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, 1999 Commission file number 0-12746
HART INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Nevada 33-0661675
(State of other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
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 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
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, 1999
Common Stock , $.01 par value 1,730,960 shares
Documents Incorporated by Reference:
None
<PAGE>
TABLE OF CONTENTS
Page
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
<PAGE>
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 Company's 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").
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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 Lessee's 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.
2
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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 Company's 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, 1999 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, 1999 Compared to Year Ended December 31, 1998
There were no operations during 1999. As a result there were no revenues or
cost of revenues recorded during 1999.
Total general and administrative expenses decreased 22% from $138,825 in
1998 to $108,645 in 1999. The decrease is primarily attributed to the
termination of a consulting agreement as of December 31, 1998. The Company
expensed $12,000 pursuant to such agreement in 1998.
The Company is in its development stage and has incurred aggregate losses
of $6,612,045 from its inception on October 29, 1982 through December 31, 1999.
3
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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 Company's 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 $221 as of December 31, 1999,
and capital deficiency of $648,187 as of December 31, 1999. The increase in
working capital deficiency is a direct result of the Company having no operating
revenues during the year ended December 31, 1999 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, 1999 to finance future
operations. The Company has received financial support from NuVen, an affiliate,
during fiscal 1999, and is dependent upon NuVen for future working capital. The
Company's plan is to continue searching for additional sources of equity and
working capital and new operating opportunities. In the interim, the Company's
existence is dependent upon continuing financial support from NuVen for the next
12 months. Such conditions raise substantial doubt about the Company's ability
to continue as a going concern. As such, the Company's 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.
4
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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:
Position Held with Date First
Name Age the Company Elected or Appointed
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
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.
(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
5
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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.
Jon L. Lawver. Mr. Jon L. Lawver has been Chief Financial Officer of the
Company since January 1997. Mr. Lawver has twenty-two (22) years of experience
in the area of bank financing where he has assisted medium-sized companies ($5
million to $15 million) by providing expertise in documentation preparation and
locating financing for expansion requirements. Mr. Lawver was with Bank of
America from 1961 to 1970, ending his employment as Vice President and Manager
of one of its branches. From 1970 to present Mr. Lawver has served as President
and a Director of J.L. Lawver Corp., a financial consulting firm. Since 1988,
Mr. Lawver has served as President and a Director of Eurasia, a private finance
equipment leasing company specializing in oil and gas industry equipment. Mr.
Lawver also serves as an executive officer of Fantastic Foods, Inc. a
wholly-owned subsidiary of NuOasis, Resorts, Inc..
6
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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.
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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 $100,000
per annum:
Name and Principal Fiscal Salary Other Annual Options
Position Year ($) Compensation ($) Granted (#)(2)
Fred G. Luke 1999 54,000(1) N/A N/A
Chairman and 1998 54,000(1) N/A N/A
President (4-93 to 1997 54,000(1) N/A N/A
Present)
(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 500,000 shares of common stock were issued on October
1, 1999 at an exercise price of $.50 per share. The options are fully vested and
expire on January 1, 2003. Options to purchase 250,000 shares of common stock
were issued on January 1, 1998 at an exercise price of $.10 per share. The
options are fully vested and expire on January 1, 2003. The following table sets
forth as of December 31, 1999 all of the unexercised options for the Company's
common stock:
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Option/SAR's at Fiscal Options/SAR's at
Year-End (#) Fiscal Year-End ($)
Exercisable/ Exercisable/ Exercise Expiration
Name Unexercisable Unexercisable Price Date
<S> <C> <C> <C> <C>
Fred G. Luke, Chairman
and President 1,000,000 Exercisable - Exercisable (1)(2) .01 January 1, 2002
Jon L.Lawver, Chief
Financial Officer 166,000 Exercisable - Exercisable (1) .01 January 1, 2003
NuVen Advisors 750,000 Exercisable - Exercisable (1)(2) .10 - .50 January 1, 2003
</TABLE>
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(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. Luke's 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, as amended effective January 1, 2000 through December 31, 2004, pursuant
to which Mr. Luke is to hold the office of President and chairman of the Board
of Directors. 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 at the estimated fair value of $.01
at date of grant. The options expire on January 1, 2002 with no amounts
exercised through the date of this report. The Company expensed $54,000 during
1999, 1998 and 1997, each, and owed $270,000 to Mr. Luke as of December 31,
1999.
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, 1999. 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 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).
<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%
John D. Desbrow
2212 Dupont Drive
Suite U
Irvine, CA 92715 166,666 9.6%
</TABLE>
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<TABLE>
<CAPTION>
Title of Class Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Interest(1) of Class(2)
<S> <C> <C> <C>
NuVen Advisors Limited Partnership(3)
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660 750,000(3)(4) 43.3%
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 9.6%
All Officers and Directors as a group
1,083,332 62.6%
</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 1,916,000 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 750,000 common shares currently exercisable.
(5) Excludes options for 1,000,000 common shares currently exercisable.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective January 1, 1998, as amended October 1, 1999, the Company entered
into an advisory agreement with NuVen to assist in the management of the limited
operations of the Company for $3,500 per month expiring January 1, 2003. The
Company had $266,194 due to NuVen as of December 31, 1999. NuVen has had an
advisory agreemment in effect since 1994.
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
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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 Employment Agreement with Fred G. Luke4
10.20 Advisory and Management Agreement with NuVen Advisors,
Inc., a Nevada Corporation4
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 10-K.
3 Each of the foregoing exhibits is incorporated herein by reference to the
Company's 1994 Form 10-KSB.
4 Each of the foregoing exhibits is incorporated herein by reference to the
Company's 1995 Form 10-KSB.
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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: March 10, 2000 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: March 10, 2000 By: /s/ Fred G. Luke
Fred G. Luke, Director
Date: March 10, 2000 By: /s/ Fred Graves Luke
Fred Graves Luke, Director
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page
Description
Independent Auditors' Report.............................................. F-2
Balance Sheet as of December 31, 1999..................................... F-3
Statements of Operations for the Years Ended December 31, 1999 and 1998,
and the Period from October 29, 1982 (Inception)
to December 31, 1999................................................... F-4
Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1999 and 1998, and the Period from
October 29, 1982 (Inception) to December 31, 1999...................... F-5
Statements of Cash Flows for the Years Ended December 31, 1999 and 1998,
and the Period from October 29, 1982
(Inception) to December 31, 1999....................................... F-7
Notes to Financial Statements............................................. F-9
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, 1999, and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the years
in the two-year period ended December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. 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 audits in accordance with generally accepted audited
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hart Industries, Inc. as of
December 31, 1999, and the results of its operations, and its cash flows for
each of the years in the two-year period ended December 31, 1999, 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, is currently in the development stage,
has limited liquid resources and had negative working capital as of December 31,
1999. Management's 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
January 10, 2000
F-2
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current Assets -
Cash $ 221
$ 221
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 89
Accrued professional fees 11,250
Income taxes payable 8,280
Total current liabilities 19,619
Due to affiliates 628,789
Total liabilities 648,408
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 (6,612,045)
Total stockholders' deficit (648,187)
$ 221
</TABLE>
See accompanying notes to these financial statements.
F-3
<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, 1999
1999 1998
<S> <C> <C> <C>
Net revenues $ - $ - $ -
Cost of revenues - - -
- - -
Costs and expenses:
General and administrative expenses 108,645 138,825 916,304
Provision for write-down of property
and equipment - - 251,564
Impairment of Dishwasher Assets - - 2,500,000
Total costs and expenses 108,645 138,825 3,667,868
Operating loss (108,645) (138,825) (3,667,868)
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 (108,645) (138,825) (4,810,318)
Loss from discontinued operations,
net of tax of $0 - - (1,801,727)
Net loss $ (108,645) $ (138,825) $ (6,612,045)
Basic and diluted loss per share:
Continuing operations $ (.06) $ (.08)
Discontinued operations
Net loss $ (.06) $ (.08)
Weighted average common shares
outstanding 1,730,960 1,730,960
</TABLE>
See accompanying notes to these financial statements.
F-4
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Statements of Stockholders' Equity (Deficit)
For the Years Ended December 31, 1999 and 1998
and the Period from October 29, 1982 (Inception)
Through December 31, 1999
<TABLE>
<CAPTION>
Deficit Accumulated
Common Stock Additional During
Paid-In Development
Shares Amount Capital 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 1 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 (2,500) (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.
F-5
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Statements of Stockholders' Equity (Deficit)
(Continued)
<TABLE>
<CAPTION>
Common Stock
Deficit Accumulated
Additional During
Paid-In Development
Shares Amount Capital 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, 1982
(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)
Net loss - - - (108,645) (108,645)
Balance at December 31, 1999 1,730,960 $ 17,310 $5,946,548 $ (6,612,045) $ (648,187)
</TABLE>
See accompanying notes to these financial statements.
F-6
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period
From October
29, 1982
(Inception) to
Year Ended December 31, December 31,
1999 1998 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (108,645) $ (138,825) $ (6,612,045)
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:
(Decrease) increase in accounts payable (7,647) 1,296 89
(Decrease) increase in accrued professional fees (5,900) 15,650 11,250
Increase in income taxes payable - 8,280 8,280
(Decrease) increase in other accrued liabilities (5,384) 238 -
Net cash used in operating activities (127,576) (113,361) (1,857,050)
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 127,600 44,891 628,789
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 127,600 113,491 2,725,994
Net increase in cash 24 130 221
Cash at beginning of period 197 67 -
Cash at end of period $ 221 $ 197 $ 221
</TABLE>
See accompanying notes to these financial statements.
F-7
<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,
1999
1999 1998
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.
F-8
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements
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.
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
Company's plan is to continue searching for additional sources of equity and
working capital and new operating opportunities. In the interim, the Company's
existence is dependent upon continuing financial support from NuVen for at least
the next 12 months. Such conditions raise substantial doubt about the Company's
ability to continue as a going concern. No adjustments have been made to the
accompanying financial statements as a result of this uncertainty.
F-9
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
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 Company's net deferred tax assets at December 31, 1999, consist of net
operating loss carryforwards amounting to approximately $6.6 million. At
December 31, 1999, the Company provided a 100% valuation allowance for these net
operating loss carryforwards totaling approximately $2.2 million. During the
years ended December 31, 1999 and 1998, the Company's valuation allowance
increased $37,000 and $47,000, 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 changes in ownership, the Company's 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 20 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.
F-10
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
2. Significant Accounting Policies (Continued)
Loss Per Common Share
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 Company's 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 1,916,000 shares of common stock were outstanding as of
December 31, 1999. 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 1998 and Inception through December 31, 1999
financial statements have been reclassified, where appropriate, to conform with
the financial statement presentation used in 1999.
Financial Instruments
At December 31, 1999, 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
SFAS No. 130, "Reporting Comprehensive Income" 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.
F-11
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
2. Significant Accounting Policies (Continued)
Disclosures about Segments of an Enterprise and Related Information
SFAS No. 131, "Disclosures of an Enterprise and Related Information"
requires 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
SFAS No. 123, "Accounting for Stock-Based Compensation" 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.
F-12
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
3. Impairment of Assets
Dishwasher Assets
As mentioned in Note 1, the Company's 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.
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 lessee's default, and in May 1995, sold the assets at auction
for $72,710, resulting in a gain of $10,800 during fiscal year 1995.
F-13
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
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.
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
The following table sets forth the common stock purchase options activity
during the years ended 1999 and 1998:
F-14
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
<TABLE>
<CAPTION>
Weighted
Range of Average
Options Exercise Prices Exercise Price
<S> <C> <C> <C>
Outstanding and exercisable, December 31, 1997 1,982,664 $0.01 - $0.20 $0.02
Granted 250,000 $0.10 $0.10
Canceled 316,666 $0.01 - $0.20 $0.10
Outstanding and exercisable, December 31, 1998 1,915,998 $0.01 - $0.10 $0.02
Granted 500,000 $0.50 $0.50
Canceled 499,998 $0.01 $0.01
Outstanding and exercisable, December 31, 1999 1,916,000 $0.01 - $0.50 $0.15
</TABLE>
From time to time, the Company's 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. Accordingly, during the year
ended December 31, 1999, options to purchase 499,998 shares of common stock with
exercise prices of $.01 per share expired.
The Company has elected to account for its stock-based compensation to its
sole employee under APB 25. As of December 31, 1999, the potential realizable
value of each grant of options is not significant 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
on August 1, 1995. The options expire on January 1, 2002. No amounts were
exercised.
In connection with an Advisory and Management Agreement with NuVen
Advisors, the Company granted 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. Effective October 1, 1999, the agreement
was amended and additional options to purchase 500,000 shares was granted at an
F-15
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
exercise price of $.50 per share. These additional 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 granted options
to purchase 166,000 shares and 166,666 shares of common stock at exercise prices
of $.01 per share. The options fully vested at the date of grant. Options to
purchase 166,666 shares pursuant to one agreement expired on August 1, 1999.
Options to purchase 166,000 shares pursuant to the second agreement expire on
January, 1, 2003. Using the minimum value method, the value of such stock
options is not significant.
6. Related Party and Other Transactions
On 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 options to purchase 250,000 shares of the Company's common stock
exercisable at a price of $.10 per share. On October 1, 1999, the agreement was
amended for up to $42,000 annually, with additional options to purchase 500,000
shares of the Company's common stock granted at a price per share of $0.50 (Note
5). The Company expensed $38,000, and $36,000 during fiscal 1999 and 1998,
respectively, and had $247,189 due to NuVen as of December 31, 1999.
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 1999 and 1998 for services
provided. The Company expensed $54,000 during 1999 and 1998, each, and had
$270,000 due to Mr. Luke as of December 31, 1999. 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 was 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
Company's common stock payable in arrears, and granted him an option to purchase
166,666 shares 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 continued to perform services as an advisor on a month-to-month
basis through December 1998. No cash payments were made to Mr. Dong by the
Company during 1999 and 1998. The Company expensed $12,000 in 1998 and had
$40,000 due to Mr. Dong as of December 31, 1999.
F-16
<PAGE>
HART INDUSTRIES, INC.
(A Development-Stage Company)
Notes to Financial Statements (Continued)
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 Company's common stock payable in arrears, and granted him an
option to purchase 166,000 shares of the Company's common stock at an exercise
price of $.01 per share (Note 5). No cash payments were made to Mr. Lawver by
the Company during 1999 and 1998. The Company expensed $12,000 in 1999 and 1998,
each, and had $48,000 due to Mr. Lawver as of December 31, 1999.
F-17
[HART\10K\123199-3]
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<PERIOD-END> DEC-31-1999
<CASH> 221
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0
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