<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO ______________
COMMISSION FILE NUMBER 001-15591
PREMIER CLASSIC ART INC.
----------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-3680581
-------------------------- ----------------
(State or Other Jurisdiction (I.R.S. Employer
Incorporation of Organization) or Identification No.)
1158 STAFFLER ROAD, BRIDGEWATER, NEW JERSEY 08807
(201) 526-7388
----------------------------------------------------
(Address and telephone number, including area code,
of registrant's principal executive office)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
$.001 PAR VALUE
Indicate by check mark whether the Registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. /X/
Aggregate market value of voting stock held by non-affiliates as of August
15, 2000 was approximately $2,706,795 (based upon the closing sales price of
those shares reported on the National Association of Securities Dealers
Bulletin Board for that day).
Number of shares of Common Stock outstanding as of August 15, 2000:
7,648,946.
================================================================================
<PAGE>
PREMIER CLASSIC ART INC.
INDEX
<TABLE>
<CAPTION>
Page
------------
<S> <C>
Part I
Item 1. Business ................................................................... 1
Item 2. Properties ................................................................. 3
Item 3. Legal Proceedings .......................................................... 3
Item 4. Submission of Matters to Vote of Security Holders .......................... 3
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters ..... 3
Item 6. Management's Discussion and Analysis of Financial Condition and Results of
Operations .................................................................... 4
Item 7. Financial Statements ....................................................... 6
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure .................................................................... 17
Part III
Item 9. Directors and Executive Officers; Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act ........................................ 17
Item 10. Executive Compensation ..................................................... 17
Item 11. Security Ownership of Certain Beneficial Owners and Management ............. 18
Item 12. Certain Relationships and Related Transactions ............................. 18
Part IV
Item 13. Exhibits and Reports on Form 8-K ........................................... 18
Signatures .......................................................................... 20
</TABLE>
------------
* Page F-1 follows page 7.
<PAGE>
PART I
All statements contained herein that are not historical facts, including,
but not limited to, statements regarding anticipated growth, revenues, gross
margins and earnings, statements regarding the Company's current business
strategy, the Company's projected sources and uses of cash, and the Company's
expectations, are forward-looking statements in nature and involve a number of
risks and uncertainties. Actual results may differ materially. Among the
factors that could cause results to differ materially are the following: the
availability of sufficient capital to finance the Company's business plans on
terms satisfactory to the Company; changes in marketing distribution, and
capital costs; future acquisitions or strategic partnerships; general business
and economic conditions; and other factors described from time to time in the
Company's reports filed with the Securities and Exchange Commission. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements. These statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only as of the
date made.
ITEM 1. BUSINESS
General Development of Business
Premier Classic Art, Inc. (the "Company") was incorporated as Pet-Con
Industries, Inc. in the State of Delaware on June 14, 1991. The Company
previously manufactured recyclable containers and bottles for sale to private
grocery product manufacturers and food packers. The Company discontinued these
operations in June 1995 and had no operating activities from then until
September 1999.
On September 2, 1999, the Company hired Charles Trapp as its President and
a director and issued 1,158,845 shares of its common stock. At the same time,
Louis A. Pistilli joined the Company as a director and the Company's former
president resigned. Mr. Pistilli was issued 75,000 shares of the Company's
common stock.
On September 2, 1999, the Company purchased all of the outstanding shares
of stock of Cool Classic Incorporated, a Nevada corporation, in exchange for
3,069,788 shares of the Company's common stock. Cool Classic Incorporated is
the owner of approximately 400,000 original, hand-painted animation production
cels, which the Company is attempting to market.
Description of Business
The Company acquired all of the outstanding stock of Cool Classic
Incorporated with its collection of 400,000 animation production cels. The
Company intends to market these cels to the public through its website as well
as through art galleries, department type stores, other retail outlets and
catalogues.
1
<PAGE>
Pursuant to a Sub-Lease and Assembly Agreement, dated as of September
1999, by and between the Company and Royal Animated Art, Inc., a California
corporation ("Royal"), the Company stores its collection of cels in a warehouse
leased by Royal from a third party. In addition, Royal has agreed to provide
services such as cleaning, sorting, cataloguing, matching with backgrounds,
matting and framing (as requested by the Company) as well as generally
preparing the cels for market. The Company is to pay Royal $1,000 per month
for the warehouse space as well as out-of-pocket costs for labor and materials,
plus 15% of such costs as an estimate of Royal's overhead allocable to the
Company's products for the serivces rendered to the Company.
In addition to the marketing and sale of its own collection of cels, the
Company has entered into a Distribution Agreement, dated September 2, 1999, with
Royal. The agreement is for a three year term, subject to renewal. As part of
the agreement, Royal has granted to the Company the non-exclusive right to
purchase and market reproductions of certain animation and comic strip images
and characters, including animation art and comic strip lithographs, which Royal
has or acquires reproduction rights. These rights are subject to any
restrictions or limitations contained in agreements pursuant to which Royal
acquired its rights and to the approval of how many reproductions of each
particular piece of artwork should be sold to the Company. The Company is
required to pay Royal a percentage of Royal's suggested retail price, depending
on whether the Company sells directly to the ultimate consumer (50%) or to
wholesalers, distributors, retailers and/or other middlemen (25%).
Animation Cels
The term "cel" is used to describe the basic component of most types of
animation art. In its strictest sense, a cel is a plastic sheet, either
cellulose nitrate or cellulose acetate, on which animated characters are
painted. In practice, the term cel has come to mean that plastic sheet in
combination with the outline and coloring of a character, object or special
effect. Outlines can be either hand-inked or Xerographically transferred to the
sheet of plastic. Those outlines are then filled with color, either by
hand-painting or a serigraphic process, to complete the cel.
The Company's cel collection includes a combination of 12 field cels
(approximately 12" x 10" in size) and pan cels (approximately 36" x 10" in
size). The cels are selected from and were used in the production of Real
Ghostbusters/Slimer, Ewoks (Star Wars), He-Man, Masters of the Universe, She-Ra
Princess of Power, Bravestar, Flash Gordon, Shelly Duvall's Bedtime Stories,
Beethoven, Back to the Future and others.
Original Production Cels
These cels are hand-painted and have actually been used in the making of
animated films, They can have either Xerographed or hand-inked outlines and are
hand-painted at the studio. Each animation film is made of thousands of
individual hand-painted cels. They are filmed in sequence to create the
illusion of motion. Many original production cels have been either lost or
destroyed through the years, which enhances their value as collectible art. In
addition each cel is a one-of-a-kind piece of art, and this rarity also
enhances its value. Because they were created to make an actual cartoon, each
cel is a component part of a larger movement. Different cels from the same
scene may be more or less desirable depending on a variety of factors such as
size, profile, and expression of the character, any damage to inking or paint
and overall visual appearance.
The Making of Cels
The Company does not produce its own cels. However, an understanding of
the production process is helpful toward an understanding of the nature of the
cels and their collectibility.
For production cels, the process begins when a storyboard is created by a
talented animator, who, with the film director, determines the extent of the
background to be shown, the size of the characters and props to be used in each
scene. The animator makes a sketch from what will become each of approximately
16 frames per foot of film. Next, an outlined ink drawing is made of each of
the sketches. This outline is on a sheet of clear celluloid acetate. Each and
every inked outline is turned over to a painter and, by hand, the brilliant
colors applied with special paints. Once each cel is hand painted and the
foregrounds and backgrounds are complete, the artwork is ready for photography.
Using a multiplane camera, the foreground, animation plane and the background
are meticulously arranged and photographed.
2
<PAGE>
Industry and Competition
The Company believes that collecting of animation production cels is a
rapidly expanding pastime with more and more people every day discovering the
enjoyment and appreciating the hand-craftsmanship of these timeless works of
art. The Company is aware of two major distributors of animation cels, The Walt
Disney Co. (through its Walt Disney Art Classics division) and Time Warner,
Inc. (through its Warner Bros. division) in addition to several distributors of
lesser stature. These distributors have significantly greater resources than
the Company. In addition, many collectors and distributors of cels have
established a presence on the Internet.
Sales and Marketing
Commencing January 11, 2000, the Company opened a website at
www.premierclassicart.com through which it offers for sale a selection of its
animated cels. The website receives an average of approximately 695 hits per
week and is currently being maintained by its original developer at no
additional cost to the Company. The Company receives orders from its website,
all of which are paid by credit card. Each order is filled by an employee of
the Company and shipped by regular mail or overnight courier. The Company has
chosen IMC On-line as its internet service provider. It subscribes to this
service on a quarter by quarter basis at a rate of $315 per quarter.
To date, the Company has earned $135,200 in revenues from sales of cels at
various prices. The Company is also attempting to market its cels through art
galleries, department stores, other retail outlets and catalogues. The Company
has no existing agreement with any such gallery or store.
Seasonality
The Company's management believes that the demand for animation cels is
not subject to seasonal fluctuations.
Employees
The Company currently employs one executive and, if its revenue increases,
expects that it will require one to three additional employees.
ITEM 2. PROPERTIES
On September 1, 1999, the Company entered into a Sublease and Assembly
Agreement with Royal Animated Art, Inc. of California. The agreement provides
for the Company to pay Royal Animated Art, Inc. $1,000 per month for the use of
space in a warehouse facility in order to store the Company's collection of
cels. The agreement also provides for services to be performed by Royal in
connection with the cels and payment by the Company of Royal's costs in
connection with such services plus 15% of its overhead costs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any material pending legal proceedings.
However, in the event the Company is unable to meet its obligations on the
Extension Agreement, it is conceivable that its lender will foreclose on its
collateral and bring an action on the Note.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during
the forth quarter of the year ending May 31, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
3
<PAGE>
The Company's securities trade are traded in the over-the-counter market
"pink sheets". The Company's trading symbol is "PMCL". Over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not represent actual transactions. The following sets forth
the range of high and low bid information for the quarterly periods as reported
on America Online:
High Low
------ ------
Year Ended May 31, 1999
1st Quarter .......................... 0 0
2nd Quarter .......................... 0 0
3rd Quarter .......................... .01 .01
4th Quarter .......................... 0 0
Year Ended May 31, 2000 .........
1st Quarter .......................... 0 0
2nd Quarter .......................... 0 0
3rd Quarter .......................... 61/2 0
4th Quarter .......................... 5 .50
The Company has 7,648,946 shares of common stock outstanding, but, of these
shares, only 1,657,109 shares are freely tradeable. All of the remaining shares
of common stock are considered "restricted securities" and in the future, may be
sold only in compliance with Rule 144 or in an exempt transaction under the
Securities Act of 1933 (the "Act") unless registered under the Act.
Recent Sales of Unregistered Securities
The following paragraphs set forth certain information with respect to all
securities sold by the Company within the past year without registration under
the Securities Act of 1933, as amended (the "Securities Act"). The information
includes the names of the purchasers, the date of issuance, the title and number
of securities sold and the consideration received by the company for the
issuance of these shares.
In September 1999, the Company issued to Charles F. Trapp 1,158,845 shares
of common stock at $.001 per share in exchange for services rendered.
In September 1999, the Company issued to Mr. Louis Pistilli 125,000 shares
in the aggregate (75,000 at $.001 per share for services rendered and 50,000 at
$.10 per share) pursuant to a 504 offering.
In September 1999, the Company issued 3,069,788 shares of common stock to
Joe Cool Collectibles, Inc. in exchange for all the outstanding stock of Cool
Classics, Inc.
(b) Holders
As of August 15, 2000, the number of holders of record of common stock,
excluding the number of beneficial owners whose securities are held in street
name was approximately 375.
(c) Dividend Policy
The Company is prohibited from paying cash dividends on the common stock
until the preferred stock is converted into common stock or all preferred
dividends in arrears are brought current.
However, even assuming its obligations on its preferred stock are
satisfied, the Company does not anticipate paying any cash dividends on its
common stock in the foreseeable future and intends to retain its earnings to
finance the expansion of its business. Thereafter, the declaration of dividends
will be determined by the Board of Directors in light of conditions then
existing, including, without limitation, the Company's financial condition,
capital requirements and business condition.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Liquidity and Capital Resources
The Company does not have adequate cash reserves to meet its future cash
requirements. The Company is seeking to raise additional working capital
through debt or equity financing. The Company's ability to continue as a going
concern will depend upon successful completion of such financing and on its
ability to market its inventory. The Company does not expect to have to
purchase any property or equipment over the next year that cannot be financed
in the ordinary course of business.
4
<PAGE>
On September 3, 1999, the Company issued a $775,000 principle 101/2%
convertible note due September 3, 2000 (the "Note"). Interest is payable monthly
in arrears from September 1999 commencing in December 1999. The Note is
convertible into 250,000 shares of the Company's common stock at $3.10 per
share. The Note automatically converts if the closing bid of the Company's
common stock is greater than or equal to $5.50 per share for twenty consecutive
trading days. In connection with the execution of this Note, the Company sold
the holder 100,000 shares of the Company's common stock for $.001 per share
(which was below fair market value) and issued him a warrant to purchase 400,000
shares of the Company's common stock at $1.00 per share. The Note is
collateralized with 200,000 of the Company's cels. On August 18, 2000, the
Company signed an extension agreement to extend the due date until September 3,
2001 (the "Extension Agreement"). Under this agreement, the Company is required
to pay a reduction in principal of the Note by $300,000 on or before September
3, 2000 and $100,000 on or before October 3, 2000. There is no assurance that
the Company will be able to fulfill the terms of this agreement.
Plan of Operation
The Company plans to continue marketing and selling its collection of cels
over the internet and through art galleries department stores, other retail
outlets and catalogues. The Company currently has no agreement with any such
entity. The Company anticipates that it will take more than five years for it to
liquidate the collection so as to maximize its value and to take advantage of
opportunities to sell pieces when possible. The Company has received only
limited revenues from sales of its cels to date. Royal, in accordance with its
agreement with the Company provides the necessary artistic staff to process and
prepare its cels for presentation to the public. The Company has 35,000 cels
ready for presentation and distribution.
Year Ended May 31, 2000 compared to May 31, 1999
Sales
Sales increased from $-0- for the year ended May 31, 1999 to $135,200 for
the year ended May 31, 2000. The Company attributes the increase to its recent
acquisition of the animation cels it will market.
Cost of Sales
Cost of sales increased from $-0- for the year ended May 31, 1999 to
$20,259 for the year ended May 31, 2000. The Company attributes the increase to
the reasons described above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased from $-0- for the
year ended May 31, 1999 to $1,079,854 for the year ended May 31, 2000. The
Company attributes the increase primarily to Marketing and website construction
of $86,000, non-cash compensation and consulting services of $257,000,
acquisition fees of $216,000, legal and accounting fees of $115,000 in
connection with the filings by the Company with the Securities and Exchange
Commission and $125,0000 in connection with the amortization of prepaid
distribution rights.
Interest Expense
Interest expense increased from $23,400 for the year ended May 31, 1999 to
$272,798 for the year ended May 31, 2000. The increase is primarily attributed
to funds the Company borrowed to make the acquisition in 1999 and non-cash
interest in connection with the issuance of warrants relating to the financing.
Other Matters
Year 2000
Impact of Year 2000
The Company's mission critical systems have operated without interruption
during 2000. Furthermore, the Company has not experienced a failure of any
non-critical devices or systems. In addition,, the Company has not experienced
a delay from any service providers or vendors.
ITEM 7. FINANCIAL STATEMENTS
5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Premier Classic Art, Inc.
We have audited the accompanying balance sheets of Premier Classic Art,
Inc.(the "Company") as of May 31, 2000, and 1999, and the related statements of
operations, stockholders' deficiency, and cash flows for each of the three
years in the period ended May 31, 2000. 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 audit.
We conducted our 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. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements referred to above present fairly, in
all material respects, the financial position of Premier Classic Art, Inc. at
May 31, 2000 and 1999 and the results of their operations and their cash flows
for each of the years in the period ended May 31, 2000, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As more fully explained in Note 1 of Notes to
Financial Statements, the Company needs to obtain additional financing and sell
its inventory to liquidate its debts and support the Company's overhead. The
Company's $775,000 note payable is due September 3, 2000. Although an extension
agreement has been signed, there is no assurance that the Company will be able
to fulfill the terms of the agreement. These uncertainties raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
WIENER, GOODMAN & COMPANY, P.C.
Certified Public Accountants
Eatontown, New Jersey
August 21, 2000
6
<PAGE>
PREMIER CLASSIC ART, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
May 31, 2000 May 31, 1999
-------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash ................................................................ $ 28,408 $ --
Marketable securities ............................................... 2,188 --
Inventories ......................................................... 295,297 --
Prepaid expenses -- current ......................................... 166,666 --
------------ ------------
Total Current Assets .............................................. 492,559 --
Other assets ......................................................... 208,334 --
------------ ------------
TOTAL ASSETS ...................................................... $ 700,893 $ --
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Short-term debt ..................................................... $ 775,000 $ --
Current portion of long-term debt ................................... -- 217,370
Accounts payable .................................................... -- 46,263
Accrued expenses .................................................... 189,001 151,408
------------ ------------
Total Current Liabilities ......................................... 964,001 415,041
------------ ------------
Long-term debt ...................................................... -- --
------------ ------------
Total Liabilities ................................................. 964,001 415,041
------------ ------------
Commitments and Contingencies
Stockholders' Deficiency:
Series A cumulative convertible preferred stock -- 8% cumulative, par
value $.002 per share, authorized 10,000,000 shares; outstanding
136,000 and 256,800 shares ........................................ 272 514
Common stock -- par value $.001 per share, authorized 50,000,000
shares; outstanding 7,648,946 and 75,410 shares ................... 7,649 75
Additional paid-in capital .......................................... 1,970,323 917,366
Deficit ............................................................. (2,196,733) (1,332,996)
Cumulative other comprehensive(loss) ................................ (44,619) --
------------ ------------
Total Stockholders' Deficiency .................................... (263,108) (415,041)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY .................... $ 700,893 $ --
============ ============
</TABLE>
See notes to financial statements.
7
<PAGE>
PREMIER CLASSIC ART, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended May 31,
-------------------------------------------------
2000 1999 1998
--------------- -------------- --------------
<S> <C> <C> <C>
Sales ....................................................... $ 135,200 $ -- $ --
------------ ---------- ----------
Cost and Expenses:
Cost of sales .............................................. 20,259 -- --
Selling, general and administrative ........................ 1,079,854 -- --
------------ ---------- ----------
1,100,113 -- --
------------ ---------- ----------
Loss from operations ........................................ (964,913) -- --
Interest expense -- net ..................................... 272,798 23,400 23,400
------------ ---------- ----------
Loss before income tax provision and extraordinary gain ..... (1,237,711) (23,400) (23,400)
Income tax benefit .......................................... (127,000) -- --
------------ ---------- ----------
Loss before extraordinary gain .............................. (1,110,711) (23,400) (23,400)
Extraordinary gain on extinguishment of debt (net of
income tax of $127,000) .................................... 246,974 -- --
------------ ---------- ----------
Net (loss) .................................................. $ (863,737) $ (23,400) $ (23,400)
============ ========== ==========
Net (loss) per common share-basic and diluted ............... $ (0.20) $ (0.31) $ (0.31)
Extraordinary gain on extinguishment of debt ................ 0.04 -- --
------------ ---------- ----------
Net (loss) per common share-basic and diluted ............... $ (0.16) $ (0.31) $ (0.31)
============ ========== ==========
Weighted average of common shares outstanding -- basic
and diluted ................................................ 5,549,875 75,410 75,410
============ ========== ==========
</TABLE>
See notes to financial statements.
8
<PAGE>
PREMIER CLASSIC ART, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Net
unrealized
(loss) on
Comprehensive marketable
Total (loss) Deficit securities
-------------- --------------- ---------------- ------------
<S> <C> <C> <C> <C>
Balance June 1, 1997 ......................... $ (456,871) $ (1,286,196) $ --
Retroactive effect of 1-for-50 reverse
stock split effective September 1, 1999
Net (loss) .................................. (23,400) (23,400)
---------- ------------
Balance, May 31, 1998 ........................ (480,271) (1,309,596)
Capitalized debt ............................ 88,630 --
Net (loss) .................................. (23,400) (23,400)
---------- ------------
Balance, May 31, 1999 ........................ (415,041) (1,332,996)
Sale of common stock (at $.12 per
share) ..................................... 15,000
Issuance of stock to repay accounts
payable (valued at $.10 per share) ......... 93
Issuance of stock to repay debt and
accrued interest (valued at $.10 per
share) ..................................... 236
Conversion of preferred stock to
common stock ............................... --
Capitalized debt ............................ 38,319
Issuance of common stock for services
(valued at $.10 per share) ................. 209,362
Issuance of common stock in connection
with acquisition (valued at $.10 per
share) ..................................... 306,879
Issuance of stock warrants for services
and in connection with financing ........... 260,000
Issuance of common stock for services
(valued at $.10 per share) ................. 1,400
Sale of common stock (at $.10 per
share) ..................................... 223,600
Conversion of preferred stock to
common stock ...............................
Issuance of common stock to repay debt
and accrued interest (valued at $.10
per share) ................................. 400
Conversion of preferred stock to
common stock ............................... --
Issuance of common stock for services
(valued at $5.00 per share) ................ 5,000
Net unrealized loss on marketable
securities ................................. (44,619) $ (44,619) (44,619)
Net (loss) .................................. (863,737) (863,737) (863,737)
----------
Comprehensive loss .......................... $ (908,356)
==========
Balance, May 31, 2000 ........................ $ (263,108) $ (2,196,733) $ (44,619)
========== ============ =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Series A
Preferred Stock Common Stock
------------------------ ---------------------------- Additional
Shares Par Shares Par Paid-In
Outstanding Value Outstanding Value Capital
------------- --------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance June 1, 1997 ......................... 256,800 $ 514 3,770,521 $ 3,770 $ 825,041
Retroactive effect of 1-for-50 reverse
stock split effective September 1, 1999 (3,695,111) (3,695) 3,695
Net (loss) ..................................
Balance, May 31, 1998 ........................ 256,800 514 75,410 75 828,736
Capitalized debt ............................ -- -- -- 88,630
Net (loss) .................................. -- -- --
------- ---------- ----------
Balance, May 31, 1999 ........................ 256,800 514 75,410 75 917,366
Sale of common stock (at $.12 per
share) ..................................... 124,590 125 14,875
Issuance of stock to repay accounts
payable (valued at $.10 per share) ......... 925 1 92
Issuance of stock to repay debt and
accrued interest (valued at $.10 per
share) ..................................... 2,360 2 234
Conversion of preferred stock to
common stock ............................... (40,000) (80) 9,000 9 71
Capitalized debt ............................ 38,319
Issuance of common stock for services
(valued at $.10 per share) ................. 2,093,618 2,094 207,268
Issuance of common stock in connection
with acquisition (valued at $.10 per
share) ..................................... 3,069,788 3,070 303,809
Issuance of stock warrants for services
and in connection with financing ........... 260,000
Issuance of common stock for services
(valued at $.10 per share) ................. 14,000 14 1,386
Sale of common stock (at $.10 per
share) ..................................... 2,236,000 2,236 221,364
Conversion of preferred stock to
common stock ............................... (64,000) (128) 14,475 14 114
Issuance of common stock to repay debt
and accrued interest (valued at $.10
per share) ................................. 4,000 4 396
Conversion of preferred stock to
common stock ............................... (16,800) (34) 3,780 4 30
Issuance of common stock for services
(valued at $5.00 per share) ................ 1,000 1 4,999
Net unrealized loss on marketable
securities .................................
Net (loss) ..................................
Comprehensive loss ..........................
Balance, May 31, 2000 ........................ 136,000 $ 272 7,648,946 $ 7,649 $1,970,323
======= ======= ========== ========= ==========
</TABLE>
9
<PAGE>
PREMIER CLASSIC ART, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------------------------
2000 1999 1998
-------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) ........................................... $ (863,737) $ (23,400) $ (23,400)
Adjustments to reconcile net (loss) to cash
provided by operating activities:
Depreciation and amortization ..................... 3,387
Extraordinary gain on extinguishment of
debt ............................................ (373,974)
Non-cash compensation expense ..................... 215,762
Other non-cash items .............................. 260,000
Changes in operating assets and liabilities:
(Increase) in prepaid expenses and other
assets .......................................... (375,000)
Decrease in inventories ........................... 11,682 -- --
Increase in accrued expenses ...................... 187,995 23,400 23,400
---------- --------- ---------
Net Cash Used in Operating Activities ............. (933,885) -- --
---------- --------- ---------
Cash flows from investing activities:
Purchase of marketable securities .................... (46,807) -- --
---------- --------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock ................... 238,600 -- --
Proceeds from short term borrowings .................. 775,000 -- --
Payments of short term borrowings .................... (4,500) -- --
Net Cash Provided by Financing Activities ......... 1,009,100 -- --
---------- --------- ---------
Net increase in cash .................................. 28,408 -- --
Cash -- beginning of year ............................. -- -- --
---------- --------- ---------
Cash -- end of year ................................... $ 28,408 $ -- $ --
========== ========= =========
Supplemental disclosure of non-cash financing
activities:
Capital contribution to forgive debt ................. $ 38,319 $ 88,630 $ --
========== ========= =========
Non-cash investing activities:
Unrealized loss on marketable securities ............. $ 44,619
==========
Common stock issued for inventory .................... $ 306,979
==========
Common stock issued for debt ......................... $ 729
==========
</TABLE>
See notes to financial statements.
10
<PAGE>
PREMIER CLASSIC ART, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Premier Classic Art, Inc. (the "Company") formerly Pet-Con Industries,
Inc. previously manufactured recyclable containers and bottles for sale to
private label grocery product manufacturers and private label food packers. The
Company discontinued operations in June 1995. On September 1, 1999 the Company
changed its name and is currently engaged in the marketing of original,
hand-painted production animation cels through a variety of outlets throughout
the United States.
Basis of Presentation
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company's operating activities have commenced under new management.
The Company's ability to continue as a going concern is dependant upon its
ability to obtain needed working capital through additional equity and/or debt
financing and its ability to market its inventory. Management is actively
seeking additional capital to liquidate its current obligations. There is no
assurance that additional capital will be obtained or the Company will be able
to sell its current inventory. The Company's $775,000 note payable is due
September 3, 2000. On August 18, 2000 the Company signed an extension agreement
whereas the Company is required to pay down the principal amount of the note by
$300,000 on or before September 3, 2000 and $100,000 on or before October 3,
2000. The balance of the note, $375,000, will be due and payable together with
accrued interest on September 3, 2001. The Company does not have adequate cash
reserves to fulfill these requirements and there is no assurance that the terms
of this agreement can be met. These uncertainties raise substantial doubt about
the ability of the Company to continue as a going concern.
The financial statements do not include any adjustments relative to the
recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue
as a going concern.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Marketable Securities
The Company classifies its investment in equity securities as "available
for sale", and accordingly, reflects unrealized losses, net of deferred taxes,
as a separate component of stockholders' equity (deficiency).
The fair values of marketable securities are estimated based on quoted
market prices. Realized gains or losses from the sales of marketable securities
are based on the specific identification method.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments. The Company places its temporary cash investments with quality
financial institutions and, by policy, limits the amount of credit exposure
with any on financial institution.
Reverse Stock Split
Effective September 1, 1999 the Board of Directors approved a
one-for-fifty reverse stock split of its common stock. All references in the
accompanying financial statements to the number of shares and per share amounts
have been retroactively restated to reflect this transaction.
11
<PAGE>
Prepaid Expenses
Prepaid expenses consist primarily of a three year consulting agreement
expiring September 2, 2002 in the amount of $500,000 which was paid in cash by
the Company in September 1999. Consulting expense charged to operations for the
years ended May 31, 2000, 1999 and 1998 were $125,000, $-0- and $-0-,
respectively.
Inventories
Inventories, consisting of finished animated cels are stated at the lower
of cost (first-in, first-out) or market.
Revenue Recognition
Revenue is recognized upon shipment of merchandise after the price to the
buyer is fixed and determinable and title passes to customers and the
collectibility of the sales price is reasonably assured.
Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". The standard encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments to employees based on fair value.
Earnings Per Common Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", which requires companies to present basic earnings per share ("EPS")
and diluted earnings per share instead of the primary and fully diluted EPS
that was required. The new standard requires additional information disclosures
and also makes certain modifications to the currently applicable EPS
calculations defined in Accounting Principles Board No. 15.
Basic and diluted loss per common share is computed by dividing net loss
by the weighted average number of common shares outstanding during the year.
Diluted earnings per common share are computed by dividing net earnings by the
weighted average number of common and potential common shares during the year.
Potential common shares are excluded from the loss per share calculation,
because the effect would be antidilutive. Potential common shares relate to the
preferred stock that is convertible into common stock, convertible debt and
outstanding warrants. The number of potential common shares outstanding were
947,946, 59,064, and -0- as of May 31, 2000, 1999, and 1998 respectively.
Fair Value of Financial Instruments
At May 31, 2000, the fair values of cash, other current assets, accounts
payable, short-term debt, accrued interest and other accrued liabilities
approximated their carrying values because of the short-term nature of these
instruments.
2. ACQUISITION
On September 3, 1999, the Company acquired Cool Classic, Inc., a
subsidiary of Joe Cool Collectibles, Inc. for 3,069,788 shares of the Company's
common stock. Cool Classic, Inc. owned inventory of original, hand-painted
production animation cels.
The acquired inventory was accounted for as a non-monetary transaction in
accordance with Accounting Principles Board Opinion No. 29, "Accounting for
Non-Monetary Transactions" (APB No. 29). The Company recorded the inventory
value at $306,979, which represents the fair value ($.10 per share) of the
stock issued to acquire Cool Classic, Inc. Pursuant to the agreement the
acquired inventory will consist of 400,000 original, hand-painted production
animation cels. Cool Classic, Inc. had no operating results but was a collector
of animated art cels and, accordingly, the Company has not included any
proforma unaudited results of operations.
12
<PAGE>
3. MARKETABLE SECURITIES
<TABLE>
<CAPTION>
Estimated Gross
Fair Unrealized Unrealized Gross
Cost Value Gains Losses
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
May 31, 2000:
Marketable securities -- current:
Common stock .................. $ 46,807 $ 2,188 $ -- $ 44,619
======== ======= ==== ========
</TABLE>
There were no realized gains or losses for the years ended May 31, 2000,
1999 and 1998.
4. INVENTORY
The Company's inventory consists of approximately 400,000 original,
hand-painted production animation cels of which 200,000 cels are secured as
collateral for the Company's short term debt (see note 5).
5. DEBT
Short-term debt consisted of the following:
On September 3, 1999, the Company issued a $775,000, 10 1/2 % convertible
note to a related party due September 3, 2000. Interest is payable monthly,
commencing December 1999 and payable in arrears from September 1999. On August
18, 2000, the Company signed an extension agreement to extend the due date
until September 3, 2001. Under this agreement, the Company is required to pay a
reduction in the principal amount of the note by $300,000 on or before
September 3, 2000 and $100,000 on or before October 3, 2000 and the balance of
the note, $375,000 will be due and payable together with accrued interest on
September 3, 2001. There is no assurance that the Company will be able to
fulfill the terms of this agreement. The note is convertible into 250,000
shares of the Company's common stock, at the option of the holder, at a
conversion price of $3.10 per share. The convertible note contains a provision
for an automatic conversion if the closing bid of the common stock is greater
than or equal to $5.50 per share for twenty consecutive trading days. The
Company paid $48,148 in interest on this note for the year ended May 31, 2000.
In connection with the execution of this note, the Company sold the holder
100,000 shares of the Company's restricted common stock for $.001 per share
(which was below fair market value) and a warrant to purchase 400,000 shares of
the Company's common stock at an exercise price of $1.00 per share. This
transaction resulted in additional interest expense of $9,900 for the year
ended May 31, 2000.
The holder of this note received a first priority security interest in
200,000 animation cels currently in the Company's inventory and an insurance
policy in the amount of $1.5 million, naming the holder as an additional
insurer.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
May 31, May 31,
2000 1999
--------- ----------
<S> <C> <C>
10% notes payable to stockholders, obligation in default at July 1997 (a) .. $ -- $ 83,000
12% note payable, obligation in default at May 31, 1994 (b) ................ 35,000
8% notes payable to stockholders, less discount of $6,957, obligation in
default at October 1998 (c) ............................................... 33,043
10% note payable, obligation in default at April 1994 (d) .................. 25,000
18% notes payable, obligation in default at December 1995 (e) .............. 23,645
12% note payable, obligation in default at June 1994 (f).................... 10,000
8% note payable to stockholder, less discount of $2,318, obligation in
default at September 1998 (g).............................................. -- 7,682
---- --------
Total ...................................................................... -- 217,370
Less current maturities .................................................... -- 217,370
---- --------
$ -- $ --
==== ========
</TABLE>
13
<PAGE>
(a) On August 13, 1999, the Company paid $1,500 in cash for payment in full
of a $30,000 note with accrued interest of $21,645. On August 23, 1999,
the Company issued 1,000 shares of common stock for payment of the
principal of $50,000 and accrued interest of $36,075. In December 1999
the Company paid principal of $3,000 and accrued interest of $4,610 in
cash for full payment of this debt.
(b) On August 23, 1999, the Company issued 700 shares of common stock for
payment of the principal of $35,000 and accrued interest of $28,495.
(c) On August 23, 1999, the Company issued 200 shares of common stock for
payment of principal of $10,000 and accrued interest of $4,644. On
December 10, 1999 the Company issued 3,000 shares of common stock for
payment of the principal of $23,043 and accrued interest of $14,833.
(d) On August 17, 1999 the president personally took responsibility for the
principal of $25,000 and the accrued interest of $13,319.
(e) On August 23, 1999, the Company issued 460 shares of common stock for
payment of the principal of $23,645 and accrued interest of $21,318.
(f) On December 20, 1999, the promissory note of $10,000 and accrued
interest of $8,554 was forgiven by the noteholder.
(g) On December 10, 1999, the Company issued 1,000 shares of common stock
for payment of the principal of $7,682 and accrued interest of $5,006.
The above transactions, (a through g),resulted in the Company issuing
5,435 shares of the Company's common stock. The Company also issued 925 shares
of the Company's common stock for payment of accounts payable. As a result of
these transactions the Company recorded an extraordinary gain on extinguishment
of debt of $373,974, included in the statement of operations for the year ended
May 31, 2000.
6. STOCK OPTIONS AND WARRANTS
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation". In September 1999, the Company issued three-year warrants to
purchase 666,666 shares of Common Stock at an exercise price of $1.00 per
share. In connection with the short-term debt, the Company issued a warrant for
400,000 shares of common stock and in connection with the consulting agreement,
the Company issued a warrant to purchase 266,666 shares of common stock.
The fair value of warrants are estimated on the date of grant using the
Black-Scholes option pricing method with the following weighted average
assumptions issued for grants in the year ending May 31, 2000: dividend yield
of -0-%, expected volatility of 1%, risk free interest rate of 7% and expected
lives of one to three years.
For the year ended May 31, 2000 the Company recorded interest expense of
$213,000 and consulting expense of $47,000 in connection with the issuance of
the warrants.
Information regarding the Company's warrants for the years ended May 31,
2000 is as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------------ -----------------
<S> <C> <C>
Warrants outstanding beginning of period ..... -- $ --
Warrants exercised ........................... -- $ --
Warrants granted ............................. 666,666 $ 1.00
Warrants cancelled ........................... -- $ --
-------
Warrants outstanding, end of period .......... 666,666 $ 1.00
=======
Warrants price range end of period ........... $ 1.00
Weighted-average fair value of warrants
granted during the year ..................... $ .71
</TABLE>
14
<PAGE>
The following table summarizes information about fixed-price stock options
outstanding at May 31, 2000:
<TABLE>
<CAPTION>
Weighted Average Weighted Number
Range of Number Outstanding Remaining Contractual Average Exercise Exercisable at Weighted Average
Exercise Prices at May 31, 2000 Life Price May 31, 2000 Exercise Price
----------------- -------------------- ----------------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 1.00 666,666 2.5 years $ 1.00 666,666 $ 1.00
</TABLE>
7. STOCK BASED COMPENSATION
On September 1, 1999, the Company issued 2,093,618 shares of common stock
for consulting services rendered. The Company valued these shares at fair
market value and recorded additional compensation expense of $213,653 which is
included in selling general and administrative costs in the Statement of
Operations for the year ended May 31, 2000.
8. INCOME TAXES
The Company has a net operating loss ("NOL") carryforward of approximately
$2,197,000 expiring in various years through 2014. The Company has not
reflected any benefit of such NOL carryforward in the accompanying financial
statements in accordance with Financial Accounting Standards Board Statement
No. 109 "Accounting for Income Taxes" (SFAS 109) as the realization of this
deferred tax benefit is not more than likely.
The Tax Reform Act of 1986 provided for a limitation on the life of NOL
carryforwards, following certain ownership changes. As a result of transactions
in the Company's common stock during the year ended May 31, 2000, a change in
ownership of greater than 50%, as defined, has occurred. Under such
circumstances, the potential benefits from utilization of tax carryforwards may
be substantially limited or reduced on an annual basis.
There is no provision for income taxes for the years ended May 31, 2000
and 1999, as the Company had net losses.
The tax effect of the net operating loss carryforward on deferred income
taxes at May 31, 2000 and 1999 was as follows:
<TABLE>
<CAPTION>
May 31, May 31,
2000 1999
------------------------------ -------------------------------
Temporary Temporary
Difference Tax Effect Difference Tax Effect
--------------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Net operating loss ............. $ 2,197,000 $ 879,000 $ 1,333,000 $ 533,000
Unrealized loss on
marketable securities ......... 45,000 18,000 -- --
Valuation allowance ............ (2,242,000) (897,000) (1,333,000) (533,000)
------------ ---------- ------------ ----------
$ -- $ -- $ -- $ --
============ ========== ============ ==========
</TABLE>
<PAGE>
9. EXTRAORDINARY GAINS
During August 1999, the Company issued common shares to extinguish various
long-term debt and accrued interest. In connection with these transactions the
Company recorded an extraordinary gain of approximately $246,974, net of tax
$127,000 for the year ended May 31, 2000.
10. RELATED PARTY TRANSACTIONS
(a) In September 1999, the Company issued to the secretary and director of
the Company 50,000 shares pursuant to a 504 offering and 75,000 shares
for services rendered.
(b) In September 1999, the Company issued 1,158,845 shares of common stock
to a consultant of the Company who subsequently became CEO/President of
the Company for services rendered.
(c) A related party purchased 1,000 cels at $30 per cel for the year ended
May 31, 2000.
11. PENSION PLAN
The Company has 401-k Retirement Plan that matches employee contributions
up to 7% of payroll. The Company contributed $3,150, $-0- and $-0- to the 401-k
plan for the years ended May 31, 2000, 1999 and 1998, respectively.
15
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
Leases
On September 3, 1999, the Company signed a sublease and assembly agreement
with a warehouse facility. The sublease requires the Company to pay certain
utility and related charges.
Future minimum lease payments are as follows:
Years Ending
May 31, Amount
------------------ ---------
2001 ......... 5,000
2002 ......... --
2003 ......... --
2004 ......... --
2005 ......... --
-----
$5,000
======
Rent expense for the years ended May 31, 2000, 1999 and 1998 was $8,000,
$-0-, and $-0-, respectively.
The assembly agreement requires the Company to pay actual labor and
material costs plus 15% of those costs to assemble the cels. The agreement also
requires the Company to pay actual labor, material and shipping costs plus 15%
of those costs to ship the cels. All costs are expensed as incurred.
Distribution Agreement
On September 3, 1999, the Company signed a three year distribution
agreement with an option to extend it for an additional two years. The
distribution agreement requires the Company to pay a fee of 50% of the
distributors retail price when the distributor sells directly to the ultimate
consumer and 25% when sold to wholesalers.
16
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table and biographical outlines set forth the directors,
positions and officers within the Company privately held by each executive
officer of the Company and a brief account of the business experience of each
such director and officer for the past five years.
<TABLE>
<CAPTION>
Name Age Company Position
--------------------------------- ----- ------------------------------------------------
<S> <C> <C>
Charles F. Trapp ........... 50 Chairman, Chief Executive Officer and President
Louis A. Pistilli .......... 45 Director
Giltner Stevens ............ 53 Director
</TABLE>
Charles F. Trapp is a certified public accountant and has served as the
Company's Chairman, Chief Executive Officer and President since September 1999.
Prior to that time, he was President of Somerset Kensington Capital Co. Inc., a
Company involved in financial restructuring and turnaround management. Mr.
Trapp was Vice President of Finance for A.W. Computer Systems, Inc. from
September 1996 to February 1999. A.W. filed Chapter 11 in May 1998 and
converted to Chapter 7 in February 1999.
Louis A. Pistilli is a certified public accountant and has been the
Secretary and a director of the Company since September 1999. He has been the
managing partner of the accounting firm of Pistilli & Romm LLC since January
1999. From January 1990 to December 1998, Mr. Pistilli served as managing
partner of the accounting firm of Pistilli & Company.
Giltner Stevens has been a director of the Company since July, 2000. He now
serves as a corporate director for several companies and is Chairman of the
Board of Directors of Arvest bank of Joplin, Missouri. U.S. Bike intends to
nominate him and actively seek his election as a Director of U.S. Bike. From
1977 to 1999, he served as the President and Chief Executive Officer of the
Brady Stevens Company, which specialized in residential re-sales, as well as
commercial, industrial real estate and property management. He received a B.S.
in business administration from the University of Missouri. He has served as the
Chairman of the Joplin Chamber of Commerce and as President of the Joplin
Business Industrial Development Authority.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following sets forth, for the fiscal years ended May 31, 2000, 1999
and 1998, the annual and long-term compensation paid or accrued of the
Company's named officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
--------------------
Securities
Annual Compensation
------------------------------- Underlying
Name and Principal Position Year Salary Bonus Other Options/SARS (#) Compensation
----------------------------- ------ ----------- ------- ------- -------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles Trapp ............... 2000 *$45,000 $ -- $ --
President, Chairman 1999 -- -- -- -- --
of the Board, Chief 1998 -- -- -- -- --
Executive Officer
</TABLE>
------------
* Does not include $3,150 contributed by the Company to the 401(k) plan for
Charles Trapp.
17
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the name and address of each officer and
director of the Company and each person who owns beneficially more than five
percent of the Common Stock of the Company, and the number of shares owned by
each such person and by all officers and directors as a group.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial Owner of Ownership Approximate % of Class
---------------------------------------------------- ------------------ -----------------------
<S> <C> <C>
Charles Trapp, Chairman, Chief Executive Officer and
President ......................................... 1,158,845 15.2%
Louis Pistilli, Secretary and Director ............. 125,000 1.6
Joe Cool Collectables, Inc. ........................ 3,069,788 40.3
Giltner Stephens ................................... 1,000,000(1) 13.1
Herman Rush ........................................ 266,667(2) 3.5
Directors and Officers as a Group .................. 2,283,845 27.5
</TABLE>
------------
(1) Includes 250,000 shares underlying a convertible note, 350,000 shares of
common stock and warrants to purchase 400,000 shares of common stock at
$1.00 per share which expire in September 2002.
(2) Includes an option to purchase 266,667 shares at $1.00 per share which
expires in September 2002.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Herman Rush, who owns an option to purchase 266,667 shares of the
Company's issued and outstanding common stock at $1.00 per share which expires
September 2002, is the President of Royal Animated Art,Inc. The Company has
entered into a Sub-Lease and Assembly Agreement, as well as a Distribution
Agreement, with Royal Animated Art, Inc.
On September 2, 1999, the Company acquired the assets, consisting of
inventory of original, hand-painted production animation cels, of Cool Classic,
Inc., a subsidiary of Joe Cool Collectibles, Inc. for 3,069,788 shares of the
Company's common stock.
Mr. Giltner Stephens owns 350,000 shares of the Company's common stock, a
warrant to purchase 400,000 shares at $1.00 per share which expires in
September 2002 and a one year $775,000 convertible note due September 2, 2002
convertible into 250,000 shares at $3.10 per share.
In September 1999, the Company issued to Mr. Louis Pistilli 125,000 shares
(75,000 at $.001 per share for services rendered and 50,000 at $.10 per share).
In September 1999, the Company issued to Charles F. Trapp 1,158,845 shares
of common stock at $.001 per share in exchange for services rendered.
Charles F. Trapp has purchased 1,000 cels from the Company at a price of
$30 per cel.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements and supplementary financial
information are filed as part of this Annual Report on Form 10-KSB:
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
1. Financial Documents:
Independent Auditors' Report .................................................... F-1 - F-2
Balance Sheets, May 31, 2000 and 1999 ........................................... F-3
Statements of Operations, Years Ended May 31, 2000, 1999 and 1998 ............... F-4
Statements of Stockholders' Equity, Years Ended May 31, 2000, 1999 and 1998 ..... F-5
Statements of Cash Flows, Years Ended May 31, 2000, 1999 and 1998 ............... F-6
Notes to Financial Statements ................................................... F-7 - F-15
</TABLE>
18
<PAGE>
2. Financial Statement Schedules:
All schedules are omitted because they are inapplicable, not required or
the information is included in the financial statements or notes thereto.
(b) Reports on Form 8-K:
The Company did not file any Reports on Form 8-K during the forth quarter
of the year ending May 31, 2000.
(c) The following Exhibit Index sets forth the applicable exhibits
(numbered in accordance with Item 601 of Regulation S-B) which are required to
be filed with this Annual Report on Form 10-KSB.
<TABLE>
<CAPTION>
Exhibit No. Description
------------- ------------------------------------------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation, together will all amendments Incorporated by reference to Exhibit
3.1 of the Company's Report on Form 10SB dated January 3, 2000.
3.2 By-Laws Incorporated by Reference to Exhibit 3.2 of the Company's Report on Form 10-SB
dated January 3, 2000.
10.1 Marketing Agreement, dated as of September 14, 1999, by and between the Company and
Giltner B. Stevens Incorporated by Reference to Exhibit 10.1 of the Company's Report on
Form 10-SB dated January 3, 2000.
10.2 Loan Agreement, dated September 2, 1999, by and between the Company and Giltner
Stephens* Incorporated by Reference to Exhibit 10.2 of the Company's Report on Form 10-SB
dated January 3, 2000.
10.3 Sub-Lease and Assembly Agreement, dated as of September 3, 1999, by and between the
Company and Royal Animated Art, Inc. Incorporated by Reference to Exhibit 10.3 of the
Company's Report on Form 10-SB dated January 3, 2000.
10.4 Plan and Agreement of Reorganization, dated September 2, 1999, by and among the Company,
Cool Classic Incorporated and Joe Cool Collectibles, Inc. Incorporated by Reference to Exhibit
10.4 of the Company's Report on Form 10-SB dated January 3, 2000.
10.5 Employment Agreement, dated as of September 1, 1999 by and between the Company and
Charles F. Trapp Incorporated by Reference to Exhibit 10.5 of the Company's Report on Form
10-SB dated January 3, 2000.
10.6 Distribution Agreement, dated as of September 1999, by and between the Company and Royal
Animated Art Inc. Incorporated by Reference to Exhibit 10.6 of the Company's Report on
Form 10-SB dated January 3, 2000.
11 A statement regarding the computation of earnings per share is omitted because such compu-
tation can be clearly determined from the material contained in this Annual Report on Form
10-KSB.
27 Financial Data Schedule
</TABLE>
19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
PREMIER CLASSIC ART, INC.
Date: August 29, 2000 By: /s/ Charles F. Trapp
---------------------------
Charles F. Trapp, President
(Principal Financial and
Accounting Officer)
/s/ Charles F. Trapp
----------------------------------------
Charles F. Trapp, President and Director
/s/ Louis A. Pistilli
-------------------------------------
Louis A. Pistilli, Director
/s/ Giltner Stevens
-------------------------------------
Giltner Stevens, Director
20
