UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ----------
Commission File Number: 33-17229-D
ART CARDS, INC.
-----------------------------
(Name of Small Business Issuer
in its Charter)
Colorado 84-0978589
------------------------------ ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
933 Pearl Street
Denver, Colorado 80203
-------------------------------------- --------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone: (303) 831-9335
Securities registered under Section 12(b) or Section 12(g) of the Act:
None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for the fiscal year ended December 31, 1994, were $2,653.
The aggregate market value of the voting stock held as of May 15, 1996, by
nonaffiliates of the Registrant was $0 as there was no bid on that day.
As of May 15, 1996, Registrant had 876,602,000 shares of its $0.0001 par value
common stock outstanding.
1
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Art Cards, Inc. (the "Company") was incorporated under the laws of the
state of Colorado on January 30, 1984, as World Greetings, Inc., and changed its
name to Art Cards, Inc. on March 31, 1987. The Company designed, manufactured,
produced and marketed greeting cards.
On November 7, 1993, the Company sold its remaining inventory of greeting
cards, approximately 337,000, for $22,000 and is no longer in the business of
designing, manufacturing, producing and marketing greeting cards. The Company
has been looking for a suitable merger or acquisition candidate.
In May 1996, the Company entered into a letter of intent with Legacy
Brands, Inc. ("Legacy") relating to a proposed transaction pursuant to which the
Company would acquire all of the assets of, and assume certain of the
liabilities of, Legacy in exchange for shares of the Company's Common Stock,
which after the transaction, would represent 92.5% of the outstanding Common
Stock of the Company. As a part of the transaction, the Company would effectuate
a reverse split of its outstanding Common Stock leaving approximately 375,000
shares issued and outstanding that would be owned by the Company's current
stockholders and approximately 4,625,000 shares issued and outstanding that
would be owned by Legacy or its stockholders. Further, upon completion of the
transaction, the Company would change its name to Legacy Brands, Inc. and would
likely reincorporate in either California or Delaware. The Company and Legacy
are negotiating a definitive agreement relating to the transaction and there are
no assurances that the transaction will occur.
Legacy has provided the Company with the following information in this
paragraph. Legacy is a development stage California corporation that has an
exclusive license to use certain names and marks of Mrs. Field's Development
Corporation to market Mrs. Field's frozen dough for cookies, muffins, brownies,
pound cakes, baked goods and frozen dessert items containing Mrs. Field's cookie
dough in North America, Hawaii and Puerto Rico through grocery stores,
supermarkets, convenience stores, club stores, and other similar retail
prepackaged food and snack distribution channels. The Company currently markets
the dough products nationally in retail supermarkets, as well as in the Sam's
Club wholesale division of Wal-Mart stores and in Price/Costco Club Stores. As
of January 31, 1996, Legacy had a negative net worth of approximately $608,000.
For the 12 months ended January 31, 1996, Legacy realized a loss of
approximately $2,900,000.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices are located at 933 Pearl Street, Denver,
Colorado, which is the home of the Company's President.
2
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the Company's fourth quarter for the fiscal year ended December 31,
1995, no matter was submitted to a vote of the Company's security holders,
either by proxy solicitation or otherwise.
PART II
ITEM 5. MARKET FOR THE THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's common
stock.
As of May 15, 1996, the Company had approximately 984 shareholders of
record of its common stock.
The Company has not declared cash dividends on its common stock since its
inception and the Company does not anticipate paying a cash dividend in the
foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Liquidity and Capital Resources
During the fiscal year ended December 31, 1995, the Company's working
capital deficit changed slightly from $74,045 at December 31, 1994 to $72,845 at
December 31, 1995. The increase was the result of an increase in accounts
payable for 1994. The Company is no longer in the business of designing,
manufacturing, producing, and marketing greeting cards. The Company's auditors
have included a qualification in their report as to the Company's ability to
continue as a going concern due to the significant operating losses and working
capital deficit. The Company has been seeking a business combination. Although
the Company has entered into a letter of intent for a business combination,
there are no assurances the Company will be successful in combining with any
other entity.
Results of Operations
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994.
Expenses represent primarily accounting, legal fees and bank service fees.
The Company no longer actively markets its greeting cards and sold its entire
inventory in 1993. Sales in 1994 represent revenue from royalties earned from
Recycled Paper Products which has resold all of its inventory of the Company's
greeting cards and no longer distributes any products for the Company.
Inflation
The management of the Company does not believe that inflation has had any
material effect on the Company during the fiscal year ended December 31, 1995.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are filed as part of this Annual Report on Form
10-KSB
3
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(a) On May 16, 1996, the Company retained the firm of Janet Loss, C.P.A.,
P.C. to serve as the Company's principal independent accountants in place of
Mitchell . Finley and Company, P.C., which had served in that capacity for the
two fiscal years ended December 31, 1993. On June 7, 1996, the Company advised
Mitchell . Finley and Company, P.C. that the Company was terminating Mitchell .
Finley and Company, P.C., as the Company's principal independent accountants as
of May 16, 1996.
(b) There were no disagreements during the Company's two fiscal years ended
December 31, 1993, or any interim period subsequent thereto between the Company
and Mitchell . Finley and Company, P.C. on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure
which, if not resolved to the satisfaction of Mitchell . Finley and Company,
P.C., would have caused Mitchell . Finley and Company, P.C. to make reference in
its reports to the subject matter of such disagreement.
(c) The opinions of Mitchell . Finley and Company, P.C. on the Company's
financial statements for the fiscal years ended December 31, 1993 and 1992,
contained no adverse opinion or disclaimer of opinion, nor were such opinions
qualified as to uncertainty, audit scope or accounting principles, except that
such opinions raised substantial doubt about the Company's ability to continue
as a going concern.
(d) The decision to change accountants was not approved by the Company's
Board of Directors or any committee thereof.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The present term of office of each director will expire at the next annual
meeting of shareholders. The name, position with the Company and the age of each
director, and the period during which each director has served are as follows:
<TABLE>
<CAPTION>
Name and position, if any,
in the Company Age Director Since
- -------------------------- --- --------------
<S> <C> <C>
Richard H. Miller
(President and Chairman of the Board) .................. 50 1984
Richard M. Gawlik
(Secretary/Treasurer) .................................. 58 1986
Marilyn R. Goldberg .................................... 50 1984
John W. Rapparlie ...................................... 52 1987
</TABLE>
4
<PAGE>
There was no arrangement or understanding between any director and any
other person pursuant to which any director was selected as a director.
The executive officers of the Company are elected annually. Each executive
officer shall hold office until his successor duly is elected and qualified or
until his resignation or until he shall be removed in the manner provided by the
Company's Bylaws. The Company's executive officers, their ages, positions with
the Company and periods during which they have served as such are as follows:
<TABLE>
<CAPTION>
Name of Executive Officer and
Position in Company Age Officer Since
- ----------------------------- --- -------------
<S> <C> <C>
Richard H. Miller
(President and Chairman of the Board) .................. 50 1984
Richard M. Gawlik
(Secretary/Treasurer) .................................. 58 1986
</TABLE>
There was no arrangement or understanding between any executive officer and
any other person pursuant to which any executive officer was selected as an
executive officer.
The following is a brief account of the business experience during the past
five years of each director and executive officer:
Name of Director Principal Occupation During
or Officer the Last Five Years
- ---------------- ----------------------------
Richard H. Miller Chairman of the Board and President of the Company.
Richard M. Gawlik Secretary/Treasurer of the Company since August,
1986; Independent consultant since 1992; President
of The Kober Corporation and of Kober Financial
Corporation where he has also acted a
broker/dealer, from January, 1986 to March, 1992;
sole proprietor of RMG Enterprises, Inc., which
provides accounting and financial consulting
services to small and medium sized corporations,
from 1981 to 1987.
Marilyn R. Goldberg President of Mari Hube (formerly Marigold
Enterprises, Ltd.), a publisher and distributor of
fine art graphics, limited edition prints and
posters.
John Rapparlie Chief Executive Officer since July 1986 and
President and Sales Director for Paper Cargo, Inc.,
a greeting card sales and marketing corporation,
since August, 1982.
5
<PAGE>
No director is a director of any company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934 or
subject to the requirements of Section 15(d) of such Act or any company
registered as an investment company under the Investment Company Act of 1940.
None of the Company's directors or executive officers is involved in any
legal proceedings required to be reported pursuant to this Item 9.
Identification of Certain Significant Employees.
Not Applicable.
There are no family relationships between any officers and directors of the
Company.
The Company does not have a class of equity securities registered pursuant
to Section 12 of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth for the Company's last three fiscal years
ended December 31, 1995, 1994 and 1993, the compensation paid by the Company for
services rendered in all capacities to the Company to Richard H. Miller, who was
the chief executive officer of the Company during the Company's fiscal year
ended December 31, 1995. No person who served as an executive officer of the
Company during the Company's fiscal year ended December 31, 1995, received total
annual salary and bonus in excess of $100,000 from the Company during the
Company's fiscal year ended December 31, 1995:
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
----------------------------------- ----------
Year Other Securities All
Name and Ended Annual Underlying Other
Principal Position December 31, Salary($) Bonus($) Compensation($) Options (#) Compensation($)
- ------------------ ------------ --------- ------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Miller ... 1995 -- - -- -- --
President 1994 -- - -- -- --
1993 $ 2,338 (1) - -- -- --
- --------------
</TABLE>
(1) An additional amount of $37,662 has been accrued but not paid.
6
<PAGE>
Option Grants in Fiscal Year Ended December 31, 1995
No options were granted by the Company to Richard H. Miller during the
Company's fiscal year ended December 31, 1995.
Option Exercises and Fiscal Year-End Option Values
No options were owned by Richard H. Miller at December 31, 1994, and no
options were exercised by Richard H. Miller during the Company's fiscal year
ended December 31, 1995.
Compensation of Directors
There were no standard or other arrangements for the compensation of the
Company's directors in effect for the Company's fiscal year ended December 31,
1995.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners.
The following person is the only person known to the Company who on May 15,
1996, owned beneficially more than 5% of the Company's $0.0001 par value common
stock, its only class of outstanding voting securities:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership (1) of Class
- ------------------- ----------------------- --------
<S> <C> <C>
Richard H. Miller ............ 414,315,800 47.3%
933 Pearl Street
Denver, Colorado 80203
</TABLE>
(1) Mr. Miller has the sole voting and investment power with respect to
the shares.
(b) Security Ownership of Management.
The following table shows as of May 15, 1996, the shares of the Company's
$0.0001 par value common stock beneficially owned by each director of the
Company and the shares beneficially owned by all the officers and directors of
the Company as a group:
7
<PAGE>
<TABLE>
<CAPTION>
Amount of Shares and Nature Percent
Name of Beneficial Owner of Beneficial Ownership(1) of Class
- ------------------------ --------------------------- --------
<S> <C> <C>
Richard H. Miller .................... 414,315,800 47.3%
Richard M. Gawlik .................... 1,350,000 0.15%
Marilyn R. Goldberg .................. 10,000,000 1.1%
John W. Rapparlie .................... 100,000 0.01%
All Officers and Directors as a ...... 425,765,800 48.6%
Group (4 Persons)
</TABLE>
(1) The beneficial owners listed have sole voting and investment power with
respect to the shares.
(c) Changes in Control.
Except for the possible transaction with Legacy Brands, Inc. described in
Item 1 hereof, there are no arrangements which may result in a change in
control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no transactions that are required to be reported pursuant to this
Item 12.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.1(a) Articles of Incorporation (incorporated by reference to Exhibit
3.1(a) to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1994).
3.1(b) Articles of Amendment to the Articles of Incorporated filed March
31, 1987 (incorporated by reference to Exhibit 3.1(b) to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1994).
3.1(c) Amendment to Articles of Incorporation filed November 13, 1987
(incorporated by reference to Exhibit 3.1(c) to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1994).
3.1(d) Amendment to Articles of Incorporation filed September 30, 1988
(incorporated by reference to Exhibit 3.1(d) to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1994).
3.1(e) Certificate of Correction to Articles of Incorporation filed April
11, 1989 (incorporated by reference to Exhibit 3.1(e) to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1994).
3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1994).
16 Letter on change in certifying accountant (incorporated by reference
to Exhibit 16 to the Company's Current Report on Form 8-K dated May
16, 1996).
(b) Reports on Form 8-K.
None.
8
<PAGE>
ITEM 7
PART IV
ART CARDS, INC.
Index to Financial Statements
Independent Auditor's Report ............................... F-1
Balance Sheets ............................................. F-2
Statements of Operations ................................... F-3
Statements of Shareholders' Deficit ........................ F-4
Statements of Cash Flows ................................... F-5
Notes to Financial Statements .............................. F-6 - F-9
<PAGE>
Janet Loss, C.P.A., P.C.
9101 East Kenyon Avenue, Suite 2000
Denver, Colorado 80237
(303) 220-0227
To the Board of Directors and Shareholders
Art Cards, Inc.
Denver, Colorado
I have audited the accompanying balance sheets of Art Cards, Inc. (the Company)
as of December 31, 1995 and 1994, and the related statements of operations,
shareholders' deficit and cash flows for the years ended December 31, 1995 and
1994. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
These standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 1995
and 1994, and the results of its operations and its cash flows for the years
ended December 31, 1995 and 1994 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As shown in the financial statements, the
Company has incurred a net loss of $1,200 and $2,431 for the years ended
December 31, 1995 and 1994, respectively. In addition, the Company has incurred
losses to date in the amount of $1,110,878. The Company's significant operating
losses raise substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Janet Loss, C.P.A., P.C.
Janet Loss, C.P.A., P.C.
May 23, 1996
F-1
<PAGE>
<TABLE>
<CAPTION>
ART CARDS, INC.
BALANCE SHEETS
December 31, December 31,
1995 1994
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash ................................................................ $ 0 $ 107
---------- ----------
TOTAL CURRENT ASSETS ................................................ 0 107
---------- ----------
OTHER ASSETS:
Organization Costs, net of
accumulated amortization of
$14,509 as of December 31,
1994 and 1993, respectively ....................................... 0 0
---------- ----------
TOTAL OTHER ASSETS .................................................. 0 0
---------- ----------
TOTAL ASSETS ................................................................. $ 0 $ 107
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts Payable .................................................... $ 3,090 $ 4,290
Accrued liabilities, officer ........................................ 69,755 69,862
---------- ----------
TOTAL CURRENT LIABILITIES ........................................... 72,845 74,152
---------- ----------
SHAREHOLDERS' DEFICIT:
Common Stock, $.0001 par value,
3,000,000,000 shares authorized,
876,602,000 and 861,602,000 shares
issued and outstanding as of
December 31, 1995 and 1994,
respectively ........................................................ 87,660 86,160
Additional paid-in capital .......................................... 950,373 949,473
Accumulated deficit ................................................. (1,110,878) (1,109,678)
---------- ----------
TOTAL SHAREHOLDERS' DEFICIT ......................................... (72,845) (74,045)
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT ............................................... $ 0 $ 107
========== ==========
</TABLE>
See independent auditor's report and notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
ART CARDS, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1995 and 1994
1995 1994
------------ -----------
<S> <C> <C>
Sales, net ........................... $ - $ 2,653
------------ -----------
OPERATING EXPENSES:
General and
administrative expenses ... -- 136
Freight and handling ........ 1,200 4,990
------------ -----------
TOTAL EXPENSES .............. 1,200 5,126
------------ -----------
LOSS FROM OPERATIONS ................. (1,200) (2,473)
------------ -----------
OTHER INCOME:
Miscellaneous ............... -- 42
------------ -----------
TOTAL OTHER INCOME .......... -- 42
------------ -----------
NET LOSS ............................. $ (1,200) $ (2,431)
============ ===========
NET LOSS PER COMMON SHARE ............ $ * $ *
============ ===========
WEIGHTED-AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING .......... 875,352,000 861,602,000
============ ===========
</TABLE>
* less than $.01 per share
See independent auditor's report and notes to financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ART CARDS, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
For the Years Ended December 31, 1995 and 1994
Additional
Par Paid-In Accumulated
Number of Shares Value Capital Deficit
---------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Balances,
January 1, 1994 ....... 861,602,000 $ 86,160 $ 949,473 $(1,107,247)
----------- ---------- ---------- ----------
Net Loss for Year Ended
December 31, 1994 ..... -- -- -- (2,431)
----------- ---------- ---------- ----------
Balances,
December 31, 1994 ..... 861,602,000 86,160 949,473 (1,109,678)
Common stock issued for
services .............. 7,500,000 750 450 --
Common stock issued for
settlement of Accounts
Payable ............... 7,500,000 750 450 --
Net Loss for Year Ended
December 31, 1995 ..... -- -- -- (1,200)
----------- ---------- ---------- ----------
Balances,
December 31, 1995 ..... 876,602,000 $ 87,660 $ 950,373 $(1,110,878)
=========== ========== ========== ==========
</TABLE>
See independent auditor's report and notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ART CARDS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995 and 1994
1995 1994
------ ------
<S> <C> <C>
Operating Activities:
Net Loss ................................... $(1,200) $(2,431)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Common stock issued for services ......... 1,200 --
Changes in operating assets and liabilities:
Increase (decrease) in accounts
payable and other current
liabilities ............................ (107) 2,490
------- ------
NET CASH USED IN OPERATING ACTIVITIES ............... (107) 59
------- ------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .............................. (107) 59
CASH, BEGINNING OF YEAR ............................. $ 107 $ 48
------- ------
CASH, END OF YEAR ................................... $ 0 $ 107
======= ======
</TABLE>
See independent auditor's report and notes to financial statements.
F-5
<PAGE>
ART CARDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Art Cards, Inc. (the Company), formerly World Greetings, Inc., was incorporated
in Colorado on January 30, 1984, for the purpose of manufacturing and marketing
greeting cards and similar products. The Company disposed of all its inventory
in 1993 and no longer markets greeting cards and similar products.
The Company's ability to continue as a going concern is dependent upon the
Company's ability to obtain financing. The Company is currently looking for a
suitable candidate to merge with or be acquired by. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles necessarily required management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the balance sheet date and reported amounts of revenues and
expenses during the reporting periods.
The Financial Standards Board has recently issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets" and SFAS No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reported at the lower of the carrying amounts or their estimated
recoverable amount and the adoption of this statement by the Company is not
expected to have an impact on the financial statements. SFAS No. 123 encourages
the accounting for stock- based employee compensation programs to be reported
within the financial statements on a fair-value based method. If the fair-value
based method is not adopted, then the statement requires proforma disclosure of
net income and earnings per share as if the fair value based method has been
adopted. The Company has not yet determined how SFAS No. 123 will be adopted nor
its impact on the financial statements. Both statements are effective for fiscal
years beginning after December 15, 1995.
Cash and Cash Equivalents
The Company considers investments in Treasury Bills and certificates of deposits
with maturities of less than three months of the balance sheet date to be cash
equivalents.
F-6
<PAGE>
ART CARDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which changed the
criteria for measuring the provisions for income taxes and recognizing deferred
tax assets and liabilities in the accompanying financial statements. SFAS 109
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined, based upon the difference between the financial
statements and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. The
adoption of SFAS 109 did not have a material impact on the financial statements.
Net Loss Per Common Share
The net loss per share of common stock is determined using the weighted-average
number of shares issued and outstanding during the period, according to rules of
the Securities and Exchange Commission. The Company's common stock equivalents
were not included in the computation because their effect was antidilutive.
NOTE C - LICENSE AGREEMENTS
The Company has entered into several license agreements with various artists and
publishers to use designated graphic images in its manufacture, distribution and
sale of greeting cards, postcards and similar products. Generally, the license
agreements are exclusive and require royalties on net sales of licensed products
by the Company. Certain agreements can be terminated by the licensor, after
specified periods of time, if minimum sales requirements are not met. Under some
license agreements, the Company has made non-refundable advance royalty
payments. The advance royalties are charged to expense as they are earned by the
licensor. The Company no longer uses the license agreements
On June 28, 1991, the Company entered into a five-year license agreement with
Recycled Paper Products, Inc. (Recycled Paper) and Rob Barber. Recycled Paper
has the exclusive right to receive, sell and distribute greeting cards and
related products created by Rob Barber in the United States, Canada and
Australia. Recycled Paper has agreed to pay the Company and Rob Barber five
percent of all net sales. In addition, Recycled Paper has agreed to pay the
Company and Rob Barber 50 percent of all license fees, advances against
royalties and royalties that Recycled Paper may receive from sublicenses granted
by Recycled Paper. Such sublicenses may only be granted outside the United
States, Canada and Australia. This agreement will terminate in June or July
1996.
F-7
<PAGE>
ART CARDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE D - SHAREHOLDERS' DEFICIT
In connection with the Company's public offering, the Company issued 20,000,000
callable Class A common stock purchase warrants. Each Class A warrant consists
of one callable Class B common stock purchase warrant and also entitled the
holder to purchase ten additional shares of common stock at an exercise price of
$.0075 per share until February 9, 1996. Each Class B warrant entitled the
holder to purchase ten shares of common stock at an exercise price of $.01 per
share until February 9, 1996. All of the above-referenced warrants expired on
February 9, 1996.
NOTE E - RELATED PARTY TRANSACTIONS
The Company leased office space from its president on a month-to-month basis. As
of December 31, 1994, $2,715 was owed to the president for rent and accrued
salaries of $67,040.00.
NOTE F - INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS 109, "Accounting for Income
Taxes." As allowed by SFAS 109, prior years' financial statements have not been
restated.
As of December 31, 1995, the Company had net operating loss carryforwards for
income tax purposes of approximately $1,000,000 to offset future taxable income.
The net operating loss carryforwards expire through 2008. However, the Company's
ability to utilize such losses to offset future taxable income is subject to
various limitations imposed by the rules and regulations on the Internal Revenue
Service.
The tax effects of the temporary differences and operating loss carryforwards
that give rise to significant portions of the deferred tax assets at December
31, 1995, are presented below. The entire valuation allowance was recorded
during 1995.
Net operating loss
carryforwards ........ $ 185,100
Compensation expense not
allowed for income tax
reporting purposes ... 8,000
Valuation allowance .... (193,000)
Balance, December 31, 1995 ......... $ 0
There is no provision for income taxes in 1995 and 1994 because the Company had
net operating losses.
F-8
<PAGE>
ART CARDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE G - LETTER OF INTENT
The Company signed a letter of intent with Legacy Brands, Inc. to acquire Legacy
Brands, Inc. in a transaction which may or may not be tax-free under Internal
Revenue Code Section 368.
F-9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ART CARDS, INC.
Date: June 11, 1996 By /s/ Richard H. Miller
------------------------------------
Richard H. Miller, President
Date: June 11, 1996 By /s/ Richard M. Gawlik
------------------------------------
Richard M. Gawlik, Treasurer,
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: June 11, 1996 By /s/ Richard H. Miller
------------------------------------
Richard H. Miller, Director
Date: June 11, 1996 By /s/ Richard M. Gawlik
------------------------------------
Richard M. Gawlik, Director
Date: June 11, 1996 By /s/ Marilyn R. Goldberg
------------------------------------
Marilyn R. Goldberg, Director
Date: June 11, 1996 By /s/ John W. Rapparlie
------------------------------------
John W. Rapparlie, Director
Supplemental information to be Furnished With Reports Filed Pursuant to
Sectin 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Secction 12 of the Act
No annual report to security holders covering the Registrant's last fiscal
year or proxy material was sent to security holders.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 72,845
<BONDS> 0
0
0
<COMMON> 87,660
<OTHER-SE> (160,505)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,200)
<EPS-PRIMARY> 0
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