U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 2
TO
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION
12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
TANGIBLE ASSET GALLERIES, INC.
(Name of small business issuer in its charter)
NEVADA 88-0396772
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
1550 S. PACIFIC COAST HIGHWAY, SUITE 103
LAGUNA BEACH, CALIFORNIA 92651
(Address of Principal Executive Offices) (Zip Code)
(949) 376-2660
(Registrant's Telephone Number, Including Area Code)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(None)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $0.001
Title of Class
<PAGE>
TABLE OF CONTENTS
-------------------
PART I
Item 1 Description of Business.
Item 2 Management's Discussion and Analysis or Plan of Operation.
Item 3 Description of Property.
Item 4 Security Ownership of Certain Beneficial Owners and Management.
Item 5 Directors, Executive Officers, Promoters and Control Persons.
Item 6 Executive Compensation.
Item 7 Certain Relationships and Related Transactions.
Item 8 Description of Securities.
PART II
Item 1 Market Price of and Dividends on the Registrant's Common Equity
and Other Shareholder Matters.
Item 2 Legal Proceedings.
Item 3 Changes In and Disagreements With Accountants.
Item 4 Recent Sales of Unregistered Securities.
Item 5 Indemnification of Directors and Officers.
PART F/S
Financial Statements.
PART III
Item 1 Index to Exhibits.
Item 2 Description of Exhibits.
<PAGE>
PART I
This Registration Statement includes forward-looking statements within the
meaning of the Securities Exchange Act of 1934 (the "Exchange Act"). These
statements are based on management's beliefs and assumptions, and on information
currently available to management. Forward-looking statements include the
information concerning possible or assumed future results of operations of the
Company set forth under the heading "Financial Information-Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Forward-looking statements also include statements in which words such as
"expect," "anticipate," "intend," "plan," "believe," "estimate," "consider" or
similar expressions are used.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. The Company's future results and
shareholder values may differ materially from those expressed in these
forward-looking statements. Readers are cautioned not to put undue reliance on
any forward-looking statements. In addition, the Company does not have any
intention or obligation to update forward-looking statements after the
effectiveness of this Registration Statement, even if new information, future
events or other circumstances have made them incorrect or misleading.
ITEM 1 - DESCRIPTION OF BUSINESS
- --------------------------------
Tangible Asset Galleries, Inc. ("Tangible" or the "Company") is a retailer and
wholesaler of rare coins, fine art, and antique collectibles. The Company was
organized as a Nevada corporation on August 30, 1995 and is currently based in
Laguna Beach, California.
On April 28, 1999, Tangible Asset Galleries, Inc. (which at the time was
designated Austin Land & Resources, Inc., a Nevada corporation ("Austin"))
acquired all of the outstanding common stock of Tangible Investments of America,
Inc., a Pennsylvania corporation ("TIA") in a business combination described as
a "reverse acquisition." For accounting purposes, the acquisition has been
treated as the acquisition of Austin (the Registrant) by TIA. TIA was
originally incorporated in Pennsylvania in 1984. At the time of its reverse
acquisition with Austin, TIA operated as retailer and wholesaler of rare coins,
fine art, and antique collectibles. TIA agreed to be acquired by the Company in
order to become a publicly trade company. Management of TIA believes that the
Company's status as a publicly traded company would facilitate the raising of
capital. Prior to the acquisition by Austin, management of TIA had no
relationship with the Company.
Immediately prior to the acquisition, Austin had 1,650,000 shares of Common
Stock outstanding. As part of Austin's reorganization with TIA, Austin issued
16,000,000 shares of its Common Stock to the shareholders of TIA in exchange for
490 (100%) shares of TIA Common Stock. Immediately following the merger, TIA
changed its name to "Tangible Asset Galleries, Inc." Austin had no revenues and
no significant operations prior to the merger. Subsequent to the acquisition,
the former shareholders of TIA constituted approximately 88% of the total
outstanding shares of the Common Stock of the Company and the original
shareholders of Austin constituted approximately 9% of the total outstanding
shares of the Common Stock of the Company.
BUSINESS OF THE ISSUER
The Company's principal line of business is the sale of rare coins on a retail
and wholesale basis. Additionally, the Company also offers primarily on a
retail basis, collectibles such as fine artworks, antique furniture, lamps,
pottery, and china. The Company's primary storefront is currently located in
Laguna Beach, California. This location serves as the Company's headquarters
and primary retail outlet. Beginning in January 2000, the Company intends to
relocate all of its Southern California operations to its new headquarters and
primary retail outlet located in Newport Beach, California. The Company's
services are also marketed nationwide through broadcasting and print media and
independent sales agents.
1
<PAGE>
Beginning on September 1, 1999, the Company launched the first phase of its
Internet auction Web site located at www.tangibleassets.com. The first phase
offered the sale of rare coins by the Company to the public via an auction
format. On October 1, 1999, the Company initiated the second phase of its
Internet auction Web site, expanding it to offer the sale collectibles via an
auction format. The Company's auction site offers graded and certified coins
and guarantees as to authenticity and condition of all items offered for sale.
In contrast to other auction sites such as Ebay.com, where the site operator
merely acts as a facilitator of transactions, the Company will act as principals
in its auctions. This means that the Company will evaluate offerings, collect
funds, pay consignors, and therefore seek to eliminate the risks to the public
of bidding on items sold by unknown third parties. To date, there are only a
small number of auction Web sites which offer guarantees comparable to the
Company's.
The Company also currently publishes a monthly newsletter, distributed to its
existing customers detailing and describing current events in the numismatic and
collectibles world. The Company's newsletter also provides customers with the
opportunity to view the Company's current rare coin and collectibles offerings
as well as order such offerings via telephone.
On May 28, 1999, the Company expanded its operations by opening a retail outlet
in the Las Vegas area. The Company believes that the Las Vegas area is viewed
as a prime location for development in the coin and art collection arena and the
Company is working on strategies to significantly expand that marketplace. In
June 1999, the Company opened a Tustin, California customer service center,
staffed by trained professionals who are tasked with answering customer
inquiries regarding the Company's monthly newsletter as well responding to
customer requests regarding availability of certain collectibles.
HISTORY OF THE COMPANY
TIA, the Company's predecessor, was originally founded by the Company's current
president, Silvano DiGenova in 1977 when Mr. DiGenova first exhibited his coins
at a national coin dealer's convention. That same year, Mr. DiGenova first
became involved in other collectibles such as fine arts and antiques. Mr.
DiGenova has collected rare coins since 1971 (when he was nine years old) and by
age 13 was trading coins among his peers. While attending the Wharton School of
Business in the early 1980s, Mr. DiGenova continued to develop TIA, and in May
1984, Mr. DiGenova, prior to graduating, took a leave of absence from Wharton
and incorporated TIA in Pennsylvania.
In 1991, Mr. DiGenova relocated TIA to Laguna Beach, California and continued to
develop TIA's rare coin, fine art and collectibles retail and wholesale
business, continuing to expand it on a national level. The Company currently
provides coins, fine arts and collectibles on a wholesale level to many retail
outlets across the nation and conducts retail sales via telephone to virtually
every state in the United States and several countries around the world.
As previously discussed above, TIA was acquired by the Company on April 28,1999.
BACKGROUND OF THE COIN AND COLLECTIBLES INDUSTRY
Throughout history, from ancient time to the present day, coins have been highly
prized and universally regarded as a store of value, particularly those struck
in precious metals. Coins have been highly esteemed for their beauty and appeal
as a solid store of wealth. Over the past three hundred years, coin collecting
for enjoyment and profit has gained increasing prominence. The coin industry
has been actively traded since the 17th century.
The legendary House of Rothschild (famed European Banking Family) actually got
its start dealing in rare coins and medals at Frankfurt's great spring and
summer fairs. Meyer Rothschild, the founder of the banking empire, began by
selling coins at the fairs as well as running a mail-order coin business.
Starting in 1771, he published the first of many printed coin catalogs which he
sent out during the next 20 years at regular intervals to potential customers
all over Germany. To this day, many prestigious European banks still maintain
active numismatic departments.
2
<PAGE>
THE REVOLUTION IN THE COIN BUSINESS
Determining the market value of a given coin plays a vital role. Rare coins are
graded on a numerical scale from 0 to 70. Zero represents the basal state and
70 represents an uncirculated (or mint state) specimen that is perfect in every
aspect. The higher its numerical grade, the more valuable a coin is to
collectors or dealers. A one-point difference, not even discernible to a
layman's eye, can mean literally thousands of dollars difference in value.
Therefore, the importance of consistent grading, according to a universally
accepted standard by the marketplace cannot be overemphasized. In 1986, the
first uniform grading system was implemented by the Professional Coin Grading
Service (the "PCGS"). Silvano DiGenova, the Company's president, was a
co-founder of PCGS and helped to develop the grading system used by PCGS. Mr.
DiGenova sold his interest in PCGS in 1987 and has not been affiliated with
PCGS, except as a customer of its services, since that time. A year after the
founding of the PCGS, the Numismatic Guaranty Corporation ("NGC") was formed.
Mr. DiGenova is not affiliated with NGC in any way except as a customer of its
services.
These two firms established a uniform coin-grading standard, which has gained
almost universal acceptance throughout the world. Once a coin has been graded
and certified, both firms encapsulate the coin in tamper-proof acrylic holders,
register them by number, grade, date and mintmark. If applicable, they identify
variety and pedigree as well. Rare coins graded and certified by either one of
these services can now be traded with confidence. The advent of certified
grading has led to another revolution of sorts, the formation of the Certified
Coin Exchange (CCE). Mr. DiGenova was a founder and board member of CCE, and
helped to organize the association. Mr. DiGenova sold his interests in CCE in
the late 1980s and has not been affiliated with the company in any way since
that time except as a user of their services. CCE is a nationwide computerized
trading network for rare coins. CCE is also the number one source of
instantaneous price information. Coins can be bought and sold sight unseen
because of the certification and confidence instilled in the market place by
CCE, PCGS and NGC
COMPETITION
The business of selling rare coins and other collectibles is highly competitive.
The Company competes with a number of smaller, comparably-sized, and larger
firms throughout the United States. These include: Heritage Rare Coin, a large
scale coin firm in Dallas, Texas; National Gold, a large wholesale coin and
bullion seller located in Tampa, Florida; Spectrum, a medium sized coin
wholesaler located in Newport Beach, California; Coin Universe, a publicly
traded company; and U.S. Coins, a medium size coin wholesaler located in
Houston, Texas. These competitors are generally larger and better capitalized.
However, the Company believes that it is able to compete with these competitors
due to its generally higher quality inventory, staff expertise, and Web
presence. However, there can be no assurances that the Company can continue to
compete successfully with other established companies with greater financial
resources, experience and market share.
In an effort to remain competitive in the marketplace, the Company has
implemented the following policies so its customers can be confident in their
purchases:
-Certified Coins: All coins purchased through the Company are independently
graded and certified by either the Professional Coin Grading Service or the
Numismatic Guaranty Corporation. These are nationally recognized unbiased
third-party grading services that render an expert consensus opinion by the
industry's foremost numismatic experts. Although Mr. DiGenova was a founder of
PCGS, he is no longer affiliated with the Company and does not take part in
PCGS's grading of the Company's coins. The coins, along with their grade
designations, are sonically sealed in a tamper proof acrylic holder designed to
protect the coin's condition from environmental damage. The coin cannot be
removed from its holder, or the grade change, without destroying the holder.
-Guaranteed Authenticity: the Company unconditionally guarantees the
authenticity of every coin it sells. This guarantee is limited to a full refund
of the original purchase price plus ten (10) percent per annum simple interest
on the original purchase price from the date purchased from the Company to the
date returned because of lack of authenticity, provided that the coin is
returned in its original unbroken holder.
3
<PAGE>
-Guaranteed Liquidity and Buy Back at Grade: the Company guarantees to
repurchase any coin originally sold by the Company to the original retail
purchaser at the same numerical grade level at which the coin was originally
purchased from the Company. The repurchase would be at the Company's current
"Bid" price for the grade level indicated on the holder (the amount the Company
is then offering to buy similar coins of the same grade on a below wholesale
basis or "Bid"). The Company guarantees that this "Bid" price will be between
5% to 17.5%, and will never exceed 17.5%, below the then current retail asking
price for coins with similar grades. The Company's current bid price and the
corresponding retail price could be substantially below the purchaser's original
purchase price. The Company does not guarantee that a purchaser will be able to
recover his or her entire original purchase price but does guarantee liquidity
based on current market conditions. The Company guarantees to provide an
immediate cash offer, or at the client's discretion, a consignment sale
estimate on any coin which was originally purchased from the Company. The
Company's pledge is to provide our clientele with a liquid marketplace at any
and all times.
-Unconditional Fifteen-Day Refund: Every coin purchased (not including
bullion) through the Company carries an unconditional 15-day full money back
guarantee. If, after inspecting the purchase, the customer wishes to return any
coin for a full refund under this guarantee, the coin must be received by the
Company no later than fifteen-days after postmark (or air bill date) of said
coin. The purchaser is, therefore, encouraged to carefully inspect and evaluate
all coins during this period. Fine art and collectibles returns privilege is 30
days.
-Thirty-Day Same as Cash Exchange: Any item(s) sold by the Company may be
exchanged for other item(s) of equal or greater value (at the full original
purchase price) within 30-days of the sale. Bullion and generic coins, however,
are excluded. Generic coins (or generic issues) are U.S. coins which are very
common coins with graded populations of 1,000 or more.
-Approval Service: The Company may send coins and fine art (on a case by
case basis) on an approval basis (i.e. allow qualified customers to view items
in their homes or to have such items independently inspected) to qualified
buyers subject to credit verification and approval.
-Low Price Guarantee: If any item purchased from the Company (excluding
bullion and selected common generic issues) is advertised by a legitimate dealer
for less than the Company's selling price (within 30 days), The Company will
refund the difference, plus 10% of the difference.
-Statements of Value: A thorough and complete evaluation of the coins and
fine art purchased from The Company will be provided to all clients upon
request. These reports provide current liquidation values as well as accurate
data concerning profit and/or loss position.
-Commission Free Selling Service: The Company will liquidate gold and silver
bullion or generic U.S. coins for top market prices, free of commissions or
selling fees, provided that the proceeds are used to purchase coins from the
Company. Otherwise, a service charge of 2.5% (for bullion and/or common
generic: issues) or 10% (for rare U.S. coinage) will be assessed.
-Appraisals of Currently Owned Materials: The Company will evaluate grade,
performance potential and identify liquidation or hold strategy for its
customers. This service is free of charge if the proceeds from the coins that
are liquidated are used to acquire coins through the Company. Otherwise, a
service charge of 2.5% of the total appraised value will be assessed.
-Auction Representation: The Company attends most major numismatic auctions,
and will act as an agent on customers' behalf, for the purpose of acquisition,
for a nominal fee of 2.5% to 10%, depending upon the amount purchased.
-Full service PCGS and NGC Submission Center: The Company will examine
customer's uncertified coins to determine suitability for grading (there is no
charge for this service). The Company will then submit the coins on the
customers' behalf (at our dealer cost) to PCGS or NGC for grading.
-Rare Coin Strategy Planning Sessions: The Company provides personal
one-on-one consultations with an experienced, knowledgeable numismatic
professional to assist with portfolio planning, rare coin acquisitions and/or
liquidations. This is a free service provided to qualified individuals.
4
<PAGE>
Research Services: The Company will provide a free complete historical,
providence, price history and current population data for any coin(s) and fine
art purchased from the Company.
REGULATION
The rare coin and collectibles markets are not currently subject to direct
federal, state or local regulation, although the sales of certain artwork and
autographed sports memorabilia is regulated in some states. However, the Federal
Trade Commission and many state attorneys general have shown an interest in
regulating the sales of rare coins and other tangible assets as investments, and
the State of New York has determined that under certain circumstances rare coins
may be treated as securities under state law, thereby requiring rare coin
dealers to register as broker-dealers and permitting investors all legal and
equitable remedies otherwise available to buyers of securities. The Company
relies upon the February 1998 ruling of U. S. District Court Judge Kimba Wood in
the case of Llewellyn v. North American Trading that the ordinary retail sale of
rare coins to investors is not a security under the federal securities laws, and
believes that its operations are not subject to regulation as the sale of
securities. There is no assurance, however, that at some time in the future the
sale of rare coins will be so regulated, and that the Company's business will
not be materially adversely affected thereby.
Over the past 15 years, the FTC has filed suits against numerous rare coin
dealers alleging that the dealers' representations about coins were false or
misleading to a person of average intellect, or that the dealers' retail markups
were so high that their representations about investment risk and appreciation
potential became misleading or untrue. These cases have not, however, created
any clear rules by which dealers such as the Company can assure themselves of
compliance. On January 1, 1996, the FTC's Telemarketing Sales Rule, authorized
by the 1994 Telemarketing and Consumer Fraud and Abuse Prevention Act, took
effect. "Telemarketing" is defined as any plan, program, or campaign which is
conducted to induce payment for goods and services by use of more than one
interstate telephone call. The Rule applies to all sales of "investment
opportunities", which is defined by whether the seller's marketing materials
generally promote items. On the basis of representations about "income, profit,
or appreciation." The Company believes that all of its retail sales are covered
by the Rule, even those to collectors.
The Telemarketing Sales Rule requires the Company to inform customers of the
following before accepting payment: the number of items being sold, the purchase
price, and the Company's refund / exchange / buyback policy. The Rule also
prohibits the Company from misrepresenting the "risk, liquidity, earnings
potential, and profitability" of the items it sells. This in itself did not
materially change prior law. However, during debates on the Telemarketing Sales
Rule in 1995, FTC staff attorneys tried to impose additional specific
requirements that dealers in "tangible assets" disclose to retail customers
their actual cost for the items they sell, and also disclose "all material
facts" about their goods before accepting any money from the customer. This
would have required the Company to disclose its actual margins to its retail
customers, as well as impose on the Company a near impossible burden of
determining what facts were material to the purchase of coins or other
collectibles. Although the FTC ultimately removed these additional requirements
from the final version of the Rule, the FTC staff's behavior demonstrated its
particular concern for telemarketing of coins as investments. There is no
assurance that the FTC will not amend the Rule in the future to impose these or
other additional regulations, or that individual states will not impose such
regulations, and that the Company's business will not be materially adversely
affected thereby.
5
<PAGE>
In addition, rare coins are favored by many investors because they can be
bought, owned and sold privately, i.e., without registering with or notifying
any Government agency. However, the Internal Revenue Service now requires
dealers such as the Company to report on Form 8300 all sales of coins in which
more than $10,000 in cash or cash-like instruments is used as payment. The
private nature of rare coin ownership has occasionally resulted in rare coins
being purchased by taxpayers for the purpose of concealing unreported income, or
used to "launder" income derived from unlawful activities. This has caused local
authorities to consider imposing registration and/or reporting requirements upon
rare coin dealers, although the only such regulation enacted to date (in the
City of Chicago) has not been enforced against full-time dealers in rare coins.
There is no assurance that additional regulations will not be imposed upon the
Company in the future, and that the Company's business will not be materially
adversely affected thereby.
Taxation of Mail Order Sales.
The Company does not collect California sales tax on mail order sales to
out-of-state customers, because interstate sales generally are tax-exempt. Nor
does the Company collect use tax on its interstate mail order sales. Most
states impose a use tax on "retailer(s) engaged in business in this state" on
sales of "tangible personal property for storage, use, or other consumption in
this state" (language from '6203 of the California Sales and Use Tax Law). Use
tax is usually set at the same rate as sales tax, and its purpose is to level
the playing field between local retailers who pay sales tax and out-of-state
mail order companies who do not. Some states exempt rare coin sales over $1,000
from sales or use tax, but most do not. Although the federal Constitution
restricts the right of states to tax interstate commerce, states can assess use
tax-on any transaction where the out-of-state mail order firm has a "nexus",
i.e., any physical presence, in the state, regardless of whether the sales
themselves arise from that local presence. "Nexus" includes attending
conventions, although at least one state (California) provides a seven-day "safe
harbor" for out-of-state dealers attending conventions and whose sales are less
than a certain dollar threshold. It also would include attending auctions or
making buying or selling trips. On that basis, the Company may be deemed to have
"nexus" in many states.
Use tax is the buyer's obligation, but states require retailers to collect the
tax and remit it to the state along with a use tax return. There is no statute
of limitations for use tax if no return has been filed by the dealer. To date,
the Company has not been assessed for use tax by the taxing authority of any
other state, nor has it received any inquiry indicating that it was being
audited for purposes of such an assessment. However, there is no assurance that
the Company will not be audited by taxing authorities of the states and be
assessed for unpaid use taxes (plus interest and penalties) for a period of many
years.
In addition to use tax, many states impose income and franchise taxes on
out-of-state companies that derive net income from business with their
residents. For example, California applies an income-based franchise tax to
out-of-state corporations operating in California for the privilege of using the
corporate form. The maximum tax rate is 11%, with a minimum tax of $800 per
year. Income derived outside California is not taxed, and in-state income of
taxpayers liable for tax in more than one state is calculated using a formula
contained in the Uniform Division of Income for Taxation Purposes Act, a statute
in effect in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Hawaii,
Idaho, Kansas, Kentucky, Maine, Michigan, Missouri, Montana, Nebraska, Nevada,
New Mexico, North Dakota, Oregon, South Carolina, South Dakota, Texas, Utah, and
Washington. As with use tax, nexus principles apply, and the U.S. Supreme Court
requires "a minimal connection between the interstate activities and the taxing
state, and a rational relationship between the income attributed to the State
and the intrastate values of the enterprise."
Assuming the existence of nexus, the Company could be subject to income-based
taxes in each of the states in which it has had a physical presence at
conventions, auctions or otherwise. The only exceptions would be in states where
the Company is protected by a federal law, 15 U.S.C. '381, which immunizes
companies from state income taxes if the company's only business activities in
the taxing state consist of "solicitation of orders for interstate sales." There
is no statute of limitations for income or franchise tax if no return has been
filed by the dealer. To date, the Company has not been assessed for income tax
or franchise tax by the taxing authority of any other state, nor has it received
any inquiry indicating that it was being audited for purposes of such an
assessment. However, there is no assurance that the Company will not be audited
by taxing authorities of the states and be assessed for unpaid income or
franchise taxes (plus interest and penalties) for a period of many years.
MAJOR SUPPLIERS
The Company obtains its coins and collectibles from many different individuals
and entities and is not dependent on any major suppliers.
6
<PAGE>
DEPENDENCE ON KEY CUSTOMERS
The Company is not dependent on any key customers but rather sells to a large
variety of individual retail purchasers as well as several wholesale purchasers
throughout the nation and world. However, during 1997 and 1998, one wholesale
purchaser, Mike's Coin Gallery, located in Redondo Beach, California represented
16% and 13% of the Company's wholesale sales, respectively. The Company
anticipates that Mike's Coin Gallery will represent less than 10% of the
Company's sales through 1999.
PATENTS, TRADEMARKS, LICENSES
The Company does not depend upon any patents, trademarks, or licenses to conduct
its business; nor does the Company hold any such patents or trademarks.
COST OF COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company currently has no costs associated with compliance with environmental
regulations. However, there can be no assurances that the Company will not
incur such costs in the future.
NUMBER OF EMPLOYEES
As of June 30, 1999, the Company employed 22 people on a full time basis.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
The following discussion contains certain forward-looking statements that are
subject to business and economic risks and uncertainties, and the Company's
actual results could differ materially from those forward-looking statements.
The following discussion regarding the financial statements of the company
should be read in conjunction with the financial statements and notes thereto.
Prior to the acquisition of TIA by the Company, the Company had no revenues or
expenses for the fiscal years ended December 31, 1997 and December 31, 1998, or
for the three-month period ended March 31, 1999. Following the acquisition,
management of the Company resigned and was replaced by TIA's officers and
directors. The Company then adopted TIA's business plan. As TIA is the
accounting acquirer, the following discussion discusses the results of
operations of TIA for the years ended December 31, 1997 and 1998 and the interim
period ended June 30, 1999.
GENERAL OVERVIEW
Beginning in 1998, the Company began shifting its focus away from the wholesale
marketing of coins and began focusing its efforts on the retail coin as well as
the collectibles market. Coupled with an overall heathy economy, the Company
began realizing increased sales in fiscal year 1998.
7
<PAGE>
Commencing in early 1999, Tangible Investments of America, Inc. began to shift
its resources and adjust its conceptual philosophy with the goal of developing
the Company into a public company as well as developing an Internet presence.
As a result, large supplementary capital expenditures were required to implement
the new infrastructure. Expansion of management and sales personnel, as well as
considerable expense in computer hardware, software and extensive programming
for the Company's E-Commerce Web-site (which will include two state-of-the-art
auction sites), were all direct costs incurred as a result of this effort.
Senior management was enhanced with the addition of a Vice President of Finance
along with a Vice President of Sales and Marketing who will be responsible for
the development and implementation of the Company's customer service and sales
organization. As a result, the Company dramatically increased its sales staff,
which required extensive training of new personnel. Moreover, the Company
instituted a very aggressive marketing campaign, which includes national TV
advertising on CNBC and MSNBC. Although an expensive endeavor, Management of
the Company believes that such media campaigns are effective and that such
campaigns have begun to attract new customers to the Company's products.
The Company's efforts and expenditures in the first half of 1999 allowed it to
implement its objective to assume a strong market position as an
electronic-commerce company ("E-Commerce"). In the third quarter, the Company
initiated its Web site operations in its continuing efforts to penetrate the
E-Commerce market.
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
- ---------------------------------------------
The company's net income for the year ended December 31, 1998 was $1,397,865, an
increase of 89%, as compared to $740,897 for the year ended December 31, 1997.
This increase was primarily a result of increased sales of 24% and an increase
in gross profit of 41%.
NET SALES
As previously discussed, beginning in 1998, the Company began to shift its focus
from the wholesale to the retail market. The table below reflects the shift in
the Company's business toward the retail trade and the collectibles market.
Year Ended Year Ended
---------- ----------
December 31, 1998 December 31, 1997
----------------- -----------------
Amount % Amount %
--------------------------------------------
Net Revenues
Coins - Wholesale $ 11,722,016 60.0% $ 10,911,290 69.2%
Coins - Retail 6,999,860 36.8 4,536,493 28.8
Collectibles 814,102 4.2 320,145 2.0
---------------------- -------------------------
Total Net Revenues $ 19,535,978 100.0% $ 15,767,928 100.0%
====================== =========================
Net revenues increased 23.9% to $19,535,978 for the year ended December 31, 1998
as compared to $15,767,928 for the year ended December 31, 1997. Coins -
wholesale increased 7.4% to $11,722,016 during 1998 as compared to $10,911,290
representing steady but slower growth in this segment due to a decreased
emphasis in this market. Coins-retail increased 54.3% to $6,999,860 during 1998
as compared to $4,536,493 in 1997 and collectibles increased 154.3% to $814,102
during 1998 as compared to $320,145 in 1997. The increases in these two retail
segments were due to increased and continued marketing emphasis and efforts over
the past year.
COST OF SALES
Cost of sales for the year ended December 31, 1998 increased 21% to $16,146,584
from $13,363,844 for the fiscal year ended December 31, 1997 while the cost of
sales as a percentage of net revenue decreased to 82.6% during 1998 as compared
to 84.8% during 1997. The increase in cost of sales was primarily due to the
Company's increased sales. The decrease in the cost of sales as a percentage of
sales was the result of the larger percentage of retail sales and the
corresponding higher margins.
GROSS PROFIT
Gross Profit increased 41% from $2,404,084 for the fiscal year ended December
31, 1997 to $3,389,394 for the fiscal year ended December 31, 1998. This
increase in gross profit was primarily due to the higher mark-ups associated
with retail sales and greater sales.
8
<PAGE>
TOTAL OPERATING EXPENSES
Total Operating Expenses for the year ended December 31, 1998 increased 18.8% to
1,971,521 from $1,659,560 for the year ended December 31, 1997. This increase
in Total Operating Expenses was primarily due to the increased cost associated
with the Company's greater focus on retail sales.
OTHER INCOME AND EXPENSES
Other Expenses for the year ended December 31, 1998 increased to $5,308 as
compared to Other Income of $4,343 for the year ended December 31, 1997.
PROVISION FOR INCOME TAXES
The Provision for Income Taxes for the year ended December 31, 1998 was $14,700
as compared to $8,000 for year ended December 31, 1997. Prior to the Company's
reverse acquisition on April 28, 1999, the Company had elected to be taxed as a
S corporation for federal and state purposes. Under the provisions of this
election, with the exception of the California 1.5% surtax, the Company did not
pay corporate tax on its income. However, the stockholders were liable for
their respective share of income taxes on the company's taxable income.
Subsequent to the reverse acquisition, the Company began to provide for
corporate income taxes based on the combined federal and state statutory rates.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased $17,740 for the year ended December 31, 1998 primarily due to an
increase in profitability. However, this increase was offset by increased
inventory levels as the Company expanded its retail operations. Comparatively,
cash decreased $52,961 for the year ended December 31, 1997 due to an increase
in accounts receivable that were largely offset by net income.
Net cash provided by operating activities for the year ended December 31, 1998
was $914,103 consisting primarily of the Company's net income of $1,397,865
adjusted for by an increase in inventory, a decrease in accounts receivable and
an increase in accounts payable. Net cash provided by operating activities for
year ended December 31, 1997 was $308,074, consisting primarily of the company's
net income of $740,897 adjusted by an increase in inventory and an increase in
accounts payable.
Net cash used in investing activities for the year ended December 31, 1998
was $12,574 consisting primarily of an investment in Numismatic Interactive
Network, LLC. Net cash used in financing activities for the year ended
December 31, 1997 was $2,653 consisting primarily of additions to property
and equipment offset by the proceeds from the sales of an automobile and
investments.
Net cash used in financing activities for the year ended December 31, 1998 was
$883,789 consisting primarily of stockholder distributions and the repayment of
a cash overdraft offset by the proceeds from the Company's line of credit. Net
cash used in financing activities for the year ended December 31, 1997 was
$358,382, consisting primarily of stockholder distributions offset by the
proceeds from the Company's line of credit.
On December 1, 1998, the Company's predecessor, TIA, entered into a revolving
credit agreement with a limit of up to $600,000 with a rate of interest at the
prime plus 2.625%, collateralized by the Company's assets and personal guarantee
of the Company's president. The outstanding balance on December 31, 1998 was
$600,000.
In September 1999, the revolving credit agreement was terminated, the
outstanding balance was repaid in full and the credit facility was replaced with
a revolving credit agreement with a limit of up to $2,000,000, with a rate of
interest at the prime rate plus 1.50%, which is collateralized by the Company's
assets and a personal guarantee of the Company's president.
CAPITAL EXPENDITURES
The Company incurred no significant capital expenditures for the year ended
December 31, 1998. Comparatively, the Company incurred capital expenditures of
$34,088 during the year ended December 31, 1997 consisting primarily of office
equipment and computer hardware.
INFLATION
Management believes that inflation has not had a material effect on the
Company's results of operations.
9
<PAGE>
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
- ------------------------------------------------------
NET REVENUES
The table below reflects the breakdown of the Company's primary areas of
revenue.
Six-Months Ended Six-Months Ended
June 30, 1999 June 30, 1998
----------------- -----------------
Amount % Amount %
--------------------------------------------
Net Revenues
Coins - Wholesale $ 8,019,557 75.2% $ 7,012,904 64.5%
Coins - Retail 2,292,696 21.5 3,522,761 32.4
Collectibles 351,918 3.3 337,054 3.1
---------------------- -------------------------
Total Net Revenues $ 10,664,171 100.0% $ 10,872,719 100.0%
====================== =========================
Net revenues for the six months ended June 30, 1999 decreased 1.9% to
$10,664,171 from $10,872,719 for the six months ended June 30, 1998. This
decrease was due to the unanticipated weakness in the retail rare coin market
and the flat sales growth for collectibles. Revenues from collectibles sales
have not yet fully compensated for the overall decrease in the Company's rare
coin sales. Retail rare coin sales have decreased from $3,522,761 for the
six-months ended June 30, 1998 to $2,292,696 for the six months ended June 30,
1999 while wholesale rare coin sales increased from $7,012,904 for the six
months ended June 30, 1998 to $8,019,557 for the six months ended June 30, 1999.
Although the Company continued to focus its efforts on retail sales, market
forces resulted in higher wholesale sales than expected. During the six months
period ended June 30, 1999, the Company focused on the accumulation of its
collectibles inventory rather than on generating collectibles sales. This
strategy was employed in anticipation of the launching of auction and online
sales scheduled for the fourth quarter. Collectible sales increased slightly
for the six-months ended June 30, 1999 to $351,918 from $337,054 for the six
months ended June 30, 1998.
COST OF SALES
Cost of sales for the six months ended June 30, 1999 increased 1.2% to
$8,689,535 from $8,584,938 for the six months ended June 30, 1998. The cost of
sales as a percentage of net revenue increased to 81.5% from 79.0% during the
comparable periods. This increase was due to the unfavorable mix of products
sold during the period. The Company's cost of sales as percentage of net revenue
will vary from period to period depending on the prevailing market forces and
the mix of products sold.
GROSS PROFIT
10
<PAGE>
Gross profit for the six months ended June 30, 1999 decreased 13.7% to
$1,974,636 from $2,287,781 for the six months ended June 30, 1998. The gross
profit as a percentage of net revenue decreased to 18.5% from 21.0% during the
comparable periods. This decrease was due primarily to the unfavorable mix of
products sold during the period. The ability of the Company to realize the
highest possible gross profit on the sales of products is dependent on market
demand for specific types of products that may or may not be readily available
to Company. In the interest of satisfying the demand for products, the Company
may acquire and sell products with less than desired gross profit.
Additionally, during the six month period ended June 30, 1999, several large
private collections of rare coins were sold into the marketplace causing a
temporary oversupply and consequently reduced margins on the sale of rare coins.
This market weakness is anticipated to continue to the end of 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the six months ended June 30,
1999 increased 76.0% to $1,493,615 from $848,844 for the six months ended June
30, 1998. The increase in these expenses were due to increases in selling
expenses relating to the shift in focus toward retail sales; the expansion of
the administrative infrastructure to support the requirements of public company
reporting and the Company's growing retail operations and the costs associated
with developing an Internet based auction site. The increase in expenditures
included a one-time consulting expense to the Michelson Group in the amount of
$134,185 that was the assigned fair value of stock warrants granted in exchange
for services rendered in connection with the reverse acquisition. See Certain
Relationship and Related Transactions section of this Registration Statement for
further details.
OTHER INCOME AND EXPENSES
Other expenses for the six months ended June 30, 1999 increased to $1,580 from
$0 for the six months ended June 30, 1998. This increase was due to the
write-down of the Company's investment in Numismatic Interactive Network, LLC to
a zero value. The write-down in the amount of $4,550 was offset by interest
income of $2,970 during the period.
PROVISION FOR INCOME TAXES
The provision for income taxes for the six months ended June 30, 1999 were
$60,000 as compared to $8,000 for the six months ended June 30, 1998. Prior to
the Company's reverse acquisition on April 28, 1999, the Company had elected to
be taxed as an S-corporation for federal and state purposes. Under the
provisions of this election, with the exception of the California 1.5% surtax,
the Company did not pay corporate tax on its income. However, the stockholders
were liable for their respective share of income taxes on the Company's taxable
income. Subsequent to the reverse acquisition the Company began to provide for
corporate income taxes based on the combined federal and state statutory rates.
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased $14,144 for the six months ended June 30, 1999, primarily due to
increased expenditures and the increased inventory levels that were required as
the Company continued to expand into rare coins and fine art and collectibles on
a retail level. Comparatively, cash increased $97,143 for the six months ended
June 30, 1998 due to increased sales and profitability during the period.
Net cash provided by operating activities for the six months ended June 30, 1999
was $303,313, consisting primarily of the Company's net income of $419,441
adjusted for non-cash operating expenses including consulting and legal services
exchanged for exercised stock warrants and common stock, depreciation and
amortization and the write-down of customer lists, and increased inventory and
accounts receivable and accounts payable. Net cash provided by operating
activities for the six months ended June 30, 1998 was $66,189 consisting
primarily of the Company's net income of $1,430,937 adjusted by an increase in
inventory and decreases in accounts receivable and payable.
Net cash used in investing activities for the six months ended June 30, 1999 was
$51,264 consisting primarily of additions to property and equipment. Net cash
used in investing activities for the six months ended June 30, 1998 was $18,409,
consisting of additions to property and equipment.
11
<PAGE>
Net cash used in financing activities for the six months ended June 30, 1999 was
$ 265,833, consisting primarily stockholder distributions that were partially
offset by the proceeds of a convertible, interest bearing stockholder note
payable. Net cash provided by financing activities for the six months ended June
30, 1998 was $49,363 consisting primarily consisting of the proceeds of
short-term note payable that were partially offset by the repayment of a
stockholder loan payable.
NON-CASH INVESTING AND FINANCING ACTIVITIES
During the six month period ended June 30, 1999, the Company issued 70,000
common shares in exchange for inventory with a fair value of $135,000. There
were no non-cash investing and financing activities during the six month period
ended June 30, 1998.
On December 1, 1998, the Company's predecessor, TIA entered into a revolving
credit agreement with a limit of up to $600,000 with a rate of interest at the
prime rate plus 2.625% collateralized by the Company's assets and personal
guarantee of the Company's president. The outstanding balance of loan at June
30, 1999 was $ 600,000. In September 1999, the revolving credit agreement was
terminated, the outstanding balance was repaid in full and the credit facility
was replaced with a revolving credit agreement with a limit of up to $2,000,000,
with a rate of interest at the prime rate plus 1.50%, which is collateralized by
the Company's assets and a personal guarantee of the Company's president. In
addition, the Company is currently negotiating an increase in its line of credit
to $7,500,000. The Company has also retained the services of the Michelson
Group to assist the Company in a potential bridge financing in order to finance
future growth. See Certain Relationships and Related Transactions. The Company
anticipates that the additional line of credit and funds from the possible
bridge financing will be used for increased inventory, capital expenditures, and
potential acquisitions. However, there can be no assurances that the Company
will be able to secure such financing.
On March 31, 1999 the Company's predecessor, TIA, executed a convertible,
interest-bearing note payable in exchange for cash advanced by the Company's
principal stockholder and president in the amount of $1,400,000. The note bears
interest at the rate of 9.0% per annum and the interest is payable quarterly.
The note, including, any unpaid interest, will become due and payable on March
31, 2004. The note's conversion provision grants the holder the right to
convert the principal amount, in whole or in part, into shares of common stock
of the Company at a conversion price of $1.00 per share at any time. The note
grants the holder the right to extend payment for up to five renewal periods of
one year each. Management may accelerate the repayment of the note based on
the availability of cash flow.
CAPITAL EXPENDITURES
The Company incurred capital expenditures of $50,868 during the six month period
ended June 30, 1999 consisting primarily of computer hardware, computer software
and office equipment. The Company will continue to incur capital expenditures to
further enhance its auction, marketing and accounting computer hardware and
software through the end of the fiscal year ended December 31, 1999.
Effective October 7, 1999, the Company began leasing 11,270 square feet of
administrative, customer support, retail, gallery, and auction space located in
Newport Beach, California at a monthly rental rate of $11,000 per month.
Beginning in January 2000, the Company intends to consolidate its Laguna Beach
and Tustin operations into this location. The lease is scheduled to terminate
on October 7, 2001. Unless the Company is able to negotiate the termination or
sublease of its Laguna Beach and Tustin offices on more favorable terms, the
company will be required to pay an aggregate of approximately $120,000 in rental
payments for its Laguna Beach premises and approximately $9,000 for its Tustin
premises over the course of their respective leases.
12
<PAGE>
YEAR 2000 DISCLOSURE
The Company has completed a review of its computer systems and non-information
technology ("non-IT") systems to identify all systems that could be affected by
the inability of many existing computer and microcontroller systems to process
time-sensitive data accurately beyond the year 1999, referred to as the Year
2000 or Y2K issue. The Company is dependent on third-party applications,
particularly with respect to such critical tasks as accounting, billing, and
inventory control. The Company also relies on its own computer and non-IT
systems (which consists of personal computers, internal telephone systems,
internal network server, and operating systems). In conducting the Company's
review of its internal systems, the Company performed operational tests of its
systems which revealed no Y2K problems. As a result of its review, the Company
has discovered no problems with its systems relating to the Y2K issue and
believes that such systems are Y2K compliant. Costs associated with the
Company's review were not material to its results of operations.
While the Company believes that its procedures have been designed to be
successful, because of the complexity of the Year 2000 issue and the
interdependence of organizations using computer systems, there can be no
assurances that the Company's efforts, or those of third parties with whom the
Company interacts, have fully resolved all possible Year 2000 issues. Failure
to satisfactorily address the Year 2000 issue could have a material adverse
effect on the Company. The most likely worst case Y2K scenario which management
has identified to date is that, due to unanticipated Y2K compliance problems,
the Company may be unable to bill its customers, in full or in part, for product
sold. Should this occur, it would result in a material loss of some or all
gross revenue to the Company for an indeterminable amount of time, which could
cause the Company to cease operations. Although the Company has received
written assurances from all of its major suppliers (coin and collectibles
suppliers such as Heritage Wholesale and Lipton Rare Coins) that they are, or
will be, Year 2000 compliant, should any such supplier fail to adequately
address the Year 2000 problem, the Company's only recourse for any damages
suffered as a result would be through litigation. The Company has not yet
developed a contingency plan to address this worst case Y2K scenario, and does
not intend to develop such a plan in the future.
ITEM 3 - DESCRIPTION OF PROPERTY
- -------------------------------------
Effective June 15, 1996, the Company began leasing approximately 4,092 square
feet of administrative and retail space in Laguna Beach, California at a monthly
rental rate of $5,000 per month beginning on September 1, 1996. This facility
serves as the Company's headquarters and primary retail location. The monthly
rental rate is scheduled to increase in accordance with the Consumer Price Index
on an annual basis, up to a limit of 6% per year but subject to a 3% minimum
increase. The lease is scheduled to terminate on June 30, 2001. However, the
Company has an option to extend the lease for an additional five year term.
Effective March 31, 1999, the Company began leasing approximately 1,722 square
feet of administrative space in Tustin, California at a monthly rental rate of
$2,066.40. This facility serves as the Company's customer service site. The
lease is scheduled to terminate on April 30, 2000.
Beginning on May 1, 1999, the Company began leasing approximately 2,350 square
feet of retail space in Las Vegas, Nevada pursuant to an oral month-to-month
lease with Commercial West Property Management at a rate of $2,022.57 per month.
The Company is currently investigation alternative retail locations for its Las
Vegas operations.
Effective October 7, 1999, the Company began leasing 11,270 square feet of
administrative, customer support, retail, gallery, and auction space located in
Newport Beach, California at a monthly rental rate of $11,000 per month.
Beginning in January 2000, the Company intends to consolidate its Laguna Beach
and Tustin operations into this location. The lease is scheduled to terminate
on October 7, 2001.
13
<PAGE>
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
The following table sets forth, as of June 30, 1999, certain information with
respect to the Company's equity securities owned of record or beneficially by
(i) each Officer and Director of the Company; (ii) each person who owns
beneficially more than 5% of each class of the Company's outstanding equity
securities; and (iii) all Directors and Executive Officers as a group.
<TABLE>
<CAPTION>
Name and Address of Common Stock Percent of
Title of Class Benefical Owner Outstanding Outstanding
<S> <C> <C> <C>
Common Stock Silvano A. DiGenova 15,492,000 85.2%
1550 S. Pacific Coast Highway, Ste 10
Laguna Beach, California
Common Stock Mike Bonham(1) 0 0%
1550 S. Pacific Coast Highway, Ste 10
Laguna Beach, California
Common Stock Paul Biberkraut(2) 0 0%
1550 S. Pacific Coast Highway, Ste 10
Laguna Beach, California
All Directors and 15,492,000 85.2%
Officers as a Group ========== ====
(3 Persons)
</TABLE>
(1) Does not include 75,000 options to acquire shares of the Company's
common stock which vest in 20% increments each year over a five year period
beginning on April 30, 1999 at an exercise price of $1.00 per share.
(2) Does not include 75,000 options to acquire shares of the Company's
common stock which vest in 20% increments each year over a five year period
beginning on October 26, 1999 at an exercise price of $2.00 per share.
The Company believes that the beneficial owners of securities listed above,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable. Beneficial ownership is determined in accordance with the rules of
the Commission and generally includes voting or investment power with respect to
securities. Shares of stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for purposes
of computing the percentage of the person holding such options or warrants, but
are not deemed outstanding for purposes of computing the percentage of any other
person.
ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
- ------------------------------------------------------------------------------
The following table sets forth the names and ages of the current directors and
executive officers of the Company, the principal offices and positions with the
Company held by each person and the date such person became a director or
executive officer of the Company. The executive officers of the Company are
elected annually by the Board of Directors. The directors serve one year terms
until their successors are elected. The executive officers serve terms of one
year or until their death, resignation or removal by the Board of Directors.
There are no family relationships between any of the directors and executive
officers. In addition, there was no arrangement or understanding between any
executive officer and any other person pursuant to which any person was selected
as an executive officer.
14
<PAGE>
The directors and executive officers of the Company are as follows:
Name Age Positions
- ---- --- ---------
Silvano A. DiGenova 37 Chief Executive Officer, President,
Secretary, and Chairman of the Board
Michael Bonham 41 Vice President of Sales & Marketing,
and Director
Paul Biberkraut 38 Controller and Vice President of
Finance
SILVANO A. DIGENOVA is currently the Company's Chief Executive Officer,
President, Secretary, and Chairman of the Company's Board of Directors. Mr.
DiGenova founded Tangible Investments of America, what would later become the
Company, in 1977. Mr. DiGenova is a recognized leader in the numismatic and
fine arts field. In 1986, Mr. DiGenova helped form the Professional Coin
Grading Service, the first widely accepted uniform grading system for rare
coins. Mr. DiGenova has also worked with several very noted museums,
institutions and world class auction houses, including the San Francisco Mint
Museum, the Philadelphia International Coin Museum, Sotheby's, and Christie's,
functioning as an agent on appraisals and private sales. Mr. DiGenova is on the
Board of Directors of the Professional Numismatists Guild, a non-profit body
overseeing coin and precious metal dealers. Mr. DiGenova is also on the Board
of Directors of ICTA, which represents all tangibles and collectibles dealers in
Washington, D.C. Mr. DiGenova attended the Wharton School of Business at the
University of Pennsylvania for four years. However, Mr. DiGenova left Wharton
in his fourth year to develop TIA, the Company's predecessor and did not obtain
a degree from Wharton.
MICHAEL BONHAM is currently the Company's Vice President of Sales & Marketing
and a member of the Company's Board of Directors. From March 1991 to May 1999,
Mr. Bonham assisted the Tangible Investments of America as an independent
contractor responsible for sales and marketing. Mr. Bonham has extensive
experience in the bullion markets. Between January 1987 through March 1991, Mr.
Bonham worked with International Rare Coin & Bullion.
PAUL BIBERKRAUT is currently the Company's Controller and Vice-President of
Finance. From November 1997 to June 1999, Mr. Biberkraut was the Controller of
Quality Systems, Inc., a publicly traded healthcare software company. From
August 1995 to October 1997, Mr. Biberkraut was the Managing director of
Stampendous, Inc., a privately held manufacturer of decorative rubber stamps and
accessories. From June 1991 to June 1995, Mr. Biberkraut was the Vice-President
of Finance of First National Lenders, a privately held mortgage brokerage
company. Mr. Biberkraut attended McGill University where he received a Bachelor
of Commerce and Graduate Diploma in Public Accountancy in 1981 and 1983
respectively. Mr. Biberkraut is a Chartered Accountant and has been a member of
the Canadian Institute of Chartered Accountants since 1984. Mr. Biberkraut
received a Master of Business Administration from Pepperdine University in 1994.
Mr. Biberkraut is also the Chairman of the Supervisory Committee of the Anaheim
Area Credit Union.
ITEM 6 - EXECUTIVE COMPENSATION
- -----------------------------------
On April 30,1999 the Company entered into an oral employment Agreement with
Silvano DiGenova, the Company's President, CEO, Secretary, and Chairman of the
Board of Directors, whereby the Company will pay Mr. DiGenova an annual salary
of $250,000. This agreement may be canceled at any time by either the Company or
Mr. DiGenova. Additionally, the Company has agreed to provide Mr. DiGenova with
an automobile at a cost of up to $10,000 per year.
On April 30,1999 the Company entered into an oral employment Agreement with
Michael Bonham, the Company's Vice President of Sales and Marketing, whereby the
Company will pay Mr. Bonham an annual salary of $50,000 plus commissions on
sales attributable to Mr. Bonham. In addition to his annual salary,the Agreement
confirmed the prior issuance of options to purchase 75,000 shares of the
Company's common stock at an exercise price of $1.00 per share which vest over
a period of five years.
15
<PAGE>
On October 26,1999 the Company entered into an oral employment Agreement with
Paul Biberkraut, the Company's Controller and Vice President of Finance, whereby
the Company will pay Mr. Biberkraut an annual salary of $87,000.00 plus
discretionary bonus to be determined by the company's Board of Directors. In
addition to his annual salary, the Agreement issued options to purchase 75,000
shares of the Company's common stock at an exercise price of $2.00 per share
which vest over a period of five years.
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information for
services rendered in all capacities for the six months ending June 30, 1999, the
fiscal year ended December 31, 1998, and the fiscal year ended December 31,
1997. Other than as set forth herein, no executive officer's salary and bonus
exceeded $100,000 in any of the applicable years. The following information
includes the dollar value of base salaries, bonus awards, the number of stock
options granted and certain other compensation, if any, whether paid or
deferred.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payouts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Salary Bonus Compensation Awards ($) Options Payouts Compensation
Principal Year ($) ($) ($) SARs (#) ($) ($)
Position
Silvano 1999 110,000 -0- -0- -0- -0- -0- -0-
DiGenova (6/30)
(President,
CEO)
1998 250,000 -0- -0- -0- -0- -0- -0-
1997 150,000 -0- -0- -0- -0- -0- -0-
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<S> <C> <C> <C> <C>
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SAR'S
OPTIONS/SAR'S GRANTED TO EMPLOYEES EXERCISE OF BASE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR PRICE ($/SH) DATE
Silvano DiGenova -0- n/a n/a n/a
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<S> <C> <C> <C> <C>
Number of Unexercised Value of
Securities Underlying Unexercised In-
Shares Acquired Options/SARs At FY-End The-Money Option/SARs
On Exercise Value (#) At FY-End ($)
Name (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
Silvano DiGenova -0- n/a n/a n/a
</TABLE>
COMPENSATION OF DIRECTORS
Currently, Directors of the Company receive no compensation.
16
<PAGE>
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------
On February 5, 1999, Tangible Investments of America, the Company's predecessor,
entered into a Corporate Development Agreement with the Michelson Group, Inc.
("Michelson"). As part of the agreement, Michelson has agreed to provide
consultation and corporate development services on behalf of the Company. In
return, the Company has agreed to compensate Michelson in the amount of $6,500
per month in addition to warrants to purchase up to 4.9% of the outstanding
shares of the Common Stock of the Company (as calculated following the
completion of a private placement by the Company (the "Offering")) at an
exercise price of $0.01. Pursuant to the Agreement, Michelson has agreed that
the exercise of the warrants adhere to the following schedule: one half of the
warrants can be exercised upon execution of the Agreement; an additional one
fourth when the Company breaks escrow on a bridge financing in the amount of
$1,000,000; and the remaining one fourth upon the Company breaking escrow on an
equity financing of $3,000,000 or more. As of June 30, 1999, 432,854 options
have been exercised, resulting in net proceeds of approximately $4,321 to
Company. The Company reflected compensation expense totaling $134,185 in its
unaudited interim statement of operations for the six months ended June 30,
1999, to reflect the fair value of such warrant grant.
On March 15, 1999 Tangible Investments of America, Inc. the Company's
predecessor, pursuant to the unanimous consent of the Board of Directors,
declared a distribution of $1,400,000 to Silvano DiGenova, it's sole
shareholder. On March 31, 1999 the Directors of the Company, in consideration
of funds advanced by the sole shareholder to the Company in the amount of
$1,400,000, executed a convertible note in favor of Silvano DiGenova of the same
amount. Interest is payable quarterly at an annual rate of 9%. The note,
including any unpaid accrued interest thereon will become due and payable on
March 31, 2004. The note contains certain acceleration, extension and
conversion provisions. The conversion provision allows Mr. DiGenova the right
to convert the principal amount on this note, or any portion of the principal
amount into shares of the common stock of the Company at a conversion price for
each share equal to $1.00 at any time. The note grants the holder the right to
extend payment for up to five renewal periods of one year each.
On April 28, 1999, the Company (which at the time was designated Austin Land &
Resources, Inc., acquired all of the outstanding common stock of Tangible
Investments of America, Inc., a Pennsylvania corporation ("TIA") in a business
combination described as a "reverse acquisition." As part of the
reorganization, the Company issued 16,000,000 shares of its Common Stock to the
shareholders of TIA in exchange for all of the outstanding shares of Common
Stock of TIA. Such shares include the shares owned by officers and directors of
the Company as set forth in the Section "Security Ownership of Certain
Beneficial Owners and Management" hereunder.
ITEM 8 - DESCRIPTION OF SECURITIES
- ---------------------------------------
COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of 50,000,000
shares of Common Stock, $0.001 par value per share, of which 18,170,354 were
outstanding as of November 18, 1999. Pursuant to the Agreement and Plan of
Reorganization dated April 28, 1999, the Company approved a 2-for-1 reverse
stock split of its Common Stock. All references to the numbers of shares of the
Company's Common Stock are adjusted to reflect the 2-for-1 reverse split of the
Company's Common Stock. Holders of shares of Common Stock are entitled to one
vote for each share on all matters to be voted on by the stockholders. Holders
of Common Stock have no cumulative voting rights. Holders of shares of Common
Stock are entitled to share ratably in dividends, if any, as may be declared,
from time to time by the Board of Directors in its discretion, from funds
legally available therefor. In the event of a liquidation, dis-solution or
winding up of the Company, the holders of shares of Common Stock are entitled to
share pro rata all assets remaining after payment in full of all liabilities.
Holders of Common Stock have no pre-emptive rights to purchase the Company's
common stock. There are no conversion rights or redemption or sinking fund
provisions with respect to the common stock. All of the outstanding shares of
Common Stock are fully paid and non-assessable.
TRANSFER AGENT
The transfer agent for the Common Stock is Alpha Tech Stock Transfer, 4505
South Wasatch Blvd., Suite 205, Salt Lake City, UT 84124.
17
<PAGE>
PART II
MARKET INFORMATION
The following table sets forth the high and low bid prices for shares of the
Company Common Stock for the periods noted, as reported by the National Daily
Quotation Service and the NASDAQ Bulletin Board. Quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. The Company's Common Stock was listed on the
NASDAQ Over-the-Counter Bulletin Board on August 10, 1998 under the trading
symbol ASLR. However, the Company's Common Stock did not begin trading until
subsequent to its acquisition of Tangible; whereas on May 18, 1999, the
Company's Common Stock was changed to TAGZ. As the Company has not yet complied
with the NASD's Eligibility Rule 6530 (as further discussed below), the
Company's trading symbol was changed to TAGZE on August 6, 1999.
BID PRICES
YEAR PERIOD HIGH LOW
---- ----
1999 First Quarter n/a n/a
Second Quarter (3/18/1999 to 6/30/1999) 7.38 3.25
Third Quarter 6.25 1.25
Pursuant to NASD Eligibility Rule 6530 (the "Rule") issued on January 4, 1999,
issuers who do not make current filings pursuant to Sections 13 and 15(d) of the
Securities Act of 1934 are ineligible for listing on the NASDAQ Over-
the-Counter Bulletin Board. Pursuant to the Rule, issuers who are not current
with such filings are subject to de-listing pursuant to a phase-in schedule
depending on each issuer's trading symbol as reported on January 4, 1999. As
previously discussed, the Company's trading symbol on January 4, 1999 was ASLR.
Therefore, pursuant to the phase-in schedule, the Company is subject to
de-listing on September 1, 1999. One month prior to an issuer's de-listing
date, non complying issuers will have their trading symbol appended with an "E".
As a result the Company's trading symbol was changed to TAGZE on August 6, 1999.
The Company is not currently in compliance with the Rule, and in the past, has
not made filings pursuant to Sections 13 and 15(d) of the Securities Act of
1934. The Company has filed this Registration Statement on Form 10-SB in order
to become a "reporting" company and therefore comply with the Rule. As a
result, on September 1, 1999, the Company's Common Stock was de-listed and will
remain de-listed until such time as the Securities and Exchange Commission has
reviewed the Company's Form 10-SB and has stated that it has no further
comments. Once the Company has complied with the Rule, it will once again
become eligible for listing on the NASDAQ Over-the-Counter Bulletin Board and
will seek to be reinstated on the NASDAQ Over-the-Counter Bulletin Board.
NUMBER OF SHAREHOLDERS
The number of beneficial holders of record of the Common Stock of the company as
of the close of business on November 18, 1999 was 47. Many of the shares of the
Company's Common Stock are held in "street name" and consequently reflect
numerous additional beneficial owners.
DIVIDEND POLICY
To date, the Company has declared no cash dividends on its Common Stock, and
does not expect to pay cash dividends in the near term. The Company intends to
retain future earnings, if any, to provide funds for operation of its business.
18
<PAGE>
ITEM 2 - LEGAL PROCEEDINGS
- ------------------------------
The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of discrimination, or
breach of contract actions incidental to the operation of its business. The
Company is not currently involved in any such litigation which it believes could
have a materially adverse effect on its financial condition or results of
operations.
ITEM 3 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
- --------------------------------------------------------------
Prior to the acquisition of TIA by Austin, as previously described, the Company
engaged Barry L. Friedman, P.C., Certified Public Accountants, to audit the
Company' s financial statements for the fiscal years ended December 31, 1997,
and December 31, 1998. TIA's Certified Public Accountants were Goldenberg
Rosenthal LLP.
Prior to October 1, 1998, TIA's Certified Public Accountants were Schmeltzer
Master Group, PC ("Schmeltzer Master"). On October 1, 1998, Schmeltzer Master,
dissolved and substantially all of the shareholders and staff of Schmeltzer
Master joined Goldenberg Rosenthal Friedlander, LLP to become Goldenberg
Rosenthal LLP ("Goldenberg Rosenthal") Schmeltzer Master was retained to audit
the financial statements of TIA for the fiscal year ended December 31, 1997.
Although Schmeltzer Master issued an opinion as to TIA's balance sheet,
Schmeltzer Master disclaimed an opinion with respect to the statement of income
and retained earnings and cash flows for the year ended December 31, 1997 as
Schmeltzer Master had not been previously audited the physical inventory of TIA
as at December 31, 1996. Subsequently, the Company engaged Goldenberg Rosenthal
to perform additional procedures so as to issue an unqualified opinion for TIA
the year ended December 31, 1997. There have been no disagreements between
management and its former accountants, Schmeltzer Master of the type required to
be reported under this Item 3 from January 1, 1997 through the date of the
dissolution of Schmeltzer Master on October 1, 1998.
The Company is currently in the process of locating and engaging a national
certified accounting firm to audit its Fiscal year 1999 financial statements,
and anticipates to engage such firm within 30 to 60 days.
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES
- -------------------------------------------------------
On April 28, 1999, Tangible Asset Galleries, Inc. (which at the time was
designated Austin Land & Resources, Inc., a Nevada corporation ("Austin")
acquired all of the outstanding common stock of Tangible Investments of America,
a Pennsylvania corporation ("TIA") in a business combination described as a
"reverse acquisition." As part of the reorganization, the Company issued
16,000,000 shares of its "restricted" (as that term is defined under Rule 144 of
the Securities Act of 1933) Common Stock to the shareholders of TIA in exchange
for all of the outstanding shares of TIA. Such shares include the shares owned
by officers and directors of the Company as set forth in the Section "Security
Ownership of Certain Beneficial Owners and Management" hereunder. This issuance
was an isolated transaction not involving a public offering conducted pursuant
to Section 4(2) of the Securities Act of 1933.
On April 28, 1999, the Company issued 17,500 shares of "restricted" (as that
term is defined under Rule 144 of the Securities Act of 1933) Common Stock to
MRC Legal Services Corp., the Company's securities counsel, in consideration for
legal services rendered valued at $17,500. The issuance was an isolated
transaction not involving a public offering conducted pursuant to Section 4(2)
of the Securities Act of 1933.
On April 28, 1999, the Company issued 432,854 shares of "restricted" Common
Stock to the Michelson Group, an accredited unrelated third-party, pursuant to a
Corporate Development Agreement entered into between the Company and the
Michelson Group in exchange for consulting services valued at $134,184. The
issuance was an isolated transaction not involving a public offering conducted
pursuant to Section 4(2) of the Securities Act of 1933.
On June 4, 1999, the Company issued 70,000 shares of "restricted" Common Stock
to an accredited unrelated third party in exchange for inventory valued at
$135,000. The issuance was an isolated transaction not involving a public
offering conducted pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
- ---------------------------------------------------------
The Corporation Laws of the State of Nevada and the Company's Bylaws provide for
indemnification of the Company's Directors for liabilities and expenses that
they may incur in such capacities. In general, Directors and Officers are
indemnified with respect to actions taken in good faith in a manner reasonably
believed to be in, or not opposed to, the best interests of the Company, and
with respect to any criminal action or proceeding, actions that the indemnitee
had no reasonable cause to believe were unlawful. Furthermore, the personal
liability of the Directors is limited as provided in the Company's Articles of
Incorporation.
The Company does not currently maintain any Directors and Officers Liability
Insurance policy.
19
<PAGE>
PART F/S
FINANCIAL STATEMENTS
- ---------------------
The Financial Statements required by this Item are included at the end of this
report beginning on Page F-1 as follows:
Index to Financial Statements . . . . . . . . . . . F-1
Tangible Asset Galleries, Inc. Pro Forma
Combined Financial Statements . . . . . . . . . . . . F-2
Interim Financial Statements of Tangible Asset
Galleries, Inc. for the Six Month Period Ending
June 30, 1999 . . . . . . . . . . . . . . . . . . . . . F-7
Tangible Investments of America, Inc. Financial
Statements for the Fiscal Years ended December
31, 1998 and December 31, 1997 . . . . . . . . . . F-14
Austin Land & Resources, Inc., Financial
Statements for the Fiscal Years ended
December 31, 1998, December 31, 1997 and
December 31, 1996 . . . . . . . . . . . . . . . . . . F-29
Interim Financial Statements of Austin
Land & Resources, Inc. for the Period Ending
March 31, 1999 . . . . . . . . . . . . . . . . . . . . F-42
The above financial statements are presented pursuant to an Acquisition
Agreement dated April 28, 1999 by which Tangible Investments of America, Inc.
("Tangible") was acquired by Austin Land & Resources, Inc. ("Austin"). For
financial reporting purposes, Tangible is considered the acquiror and therefore
the predecessor, and Austin is considered the acquiree, and therefore, its
financial statements are included pursuant to Item 310(c) of Regulation S-B.
20
<PAGE>
PART III
ITEM 1 - INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
(1)* Acquisition Agreement dated April 28, 1999 by and between
Austin Land & Resources, Inc. and Tangible Investments of
America, Inc.
(3.1)* Articles of Incorporation of Austin Land &
Resources, Inc. filed on August 30, 1995.
(3.2)* Amendments to the Articles of Incorporation
of Austin Land & Resources, Inc., changing
the name of the Company to Tangible Asset
Galleries, Inc.
(3.3)* Bylaws of the Company
(10.1)* Lease dated June 15, 1996 by and between Tangible
Investments of America and LBP Enterprises for the
lease of real property located at 1550 South Coast
Highway, Laguna Beach, California.
(10.2)* Lease dated March 31, 1999 by and between Tangible
Investments of America and Tustin Business Center,
L.P. for the lease of real property located at 17842
Irvine, Boulevard, Tustin, California.
(10.3)* Line of Credit between Tangible Investments of
America, Inc. and Wells Fargo Bank, dated December
1, 1999.
(10.4)* Investment Banking Agreement by and between Tangible
Investments of America and the Michelson Group
dated February 3, 1999.
(10.5)* Convertible Note by and between Tangible Investments
of America and Silvano DiGenova dated
March 31, 1999.
(10.6)* Lease dated September 20, 1999 by and between
Tangible Asset Galleries, Inc. and LJR Lido
Partners LP.
(16.0) Letter from former accountant Schmeltzer Master Group, PC
(27.0) Financial Data Schedule
________________________
*Previously Filed
ITEM 2 - DESCRIPTION OF EXHIBITS
Not applicable
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
TANGIBLE ASSET GALLERIES, INC.
Date: January 12, 2000 By: /s/ Silvano DiGenova
Silvano DiGenova
President & Chief Executive Officer
21
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Tangible Asset Galleries, Inc. Pro Forma
Combined Financial Statements . . . . . . . . . . . . F-2
Interim Financial Statements of Tangible Asset
Galleries, Inc. for the Six Month Period Ending
June 30, 1999 . . . . . . . . . . . . . . . . . . . . . F-7
Tangible Investments of America, Inc. Financial
Statements for the Fiscal Years ended December
31, 1998 and December 31, 1997 . . . . . . . . . . F-14
Austin Land & Resources, Inc., Financial
Statements for the Fiscal Years ended
December 31, 1998, December 31, 1997 and
December 31, 1996 . . . . . . . . . . . . . . . . . . F-29
Interim Financial Statements of Austin
Land & Resources, Inc. for the Period Ending
March 31, 1999 . . . . . . . . . . . . . . . . . . . . F-42
F-1
<PAGE>
TANGIBLE ASSET GALLERIES, INC.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
The Unaudited Pro Forma Statements of Operations for the six month period ended
June 30,1999 and the year ended December 31, 1998, give effect to the reverse
merger of Tangible Asset Galleries, Inc. (the "Company"), formerly known as
Tangible Investments of America, Inc. ("TIA"), and Austin Land & Resources, Inc.
("ALR"), as if such reverse merger had occurred as at January 1, 1998. The
Unaudited Pro Forma Statements of Operations also include an adjustment for the
income taxes, which would have been recorded if the Company had been a
C-Corporation during each of the periods presented. An Unaudited Pro Forma
Balance Sheet as of June 30, 1999, has not been presented as the reverse merger
occurred prior to June 30, 1999, and the effects of the reverse merger have been
reflected in the Unaudited Historical Balance Sheet of the Company as of that
date.
The pro forma adjustments reflect the Company's determination of all adjustments
necessary to present fairly the Company's pro forma results of operations. These
adjustments are based on available information and assumptions the Company
considers reasonable under the circumstances. The Unaudited Pro Forma Statements
of Operations are provided for informational purposes only. This information is
not necessarily indicative of the results of operations of the Company had the
transactions referred to above occurred on the dates specified. In addition,
this information is not necessarily indicative of the results of operations,
which may occur in the future. You should read the Unaudited Pro Forma
Statements of Operations information together with the Historical Financial
Statements of the Company, its predecessors, TIA and ALR, and the related notes
included elsewhere in this Registration Statement.
F-2
<PAGE>
<TABLE>
<CAPTION>
TANGIBLE ASSET GALLERIES, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
Tangible Austin Land
Investments & Resources, Combined Pro Forma Pro Forma
Of America, Inc. Inc. Total Adjustments Total
---------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Revenues . . . . . . . . . . . . . . . . . $ 19,535,978 $ - $19,535,978 $ - $ 19,535,978
Cost of Sales. . . . . . . . . . . . . . . . . 16,146,584 - 16,146,584 - 16,146,584
----------------------------------------------------------------------------
Gross Profit . . . . . . . . . . . . . . . . . 3,389,394 - 3,389,394 - 3,389,394
Selling, General and Administrative Expenses . 1,971,521 897 1,972,418 126,000 (A) 2,098,418
----------------------------------------------------------------------------
Income from Operations . . . . . . . . . . . . 1,417,873 897 1,416,976 (126,000) 1,290,976
Other Income (Expense) . . . . . . . . . . . . (5,308) - (5,308) (5,308)
----------------------------------------------------------------------------
Income Before Provision for Income Taxes . . . 1,412,565 897 1,411,668 (126,000) 1,285,668
Provision for Income Taxes . . . . . . . . . . 14,700 - 14,700 501,300 (B) 516,000
----------------------------------------------------------------------------
Net Income . . . . . . . . . . . . . . . . . . $ 1,397,865 $ 897 $ 1,396,968 $ (627,300) $ 769,668
============================================================================
Net Income Per Share
Basic. . . . . . . . . . . . . . . . . . . . $ 0.09 $ 0.04
================ ============
Diluted. . . . . . . . . . . . . . . . . . . $ 0.09 $ 0.04
Weighted Average Number of Shares Outstanding
Basic. . . . . . . . . . . . . . . . . . . . 16,000,000 18,082,854
Stock Options and Warrants . . . . . . . . . - -
Convertible Debt . . . . . . . . . . . . . . - -
---------- ----------
Diluted. . . . . . . . . . . . . . . . . . . 16,000,000 18,082,854
========== ==========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Statements of Operations
F-3
<PAGE>
<TABLE>
<CAPTION>
TANGIBLE ASSET GALLERIES, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
(UNAUDITED)
Tangible Austin Land
Investments & Resources, Combined Pro Forma Pro Forma
of America, Inc. Inc.(E) Total Adjustments Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Revenues . . . . . . . . . . . . . . . . . $ 10,664,171 $ - $10,664,171 $ - $ 10,664,171
Cost of Sales. . . . . . . . . . . . . . . . . 8,689,535 - 8,689,535 - 8,689,535
----------------------------------------------------------------------------
Gross Profit . . . . . . . . . . . . . . . . . 1,974,636 - 1,974,636 - 1,974,636
Selling, General and Administrative Expenses . 1,493,615 - 1,493,615 31,500 (C) 1,525,115
----------------------------------------------------------------------------
Income from Operations . . . . . . . . . . . . 481,021 - 481,021 (31,500) 449,521
Other Income (Expense) . . . . . . . . . . . . (1,580) - (1,580) (1,580)
----------------------------------------------------------------------------
Income Before Provision for Income Taxes . . . 479,441 - 479,441 (31,500) 447,941
Provision for Income Taxes . . . . . . . . . . 60,000 - 60,000 119,000 (D) 179,000
----------------------------------------------------------------------------
Net Income . . . . . . . . . . . . . . . . . . $ 419,441 $ - $ 419,441 $ (150,500) $ 268,941
----------------------------------------------------------------------------
Net Income Per Share
Basic. . . . . . . . . . . . . . . . . . . . $ 0.02 $ 0.01
================= ============
Diluted. . . . . . . . . . . . . . . . . . . $ 0.02 $ 0.01
================= ============
Weighted Average Number of Shares Outstanding
Basic. . . . . . . . . . . . . . . . . . . . 17,921,308 18,096,854
Stock Options and Warrants . . . . . . . . . 398,804 398,804
Convertible Debt . . . . . . . . . . . . . . -
Diluted. . . . . . . . . . . . . . . . . . . 18,320,112 18,495,658
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Statements of Operations
F-4
<PAGE>
TANGIBLE ASSET GALLERIES, INC.
NOTES TO PRO FORMA
STATEMENTS OF OPERATIONS
JUNE 30, 1999
(UNAUDITED)
NOTE 1 - PRO FORMA ADJUSTMENTS
For the Year Ended December 31, 1998
- ------------------------------------------
(A) Selling, General and Administrative Expenses have been increased by
$126,000 to reflect the interest on the Convertible Stockholder Note Payable of
$ 1,400,000 at a rate of 9% per annum as if such note was outstanding during
the year ended December 31, 1998.
(B) The Provision for Income Taxes had been increased by $501,300 to provide
for income taxes based on an estimated combined federal and statutory corporate
income tax rate of 40%. Prior to the reverse merger on April 28, 1999, the
predecessor company, TIA, had elected to be taxed as an S corporation for
federal and state purposes. Under the provisions of this election, with the
exception of the California 1.5% surtax, TIA did not pay corporate tax on its
income. However, the stockholders were liable for their respective share of
income taxes on the Company's taxable income.
For the Six Month Period Ended June 30, 1999
- ----------------------------------------------------
(C) Selling, General and Administrative Expenses have been increased by
$31,500 to reflect the interest on the Convertible Stockholder Note Payable of $
1,400,000 at a rate of 9% per annum as if such note was outstanding for the
entire six month period ended June 30, 1999.
(D) The Provision for Income Taxes has been increased by $119,300 to provide
for income taxes based on an estimated combined federal and statutory corporate
income tax rate of 40% for the period January 1, 1999 to April 28, 1999. Prior
to the reverse merger on April 28, 1999, the predecessor company, TIA, had
elected to be taxed as an S corporation for federal and state purposes. Under
the provisions of this election, with the exception of the California 1.5%
surtax, TIA did not pay corporate tax on its income. However, the stockholders
were liable for their respective share of income taxes on the Company's taxable
income. Subsequent to the reverse acquisition, the Company began to provide for
corporate income taxes at the combined federal and state statutory rates.
(E) The statement of operations for Austin Land & Resources, Inc. (ALR) that
are included in the Company's Unaudited Pro Forma Statement of Operations
reflects ALR's operations for the period January 1, 1999 through April 28, 1999.
Subsequent to April 28, 1999, ALR's operating results are included in TIA's
statement of operations.
F-5
<PAGE>
TANGIBLE ASSET GALLERIES, INC.
NOTES TO PRO FORMA
STATEMENTS OF OPERATIONS
JUNE 30, 1999
(UNAUDITED)
NOTE 2 - NET INCOME PER SHARE
The following table reconciles the net income and weighted average shares
outstanding for basic and diluted pro forma net income per share for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1998 June 30, 1999
------------------------------------------
<S> <C> <C>
Basic:
Net income . . . . . . . . . . . . . . . . . $ 769,668 $ 268,941
========= =========
Basic net income per common shares:
Weighted average number of common
shares outstanding . . . . . . . . . . 18,082,854 18,096,854
========= =========
Basic net income per common share. . . . . . $ 0.04 $ 0.01
========= =========
Diluted:
Net income . . . . . . . . . . . . . . . . . $ 769,668 $ 268,941
Adjustment to net income -
Interest on convertible stockholder
note payable (net of income tax) . . . - -
--------- ---------
Diluted net income . . . . . . . . . . . . . $ 769,668 $ 306,741
========= =========
Weighted average number of common
shares outstanding. . . . . . . . . . . . 18,082,854 18,096,854
Weighted average number of common
share equivalents
Stock options and warrants . . . . . . - 398,804
Convertible stockholders note payable. - -
--------- ---------
Weighted average number of common and
Common equivalent shares. . . . . . . . . 18,082,854 18,495,658
========= =========
Diluted net income per common share. . . . . $ 0.04 $ 0.01
========= =========
</TABLE>
The effects of the convertible stockholder note payable were anti-dilutive and
accordingly have been excluded from the calculation of diluted net income per
common share.
F-6
<PAGE>
<TABLE>
<CAPTION>
TANGIBLE ASSET GALLERIES, INC.
BALANCE SHEET
(UNAUDITED)
June 30,
1999
---------
<S> <C>
ASSETS
Current Assets
Cash. . . . . . . . . . . . . . . . . . . . . . . . . $ 28,141
Accounts receivable, net. . . . . . . . . . . . . . . 2,015,478
Inventory . . . . . . . . . . . . . . . . . . . . . . 5,713,530
Other current assets. . . . . . . . . . . . . . . . . 42,316
---------
Total current assets. . . . . . . . . . . . . . . . 7,799,465
Property and equipment, net . . . . . . . . . . . . . . 125,729
Other assets, net . . . . . . . . . . . . . . . . . . . 10,741
Total Assets. . . . . . . . . . . . . . . . . . . . $7,935,935
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Advances under revolving credit agreement . . . . . . $ 600,000
Accounts payable. . . . . . . . . . . . . . . . . . . 3,087,669
Stockholder loan payable. . . . . . . . . . . . . . . 23,138
Other current liabilities . . . . . . . . . . . . . . 271,300
---------
Total current liabilities . . . . . . . . . . . . . 3,982,107
Convertible stockholder note payable. . . . . . . . . . 1,400,000
Deferred tax liability. . . . . . . . . . . . . . . . . 10,000
Obligations under capital lease, net of current portion 5,212
---------
Total Liabilities . . . . . . . . . . . . . . . . . 5,397,319
---------
Shareholders' Equity
Common stock. . . . . . . . . . . . . . . . . . . . . 18,170
Additional paid in capital. . . . . . . . . . . . . . 2,123,433
Retained earning. . . . . . . . . . . . . . . . . . . 397,013
---------
Total shareholders' equity. . . . . . . . . . . . . 2,538,616
---------
Total liabilities and shareholders' Equity. . . . . . . $7,935,935
=========
</TABLE>
See Accompanying Notes to Interim Financial Statements
F-7
<PAGE>
<TABLE>
<CAPTION>
TANGIBLE ASSET GALLERIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
June 30,
1999 1998
---------------------------
<S> <C> <C>
Net Revenues . . . . . . . . . . . . . . . . . $ 10,664,171 $10,872,719
Cost of Sales. . . . . . . . . . . . . . . . . 8,689,535 8,584,938
---------------------------
Gross Profit . . . . . . . . . . . . . . . . . 1,974,636 2,287,781
Selling, General and Administrative Expenses . 1,493,615 848,844
---------------------------
Income from Operations . . . . . . . . . . . . 481,021 1,438,937
Other Income (Expense) . . . . . . . . . . . . (1,580) -
---------------------------
Income Before Provision for Income Taxes . . . 479,441 1,438,937
Provision for Income Taxes . . . . . . . . . . 60,000 8,000
---------------------------
Net Income . . . . . . . . . . . . . . . . . . $ 419,441 $ 1,430,937
---------------------------
Earnings Per Share
Basic. . . . . . . . . . . . . . . . . . . . $ 0.02 $ 0.09
===========================
Diluted. . . . . . . . . . . . . . . . . . . $ 0.02 $ 0.09
===========================
Weighted Average Number of Shares Outstanding
Basic. . . . . . . . . . . . . . . . . . . . 17,921,308 16,000,000
Stock Options and Warrants . . . . . . . . . 398,804 -
Convertible Debt . . . . . . . . . . . . . . - -
------------------------
Diluted. . . . . . . . . . . . . . . . . . . 18,320,112 16,000,000
========================
</TABLE>
See Accompanying Notes to Interim Financial Statements
F-8
<PAGE>
<TABLE>
<CAPTION>
TANGIBLE ASSET GALLERIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
<S> <C> <C>
1999 1998
Cash Flows from operating activities: ------------------------
Net Income. . . . . . . . . . . . . . . . . . . . . . . $ 419,441 $ 1,430,937
Adjustments to reconcile net income to cash
used in operating activities
Depreciation and Amortization . . . . . . . . . . . 17,291 9,958
Write-down of Investment. . . . . . . . . . . . . . 4,550 -
Write-down of Customer List . . . . . . . . . . . . 21,247 -
Deferred taxes. . . . . . . . . . . . . . . . . . . 10,000 -
Issuance of common stock for legal services . . . . 17,500 -
Fair value of stock warrants granted. . . . . . . . 134,185 -
Changes in operating assets and liabilities
Accounts receivable . . . . . . . . . . . . . . . (1,330,980) 432,796
Inventory . . . . . . . . . . . . . . . . . . . . (857,253) (1,232,665)
Other current assets. . . . . . . . . . . . . . . 19,765 4,899
Accounts payable. . . . . . . . . . . . . . . . . 1,596,411 (506,746)
Other current liabilities . . . . . . . . . . . . 251,156 (72,990)
------------------------
Net cash provided by (used in) operating activities . . . 303,313 66,189
Cash flows provided by (used in) investing activities
Additions to property and equipment . . . . . . . . . . (50,868) (18,409)
Proceeds from sale of property and equipment
Increase in deposits. . . . . . . . . . . . . . . . . . (756) -
------------------------
Net cash flows provided by (used in) investing activities (51,624) (18,409)
------------------------
Cash flows provided by (used in) financing activities
Payments on stockholder loan payable. . . . . . . . . . (88,363) (200,637)
Issuance of Convertible stockholder note payable in
connection with stockholder distribution. . . . . . . 1,400,000 -
Payments on obligations under capital lease . . . . . . 2,657 -
Proceeds from short term loan payable . . . . . . . . . - 250,000
Stockholder distribution. . . . . . . . . . . . . . . . (1,584,456) -
Issuance of common stock upon exercise of stock options 4,329 -
------------------------
Net cash flows provided by (used in) financing activities (265,833) 49,363
------------------------
Net increase (decrease) in cash . . . . . . . . . . . . . (14,144) 97,143
Cash at beginning of period . . . . . . . . . . . . . . . 42,285 24,545
------------------------
Cash at end of period . . . . . . . . . . . . . . . . . . $ 28,141 $ 121,688
========================
Supplemental Disclosure of Cash Flow Information
Interest paid . . . . . . . . . . . . . . . . . . . . . $ 54,902 $ 48,286
========================
Income taxes paid . . . . . . . . . . . . . . . . . . . $ 34,525 $ 11,920
========================
Non-Cash Investing and Financing Activities
Issuance of common stock for inventory. . . . . . . . . $ 135,000 $ -
========================
</TABLE>
See Accompanying Notes to Interim Financial Statements
F-9
TANGIBLE ASSET GALLERIES, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The management of Tangible Asset Galleries, Inc. (the "Company") formerly known
as Tangible Investments of America, Inc. ("TIA") has prepared the financial
statements herein without audit or review by Goldenberg Rosenthal, LLP or any
other independent auditor.
Such financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. The unaudited condensed
financial statements include all adjustments, consisting of all normal recurring
adjustments, which are in the opinion of management necessary to fairly state
the financial position of the Company as of June 30, 1999, and the results of
its operations and cash flows for the six month interim period ended June 30,
1999 and 1998. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures included herein
are adequate to make the information presented not misleading. Operating results
for the six month interim period ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999, or for any other period.
The Company is the successor to Austin Land & Resources, Inc. ("ALR"), which was
merged with the Company's predecessor, TIA on April 28, 1999 (see discussion
below).
It is suggested that these unaudited financial statements are read in
conjunction with the annual 1998 and 1997 audited financial statements and the
notes related thereto of TIA included elsewhere in this Registration Statement
on Form 10-SB. Such financial statements and the notes related thereto contain
the accounting policies and other relevant information with respect to the
Company.
NOTE 2 - DESCRIPTION OF THE BUSINESS AND MERGER
The Company is the successor to ALR, which was originally incorporated in the
state of Nevada. On April 28, 1999, ALR acquired all the outstanding shares of
common stock of TIA and merged the operations of TIA into ALR in a reverse
merger acquisition. Effective with the merger, TIA became the successor company
and ALR's name was changed to Tangible Asset Galleries, Inc.
Prior to the merger, ALR had 1,650,000 shares of common stock outstanding. As
part of the merger, ALR issued 16,000,000 shares of common stock to shareholders
of TIA in exchange of 490 shares of TIA common stock. The 490 shares represented
100% of the outstanding common stock of TIA. ALR had no revenue and no
significant operations prior to the merger. Subsequent to the merger, the former
shareholders of TIA constituted approximately 88% of the total outstanding
common shares of the Company and the former shareholders of ALR constituted
approximately 9% of the total outstanding shares of common stock of the Company.
The Company is a wholesaler and retailer of rare coins, fine art and
collectibles based in Laguna Beach, California. The company operates a retail
rare coin outlet in Las Vegas, Nevada, a customer service center in Tustin,
California and a buying office in Chicago, Illinois.
NOTE 3 - ADVANCES UNDER REVOLVING CREDIT AGREEMENTS
On December 1, 1998, the Company's predecessor, TIA entered into a revolving
credit agreement with a limit of up to $600,000 with a rate of interest at the
prime rate plus 2.625% collateralized by the
F-10
<PAGE>
TANGIBLE ASSET GALLERIES, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
Company's assets and a personal guarantee by the Company's president. The
outstanding balance of the loan as at June 30, 1999 was $600,000.
In September 1999, the revolving credit agreement was terminated, the
outstanding balance was repaid in full and the credit facility was replaced with
a revolving credit agreement with a limit of up to $2,000,000, with a rate of
interest at the prime rate plus 1.50% collateralized by the Company's assets and
a personal guarantee by the Company's president.
NOTE 4 - CONVERTIBLE STOCKHOLDER NOTE PAYABLE
On March 31, 1999 the Company issued a convertible stockholder note payable to
Silvano DiGenova, the president and CEO of the Company, in the amount of
$1,400,000 in consideration for cash. The note bears interest at the rate of
9.0% per annum and is payable at the end of each quarter. The note and any
unpaid interest are repayable on March 31, 2004. The note contains provisions
that allow for the acceleration based on certain conditions as set forth
therein. The note grants the stockholder the right to convert at any time and
for any portion of the note principal into common shares of the Company at the
conversion price of $1.00 per share. The extension provision allows the note
holder, at his option, to extend the note for up to five one-year periods. As at
June 30, 1999 the balance of the note was $1,400,000.
NOTE 5 - STOCK OPTIONS AND WARRANTS
On February 6, 1999 the Company, in connection with consulting services rendered
relating to the reverse acquisition and future equity financing, granted The
Michelson Group stock warrants representing 4.9% of the outstanding common
shares. The number of shares was determined by applying the number of
outstanding shares at the closing date of the reverse acquisition. The total
stock warrants granted amounted to 865,708 shares based on 17,650,000 common
shares outstanding at the close of the reverse acquisition. On March 15, 1999,
432,854 stock warrants became exercisable under the terms of the stock warrant
grant agreement. The Company recorded compensation expense related to such
warrants totaling $134,185 for the six-month period ended June 30, 1999. The
balance of the stock warrants will be exercisable in equal portions based upon
The Michelson Group's ability to fulfill two equity-financing requirements on
behalf of the 'Company'. As at June 30, 1999 432,854 stock warrants remained
outstanding, were not exercisable, and had an exercise price of $0.01 per share.
On April 30, 1999 the Company granted to certain employees and independent
contractors 345,000 stock options to purchase common stock at an exercise price
of $1.00. The stock options are exercisable on a pro-rata basis over five years
with the first pro-rata portion vesting one year from the date of grant.
On May 21, 1999 the Company granted to certain employees and independent
contractors 165,000 stock options to purchase common stock at an exercise price
of $4.46. The stock options are exercisable on a pro-rata basis over either four
or five years with first pro-rata portion vesting one year from the date of
grant. As of June 30, 1999, 5,000 of stock options had been cancelled
On May 28, 1999 the Company granted to certain employees, in connection with
opening of a retail rare coin outlet in Las Vegas, Nevada, 210,003 stock
options to purchase common stock at an exercise price of $4.46. The stock
options are exercisable on a pro-rata basis over three years with the first
pro-rata portion vesting one year from the date of grant.
F-11
<PAGE>
TANGIBLE ASSET GALLERIES, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
All options granted expire at the earlier of five years after the vesting date
of each option or six months after the termination of employment or independent
contractor agreement for vested option grants only. As of June 30, 1999, 715,003
stock options remained outstanding.
<TABLE>
<CAPTION>
NOTE 6 - NET INCOME PER SHARE
Six Months Ended
June 30, 1999 June 30, 1998
----------------- --------------
<S> <C> <C>
Basic:
Net income . . . . . . . . . . . . . . . . . $ 419,441 $ 1,430,937
========= =========
Basic net income per common shares:
Weighted average number of common
shares outstanding . . . . . . . . . . 17,921,308 16,000,000
========= =========
Basic net income per common share. . . . . . $ 0.02 $ 0.09
========= =========
Diluted:
Net income . . . . . . . . . . . . . . . . . $ 419,441 $ 1,430,937
Adjustment to net income -
Interest on convertible stockholder
note payable (net of income tax) . . . - -
--------- ---------
Diluted net income . . . . . . . . . . . . . $ 438,341 $ 1,430,937
========= =========
Weighted average number of common
shares outstanding. . . . . . . . . . . . 17,921,308 16,000,000
Weighted average number of common
share equivalents
Stock options and warrants . . . . . . 398,804 -
Convertible stockholders note payable. - -
--------- ---------
Weighted average number of common and
Common equivalent shares. . . . . . . . . 18,320,112 16,000,000
========= =========
Diluted net income per common share. . . . . $ 0.02 $ 0.09
========= =========
</TABLE>
The effects of the convertible stockholder note payable were anti-dilutive and
accordingly have been excluded from the calculation of diluted net income per
common share.
NOTE 7 - SUBSEQUENT EVENTS
On July 25, 1999, the Company entered into a an agreement to purchase 50%
ownership of "Metalsman.com" Internet domain name, web site and software for
$8,000. The software will be used for the Company's on-line auction activities
and to expand precious metal bullion trading opportunities. The Company further
agreed to cancelable monthly consulting agreement with one of the principals of
F-12
<PAGE>
TANGIBLE ASSET GALLERIES, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
Metalsman.com for a period of six months at the rate of $2,000 per month for
programming services related to the auction software acquired as part of the
agreement.
On September 20, 1999, the Company entered into lease agreement to rent 11,270
square feet of administrative, customer support, retail gallery and auction
space in Newport Beach, California effective October 7, 1999 at rental rate of
$11,000 per month. Beginning in January 2000, the Company intends to consolidate
its Laguna Beach and Tustin operations into this location. The lease is
scheduled to terminate of October 7, 2001.
On October 26, 1999 the Company granted to certain employees 75,000 stock
options to purchase common stock at an exercise price of $2.00. The stock
options are exercisable on a pro-rata basis over five years with first pro-rata
portion vesting one year from the date of grant.
F-14
<PAGE>
TANGIBLE INVESTMENTS
OF AMERICA, INC.
______________________________
Financial Statements and
Supplementary Information
YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------
F-15
<PAGE>
INDEPENDENT AUDITOR'S REPORT
January 23, 1999
May 14, 1999 as to Note 6
August 17, 1999
Board of Directors
Tangible Investments of America, Inc.
Laguna Beach, California
We have audited the accompanying balance sheets of TANGIBLE
INVESTMENTS OF AMERICA, INC. as of December 31, 1998 and 1997, and the related
statements of income and retained earnings, and of cash flows for the years then
ended. 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
misstatement. An audit includes examining, on a test basis, 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 audits provide a reasonable basis for our opinion.
The 1997 financial statements of TANGIBLE INVESTMENTS OF AMERICA, INC.
were audited by Schmeltzer - Master Group, PC, whose report dated February 6,
1998 expressed an unqualified opinion on the balance sheet and disclaimed an
opinion on the statements of income and retained earnings and of cash flows.
Their report expressed a disclaimer of opinion on the statements of income and
retained earnings and of cash flows because they did not observe the physical
inventory taken as of December 31, 1996, since that date was prior to their
initial engagement as auditors for the Company. Goldenberg Rosenthal, LLP has
performed the necessary procedures to satisfy ourselves as to the balances of
inventory and other assets and liabilities as of December 31, 1996.
<PAGE>
In addition, Goldenberg Rosenthal, LLP has performed the necessary
procedures to enable us to express an opinion on the 1997 financial statements.
Accordingly, our opinion on the 1997 financial statements, as presented herein,
is different from that expressed in the Schmeltzer - Master Group, PC report.
Our procedures related to the 1997 financial statements were completed
as of August 17, 1999 and our opinion is as of that date only as it relates to
the 1997 financial statements.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of TANGIBLE INVESTMENTS
OF AMERICA, INC. as of December 31, 1998 and 1997 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The information included in the
accompanying schedule of selling, general and administrative expenses is
presented for supplementary analysis purposes. Such information has not been
subjected to the auditing procedures applied in the audits of the basic
financial statements, and, accordingly, we express no opinion or any other form
of assurance on that supplementary information.
/S/ Goldenberg Rosenthal, LLP
Jenkintown, Pennsylvania
F-16
<PAGE>
<TABLE>
<CAPTION>
TANGIBLE INVESTMENTS OF AMERICA, INC.
BALANCE SHEETS
December 31
------------------------
<S> <C> <C>
1998 1997
------------ ----------
ASSETS
CURRENT ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . $ 42,285 $ 24,545
Accounts receivable . . . . . . . . . . . . . . 684,498 1,367,099
Other receivables . . . . . . . . . . . . . . . 49,650 3,400
Inventory . . . . . . . . . . . . . . . . . . . 4,856,277 3,051,508
Prepaid expenses. . . . . . . . . . . . . . . . 12,431 4,899
------------ ----------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . 5,645,141 4,451,451
------------ ----------
PROPERTY AND EQUIPMENT
Furniture and equipment . . . . . . . . . . . . 119,572 101,049
Automotive equipment. . . . . . . . . . . . . . - 13,823
Leasehold improvements. . . . . . . . . . . . . 41,601 41,601
------------ ----------
161,173 156,473
Less accumulated depreciation . . . . . . . . . . 68,187 55,017
------------ ----------
92,986 101,456
------------ ----------
OTHER ASSETS
Investment. . . . . . . . . . . . . . . . . . . 4,550 -
Customer list (net of accumulated amortization
of $3,753 in 1998 and $2,085 in 1997) . . . . 21,247 22,915
Security deposits . . . . . . . . . . . . . . . 9,150 9,150
------------ ----------
34,947 32,065
------------ ----------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . $ 5,773,074 $4,584,972
============ ==========
</TABLE>
<TABLE>
<CAPTION>
TANGIBLE INVESTMENTS OF AMERICA, INC.
BALANCE SHEETS
(Continued)
December 31
---------------------
<S> <C> <C>
1998 1997
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit . . . . . . . . . . . . . $ 600,000 $ 200,637
Current obligation under capital lease . 4,445 -
Accounts payable . . . . . . . . . . . . 1,626,259 1,663,747
Accrued expenses . . . . . . . . . . . . 37,269 74,872
Shareholder loan payable . . . . . . . . 80,000 -
Taxes payable. . . . . . . . . . . . . . 4,843 6,118
------------- ----------
TOTAL CURRENT LIABILITIES. . . . . . . . . 2,352,816 1,945,374
------------- ----------
COMMITMENTS
LONG-TERM DEBT
Obligation under capital lease net
of current portion . . . . . . . . . . 7,642 -
------------- ----------
STOCKHOLDER'S EQUITY
Common stock, no par value,
Authorized . . . . . 1,000 shares .
Issued and outstanding . 490 shares . 10 10
Additional paid in capital . . . . . . . 1,850,579 1,850,579
Retained earnings. . . . . . . . . . . . 1,562,027 789,009
------------- ----------
3,412,616 2,639,598
------------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 5,773,074 $4,584,972
============= ==========
</TABLE>
See notes to financial statements
F-17
<PAGE>
<TABLE>
<CAPTION>
TANGIBLE INVESTMENTS OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
Year Ended December 31
------------------------
<S> <C> <C>
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . $ 1,397,865 $ 740,897
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization . . . . . 25,436 25,090
Gain on sale of property and
equipment . . . . . . . . . . . . . . (775) (804)
Loss on investment. . . . . . . . . . . 8,062 -
Interest on investment. . . . . . . . . (112) -
(Increase) decrease in assets
Accounts receivables. . . . . . . . . 682,601 (1,019,266)
Other receivables . . . . . . . . . . (46,250) 115,779
Inventory . . . . . . . . . . . . . . (1,804,769) (173,861)
Prepaid expenses. . . . . . . . . . . (7,532) (4,392)
Security deposits . . . . . . . . . . - (650)
Increase (decrease) in liabilities
Accounts payable. . . . . . . . . . . 698,456 579,072
Accrued expenses. . . . . . . . . . . (37,604) 45,496
Taxes payable . . . . . . . . . . . . (1,275) 713
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . 914,103 308,074
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of automobile. . . . . . 4,000 11,435
Purchases of property and equipment . . . . (4,074) (34,088)
Purchase of investment. . . . . . . . . . . (12,500) -
Sale of investment. . . . . . . . . . . . . - 20,000
------------- ------------
NET CASH USED IN INVESTING ACTIVITIES . . . . (12,574) (2,653)
------------- ------------
</TABLE>
(continued)
See notes to financial statements
F-18
<PAGE>
<TABLE>
<CAPTION>
TANGIBLE INVESTMENTS OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
(continued)
Year Ended December 31
------------------------
<S> <C> <C>
1998 1997
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash overdraft. . . . . . . . . . . . . . . . (735,945) -
Loan payable - shareholder. . . . . . . . . . 80,000 -
Repayments on obligations under capital lease (2,360) -
Net proceeds from lines of credit . . . . . . 399,363 91,506
Stockholder distributions . . . . . . . . . . (624,847) (449,888)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES . . . . . (883,789) (358,382)
---------- ----------
NET INCREASE (DECREASE) IN CASH . . . . . . . . 17,740 (52,961)
CASH - BEGINNING OF YEAR. . . . . . . . . . . . 24,545 77,506
---------- ----------
CASH - END OF YEAR. . . . . . . . . . . . . . . $ 42,285 $ 24,545
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for
Interest. . . . . . . . . . . . . . . . . $ 85,683 $ 44,794
Income taxes. . . . . . . . . . . . . . . $ 13,872 $ 2,080
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Fair value of assets acquired for debt. . . $ 14,449 $ -
</TABLE>
See notes to financial statements
F-19
<PAGE>
<TABLE>
<CAPTION>
TANGIBLE INVESTMENTS OF AMERICA, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
Year Ended December 31
------------------------
<S> <C> <C>
1998 1997
---------- ------------
NET SALES. . . . . . . . . . . . . . . $ 19,535,978 $15,767,928
COST OF SALES. . . . . . . . . . . . . 16,146,584 13,363,844
------------- ------------
GROSS PROFIT . . . . . . . . . . . . . 3,389,394 2,404,084
------------- ------------
OPERATING EXPENSES
Selling. . . . . . . . . . . . . . . 936,026 912,070
General and administrative . . . . . 1,035,495 747,490
------------- ------------
TOTAL OPERATING EXPENSES . . . . . . . 1,971,521 1,659,560
------------- ------------
INCOME FROM OPERATIONS . . . . . . . . 1,417,873 744,524
------------- ------------
OTHER INCOME (LOSSES)
Interest . . . . . . . . . . . . . . 1,979 3,569
Gain on sale of property
and equipment. . . . . . . . . . . 775 804
Loss on investment . . . . . . . . . (8,062) -
------------- ------------
TOTAL OTHER INCOME (LOSSES). . . . . . (5,308) 4,373
------------- ------------
INCOME BEFORE INCOME TAXES . . . . . . 1,412,565 748,897
INCOME TAXES . . . . . . . . . . . . . 14,700 8,000
------------- ------------
NET INCOME . . . . . . . . . . . . . . 1,397,865 740,897
RETAINED EARNINGS - BEGINNING OF YEAR. 789,009 518,328
STOCKHOLDER DISTRIBUTIONS. . . . . . . (624,847) (470,216)
------------- ------------
RETAINED EARNINGS - END OF YEAR. . . . $ 1,562,027 $ 789,009
============= ============
</TABLE>
See notes to financial statements
F-20
<PAGE>
<TABLE>
<CAPTION>
TANGIBLE INVESTMENTS OF AMERICA, INC.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Year Ended December 31
-----------------------
<S> <C> <C>
1998 1997
---------- --------
SELLING EXPENSES
Advertising . . . . . . . . . . . . . . $ 115,317 $185,376
Commissions . . . . . . . . . . . . . . 650,239 485,911
Grading . . . . . . . . . . . . . . . . 170,470 240,783
---------- --------
TOTAL SELLING EXPENSES. . . . . . . . . . 936,026 912,070
---------- --------
GENERAL AND ADMINISTRATIVE EXPENSES
Auto. . . . . . . . . . . . . . . . . . 28,248 26,092
Bad debt. . . . . . . . . . . . . . . . 971 -
Bank charges. . . . . . . . . . . . . . 9,318 38
Business gifts. . . . . . . . . . . . . 2,523 2,426
Buyback fees. . . . . . . . . . . . . . - 1,316
Consulting. . . . . . . . . . . . . . . 20,182 3,044
Contributions . . . . . . . . . . . . . 4,293 2,685
Depreciation and amortization . . . . . 25,436 25,090
Dues and subscriptions. . . . . . . . . 8,909 9,973
Employee Benefits . . . . . . . . . . . 1,926 -
Entertainment . . . . . . . . . . . . . 26,557 23,217
Equipment rental. . . . . . . . . . . . 7,359 -
Insurance . . . . . . . . . . . . . . . 27,544 25,294
Interest. . . . . . . . . . . . . . . . 88,428 45,869
Legal and accounting. . . . . . . . . . 35,209 19,012
Miscellaneous . . . . . . . . . . . . . 897 -
Miscellaneous taxes and licenses. . . . 686 5,442
Office supplies and expense . . . . . . 30,510 61,722
Payroll taxes . . . . . . . . . . . . . 20,747 9,227
Penalties . . . . . . . . . . . . . . . 108 -
Postage and freight . . . . . . . . . . 60,727 51,394
Profit sharing plan . . . . . . . . . . 47,501 29,328
Rent. . . . . . . . . . . . . . . . . . 3,503 63,040
Repairs & maintenance . . . . . . . . . 10,092 -
Salary - office . . . . . . . . . . . . 141,321 91,403
Salary - officer. . . . . . . . . . . . 257,955 150,000
Security. . . . . . . . . . . . . . . . 9,155 6,233
Storage . . . . . . . . . . . . . . . . - 269
Telephone . . . . . . . . . . . . . . . 24,268 31,169
Trade shows . . . . . . . . . . . . . . 28,984 20,467
Travel. . . . . . . . . . . . . . . . . 44,490 37,851
Utilities . . . . . . . . . . . . . . . 7,648 5,889
---------- --------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES $ 1,035,495 $747,490
========== ========
</TABLE>
F-21
<PAGE>
NOTE 1 Summary of Significan Accounting Policies
BUSINESS ACTIVITY
- ------------------
Tangible Investments of America, Inc. (the "Company") was incorporated May 3,
1984 under the laws of the Commonwealth of Pennsylvania. The principal business
activity is that of selling numismatic coins, antiques and artwork to dealers
and collectors.
USE OF ESTIMATES
- ------------------
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from estimates that were used.
CASH AND CASH EQUIVALENTS
- ----------------------------
The Company maintains cash at various financial institutions, which may exceed
federally insured amounts at times and which may exceed balance sheet amounts
due to outstanding checks.
For purposes of preparing the statement of cash flows, the Company considers all
highly liquid investments available for current use with an initial maturity of
three months or less to be cash and cash equivalents.
ACCOUNTS RECEIVABLE
- --------------------
The company grants credit to customers, substantially all of whom are numismatic
coin dealers. No allowance for doubtful accounts has been recorded.
INVENTORY
- ---------
Inventories consisting of coins, artwork and antiques are stated at the lower of
cost (specific identification) or market. Cost value as of December 31, 1998
and 1997 was $4,993,969 and $3,128,298, respectively.
F-22
<PAGE>
NOTE 1 Summary of Significan Accounting Policies (continued)
PROPERTY AND EQUIPMENT
- ------------------------
Property and equipment (including major renewals, replacements, and betterments)
are capitalized and stated at cost. Expenditures for ordinary maintenance and
repairs are charged to operations as incurred. Upon the sale or other
disposition of property, the cost and related accumulated depreciation or
amortization are eliminated from the accounts and any resulting gain or loss is
reflected in the results or operations. Depreciation is computed using both
straight-line and accelerated methods over the estimated useful lives of the
related assets.
Depreciation amounted to $23,768 and $23,422 in 1998 and 1997, respectively
CUSTOMER LIST
- --------------
The cost of the customer list purchased in 1996 is being amortized on the
straight-line method over 15 years. Amortization expense in 1998 and 1997 was
$1,668 and $1,668, respectively.
REVENUE RECOGNITION
- --------------------
Tangible Asset Galleries, Inc. (the "Company") generates revenue from wholesale
and retail sales of rare coins, precious metals bullion, fine art, antiques and
collectibles. The recognition of revenue varies for wholesale and retail
transactions and is, in large part, dependent on the timing and amount of
such consideration.
The Company sells merchandise (generally coins) to other wholesalers/dealers
within its industry on credit, generally for terms of 30 to 60 days, but in no
event greater than one year. The Company grants credit to new dealers based on
extensive credit evaluations, and for existing dealers based on established
business relationships and payment histories. The Company does not obtain
collateral with which to secure its accounts receivable. The Company maintains
reserves for potential credit losses based on an evaluation of specific
receivables and the Company's historical experience related to credit losses.
As of December 31, 1998, management does not believe that there was any
significant credit risk associated with its accounts receivable and,
accordingly, has not established reserves. Revenues with dealers are recognized
when the merchandise is shipped to the related dealer.
F-23
<PAGE>
NOTE 1 Summary of Significan Accounting Policies (continued)
REVENUE RECOGNITION(continued)
- --------------------
The Company also generates revenues from consignment sales. Consignment sales
are in cash and, under limited circumstances, on account. As of December 31,
1998, no consignment sales were included in accounts receivable. There are two
primary methods in which the Company recognizes revenues from consignment sales:
(1) percentage-of-sales and (2) fixed cost. Under the percentage-of-sales
method, the Company receives the merchandise from the consignor and mutually
agrees to sell or auction the underlying merchandise to a third party for a
predetermined floor price, period of time and percentage of the ultimate sales
price, which generally ranges from 5% to 15%. Upon sale of the merchandise to a
third party and cash tendered, the Company recognizes net revenues for its
allocable percentage of the ultimate sales price and remits the remaining cash
proceeds to the consignor. Under the fixed cost method, the Company receives
the merchandise from the consignor and mutually agrees to sell or auction the
underlying merchandise to a third party for a predetermined period of time,
without regard to the ultimate sales price. The Company and the consignor
mutually agree to a price that the Company will pay the consignor upon the
ultimate sale of the underlying merchandise; otherwise, a fixed cost. Upon sale
of the merchandise to a third party and cash tendered, the Company recognizes
net revenues comprised of the ultimate sales price less the agreed upon fixed
cost, and the proceeds attributed to the fixed cost are remitted to the
consignor.
The Company has two separate return policies (money-back guarantees). Both
policies cover retail transactions only. The first policy relates solely to
rare coins. Customers may return rare coins purchased within 15 days of the
receipt of the rare coins for a full refund as long as the rare coins are
returned in exactly the same condition as they were delivered. In the case of
rare coin sales on account (for credit), customers may cancel the sale within 15
days of making a commitment to purchase the rare coins. The receipt of a
deposit and a signed purchase order evidences the commitment. The second policy
relates to fine art, antiques and collectibles only. These items may be
returned within 30 days of their receipt for a full refund as long as the items
are returned in exactly the same condition as they were delivered. In the case
of fine art, antiques and collectibles sales on account (for credit), customers
may cancel the sale within 30 days of making a commitment to purchase the items.
The receipt of a deposit and a signed purchase order evidences the commitment.
Historically, the Company's retail customers have not exercised their rights to
money-back guarantees and as such, the Company's management has not provided a
reserve for sales returns in the accompanying financial statements.
F-24
<PAGE>
NOTE 1 Summary of Significan Accounting Policies (continued)
ADVERTISING
- -----------
Advertising costs are expensed as incurred. Advertising expenses for 1998 and
1997 were $115,317 and $185,376, respectively.
INCOME TAXES
- -------------
The Company has elected to be taxed as an S corporation for Federal and state
purposes. Under these provisions, the Company does not pay Federal corporate
taxes on its income. Instead, the stockholders are liable for income taxes on
their respective share of the Company's taxable income and other distributable
items. The California tax treatment is substantially the same as Federal,
except for a 1.5% surtax (minimum of $800) imposed on the Company's taxable
income.
PROFIT SHARING PLAN
- ---------------------
The Company's profit sharing plan covers all employees who have met certain
service requirements. Contributions to the plan are at the discretion of the
board of directors each year, however, contributions can not exceed 15% of each
covered employee's salary. Contributions made to the plan for the years ended
1998 and 1997 were $47,501 and $29,328, respectively.
RECLASSIFICATIONS
- -----------------
Certain reclassifications have been made to the 1997 financial statements to
conform with the 1998 financial statement presentation. Such reclassification
had no effect on net income as previously reported.
F-25
<PAGE>
NOTE 2 Investment
INVESTMENT
- ----------
The Company's investment is comprised of a 5% ownership interest in Numismatic
Interactive Network, LLC, an internet-based network for numismatic wholesalers
to trade coins amongst themselves. The investment is carried at cost. Under the
cost method, the Company records income only to the extent of distributions
received. However, the investment is reduced by liquidation distributions (that
is, distributions that exceed the Company's share of the cumulative net income
of the venture subsequent to the date of the investment). The Company recognizes
a loss for permanent declines in the value of the investment. During fiscal
1998, the Company recorded a loss of $8,062 with respect to its investment. The
Company made the determination in 1998 that the investment, Numismatic
Interactive Network, LLC, had incurred losses during fiscal 1998 that it
believed would not be recoverable in the foreseeable future. As a result, the
Company recorded its pro-rata 5% share of such losses amounting to $8,062 as a
permanent decline in the value of the investment.
NOTE 3 Lines-of-Credit
The Company maintains a line-of-credit at a bank headquartered in California
which provides short-term borrowings with interest payable monthly as follows:
A $600,000 line of credit with interest at prime (prime was 7.75% as of December
31, 1998) plus 2.625%, collateralized by the contents of the building (inventory
and furniture and fixtures) plus the personal guarantee of the sole shareholder.
The outstanding balance as of December 31, 1998 was $600,000.
NOTE 4 Commitments & Contingencies
The Company conducts its California operations from facilities that are leased
under a five-year noncancelable operating lease expiring in June, 2001. There
is an option to renew the lease for an additional five years. Future minimum
rental payments required under the above lease as of December 31, 1998 are as
follows:
Year Ending December 31
-----------------------
1999 $ 60,000
2000 60,000
2001 30,000
--------
$150,000
========
Rent expense for 1998 and 1997 was $63,503 and $63,040, respectively.
The Company leases three vehicles under noncancelable operating leases. Future
minimum lease payments required under the leases as of December 31, 1998 are as
follows:
Year Ending December 31
-----------------------
1999 $ 20,442
2000 13,504
2001 10,128
--------
$ 44,074
========
Lease expense for 1998 and 1997 was $24,488 and $13,067, respectively.
F-26
<PAGE>
NOTE 4 Commitments & Contingencies(continued)
During 1998, the Company acquired equipment totaling $14,449 under a three-year
capital lease agreement. Amortization of the capital lease included in
depreciation amounted to $2,890 for the year ended December 31, 1998. Future
principal payments under this lease is as follows:
Year Ending December 31
-----------------------
1999 $ 5,657
2000 5,657
2001 2,722
-------
Total minimum lease payments $14,036
Amount representing interest 1,949
-------
Present value of future
minimum capital lease payments $12,087
=======
The Company provides a Guaranteed Liquidity and Buy Back at Grade warranty (the
"Guarantee") to its retail rare coin customers. Retail rare coin sales amounted
to $6,999,860 and $4,536,493 for the years ended December 31, 1998 and 1997,
respectively. The policy grants the customer the opportunity to sell their
coins back to the Company at the prevailing market "bid" (below the current
wholesale price). The Company determines the "bid" price based on the
prevailing market price at which the Company believes it could readily liquidate
the coin. The "bid" price may be substantially below what the customer
originally paid for the coin.
The values of the rare coins sold to retail customers continually fluctuate.
Furthermore, retail customers continually resell or trade coins purchased from
the Company with third parties. Once retail customers resell the rare coins to
third parties, the Guarantee is void. Lastly, the Company has had minimal
historical experience with customers exercising the Guarantee. As a result, it
is not possible for the Company to determine the potential repurchase obligation
pursuant to the Guarantee that it may be subject to as a result of previous
sales of retail rare coins.
NOTE 5 Related Party Transactions
Shareholder loan payable represents a short-term, non-interest bearing advance
to the Company from its sole stockholder. There are no stated repayment terms;
however, the Company expects to repay the loan during 1999.
F-27
<PAGE>
NOTE 6 Subsequent Events
On March 15, 1999 the Company, pursuant to the unanimous consent of the Board of
Directors, declared a distribution of $1,400,000 to it's sole shareholder.
On March 31, 1999 the Directors of the Company, in consideration of funds
advanced by the sole shareholder to the Company in the amount of $1,400,000,
executed a convertible note in favor of Silvano DiGenova of the same amount.
Interest is payable quarterly at an annual rate of 9%. The note, including any
unpaid accrued interest thereon will become due and payable on March 31, 2004.
The note contains certain acceleration, extension and conversion provisions.
The conversion provision allows Mr. DiGenova the right to convert the principal
amount on this note, or any portion of the principal amount into shares of the
common stock of the Company at a conversion price for each share equal to $1.00.
It is management's intent, upon availability of cash flow, to repay $600,000 of
this note during 1999.
NOTE 7 Major Customers
One customer accounted for 12% of net sales for the year ended December 31, 1998
and 62% of accounts receivable as of December 31, 1998. Another customer
accounted for 12% of accounts receivable as of December 31, 1998.
One customer accounted for 16% of net sales for the year ended December 31, 1997
and 53% of accounts receivable as of December 31, 1997.
F-28
Austin Land & Resources, Inc.
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 1998
December 31, 1997
December 31, 1996
F-29
<PAGE>
TABLE OF CONTENTS
PAGE #
INDEPENDENT AUDITORS REPORT 1
ASSETS 2
LIABILITIES AND STOCKHOLDERS' EQUITY 3
STATEMENT OF OPERATIONS 4
STATEMENT OF STOCKHOLDERS' EQUITY 5
STATEMENT OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7-11
F-30
<PAGE>
BARRY L. FRIEDMAN, RC.
Certified Public Accountant
1582 TULITA DRIVE OFFICE(702) 361-8414
LAS VEGAS, NEVADA 89123 FAX NO.(702) 896-0278
INDEPENDENT AUDITORS' REPORT
Board of Directors July 2, 1999
Austin Land & Resources, Inc.
Las Vegas, Nevada
I have audited the accompanying Balance Sheets of Austin Land & Resources,
Inc. (A Development Stage Company), as of December 31, 1998, December 31,
1997, and December 31, 1996, and the related statements of operations,
stockholders' equity and cash flows for the three years ended December 31,
1998, December 31, 1997, and December 31, 1996. These financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit 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 misstatement. An audit includes examining, on a test basis,
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. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Austin Land & Resources,
Inc. (A Development Stage Company), as of December 31, 1998, December 31,
1997, and December 31, 1996, and the results of its operations and cash
flows for the three years ended December 31, 1998, December 31, 1997, and
December 31, 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 45 to the
financial statements, the Company has suffered recurring losses from
operations and has no established source of revenue. This raises substantial
doubt about its ability to continue as a going concern. Management's plan in
regard to these matters is described in Note #5. These financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Barry L. F iedman
Certified Public Accountant
F-31
<PAGE>
Austin Land & Resources, Inc.
(A Resources Stage Company)
<TABLE>
<CAPTION>
BALANCE SHEET
ASSETS
<S> <C> <C> <C>
December December December
31, 1998 31, 1997 31, 1996
CURRENT ASSETS $ 0 $ 0 $ 0
TOTAL CURRENT ASSETS $ 0 $ 0 $ 0
OTHER ASSETS
Organization Costs (Net) $ 120 $ 192 $ 264
TOTAL OTHER ASSETS $ 120 $ 192 $ 264
TOTAL ASSETS $ 120 $ 192 $ 264
</TABLE>
See accompanying notes to financial statements & audit report
F-32
<PAGE>
Austin Land & Resources, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
December December December
31, 1998 31, 1997 31, 1996
CURRENT LIABILITIES
Officer's Advances (Note #5) $ 910 $ 85 $ 85
TOTAL CURRENT LIABILITIES $ 910 $ 85 $ 85
STOCKHOLDERS' EQUITY (Note #4)
Common stock
Par value $0.001
Authorized 50,000,000 shares
Issued and outstanding at
December 31, 1996 -
6,000,000 shares $ 6,000
December 31, 1997 -
6,000,000 shares $ 6,000
December 31, 1998 -
6,000,000 shares $ 6,000
Additional Paid-In Capital 0 0 0
Deficit accumulated during -6,790 -5,893 -5,821
the development stage
TOTAL STOCKHOLDERS' EQUITY $ -790 $ 107 $ 179
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 120 $ 192 $ 264
</TABLE>
See accompanying notes to financial statements & audit report
F-33
<PAGE>
AUSTIN LAND & RESOURCES, INC.
(A Development Stage Company)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C> <C> <C> <C>
Year Year Year Aug. 30,1995
Ended Ended Ended (Inception)
Dec. 31, Dec. 31, Dec. 31, to Dec. 31,
1998 1997 1996 1998
INCOME
Revenue $ 0 $ 0 $ 0 $ 0
EXPENSES
General, Selling and
Administrative $ 825 $ 0 $ 85 $ 6,550
Amortization 72 72 72 240
TOTAL EXPENSES $ 897 $ 72 $ 157 $ 6,790
NET PROFIT/LOSS (-) $ -897 $ -72 $ -157 $ -6,790
Net Profit/Loss(-)
per weighted share
(Note 1) $ -.0001 $ NIL $ NIL $ -.0011
Weighted average
Number of common
shares outstanding 6,000,000 6,000,000 6,000,000 6,000,000
</TABLE>
See accompanying notes to financial statements & audit report
F-34
<PAGE>
AUSTIN LAND & RESOURCES, INC.
(A Development Stage Company)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Additional Accumu-
Common Stock paid-in lated
Shares Amount Capital Deficit
Balance,
December 31, 1995 6,000,000 $6,000 $ 0 $-5,664
Net loss year ended
December 31, 1996 _________ ______ _________ -157
Balance,
December 31, 1996 6,000,000 $6,000 $ 0 $-5,821
Net loss year ended
December 31, 1997 _________ ______ __________ -72
Balance,
December 31, 1997 6,000,000 $6,000 $ 0 $-5,893
Net loss year ended
December 31, 1998 _________ ______ __________ -897
Balance,
December 31, 1998 6,000,000 $6,000 $ 0 $-6,790
</TABLE>
See accompanying notes to financial statements & audit report
F-35
<PAGE>
Austin Land & Resources, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
<S> <C> <C> <C> <C>
Year Year Year Aug. 30,1995
Ended Ended Ended (Inception)
Dec. 31, Dec. 31, Dec. 31, to Dec. 31,
1998 1997 1996 1998
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Loss $ -897 $ -72 $ -157 $-6,790
Adjustment to
Reconcile net loss
To net cash provided
by operating
Activities
Amortization +72 +72 +72 +240
Changes in assets and
Liabilities
Organization Costs 0 0 0 -360
Increase in current
Liabilities
Advances Payable +825 0 +85 +910
NET CASH USED IN
OPERATING ACTIVITIES $ 0 $ 0 $ 0 $-6,000
CASH FLOWS FROM
INVESTING ACTIVITIES 0 0 0 0
CASH FLOWS FROM
FINANCING ACTIVITIES
Issuance of Common
Stock for Cash 0 0 0 +6,000
Net Increase (decrease) $ 0 $ 0 $ 0 $ 0
Cash,
Beginning of period 0 0 0 0
Cash, End of period $ 0 $ 0 $ 0 $ 0
</TABLE>
See accompanying notes to financial statements & audit report
F-36
<PAGE>
AUSTIN LAND & RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, December 31, 1997, and December 31, 1996
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized August 30, 1995, under the laws of the State of
Nevada as Austin Land & Resources, Inc. The Company currently has no
operations and in accordance with SFAS #7, is considered a development company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Method
The Company records income and expenses on the accrual method.
Estimates
The preparation of 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and equivalents
The Company maintains a cash balance in a noninterest -bearing bank that
currently does not exceed federally insured limits. For the purpose of the
statements of cash flows, all highly liquid investments with the maturity of
three months or less are considered to be cash equivalents. There are no
cash equivalents as of December 31, 1998.
F-37
<PAGE>
AUSTIN LAND & RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, December 31, 1997, and December 31, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Income taxes are provided for using the liability method of accounting in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS
#109) "Accounting for Income Taxes". A deferred tax asset or liability is
recorded for all temporary difference between financial and tax reporting.
Deferred tax expense (benefit) results from the net change during the year
of deferred tax assets and liabilities.
Organization Costs
Costs incurred to organize the Company are being amortized on a
straight-line basis over a sixty-month period.
Loss Per Share
Net loss per share is provided in accordance with Statement of Financial
Accounting Standards No. 128 (SFAS #128) "Earnings Per Share". Basic loss
per share is computed by dividing losses available to common stockholders by
the weighted average number of common shares outstanding during the period.
Diluted loss per share reflects per share amounts that would have resulted
if dilative common stock equivalents had been converted to common stock. As
of December 31, 1998, the Company had no dilative common stock equivalents
such as stock options.
Year End
The Company has selected December 31st as its year-end.
F-38
<PAGE>
AUSTIN LAND & RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, December 31, 1997, and December 31, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Year 2000 Disclosure
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have time sensitive software may recognize a date using 110011 as the
year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruption of normal business activities. Since
the Company currently has no operating business and does not use any
computers, and since it has no customers, suppliers or other constituents,
there are no material Year 2000 concerns.
NOTE 3 - INCOME TAXES
There is no provision for income taxes for the period ended December 31,
1998, due to the net loss and no state income tax in Nevada, the state of
the Company's domicile and operations. The Company's total deferred tax
asset as of December 31, 1998 is as follows:
Net operation loss carry forward $ 6,790
Valuation allowance $ 6,790
Net deferred tax asset $ 0
The federal net operation loss carry forward will expire in various amounts
from 2015 to 2018.
This carry forward may be limited upon the consummation of a business
combination under IRC Section 381.
F-39
<PAGE>
AUSTIN LAND & RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, December 31, 1997, and December 31, 1996
NOTE 4 - STOCKHOLDERS' EQUITY
Common Stock
The authorized common stock of the corporation consists of 50,000,000 shares
with a par value of $0.001 per share.
Preferred Stock
The corporation has no preferred stock.
On September 1, 1995, the Company issued 6,000,000 shares of its $0.001 par
value common stock in consideration of $6,000 in cash.
NOTE 5 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. However, the Company does not have significant cash or other
material assets, nor does it have an established source of revenues
sufficient to cover its operating costs and to allow it to continue as a
going concern. It is the intent of the Company to seek a merger with an
existing, operating company. Until that time, the stockholders /officers and
or directors have committed to advancing the operating costs of the Company
interest free.
F-40
<PAGE>
AUSTIN LAND & RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, December 31, 1997, and December 31, 1996
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company neither owns nor leases any real or personal property. An
officer of the corporation provides office services without charge. Such
costs are immaterial to the financial statements and accordingly, have not
been reflected therein. The officers and directors of the Company are
involved in other business activities and may, in the future, become
involved in other business opportunities. If a specific business opportunity
becomes available, such persons may face a conflict in selecting between the
Company and their other business interests. The Company has not formulated a
policy for the resolution of such conflicts.
NOTE 7 - WARRANTS AND OPTIONS
There are no warrants or options outstanding to acquire any additional share
of common or preferred stock.
F-41
<PAGE>
AUSTIN LAND & RESOURCES, INC.
(A Development Stage Company)
BALANCE SHEET
(UNAUDITED)
MARCH 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current Assets
Cash $ -
Accounts receivable -
Other current assets 120
Property and equipment, net of accumulated depreciation -
Other assets -
Total assets $ 120
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ -
Deferred income and other liabilities 910
Total current liabilities 910
Stockholders' equity
Common stock 6,000
Additional paid in capital -
Deficit accumulated during
the development stage (6,790)
Total stockholders' equity (790)
Total liabilities and stockholders' equity $ 120
</TABLE>
See Accompanying Notes to Interim Financial Statements
(F-42)
<PAGE>
AUSTIN LAND & RESOURCES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
THREE MONTHS ENDED
MARCH 31
1999 1998
Net revenues $ - $ -
Cost of sales - -
Gross profit - -
Selling, general and administrative expense - -
Other income - -
Income before provision for income tax - -
Provision for income tax - -
Net profit/loss $ - $ -
Basic and diluted net profit/loss per common share $ - $ -
Basic and diluted weighted average common shares
outstanding 1,650,000 1,650,000
</TABLE>
See Accompanying Notes to Interim Financial Statements
(F-43)
<PAGE>
AUSTIN LAND & RESOURCES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
MARCH 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
THREE MONTHS ENDED
MARCH 31
1999 1998
Cash flows from operating activities:
Net income $ - $ -
Adjustments to reconcile net income to net cash used
in operating activities
Depreciation and amortization - -
Consulting expense - -
Changes in operating assets and liabilities
Accounts receivable - -
Other current assets - -
Other assets - -
Accounts payable - -
Deferred income and other liabilities - -
Net cash used in operating activities - -
Cash flows from investing activities
Acquisition of property and equipment - -
- -
Net increase/decrease in cash - -
Cash at beginning of period - -
Cash at end of period $ - $ -
</TABLE>
See Accompanying Notes to Interim Financial Statements
(F-44)
<PAGE>
AUSTIN LAND & RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
NOTE 1 MANAGEMENT REPRESENTATION
The management of Austin Land & Resources,
Inc. ("ALR" or the "Company") has prepared
the financial statements included herein
without audit. Such financial statements
have been prepared pursuant to the rules
and regulations of the Securities and
Exchange Commission. The unaudited
condensed financial statements include all
adjustments, consisting of all normal
recurring adjustments, which are in the
opinion of management necessary to fairly
state the financial position of the Company
as of March 31, 1999, and the results of
its operations and cash flows for the three
month interim periods ended March 31, 1999
and 1998. Certain information and footnote
disclosures normally included in financial
statements prepared in accordance with
generally accepted accounting principles
have been condensed or omitted pursuant to
such rules and regulations, although the
Company believes that the disclosures
included herein are adequate to make the
information presented not misleading.
Operating results for the three month
interim period ended March 31, 1999 are not
necessarily indicative of the results that
may be expected for the year ending
December 31, 1999, or for any other period.
It is suggested that these unaudited
financial statements be read in conjunction
with the annual 1998 and 1997 audited
financial statements and the notes related
thereto of Tangible Investments of America
included elsewhere in this Registration
Statement on Form 10-SB. Such financial
statements and the notes related thereto
contain the accounting policies and other
relevant information with respect to the
Company.
NOTE 2 DESCRIPTION OF BUSINESS AND MERGER
The Company was originally incorporated in
Nevada. On April 28, 1999, the Company
acquired all of the outstanding common stock
of Tangible Investments of America ("TIA")
and merged the operations of TIA into the
Company in a reverse merger acquisition.
Effective with the merger, TIA became the
successor company and changed its name to
Tangible Asset Galleries, Inc.
(F-45)
<PAGE>
AUSTIN LAND & RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS CONTINUED
(UNAUDITED)
MARCH 31, 1999
NOTE 2 DESCRIPTION OF BUSINESS AND MERGER,
CONTINUED
Prior to the merger, the Company had
1,650,000 shares of common stock
outstanding. As part of the merger, the
Company issued 16,000,000 shares of its
common stock to the shareholders of TIA in
exchange for 490 (100%) shares of TIA's
common stock. The Company had no revenues
and no significant operations prior to the
merger. Subsequent to the merger, the former
shareholders of TIA constituted 88.40% of
the total outstanding shares of common stock
of the Company and the former shareholders
of ALR constituted 9.12% of the total
outstanding shares of common stock of the
Company.
The Company is a retailer and wholesaler of
rare coins and antique collectibles based in
Laguna Beach, California. The Company also
has a satellite office in Las Vegas, Nevada.
(F-46)
<PAGE>
January 12, 2000
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC
USA 20549
RE: TANGIBLE INVESTMENTS OF AMERICA, INC.
NOW KNOWN AS TANGIBLE ASSET GALLERIES, INC. (THE "COMPANY")
Dear Sirs,
We were the previous principal auditors of the above Company. On February
6, 1998, we reported on the financial statements of the Company for the year
ended December 31, 1997 and subsequently issued an audit opinion under generally
accepted auditing standards in the United States. On October 1, 1998 Schmeltzer
Master Group, P.C. began the process of liquidating the corporation and
substantially all of the partners and staff of the corporation joined Goldenberg
Rosenthal, LLP.
Commissioners: We have read the statements made by the Company, which we
understand will be filed with the Commission, pursuant to Item 3 of Form
10-SB/A2, as part of the Company's Form 10-SB/A2 report dated January 12, 2000.
We agree with the statements concerning our Firm in such Form 10-SB/A2.
Very truly yours,
/s/ Schmeltzer Master Group, P.C
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001091535
<NAME> TANGIBLE ASSET GALLERIES, INC.
<CAPTION>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> JUN-30-1999 DEC-31-1998
<CASH> 28,141 42,285
<SECURITIES> 0 0
<RECEIVABLES> 2,015,478 684,498
<ALLOWANCES> 0 0
<INVENTORY> 5,713,530 4,856,277
<CURRENT-ASSETS> 7,799,465 5,645,141
<PP&E> 125,729 41,601
<DEPRECIATION> 0 68,187
<TOTAL-ASSETS> 7,935,935 5,773,074
<CURRENT-LIABILITIES> 3,982,107 2,352,816
<BONDS> 0 0
0 0
0 0
<COMMON> 18,170 10
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 7,935,935 5,773,074
<SALES> 10,664,171 19,535,978
<TOTAL-REVENUES> 10,664,471 19,535,978
<CGS> 8,689,535 16,146,584
<TOTAL-COSTS> 1,493,615 1,971,521
<OTHER-EXPENSES> 1,580 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 1,979
<INCOME-PRETAX> 479,441 1,412,565
<INCOME-TAX> 60,000 14,700
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 419,441 1,397,865
<EPS-BASIC> .02 0
<EPS-DILUTED> .02 0
</TABLE>
