAUDITED]
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Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 255,407
Deferred Revenue 134,100
-----------
Total Current Liabilities 389,507
Long-Term Liability:
Deferred Revenue 59,934
Total Liabilities 449,441
Commitments and Contingencies --
Stockholders' Equity:
Preferred Stock, No Par Value; 1,000,000 Shares Authorized --
Common Stock, $.0001 Par Value; 40,000,000 Shares
Authorized, 4,070,002 Issued and Outstanding 407
Paid-in Capital 8,237,831
Unrealized Holding Loss (7,480)
Accumulated Deficit (6,768,377)
Total Stockholders' Equity 1,462,381
Total Liabilities and Stockholders' Equity $ 1,911,822
===========
The Accompanying Notes are an Integral Part of These Financial Statements.
2
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MASTER GLAZIER'S KARATE INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
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<TABLE>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1 9 9 8 1 9 9 7 1 9 9 8 1 9 9 7
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales $ 161,366 $ 148,450 $ 485,286 $ 515,276
----------- ----------- ---------- -----------
Cost and Expenses:
Cost of Accessories Sold 33,323 6,330 64,474 23,284
Salaries and Payroll Taxes 134,217 131,523 433,951 417,611
Rent Expense 48,942 38,625 114,234 118,889
Other General and Administrative
Expenses 60,397 79,596 255,552 280,597
----------- ----------- ---------- -----------
Total Costs and Expenses 276,879 256,074 868,211 840,381
----------- ----------- ---------- -----------
[Loss] from Operations (115,513) (107,624) (382,925) (325,105)
----------- ----------- ---------- -----------
Other Income [Expense]:
Interest Income 8,278 48,795 49,870 138,425
Lease Cancellation Fee -- -- -- (76,707)
Gain on Sale of Securities -- 2,095 -- 10,532
Bad Debts (195,980) -- (195,980) --
----------- ----------- ---------- -----------
Other Income [Expense] - Net (187,702) 50,890 (146,110) 72,250
----------- ----------- ---------- -----------
[Loss] Before Federal and
State Taxes (303,215) (56,734) (529,035) (252,855)
Provision for Income Taxes -- -- -- --
----------- ----------- ---------- -----------
Net [Loss] $ (303,215)$ (56,734) $ (529,035) $ (252,855)
=========== =========== ========== ===========
Net [Loss] Per Share $ (.07)$ (.01) $ (.13) $ (.06)
=========== =========== ========== ===========
Weighted Average Shares
Outstanding 4,070,002 4,070,002 4,070,002 4,070,002
=========== =========== ========== ===========
The Accompanying Notes are an Integral Part of These Financial Statements.
</TABLE>
3
<PAGE>
MASTER GLAZIER'S KARATE INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
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Nine months ended
September 30,
1 9 9 8 1 9 9 7
------- -------
Operating Activities:
Net [Loss] $ (529,035) $ (252,855)
---------- -----------
Adjustments to Reconcile Net [Loss] to Net Cash
[Used for] Operating Activities:
Depreciation and Amortization 22,294 29,891
[Gain] on Sale of Assets -- (1,836)
Bad Debts 195,980 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (57,665) (25,211)
Inventory (575,455) 5,499
Prepaid Expenses (11,098) (77,710)
Accrued Interest Receivable 7,703 --
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 98,281 (66,956)
Deferred Revenue (68,559) 34,008
---------- -----------
Total Adjustments (388,519) (102,315)
---------- -----------
Net Cash - Operating Activities (917,554) (355,170)
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Investing Activities:
Purchase of Securities Available for Sale -- (405,500)
Loans to Officer (396,070) --
Officer Loan Repayments 75,000 --
Investment in Limited Partnership -- 15,295
Purchase of Property and Equipment (14,379) (1,943)
Proceeds from Sale of Assets 23,820 232,000
Payments Received on Notes Receivable 9,354 46,666
Security Deposits (21,404) (14,363)
---------- -----------
Net Cash - Investing Activities (323,679) (127,845)
---------- -----------
Financing Activities:
Proceeds from Stock Exchange Agreement -- 900,000
Stock Issuance Costs -- (43,789)
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Net Cash - Financing Activities -- 856,211
---------- -----------
Net [Decrease] Increase in Cash and Cash Equivalents (1,241,233) 373,196
Cash and Cash Equivalents - Beginning of Periods 1,809,166 1,332,776
---------- -----------
Cash and Cash Equivalents - End of Periods $ 567,933 $ 1,705,972
========== ===========
The Accompanying Notes are an Integral Part of These Financial Statements.
4
<PAGE>
MASTER GLAZIER'S KARATE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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[1] Summary of Significant Accounting Policies
Significant accounting policies of Master Glazier's International, Inc. and
subsidiaries are set forth in the Company's Form 10-KSB for the year ended
December 31, 1997 as filed with the Securities and Exchange Commission.
[2] Basis of Reporting
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10- QSB. Accordingly, they do not include all
of the information and disclosures required by generally accepted accounting
principles for completed financial statements. In the opinion of management,
such statements include all adjustments [consisting only of normal recurring
items] which are considered necessary for a fair presentation of the financial
position of the Company at September 30, 1998, and the results of its operations
for the three and nine months then ended and its cash flows for the nine months
then ended. It is suggested that these financial statements be read in
conjunction with the financial statements and notes for the year ended December
31, 1997 included in the Master Glazier's Karate International, Inc. Form
10-KSB.
Earnings per share for the nine months ended September 30, 1998 were not
adjusted for the exercise of options and warrants outstanding since their
assumed exercise would be anti-dilutive.
[3] Asset Purchase Agreement
During March 1997, the Company completed its closing on the sale of
substantially all of the assets of five of its karate centers located in New
Jersey and New York to Tiger Shulmann's Karate ["TSK"]. In consideration for the
purchase of the assets, TSK paid the Company an aggregate of $505,000 at
closing, consisting of $225,000 in cash, and an aggregate of $280,000 in three
promissory notes.
The remaining unpaid balance on the promissory notes of $195,980 was fully
reserved at September 30, 1998.
[4] Other Events
On April 15, 1998, Master Glazier's Karate International, Inc. [the
"Registrant"] was advised by the NASDAQ Stock Market that it failed to meed the
continued listing requirements of the NASDAQ Stock Market.
In April 1998, the Registrant commenced operating a new vitamin and nutritional
supplement business [the "Supplement Business"] based in New York, the
Supplement Business intends to distribute, market and sell vitamins, nutritional
supplements and non-pharmaceutical over-the-counter products to both wholesale
and retail markets as well as acting as a fulfillment center for the
distribution of nutritional products, for third party companies.
The Company is relocating its offices from Jericho, New York to Plainview, New
York. The Company entered into a 3-year lease with an initial annual rent of
$101,858 with 4% annual increases.
The Company is currently entering into agreements to sell its two remaining
karate centers located in Pennsylvania.
. . . . . . . . .
5
<PAGE>
Item 2:
MASTER GLAZIER'S KARATE INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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Results of Operations
Revenues for the nine months ended September 30, 1998 were $485,286 as compared
with $515,276 for the nine months ended September 30, 1997. The Company reported
a net [loss] for the nine months ended September 30, 1998 and 1997 of $(529,035)
and $(252,855), respectively. The increase in the net loss is mainly attributed
to the Company's decision to fully reserve the notes receivable due from Tiger
Shulmann's Karate. This event accounted for $195,980 of the net loss at
September 30, 1998. The Company has also made a decision to divest itself from
the martial arts business and devote its operations and resources to the vitamin
and nutritional supplement business. The Company intends to distribute, market
and sell vitamins, nutritional supplements and non-pharmaceutical
over-the-counter products to both wholesale and retail markets as well as acting
as a fulfillment center for the distribution of nutritional products, for third
party companies. For the nine months ended September 30, 1998, the Company had
revenues of $82,851 from these activities.
The major components of general and administrative expenses for the periods
discussed are as follows:
September 30,
1 9 9 8 1 9 9 7
Salaries and Payroll Taxes $ 433,951 $ 417,611
Rent 114,234 118,889
Other General and Administrative Expenses 255,552 280,597
---------- ----------
Totals $ 803,737 $ 817,097
------ ========== ==========
Liquidity and Capital Resources
Cash and cash equivalents [decreased]/increased for the nine months ended
September 30, 1998 and 1997 by $(1,241,233) and $373,196, respectively. Cash and
cash equivalents utilized for operations for the nine months ended September 30,
1998 and 1997 was $917,554 and $355,170, respectively.
Cash and cash equivalents used in investing activities for the nine months ended
September 30, 1998 and 1997 was $323,679 and $127,845, respectively. During
1998, advances were made to an officer of the Company totaling $396,000.
Cash and cash equivalents from financing activities for the nine months ended
September 30, 1997 was $856,211. This was a result of the net proceeds from the
Stock Exchange Agreement.
6
<PAGE>
MASTER GLAZIER'S KARATE INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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Year 2000
Many existing computer systems, including certain of the Company's internal
systems, use only the last two digits to identify years in the date field. As a
result, these computer systems do not properly recognize a year that begins with
"20" instead of the familiar "19," or may not function properly with years later
than 1999. If not corrected, many computer applications could fail or create
erroneous results. This is generally referred to as the "Year 2000" or "Y2K"
issue. Computer systems that are able to deal correctly with dates after 1999
are referred to as "Year 2000 compliant."
With respect to the Company's internal systems and operations, its main internal
computer system, which processes information to prepare inventories, purchase
orders, invoices and accounting functions is Y2K compliant. To date, the Company
is currently determining whether to update or replace other internal computer
systems to ensure compliance. The costs involved in such an update and/or
replacement have not yet been estimated. As of the filing of this report, the
Company has not prepared a contingency plan and will assess the need for such a
plan when sufficient information has been provided by third parties with whom
the Company has a material relationship. The Company learned from the product
vendors and suppliers with whom it has a material relationship that they are Y2K
compliant. The Company is currently in the process of ascertaining whether its
internal systems other than its computer systems, and other suppliers are Y2K
compliant. Because of the uncertainties involved, pending receipt of this
information, it is not possible to estimate the effect upon the Company, for
example, the amount of lost revenues, if its material vendors, suppliers and
customers were not Y2K compliant.
7
<PAGE>
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1994, the
Registrant has duly caused this report on form 10-QSB to be signed on its behalf
by the undersigned thereunto duly authorized.
Master Glazier's Karate International, Inc.
Date: November 19, 1998 By: /s/ Mark Glazier
---------------------------------
Mark Glazier, Chief Financial Officer
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of operations and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Sep-30-1998
<CASH> 568,866
<SECURITIES> 167,200
<RECEIVABLES> 72,162
<ALLOWANCES> 0
<INVENTORY> 587,785
<CURRENT-ASSETS> 1,415,351
<PP&E> 294,968
<DEPRECIATION> 194,427
<TOTAL-ASSETS> 1,911,822
<CURRENT-LIABILITIES> 389,507
<BONDS> 0
0
0
<COMMON> 407
<OTHER-SE> 1,461,974
<TOTAL-LIABILITY-AND-EQUITY> 1,911,822
<SALES> 485,286
<TOTAL-REVENUES> 485,286
<CGS> 64,474
<TOTAL-COSTS> 858,211
<OTHER-EXPENSES> 146,110
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (529,035)
<INCOME-TAX> 0
<INCOME-CONTINUING> (529,035)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (529,035)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
