SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1998 Commission file number 0-12746
HART INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Nevada 33-0661675
(State of other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
4695 MacArthur Court, Suite 530
Newport Beach, California 92660
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (949) 833-5380
____________
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 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 ___ No X
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
The Registrant had no operating revenues for its most recent fiscal year.
The aggregate market value of the voting stock held by non-affiliates is
not determinable as no average bid or asked prices of such stock have been
available since the Registrant's stock was delisted from the National
Association of Securities Dealers Small Cap MarketSM in June, 1993.
Class Number of Shares Outstanding at December 31, 1998
Common Stock, $.01 par value 1,730,960 shares
Documents Incorporated by Reference:
None
[HART\10K:123198.KSB]-8
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TABLE OF CONTENTS
PART I
Item 1. Business.............................................................1
Item 2. Properties...........................................................2
Item 3. Legal proceedings....................................................2
Item 4. Submission of matters to a vote of security holders..................2
PART II
Item 5. Market for common equity and related stockholder matters ............3
Item 6. Management's discussion and analysis of financial condition and
results of operations................................................3
Item 7. Financial statements.................................................4
Item 8. Changes in and disagreements with accountants on accounting and
financial disclosure.................................................5
PART III
Item 9. Directors, executive officers, promoters and control persons of the
Registrant; compliance with section 16(a) of the Exchange Act........5
Item 10. Executive compensation...............................................8
Item 11. Security ownership of certain beneficial owners and management.......9
Item 12. Certain relationships and related transactions......................11
PART IV
Item 13. Exhibits and reports on Form 8-K....................................11
[HART\10K:123198.KSB]-8
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PART I
ITEM 1. BUSINESS
Hart Industries, Inc. (the Company) was incorporated in the State of Utah
in October, 1982. Its developmental activities through September 30, 1990
principally consisted of the negotiation of license agreements and incurring
research and development costs, the development of a non-electric, water-powered
dishwashers (the "Dishwasher Assets"), and later, an Underground Storage Tank
Leak Detection System for use in petroleum storage applications.
The Company's Dishwasher Assets did not develop beyond the prototype stage
and in December 1990, the Dishwasher Assets were sold to an unrelated third
party for a $3,000,000 promissory note. In 1991 and 1992, the Company negotiated
a rescission of the sale due to the failure of the purchaser to commence
production. In May 1993, the Company again sold its Dishwasher Assets to a
second third party for $2,500,000 in the form of a promissory note. In August,
1994, the second note was canceled and the Dishwasher Assets were again returned
to the Company. At that time the Company had plans to liquidate the Dishwasher
Assets in order to raise working capital. The Board of Directors decided to
abandon its attempts to sell the Dishwasher Assets and wrote them off in 1994.
Commencing in 1988 through 1992, the Company attempted to develop an
underground storage tank leak detection system (the Environmental Services)
through a newly created Environmental Services Divi sion. This service was
designed to meet the stringent regulations promulgated by the Environmental
Protection Agency (EPA) in early 1989 covering pollution abatement caused by
faulty underground storage tanks. The Company offered the Environmental
Services, which included a complete tank package, to service station owners,
small town municipalities and others who were not in compliance with the EPA's
requirements. The Company also explored arrangements for the manufacture, sale,
installation and insurance of its tanks, rather than acquiring the facilities,
equipment and personnel necessary to perform such functions itself. The
Environmental Services were discontinued in 1992.
In May 1990, through its Environmental Services Division, the Company
purchased for cash and stock a Transportable Sludge-Dewatering Treatment Unit
("TTU") to actively engage in pollution cleanup. Subsequent to the closing of
the transaction, the seller of the TTU and two of its officers disputed the
title to the equipment and process. The Company responded by filing a lawsuit in
1990, which was settled in 1992. The Environmental Services Division, through
its TTU, generated revenues in 1990 of $403,000. No revenues associated with the
TTU were generated subsequent to 1990. The use of the TTU stopped in December
1990 due to poor market conditions. The equipment was under contract to sell to
a related party, however, the TTU was stolen in 1992 prior to its sale.
Revenues during 1992 and 1991 of $73,000 and $496,000, respectively, were
generated through the underground storage tank leak detection system of the
Environmental Services Division.
In October 1989, the Companys stockholders approved a decrease in the
authorized number of shares of common stock from 100,000,000 to 10,000,000 by
way of a one-for-ten (1:10) reverse stock split effective April 13, 1991 (the
1991 Reverse Split).
[HART\10K:123198.KSB]-8
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In July 1992, in exchange for 100,000 shares of its common stock, the
Company acquired all the outstanding stock of MediLife Holdings Limited
("MediLife"), a British corporation. At the closing, the shareholders of
MediLife represented that MediLife owned five nursing homes in the U.K.
Subsequent to the closing, the Company learned that MediLife's title to the
nursing homes had not been perfected due to defects and ownership disputes (the
"MediLife Claims"). Litigation ensued and, in July 1993, the Company assigned
its contractual rights to the shares of MediLife and the underlying assets and
certain causes of action against the MediLife shareholders to a third party in
exchange for investment securities. In connection with this transaction, the
purchaser of the MediLife shares effected a settlement of all outstanding
litigation involving the MediLife claims.
In July 1993, the Company acquired certain manufacturing assets
(Manufacturing Assets), for shares of its common stock. The Manufacturing
Assets acquired as part of this transaction were leased to a sign fabrication
firm in Costa Mesa, California, for use in its business. The lease was secured
by the Manufacturing Assets and was personally guaranteed by the principal
shareholder of the Lessee. In 1994, the Company did not receive any lease
revenues from the Lessee. Due to uncertainties as to their realizable value, the
Manufacturing Assets were written off during 1994. The Company terminated the
lease due to Lessees default and, in May, 1995, the Manufacturing Assets were
sold at a public auction.
Effective March 8, 1994 the Company reincorporated in the State of Nevada
pursuant to a merger with a wholly-owned Nevada corporation following
shareholder approval. As part of such reincorporation, every twenty (20) shares
of the Company issued and outstanding prior to the reincorporation were
automatically converted into one share of the Nevada corporation, the name of
which remained Hart Industries, Inc. As a result, giving effect to the
re-incorporation in Nevada, the Company, on the effective date of the merger,
had 480,962 shares of its common stock issued and outstanding and 50,000,000
shares authorized.
The Company is currently inactive and the day-to-day business affairs are
handled by NuVen Advisors Limited Partnership (NuVen), Fred G. Luke, in his
capacity as President of the Company, and various professional consultants.
Current management is pursuing business opportunities in the equipment leasing
industry and other industries, but no assurance can be given that the Company
will be successful in acquiring any business opportunities, or if acquired what
revenues might be provided from such operations.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in shared leased
premises of approximately 3,000 square feet in Newport Beach, California. These
premises are occupied by the Company under an agreement with NuVen, an
affiliate.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this Report the Company is not a party to any litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
[HART\10K:123198.KSB]-8
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock was traded on NASDAQ until June 7, 1993 when it
was delisted. Bid prices of the Company's common stock are not available for
1998 and 1997 as the Companys common stock was delisted on June 7, 1993.
Stockholders of Record
The approximate number of holders of record of the Company's common stock
as of the close of business on December 31, 1998 was approximately 840.
Dividends
The Company has never declared or paid any dividends on any class of its
securities. The Company's anticipated capital requirements are such that it
intends to follow a policy of retaining earnings, if any, to finance the conduct
of its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
There were no operations during 1998. As a result there were no revenues or
cost of revenues recorded during 1998.
Total general and administrative expenses decreased 22% from $177,632 in
1997 to $138,825 in 1998. The decrease is primarily attributed to the renewal of
a management agreement wherefor NuVen provides certain professional and advisory
services for the Company. The agreement was renewed effective July 1, 1997 with
a change in the monthly fees from $10,000 per month to $3,500 per month. The
agreement was again renewed effective January 1, 1998 with a change in the
monthly fees from $3,500 per month to $3,000 per month.
The Company is in its development stage and has incurred aggregate losses
of $6,503,400 from its inception on October 29, 1982 through December 31, 1998.
[HART\10K:123198.KSB]-8
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In 1992, after difficulties involved in exploring arrangements for the
manufacture, sale, installation and insurance of its Underground Storage Tank
Leak Detection Systems (the Detection Systems), the Company discontinued its
operations. The Detection Systems only generated revenues during 1992 and 1991.
Total revenues from the Detection Systems during 1992 and 1991 were $73,000 and
$496,000, respectively. The Company recorded a loss from discontinued operations
of $1,801,727; no benefit for income taxes was recorded due to the uncertainty
of the ultimate realization of the related tax asset.
In July 1993, in conjunction with its equipment leasing activities, the
Company acquired assets and the business known as Signpac from an unrelated
party for 150,000 shares of the Companys common stock. The assets acquired were
recorded at $313,474, the cost basis of the seller. The Company leased the
assets acquired to an unrelated party who subsequently defaulted on the lease
payments.
During 1994, the Company charged $2,876,464 against income to write-off the
Dishwasher Assets in the amount of $2,500,000, marketable securities in the
amount of $750,000 and recorded a $251,564 write-down of the Signpac Assets to
their salvage value due to impairments in the assets and uncertainties regarding
their recoverability and marketability. Subsequently, in May 1995, the Signpac
Assets were sold at auction resulting in a gain of $10,800.
Liquidity and Capital Resources
The Company has incurred net losses and negative cash flows from operating
activities. The Company had cash of approximately $197 as of December 31, 1998,
respectively, and working capital deficiency of $606,586 as of December 31,
1998. The increase in working capital deficiency is a direct result of the
Company having no operating revenues during the year ended December 31, 1998 to
cover fees for professional services and other overhead that the Company has
incurred. As of the date of this Report, the Company has no material commitments
for capital expenditures or commitments for additional equity or debt financing,
and no assurances can be made that its working capital needs can be met out of
future operations or borrowings.
As a result of the Company having no revenue producing activities, the
Company had limited cash remaining as of December 31, 1998 to finance future
operations. The Company has received financial support from NuVen, an affiliate,
during fiscal 1998, and is dependent upon NuVen for future working capital. The
Companys plan is to continue searching for additional sources of equity and
working capital and new operating opportunities. In the interim, the Companys
existence is dependent upon continuing financial support from NuVen for the next
12 months. Such conditions raise substantial doubt about the Companys ability
to continue as a going concern. As such, the Companys independent accountants
have modified their report to include an explanatory paragraph with respect to
such uncertainty.
ITEM 7. FINANCIAL STATEMENTS
Financial statements included elsewhere herein are referred to in Item 13
(a) and are listed in the Index to financial statements filed as a part of this
Annual Report on Form 10-KSB.
[HART\10K:123198.KSB]-8
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The auditing practice of Kang, Yu & Jun, A.C., resigned as the Companys
independent accountant. Kang, Yu & Jun previously issued an unqualified report
dated October 20, 1998, for the fiscal years ended December 31, 1997 and 1996
assuming the Company will continue as a going concern, which did not contain any
adverse opinion or disclaimer of opinion, or any qualification as to
uncertainty, audit scope or accounting principles. There were no disagreements
with Kang, Yu & Jun on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
On July 14, 1999, the auditing practice of McKennon Wilson & Morgan, LLP
was engaged to perform an audit of the Companys financial statements for the
year ended December 31, 1998, included in this Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1998.
The decision to change principal independent accountants was made by the
Companys Board of Directors.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
OF THE COMPANY; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
(a) Identification of Directors and Executive Officers.
The following table sets forth certain information concerning the Company's
directors and executive officers:
<TABLE>
<CAPTION>
Position Held Date First
Name Age with the Company Elected or Appointed
<S> <C> <C> <C>
Fred G. Luke 52 President July 24, 1993 to Present
Director July 24, 1993 to Present
Fred Graves Luke 77 Chief Financial Officer July 31, 1993 to April 21, 1996
Director July 31, 1993 to Present
John L. Lawver 60 Chief Financial Officer January 1, 1997 to present
</TABLE>
All directors serve until the Company's next Annual Meeting of Shareholders
and until their successors are elected and qualified. The Company's officers
serve at the pleasure of the Board of Directors. The Board generally considers
the status of the officers at the meeting of the Board following each Annual
Meeting of Shareholders.
Fred G. Luke is the son of Fred Graves Luke. Other than this father-son
relationship, there are no family relationships between any director or officer
of the Company and any other director or officer of the Company.
[HART\10K:123198.KSB]-8
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(b) Business Experience
The following is a brief account of the business experience during the past
five years of each director and executive officer of the Company, including
principal occupations and employment during that period and the name and
principal business of any corporation or other organization in which such
occupation and employment were carried on.
Fred G. Luke. Mr. Fred Luke has been a Director, Chairman and President of
the Company since July 24, 1993. Mr. Luke has over twenty-nine (29) years of
experience in domestic and international financing and the management of private
and publicly held companies. Since 1982, Mr. Luke has provided consulting
services and has served, for brief periods lasting usually not more than six
months, as Chief Executive Officer and/or Chairman of the Board of various
publicly held and privately held companies in conjunction with such financial
and corporate restructuring services. In addition to his position with the
Company, Mr. Luke currently serves as Chairman and Chief Executive Officer of
NuOasis Resorts, Inc. (NuOasis), Chairman and President of NuVen Advisors, Inc.,
NuVen Advisors) formerly New World Capital, Inc. (New World), President and
Director of Virtual Enterprises, Inc. (VEI), Chairman and President of
Diversified Land & Exploration Co. (DL&E). DL&E is a former publicly traded
independent natural resource development company engaged in domestic oil and gas
exploration, development and production. Mr. Luke also served as Chairman and
President of Group V Corporation (Group V), former subsidiary of NuOasis, which
trades on the OTC Bulletin Board. Prior to 1995, DL&E was a 90% owned subsidiary
of Basic Natural Resources, Inc. (BNR). From 1991 through 1994 Mr. Luke served
as the President and a Director of BNR. BNR is presently inactive. DL&E was
formerly in the environmental services and natural gas processing business. VEI
is a public company which was formerly traded on NASDAQ or the OTC Bulletin
Board. NuOasis is a publicly held company whose shares are traded on the OTC
Bulletin Board. NuOasis is a diversified holding company with overseas gaming
and domestic pasta production subsidiaries. NuOasis Gaming is a publicly traded
(OTC Bulletin Board) holding company with domestic gaming development
activities. NuVen Advisors provides managerial, acquisition and administrative
services to public and private companies including NuOasis, Group V, VEI and the
Company pursuant to independent Advisory and Management Agreements. NuVen
Advisors, which is controlled by Fred G. Luke, as Trustee of the Luke Family
Trust, is an affiliate of the Company. NuVen Advisors is a stockholder of Group
V, DL&E, NuOasis and the Company, and is also a beneficial stockholder of VEI.
Mr. Luke also served from 1973 through 1985 as President of American Energy
Corporation, a privately held oil and gas company involved in the operation of
domestic oil and gas properties. From 1970 through 1985 Mr. Luke served as an
officer and Director of Eurasia, Inc., a private equipment leasing company
specializing in oil and gas industry equipment. Mr. Luke received a Bachelor of
Arts Degree in Mathematics from California State University, San Jose in 1969.
Fred Graves Luke. Mr. Fred Graves Luke served as a Director and Chief
Financial Officer of the Company from July 31, 1993 and resigned his position as
Chief Financial Officer of the Company on April 21, 1996. Mr. Luke also
currently serves as Chairman of the Advisory Board of NuOasis. Prior to his
association with the Company, Mr. Luke served as Chief Executive Officer of
three private firms operating oil and gas properties from 1954 until his
retirement in 1985. He received his B.A. and LLB Degrees from the University of
Arizona and was admitted to the bar in the State of Arizona in 1950. Mr. Luke
served in the U.S. Army Air Corp. in World War II as a pilot and served in the
U.S. Air Force as a legal officer during the Korean War.
[HART\10K:123198.KSB]-8
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(c) Identification of Certain Significant Employees.
None.
(d) Family relationships
Fred G. Luke is the son of Fred Graves Luke. Other than this father-son
relationship, there are no family relationships between any director or officer
of the Company and any other director or officer of the Company.
(e) Involvement in Certain Legal Proceedings.
During the past five years, no director or officer of the Company has:
1. Filed or has had filed against him a petition under the federal
bankruptcy laws or any state insolvency law, nor has a receiver, fiscal agent or
similar officer been appointed by a court for the business or property of such
person, or any partnership in which he was a general partner, or any corporation
or business association of which he was an executive officer at or within two
years before such filings; except, however, that Fred G. Luke was Secretary of
Diversified Production Services, Inc., an Oklahoma corporation ("DPS") which
filed a Voluntary Petition under Chapter 11 of the U.S. Bankruptcy Code in 1991.
DPS was discharged from its bankruptcy proceedings in May 10, 1994 following the
affirmative vote on its Plan of Reorganization.
2. Been convicted in a criminal proceeding.
3. Been the subject of any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining such person from, or otherwise limiting his
involvement in any type of business, securities or banking activities.
4. Been found by a court of competent jurisdiction in a civil action, the
Securities and Exchange Commission or the Commodity Futures Trading Commission
to have violated any federal or state securities or commodities law, which
judgment has not been reversed, suspended, or vacated.
(f) Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and officers and persons who own more than ten
percent of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC").
Directors, officers and greater than ten-percent shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) reports
filed.
Based solely on its review of the copies of the reports it received from
persons required to file, the Company believes that during the period from
January 1, 1998 through December 31, 1998 all filing re quirements applicable to
its officers, directors and greater than ten-percent shareholders were complied
with.
[HART\10K:123198.KSB]-8
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ITEM 10. EXECUTIVE COMPENSATION
(a) Summary Compensation Table.
The following summary compensation table sets forth in summary form the
compensation received during each of the Company's last three completed fiscal
years by the Company's President and four most highly paid officers (Named
Executive Officers). There were no officers who earned in excess of $100,000
per annum:
<TABLE>
<CAPTION>
Name and Principal Fiscal Salary Other Annual Options
Position Year ($) Compensation ($) Granted (#)(2)
<S> <C> <C> <C> <C>
Fred G. Luke 1998 54,000(1) N/A N/A
Chairman and President 1997 54,000(1) N/A N/A
(4-93 to Present) 1996 54,000(1) N/A N/A
</TABLE>
(1) The accrued but unpaid value of base salary (cash and non-cash).
(2) Except for stock option plans, the Company does not have in effect any
plan that is intended to serve as incentive for performance to occur over a
period longer than one fiscal year.
(b) Stock Options
Options to purchase 250,000 shares of common stock were issued on January
1, 1998 at an exercise price of $.10 per share. The exercise price was deemed
fair value at the date of grant. The options are fully vested and expire on
January 1, 2003. No options were exercised during 1998 and the following table
sets forth as of December 31, 1998 all of the unexercised options for the
Companys common stock:
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Option/SAR's at Fiscal Options/SAR's at
Year-End (#) Fiscal Year-End ($)
Exercisable/ Exercisable/ Exercise Expiration
Name Unexercisable Unexercisable Price Date
<S> <C> <C> <C> <C> <C>
Fred G. Luke, Chairman
and President 1,000,000 Exercisable - Exercisable (1)(2) .01 January 1, 2002
166,666 Exercisable - Exercisable (1)(2) .01 August 1, 1999
Fred Graves Luke,
Director 166,666 Exercisable - Exercisable (1) .01 August 1, 1999
John Desbrow, former
Secretary and Director 166,666 Exercisable - Exercisable (1) .01 August 1, 1999
</TABLE>
[HART\10K:123198.KSB]-8
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<PAGE>
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Option/SAR's at Fiscal Options/SAR's at
Year-End (#) Fiscal Year-End ($)
Exercisable/ Exercisable/ Exercise Expiration
Name Unexercisable Unexercisable Price Date
<S> <C> <C> <C> <C> <C>
Jon L.Lawver, Chief
Financial Officer and
Director 166,666 Exercisable - Exercisable (1) .01 January 1, 2003
NuVen Advisors 250,000 Exercisable - Exercisable (1)(2) .10 January 1, 2003
</TABLE>
____________________________________
(1) As of the date of this Report the potential realizable value of each
grant of options is not applicable due to a lack of a market price for the
shares of common stock underlying the options.
(2) Exercise price for Mr. Lukes options are 110% of net market value on
August 1, 1995 of the Company. Since the Company had a negative book value on
August 1, 1995, the exercise price is deemed to be $.01 per share.
(c) Long-Term Incentive Plans Table
There were no long-term incentive plans during the last three fiscal years.
(d) Contracts with Named Executive Officer
In January 1995, the Company entered into an employment agreement with Mr.
Luke, pursuant to which Mr. Luke is to hold the office of President through
December 1996. Pursuant to the agreement, the Company agreed to pay Mr. Luke
$54,000 per annum in cash or in the Companys common stock payable monthly in
arrears, and granted him an option to purchase 1,000,000 shares of the Companys
common stock at an exercise price per share at the estimated fair value of $.01
at date of grant. The options expired on August 1, 1999 with no amounts
exercised. During 1997, the agreement was renewed effective January 1, 1998 for
$54,000 annually. The Company expensed $54,000 during 1998, 1997 and 1996, each,
and owed $216,000 to Mr. Luke as of December 31, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) and (b) Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding ownership of
the Company's common stock as of December 31, 1998. The table includes (a) each
person known by the Company to be the beneficial owner of more than 5% of the
Company's common stock, (b) each director, (b) each director individually, (c)
the named executive officer, and (d) the directors and officers of the Company
as a group. Unless otherwise indicated, the persons named in the table possess
sole voting and investment power with respect to the shares listed (except to
the extent such authority is shared with spouses under applicable law).
[HART\10K:123198.KSB]-8
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<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address Beneficial
Title of Class of Beneficial Owner Interest(1) Percent of Class(2)
<S> <C> <C> <C>
$.01 par value Overseas Equity (UK) Limited
Common Stock 700-595 Howe Street
Vancouver, British Columbia
V6C 2T5 150,000 8.7%
NuVen Advisors Limited Partnership(3)
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660 750,000(3)(4) 52.0%
Directors and Officers
Fred G. Luke, President
and Director
4695 MacArthur Court
Suite 530
Newport Beach, CA 92660 166,666(5) 9.6%
Fred Graves Luke, Director
4695 MacArthur Court
Suite 530
Newport Beach, CA 92660 166,666(6) 9.6%
John D. Desbrow(2)(3)
Former Secretary and Director
2212 Dupont Drive
Suite U
Irvine, CA 92715 166,666(6) 9.6%
All Officers and Directors as a
group 1,249,998 61.9%
</TABLE>
(1) All shares have been adjusted to take into account the reincorporation
of the Company and the resulting one-for-twenty share reverse stock split
effective March 8, 1994.
(2) Based on 1,730,960 shares outstanding, excluding 1,916,664 shares
issuable under options.
(3) In 1999 NuVen Advisors Inc., a Nevada corporation owned, beneficially,
93% by Fred G. Luke and 7% by Jon L. Lawver, sold substantially all of its
Assets to NuVen Capital Limited Partnership, a Nevada Limited Partnership, of
which Fred G. Luke is the General Partner. Following the transaction, NuVen
Capital Limited Partnership changed its name to NuVen Advisors Limited
Partnership. The transaction was effected as a tax-free corporate
reorganization.
(4) Excludes options for 250,000 common shares currently exercisable.
(5) Excludes options for 1,166,666 common shares currently exercisable.
(6) Excludes options for 166,666 common shares currently exercisable.
[HART\10K:123198.KSB]-8
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective January 1, 1994, the Company entered into an Advisory and
Management Agreement (the Advisory Agreement) with NuVen Advisors Inc.
(Advisors), the predecessor of NuVen Advisors Limited Partnership, for the
engagement of NuVen to perform professional and advisory services. As a result
of the acquisition of the assets of Advisors by NuVen, the Advisory Agreement
was assigned to and is currently serviced by NuVen. Pursuant to the Advisory
Agreement, the Company is obligated to pay NuVen $120,000 annually, payable
monthly in $10,000 increments in arrears. Additionally, pursuant to the Advisory
Agreement, the Company granted NuVen an option to purchase 250,000 shares of the
Companys common stock exercisable at a price of $.10 per share. During 1996,
the Advisory Agreement was renewed effective January 1, 1996 for up to $120,000
annually. Due to the minimal services performed by NuVen, the Company received a
credit of $170,990 against amounts owed to NuVen and accordingly, the Company
recorded a net credit of $50,990 during 1996. Effective July 1, 1997 and January
1, 1998, the Advisory Agreement was revised to $3,500 and $3,000 per month,
respectively. The Company had $209,189 and $167,169 due to NuVen as of December
31, 1998 and 1997, respectively.
PART IV
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K.
(a) Financial Statements
The Financial Statements included in this Item are included elsewhere
herein and are indexed on Page F-1, Index to Financial Statements.
(b) Financial Statement Schedules
None.
(c) Exhibits
Exhibit
Number Description
3.1 Articles of Incorporation1
3.2 Certificate of Amendment of Articles of Incorporation1
3.3 Bylaws, as amended1
3.4 Articles of Merger - Utah1
3.5 Articles of Merger - Delaware1
3.6 Articles of Merger - Nevada3
10.12 Agreement with Overseas Equity (UK) Limited2
[HART\10K:123198.KSB]-8
11
<PAGE>
10.13 Merger Agreement with Casino Management of America, Inc.,
a Nevada corporation2
10.14 Non-Qualified Stock Option Agreement with Fred G. Luke3
10.15 Non-Qualified Stock Option Agreement with Fred Graves
Luke3
10.16 Non-Qualified Stock Option Agreement with John D.
Desbrow3
10.17 Eemployment Agreement with Fred G. Luke4
10.20 Advisory and Management Agreement with NuVen Advisors,
Inc., a Nevada Corporation4
23 Consent of Independent Accountants
27 Financial Data Schedule [Exhibit included herein]
1 Each of the foregoing exhibits is incorporated herein by reference to the
Company's Form 10.
2 Each of the foregoing exhibits is incorporated herein by reference to the
Company's 1993 Form 10K.
3 Each of the foregoing exhibits is incorporated herein by reference to the
Company's 1994 Form 10KSB.
4 Each of the foregoing exhibits is incorporated herein by reference to the
Company's 1995 Form 10KSB.
[HART\10K:123198.KSB]-8
12
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HART INDUSTRIES, INC.
Date: October 27, 1999 By:/s/Fred G. Luke
Fred G. Luke, President
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
HART INDUSTRIES, INC.
Date: October 27, 1999 By:/s/Fred G. Luke
Fred G. Luke, Director
Date: October 27, 1999 By:/s/Fred Graves Luke
Fred Graves Luke, Director
[HART\10K:123198.KSB]-8
13
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page
Description
Independent Auditors Report.................................................F-2
Independent Auditors Report.................................................F-3
Balance Sheet as of December 31, 1998........................................F-4
Statements of Operations for the Years Ended December 31, 1998 and 1997,
and the Period from October 29, 1982 (Inception) to December 31, 1998........F-5
Statements of Stockholders' Equity (Deficit) for the Years Ended December 31,
1998 and 1997, and the Period from October 29, 1982 (Inception) to
December 31, 1998............................................................F-6
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997,
and the Period from October 29, 1982 (Inception) to December 31, 1998........F-8
Notes to Financial Statements...............................................F-10
[HART\FIN:123198]-13
F-1
<PAGE>
INDEPENDENT AUDITORS REPORT
Board of Directors and Stockholders
Hart Industries, Inc.
We have audited the accompanying balance sheet of Hart Industries, Inc.
(the Company) as of December 31, 1998, and the related statements of operations,
stockholders equity (deficit) and cash flows for the year then ended. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements for the periods from October 29, 1982
(Inception) through December 31, 1997 were audited by other accountants, whose
reports expressed unqualified opinions, assuming the Company would continue as a
going concern.
We conducted our audit in accordance with generally accepted audited
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, the 1998 financial statements referred to above present
fairly, in all material respects, the financial position of Hart Industries,
Inc. as of December 31, 1998, and the results of its operations, and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred recurring net losses from
operating activities since its inception, has limited liquid resources and had
negative working capital as of December 31, 1998. Managements plans regarding
these matters are described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/McKennon, Wilson & Morgan LLP
Irvine, California
September 22, 1999
[HART\FIN:123198]-13
F-2
<PAGE>
INDEPENDENT AUDITORS REPORT
Board of Directors and Stockholders
Hart Industries, Inc.
We have audited the accompanying statements of operations and cash flows
for the year ended December 31, 1997. These financial statements are the
responsibility of the Companys 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 audited
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, the 1997 financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Hart Industries, Inc. for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred recurring net losses and negative
cash flows from operating activities since its inception, has limited liquid
resources and had negative working capital as of December 31, 1997. Managements
plans regarding these matters are described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/Kang, Yu & Jun
Cerritos, California
October 20, 1998
F-3
[HART\FIN:123198]-13
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Balance Sheet
December 31, 1998
<TABLE>
<S><C> <C> <C>
ASSETS
Current Assets -
Cash $ 197
Total current assets 197
$ 197
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 7,736
Accrued professional fees 17,150
Income taxes payable 8,280
Other accrued liabilities 5,384
Total current liabilities 38,550
Due to affiliates 501,189
Total liabilities 539,739
Commitments and contingencies
Stockholders' Deficit:
Common stock $.01 par value, 50,000,000 shares
authorized; 1,730,960 shares issued and outstanding 17,310
Additional paid-in capital 5,946,548
Deficit accumulated during development stage (6,503,400)
Total stockholders' deficit (539,542)
$ 197
</TABLE>
See accompanying notes to these financial statements.
[HART\FIN:123198]-13
F-4
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Period from
Year Ended December 31, October 29, 1982
(Inception) to
December 31, 1998
1998 1997
<S> <C> <C> <C>
Net revenues $ - $ - $ -
Cost of revenues - - -
- - -
Costs and expenses:
General and administrative expenses 138,825 177,632 807,659
Provision for write-down of property
and equipment - - 251,564
Impairment of Dishwasher Assets - - 2,500,000
Total costs and expenses 138,825 177,632 3,559,223
Operating loss (138,825) (177,632) (3,559,223)
Other income (expense):
Interest income - - 96,750
Gain on sale of assets - - 10,800
Loss on sale of assets - - (500,000)
Impairment of investments - - (750,000)
Total other income (expense) - - (1,142,450)
Loss from continuing operations (138,825) (177,632) (4,701,673)
Loss from discontinued operations,
net of tax of $0. - - (1,801,727)
Net loss $ (138,825) $ (177,632) $(6,503,400)
Basic and diluted loss per share:
Continuing operations $ (.08) $ (.10)
Discontinued operations
Net loss $ (.08) $ (.10)
Weighted average common shares
outstanding 1,730,960 1,730,960
</TABLE>
See accompanying notes to these financial statements.
[HART\FIN:123198]-13
F-5
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Statements of Stockholders Equity (Deficit)
For the Years Ended December 31, 1998 and 1997
and the Period from October 29, 1982 (Inception)
Through December 31, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
During
Common Stock Development
Shares Amount APIC Stage Total
<S> <C> <C> <C> <C> <C>
Common stock issued on October 29, 1982 to
founders at $.004 per share for cash 11,250 $ 112 $ 2,888 $ - $ 3,000
Common stock issued in May 1983 for $.006 per
share in exchange for cash 22,500 225 26,891 - 27,116
Common stock issued on June 20, 1983 for $.07 per
share in exchange for all the outstanding Hart
Industries (UK) Ltd. 3,500 35 46,065 - 46,100
Common stock issued on September 21, 1983 for $.06
per share for the acquisition of Transmeridian Gas
and Oil Company 60,038 600 678,539 - 679,139
Common stock issued in May 1984, November 1984,
August 1985, September 1985, and August 1987
for technology rights with no value 31,250 313 (313) - -
Capital contributed during 1983 and 1984 for $32,500
and $71,000, respectively, for services - - 103,500 - 103,500
Acquisition of minority interest in subsidiary of
Transmeridian Gas and Oil Company on September
21, 1983 - - 40,078 - 40,078
Common stock issued to an affiliate in June 1984,
August 1986, December 1988, and December 1990
for $.10 to $.88 per share in exchange for
satisfaction of debt 57,564 576 2,156,322 - 2,156,898
Common stock issued during 1986 and 1994 for $.41
and $.01 per share, respectively, for services 501,048 5,011 48,739 - 53,750
Common stock issued in June 1986 for $.29 per share
in connection with the dissolution of Hart
Industries (UK) Ltd. 118 6,867 - 6,868
Common stock issued on August 19, 1986 and January
30, 1987 for $.19 and $.16 per share, respectively,
for molds and tooling 26,192 262 880,738 - 881,000
Common stock canceled during 1986 (25) 25 - -
Common stock issued on June 7, 1988 for $.20 per
share in exchange for cash 3,750 37 149,963 - 150,000
</TABLE>
See accompanying notes to these financial statements.
[HART\FIN:123198]-13
F-6
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Statements of Stockholders Equity (Deficit) (Continued)
Common Stock Common StockDeficit Common Stock
<TABLE>
<CAPTION>
Deficit
Accumulated
During
Common Stock Development
Shares Amount APIC Stage Total
<S> <C> <C> <C> <C> <C>
Common stock issued on December 1, 1988 and
December 15, 1989 for $.31 per share in exchange
for satisfaction of debt 10,500 105 656,145 - 656,250
Common stock issued in June 1990 for $.28 per share
for equipment 5,750 58 321,942 - 322,000
Common stock issued in July 1992 for $.38 per share for
100% ownership of Medilife Holdings, Ltd. 100,000 1,000 749,000 - 750,000
Transfer of assets to affiliate for satisfaction of debt - - (469,042) - (469,042)
Other - - - 28,966 28,966
Common stock issued on July 1, 1993 for $.10 per
share for property and equipment 150,000 1,500 311,974 - 313,474
Common stock issued on August 31, 1996 for $.23 per
share for conversion of debt due affiliates 750,000 7,500 167,627 - 175,127
Net loss for the period from October 29, 1989
(inception) through December 31, 1996 - - - (6,215,909) (6,215,909)
Balance at December 31, 1996 1,730,960 17,310 5,877,948 (6,186,943) (291,685)
Net loss - - - (177,632) (177,632)
Balance at December 31, 1997 1,730,960 17,310 5,877,948 (6,364,575) (469,317)
Contribution from shareholder - - 68,600 - 68,600
Net loss - - - (138,825) (138,825)
Balance at December 31, 1998 1,730,960 $17,310 $ 5,946,548 $ (6,503,400) $ (539,542)
</TABLE>
See accompanying notes to these financial statements.
[HART\FIN:123198]-13
F-7
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period
From October 29,
1982
Year Ended December 31, (Inception) to
December 31,
1998 1997 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (138,825) $ (177,632) $ (6,503,400)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization - - 224,503
Loss from return of defective products - - 241,996
Loss on sale of assets - - 500,000
Gain on sale of assets - - (10,800)
Interest expense on note payable to affiliate - - 229,724
Capital contributed for services - - 103,500
Common stock issued for services - - 53,750
Gain on liquidation of subsidiary - - (108,861)
Impairment of Dishwasher Assets - - 2,500,000
Provision for write-down of property and equipment - - 251,564
Impairment of investments - - 750,000
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable 1,296 (370) 7,736
Increase in accrued professional fees 15,650 - 17,150
Increase in income taxes payable 8,280 - 8,280
Increase in other accrued liabilities 238 - 5,384
Net cash used in operating activities (113,361) (178,002) (1,729,474)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment - - (858,592)
Acquisition of patents and trademarks - - (122,778)
Disposal of assets - - 112,647
Net cash used in investing activities - (868,723)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in due to affiliates 44,891 177,827 501,189
Net proceeds from issuance of common stock - - 180,116
Net borrowings on note payable - - 1,848,489
Contribution from shareholder 68,600 - 68,600
Net cash provided by financing activities 113,491 177,827 2,598,394
Net increase (decrease) in cash 130 (175) 197
Cash at beginning of period 67 242 -
Cash at end of period $ 197 $ 67 $ 197
</TABLE>
See accompanying notes to these financial statements.
[HART\FIN:123198]-13
F-8
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Period From
October 29, 1982
Year Ended December 31, (Inception) to
December 31, 1998
1998 1997
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
<S> <C> <C> <C>
Acquisition of Transmeridian Gas and Oil Company in exchange
for common stock $ - $ - $ 679,139
Acquisition of Hart (UK) in exchange for common stock $ - $ - $ 46,100
Common stock issued in dissolution of subsidiary $ - $ - $ 6,868
Common stock issued for assets $ - $ - $ 2,266,474
Common stock issued for services $ - $ - $ 53,750
Common stock issued for satisfaction of note payable to affiliate $ - $ - $ 2,332,025
Common stock issued for forgiveness of long-term note payable $ - $ - $ 656,250
Equipment acquired by long-term note payable and capital leases $ - $ - $ 1,969,817
Long-term liabilities assumed on liquidation of subsidiary $ - $ - $ 944,016
Assets acquired on liquidation of subsidiary $ - $ - $ 1,374,853
Assets issued for payments of note payable $ - $ - $ 469,042
</TABLE>
See accompanying notes to these financial statements.
[HART\FIN:123198]-13
F-9
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements
Note 1 - Organization and Business
Organization
Hart Industries, Inc. (the Company) was originally incorporated on October
29, 1982 (Inception) in the state of Utah. The Company was involved in certain
research and development activities from Inception through September 1990. From
1983 to 1986, the Company was involved in the development of a non- electric,
water-powered dishwasher (Dishwasher Assets). The Dishwasher Assets did not
develop beyond the prototype stage and, in 1993, they were sold. In 1988, the
Company pursued operations of an Underground Storage Tank Leak Detection System
(Detection System) for use in petroleum storage applications through its newly
created Environmental Services Division (ESD). The ESD was also involved in
sludge de-watering through its Transportable Treatment Unit (TTU), which the
Company obtained in 1990. The TTU commenced operations in 1990, however, poor
market conditions forced the cessation of its operations later that year. In
July 1992, the Company acquired all the outstanding stock of Medilife Holdings
Limited (Medilife), which owned nursing homes in the United Kingdom. In July
1993, upon ensuing litigation, the Company assigned its contractual rights to
the shares of Medilife and the underlying assets and certain causes of action
against the Medilife shareholders to a third party in exchange for investment
securities. In 1993, the Company acquired sign fabrication assets and commenced
equipment leasing activities. Difficulties in securing viable leases terminated
these activities and in 1995, the assets were sold. Beginning December 1992, the
Company has had no operations and, accordingly, is a company in the development
stage. Management has been pursuing business opportunities in the equipment
leasing industry and other industries.
Reorganization
Effective March 8, 1994, the Company reorganized via a merger with a newly
formed Nevada corporation whose name became Hart Industries, Inc. at the
effective date. The merger agreement was approved by the Company's stockholders
at the annual meeting held on January 18, 1994. Under the merger agreement each
shareholder received one (1) share in the Nevada corporation for every 20 shares
held in the Company. As a result of the merger, the number of authorized shares
of common stock increased from 10,000,000 to 50,000,000 while retaining the same
$.01 par value. All share and per share amounts have been restated to give
effect to the merger. The merger was accounted for at historical bases in a
manner similar to a pooling- of-interests.
Note 2 - Significant Accounting Policies
Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred net losses
from operating activities since Inception. This is a direct result of the
Company having no operating revenues to cover fees for professional services and
other overhead that the Company has incurred. The Company has received financial
support from NuVen Advisors, Inc. (NuVen), an affiliate as discussed in Note 6,
since 1994 and is dependent upon NuVen for future working capital. The Companys
plan is to continue searching for additional sources of equity and working
capital and new operating opportunities. In the interim, the Companys existence
is dependent upon continuing financial support from NuVen for at least the next
12 months. Such conditions raise substantial doubt about the Companys ability to
continue as a going concern.
[HART\FIN:123198]-13
F-10
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
Note 2 - Significant Accounting Policies (continued)
Principles of Management 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Provision for Income Taxes
The Company accounts for its income taxes under an asset and liability
method whereby deferred tax assets and liabilities are determined based on
temporary differences between bases used for financial reporting and income tax
reporting purposes. Income taxes are provided based on the enacted tax rates in
effect at the time such temporary differences are expected to reverse. A
valuation allowance is provided for certain deferred tax assets if it is more
likely than not that the Company will not realize tax assets through future
operations.
The Companys net deferred tax assets at December 31, 1998, consist of net
operating loss carryforwards amounting to approximately $6.5 million. At
December 31, 1998, the Company provided a 100% valuation allowance for these net
operating loss carryforwards totaling approximately $2.2 million. During the
years ended December 31, 1998 and 1997, the Companys valuation allowance
increased $47,000 and $60,000, respectively.
The difference between the tax benefit assuming a Federal rate of 34% and
amounts recorded in the financial statements of 0% is the result of the Company
recording a 100% valuation allowance for its deferred tax assets.
As a result of a change in ownership that occurred in 1994, the Companys
use of net operating loss carry forwards may be limited by section 382 of the
Internal Revenue Code until such net operating loss carryforwards expire.
Deferred tax assets have been computed using the maximum expiration terms of 15
and 5 years for federal and state tax purposes, respectively.
Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets under the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to Be Disposed Of. This statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
[HART\FIN:123198]-13
F-11
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
Note 2 - Significant Accounting Policies (continued)
Loss Per Common Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, Earnings Per Share (EPS). SFAS No. 128 requires dual presentation
of basic EPS and diluted EPS on the face of all income statements issued after
December 15, 1997 for all entities with complex capital structures. The Companys
capital structure is not complex and adoption had no impact on prior amounts
reported. Basic EPS is computed as net income divided by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur from common shares issuable through stock
options, warrants and other convertible securities. All per share amounts are
reported, as adjusted, after the merger and resulting reverse stock split.
Options to purchase 1,915,998 shares of common stock were outstanding as of
December 31, 1998. The effect of these stock options granted but not exercised
has been excluded in the accompanying statements of operations as the effect
would have been anti-dilutive.
Reclassification of Prior Year Amounts
To enhance comparability, the 1997 and Inception through December 31, 1998
financial statements have been reclassified, where appropriate, to conform with
the financial statement presentation used in 1998.
Financial Instruments
At December 31, 1998, the Company has no material assets considered
financial instruments. Financial liabilities with carrying values approximating
fair value include accounts payable and accrued liabilities.
Issuance of Common Stock
From time to time and in the ordinary course of business, the Company
issues common stock for assets, services and to reduce debt. These issuances
have been recorded in accordance with APB 16 at the fair market value of the
stock issued, or the fair market value of the assets acquired, services
provided, or debt forgiven, whichever value is more clearly evident.
Reporting Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement establishes standards for reporting the components of
comprehensive income and requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
included in a financial statement that is displayed with the same prominence as
other financial statements. Comprehensive income includes net income, as well as
certain non-shareholder items that are reported directly within a separate
component of stockholders' equity and bypass net income. The Company had adopted
the provisions of this statement during 1998, with no impact on the accompanying
financial statements.
[HART\FIN:123198]-13
F-12
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
Note 2 - Significant Accounting Policies (continued)
Disclosures about Segments of an Enterprise and Related Information
In June 1997, the FASB issued SFAS No. 131, Disclosures of an Enterprise
and Related Information. The provisions of this statement require disclosures of
financial and descriptive information about an enterprise's operating segments
in annual and interim financial reports issued to stockholders. The statement
defines an operating segment as a component of an enterprise that engages in
business activities that generate revenue and incur expense, whose operating
results are reviewed by the chief operating decision maker in the determination
of resource allocation and performance, and for which discrete financial
information is available. The Company adopted the provisions of this statement
for 1998. These disclosure requirements will not impact the Company's financial
position or results of operations. At December 31, 1998, the Company had no
identifiable assets or operations constituting a segment as defined by this
statement.
Stock-based Compensation
The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation,"
which defines a fair value based method of accounting for stock-based
compensation. However, SFAS 123 allows an entity to continue to measure
compensation cost related to stock and stock options issued to employees using
the intrinsic method of accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees. Entities
electing to remain with the accounting method of APB 25 must make pro forma
disclosures of net income (loss) and earnings (loss) per share, as if the fair
value method of accounting defined in SFAS 123 had been applied.
Discontinued Operations
As mentioned in Note 1, the Company began operation of a Detection System
for use in petroleum storage applications through its newly created
Environmental Services Division. The Company explored arrangements for the
manufacture, sale, installation and insurance of its tanks, rather than
acquiring the facilities, equipment and personnel necessary to perform such
functions itself.
In 1992, after difficulties involved in exploring arrangements for the
manufacture, sale, installation and insurance of its Detection Systems, the
Company discontinued its operations. The accompanying financial statements
reflect losses from discontinued operations and the related loss per share. No
income tax benefit was netted against such losses due to uncertainty about
realization of the related deferred tax asset. Revenues generated from the
Detection System during 1992 and 1991 were $73,000 and $496,000, respectively.
Other disclosures required under generally accepted accounting principles are
not considered meaningful to the readers of these financial statements.
[HART\FIN:123198]-13
F-13
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
Note 3 - Impairment of Assets
Dishwasher Assets
As mentioned in Note 1, the Companys various activities included, among
others, to develop, manufacture, and sell a non-electric dishwasher. Activities
related to the Dishwasher Assets primarily consisted of research and development
and attempts to sell the rights to the assets for royalty fees. In 1993, the
Company sold all the tools, dies and technology of the Dishwasher Assets to
NuVen for a $2,500,000 promissory note. In 1994, NuVen and the Company mutually
agreed to a cancellation of the promissory note in exchange for the return of
the Dishwasher Assets to the Company. In addition, the Company decided to
abandon its attempts to sell the Dishwasher Assets and wrote them off. The
discontinued activities of the Dishwasher Assets do not constitute a segment of
a business, but rather, normal shifting of product emphasis incident to the
continuing operations of the Company. As such, losses from such discontinuance
have not been reported as losses from discontinued operations in the
accompanying financial statements.
Investments in Securities
In connection with an acquisition agreement with the shareholders of
MediLife, executed in 1992, the Company obtained securities with a fair market
value of $750,000. As a result of a decline in value, the Company elected to
maintain a valuation reserve of $625,000. Subsequently, due to an additional
decline in value of and the lack of a market for such securities, the Company
wrote off the balance of $125,000 in 1994.
Note 4 - Sale of Leasing Equipment
In July 1993, the Company acquired certain manufacturing assets, and in
conjunction with its equipment leasing activities, leased the assets to a third
party. Due to uncertainties as to their realizable value, the assets were
written down to $61,910 during fiscal year 1994. The Company terminated the
lease due to the lessees default, and in May 1995, sold the assets at auction
for $72,710, resulting in a gain of $10,800 during fiscal year 1995.
Note 5 - Stockholder Transactions
Common Stock Issuances
In August 1986, January 1987, June 1990, and July 1993, the Company issued
a total of 181,942 shares of common stock for $.19, $.16, $.28, and $.10 per
share, respectively, in connection with the acquisition of certain identifiable
fixed assets. The values of the stock issued were determined to be the fair
market value of the assets acquired on the dates of acquisition, or a total of
$1,516,474.
[HART\FIN:123198]-13
F-14
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
Note 5 - Stockholder Transactions (continued)
In July 1992, the Company issued 100,000 shares of common stock for $.38
per share in connection with the acquisition of securities (see Note 3).
At various times since inception, the Company issued a total of 501,048
shares of common stock to certain individuals and businesses for services
rendered. These issuances were valued at the fair market value of the stock or
services rendered, whichever was more clearly evident (see Note 2). The
aggregate value of these issuances was $53,750. The range in value of such
shares was $.41 in 1986 to $.01 in 1994.
During fiscal years 1989 and 1988, the Company issued a total of 10,500
shares of common stock as payment for debt payable to unaffiliated third parties
in the amount of $656,250.
At various times since inception, the Company issued 807,564 shares of
common stock in satisfaction of debt payable to affiliated parties in the amount
of $2,332,025. The range in value of such shares was $.88 in 1984, $.19 in 1986,
$.31 in 1988, $.10 in 1990, and $.23 in 1994.
On June 20, 1983, the Company issued 3,500 shares of common stock for all
the outstanding common stock of Hart Industries (UK) Ltd. in an acquisition
transaction accounted for as a pooling-of-interests. The value of the net assets
received was $46,100. Subsequently, on June 6, 1986, Hart Industries (UK) Ltd.
declared bankruptcy and began liquidation of its assets to settle its
outstanding liabilities. The Company issued an additional 118 shares of common
stock valued at $6,868 in connection with the dissolution.
On September 21, 1983, the Company issued 60,038 shares of common stock for
all the outstanding common stock of Transmeridian Gas and Oil Company in an
acquisition transaction accounted for at historical bases similar to a
pooling-of-interests. The value of the net assets acquired was $679,139.
Common Stock Purchase Options
From time to time, the Companys Board of Directors grant options to
purchase its common stock. The exercise prices have been determined by the Board
of Directors based on fair value of the underlying common stock at the date of
grant.
In January 1994, the Company adopted the Nonqualified Stock Option Plan
(the Plan). The Plan expired on August 1, 1999. The Plan provided that certain
non employee directors of the Company be granted 166,666 shares of the Companys
common stock fully vested and exercisable upon grant. As of December 31, 1998,
the Company had 499,998 shares outstanding at an exercise price of $.01 per
share. No options were exercised during the periods presented.
The Company has elected to account for its stock-based compensation to its
sole employee under APB 25. As of December 31, 1998, the potential realizable
value of each grant of options is not significant
[HART\FIN:123198]-13
F-15
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
Note 5 - Stockholder Transactions (continued)
due to a lack of a market price for the shares of common stock underlying the
options. As such, the pro forma disclosures required by FAS 123 would not cause
the pro forma information to be materially different from the historical
information.
In connection with an employment agreement, the Company issued options to
purchase 1,000,000 shares of common stock at an exercise price of $.01 per
share. The options expire on January 1, 2002 and no options have been exercised.
In connection with an Advisory and Management Agreement with NuVen
Advisors, the Company issued options to purchase 250,000 shares of common stock
at an exercise price of $.10 per share on January 1, 1998. The options are fully
vested and expire on January 1, 2003. Using the minimum value method, the value
of such stock options is not significant.
In connection with two consulting agreements, the Company issued options to
purchase 166,666 shares each of common stock, each, at an exercise price of $.01
per share. The options are fully vested and expire on August 1, 1999 and January
1, 2003, respectively. Using the minimum value method, the value of such stock
options is not significant.
Note 6 - Related Party and Other Transactions
Effective January 1, 1998, the Company entered into an advisory and
management agreement with NuVen to perform administrative, human resource and
merger/acquisition services. Pursuant to such agreement, the Company agreed to
pay NuVen $36,000 annually, payable monthly in $3,000 increments in arrears, and
granted NuVen an option to purchase 250,000 shares of the Companys common stock
exercisable at a price of $.10 per share. The Company expensed $36,000, and
$81,000 during fiscal 1998 and 1997, respectively, and had $209,189 due to NuVen
as of December 31, 1998.
In January 1995, the Company entered into an employment agreement with Mr.
Luke, pursuant to which Mr. Luke is to hold the office of President through
December 2000. Pursuant to the agreement, the Company agreed to pay Mr. Luke
$54,000 per annum in cash or in the Company's common stock payable monthly in
arrears, and granted him an option to purchase 1,000,000 shares of the Company's
common stock at an exercise price per share of $.01 (Note 5). No cash payments
were made to Mr. Luke by the Company during the years 1998 and 1997 for services
provided. The Company expensed $54,000 during 1998 and 1997, each, and had
$216,000 due to Mr. Luke as of December 31, 1998. Mr. Luke expects to satisfy
such obligation through the issuance of common stock.
Effective April 24, 1996, the Company entered into a consulting agreement
with Mr. Steven Dong, pursuant to which Mr. Dong is to perform accounting
services and to hold the office of Chief Financial Officer. Pursuant to the
agreement the Company agreed to pay Mr. Dong $12,000 per year in cash or in the
Companys common stock payable in arrears, and granted him an option to purchase
166,000 shares
[HART\FIN:123198]-13
F-16
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
Note 6 - Related Party and Other Transactions (continued)
of the Company's common stock at an exercise price of $.01 per share (Note 5).
Effective July 1, 1997, Mr. Dong resigned as Chief Financial Officer and
continues to perform services as an advisor on a month to month basis. No cash
payments were made to Mr. Dong by the Company during 1998 and 1997. The Company
expensed $12,000 in 1998 and 1997, each, and had $40,000 due to Mr. Dong as of
December 31, 1998.
On January 1, 1997, the Company entered into a consulting agreement with
Mr. J.L. Lawver, pursuant to which Mr. Lawver is to perform advisory services.
Pursuant to the agreement the Company agreed to pay Mr. Lawver $12,000 per year
in cash or in the Companys common stock payable in arrears, and granted him an
option to purchase 166,000 shares of the Companys common stock at an exercise
price of $.01 per share. No cash payments were made to Mr. Lawver by the Company
during 1998 and 1997. The Company expensed $12,000 in 1998 and 1997, each, and
had $36,000 due to Mr. Lawver as of December 31, 1998.
[HART\FIN:123198]-13
F-17
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Hart Industries, Inc.
We hereby consent to the incorporation by reference of our report dated
October 20, 1998, for the year ended December 31, 1997, appearing on page F-3 in
the Annual Report on Form 10-KSB for the year ended December 31, 1998.
Kang, Yu & Jun
Cerritos, California
October 27, 1999
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 197
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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<CURRENT-ASSETS> 197
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0
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<TOTAL-LIABILITY-AND-EQUITY> 197
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