SECURITIES & 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
For the Fiscal Year Ended December 31, 1997
Commission File Number: 33-17229-D
ART CARDS, INC.
(Exact name of Registrant as specified in its Charter)
Colorado 84-0978589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Ident. Number)
933 Pearl Street, Denver, Colorado 80203
(Address of principal executive offices) (zip code)
(303) 831-9335
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) or Section 12(g)
of the Act:
None
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-K or any
amendments to this Form 10-K.
[X]
Indicate by check mark whether 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 [ ]
The aggregate market value of the Registrant's voting stock held as of
March 31, 1998, by nonaffiliates of the Registrant was $0 as there was no
bid on that day.
As of March 31, 1998, Registrant had 876,602,000 shares of its $0.0001 par
value common stock outstanding.
FORM 10-KSB
ART CARDS, INC.
TABLE OF CONTENTS
Item
No. Description
Page
PART I
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II
4. Market for the Registrant's Common Equity and Related Stockholder
Matters
6. Management's Discussion and Analysis or Plan of Operations
7. Financial Statements and Supplementary Data
8. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure
PART
III
9. Directors, Executive Officers, Promoters and Control Persons of the
Registrant9
10. Management Remuneration and Transactions
11. Security Ownership of Certain Beneficial Owners
12. Management Transactions
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Signatures
FORM 10-KSB
ART CARDS, INC.
December 31, 1996
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Art Cards, Inc. ("Registrant" or 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
although it still accepts special orders for greeting cards. The Company
is currently looking for a suitable candidate to merge with or be acquired
by. To date, the Company has not located a suitable candidate.
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 (5%) of all net sales. In addition, Recycled
Paper has agreed to pay the Company and Rob Barber fifty percent (50%) 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. Recycled Paper has the option to extend the license agreement
for an additional five years, provided certain minimum royalties and
license fees are paid by Recycled Paper.
On March 23, 1992, the Company entered into an exclusive distribution
agreement with The Noteworthy Marketing Group, Inc. (Noteworthy).
Noteworthy was appointed the exclusive distributor (except for Recycled
Paper, as described above) for sale of the Company's inventory of cards at
wholesale and retail prices within the United States and its territories.
Pursuant to the terms of the agreement, the Company was to receive a
royalty of fifty-five percent (55%) of the gross revenues actually
collected from customers (net of discounts and allowances actually allowed
customers, not to exceed five percent (5%) from the sale of inventory by
Noteworthy. The agreement was to expire on December 31, 1993, or when the
Company's total inventory of cards existing as of the date of the
agreement was depleted, whichever occurred first. However, by mutual
consent, the Company and Noteworthy terminated the agreement on March 22,
1993, due to Noteworthy's inability to obtain customers for the Company' s
products. All inventory was returned to the Company by April 15, 1993.
(b) Financial Information About Industry Segments
Since its inception, the Company's revenues, operating profit or loss and
identifiable assets were attributable to only one industry segment and the
Company has been engaged in only one line of business, which was the
designing, manufacturing, producing and marketing of greeting cards,
postcards, poster grams and similar products.
(c) Narrative Description of Business
The Company was engaged in the business of designing, manufacturing,
producing and marketing a proprietary line of greeting cards and related
products. The Company published between 100 and 200 designated graphic
images from several contemporary artists, including John Lennon, Yoko Ono,
Yuri Dojc, Giancarlo Impiglia and David Gerstein.
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
although it still accepts special orders for greeting cards. The Company
is currently looking for a suitable candidate to merge with or be acquired
by. To date, the Company has not located a suitable candidate.
The Company's greeting cards were marketed in the United States and Canada
through independent distributors and were displayed in retail outlets
throughout the United States. These distributors called on card shops,
stationery stores, department stores, bookstores, drug stores and several
other types of retail sales outlets. The Company's products were
represented in numerous outlets in the United States.
(iv) Patents, Trademarks and Licenses
On June 12, 1990, the Company's trademark, Art Cards, and design were
registered with the United States Patent and Trademark Office on the
Supplemental Register, Registration Number 1,601,644. The registration is
in effect until June 12, 2000.
Licensing Agreements. The Company's ability to design, manufacture,
produce and market a proprietary line of greeting cards was dependent upon
the acquisition of the rights to images of artists upon which the cards
are based. To this end, the Company entered into a number of licensing
agreements, including the following:
John Lennon--Marigold Enterprises, Ltd. The Company, as more fully
described below, entered into two license agreements with Marigold
Enterprises, Ltd. (Marigold), of which Marilyn Goldberg, a director and
shareholder of the Company, is an officer, director and 100 percent
shareholder. Marigold is engaged in the business of publication and
distribution of fine art graphics, limited edition prints and posters, as
well as acting as a licensing and marketing agent with respect to contract
rights by artists. (See Item 13, Certain Relationships and Related
Transactions.) Pursuant to the license agreements, the Company had an
exclusive, worldwide license to use certain graphic images of artists in
the design and production of its greeting cards, posters and related
products.
In July 1987, the Company entered into a License Agreement with Marigold
which was consented to by the Estate of John Lennon and which granted to
the Company the right to use drawings and lyrics of musical composition
created and composed by John Lennon in a line of greeting cards to be
produced by the Company. The extended term of the agreement terminates in
September 1996. Written approval of each card was required prior to
manufacture by the Company. The Company was required to create and
manufacture specific minimums per year.
Also in June 1987, the Company entered into a License Agreement with
Marigold which grants to the Company the exclusive right, until October
1997, to use certain designated images by Giancarlo Impiglia, Yuri Dojc
and David Gerstein in the manufacture, distribution and sale of greeting
cards. In consideration of the exclusive license agreement, the Company
has agreed to pay Marigold certain royalties for each artist covered by
the agreement for use either as a postcard or a greeting card.
(v) Seasonal Business. The Company's business was not seasonal in nature.
(vi) Working Capital. Not Applicable.
(vii) Customer Dependence. Not Applicable.
(viii) Backlog of Orders. Not Applicable.
(ix) Government Contracts. Not Applicable.
(x) Competition. Not Applicable.
(xi) Research and Development. The Company did not engage in any material
research and development activities during the last three years.
(xii) Environmental Regulations. Compliance with federal, state and local
provisions regulating the discharge of materials into the environment does
not have any material effect on the capital expenditures, earnings and
competitive position of the Company.
(xiii) Employees. The Company presently has no employees.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Not Applicable.
ITEM 2. PROPERTIES
The Company's executive offices are located at 933 Pearl Street, Denver,
Colorado.
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,
1997, 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 REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
There is no established public trading market for the Company's common
stock.
(b) Holders
As of March 31, 1998, the Company had approximately 993 shareholders of
record of its common stock.
(c) Dividends
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, 1997, the Company's working
capital deficit changed slightly from ($69,793) at December 31, 1996 to
($71950) at December 31, 1997. The decrease was the result of an
unsuccessful merger transaction with Legacy Brands, Inc. The Company is no
longer in the business of designing, manufacturing, producing and
marketing greeting cards although it still accepts special orders for
greeting cards. The Company's auditors have included modifications 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 is currently seeking 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, 1997 Compared to Year Ended December 31, 1996
The results of operations for the year ended December 31, 1997, reflect
the cessation of operations for the Company. Since the Company has ceased
operations the Company has minimal operating expenses, primaily
representing legal and accounting fees. The Company no longer actively
markets its greeting cards and has sold its entire inventory in 1993.
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,
1997.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are filed as part of this Annual report on Form
10-KSB.
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 REGISTRANT
(a) Identification of Directors
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:
Name and position, if any,
in the Company Age Director Since
Richard H. Miller
(President and Chairman
of the Board) 52 1984
Richard M. Gawlik
Secretary/Treasurer) 60 1986
Marilyn R. Goldberg 52 1984
John W. Rapparlie 54 1987
There was no arrangement or understanding between any director and any
other person pursuant to which any director was selected as a director.
(b) Identification of Executive Officers
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:
Name of Executive Officer and
Position in Company Age Officer Since
Richard H. Miller
(President and Chairman
of the Board) 51 1984
Richard M. Gawlik
(Secretary/Treasurer) 59 1986
There was no arrangement or understanding between any executive officer
and any other person pursuant to which any executive officer was selected
as a executive officer.
(c) Identification of Certain Significant Employees.
Not Applicable.
(d) Family Relationships. There are no family relationships between any
officers and directors of the Company.
(e) Business Experience
(1) Background. 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; 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 provided accounting and
financial consulting services to
small and medium sized corporations,
from 1981 to 1987.
Marilyn R. Goldberg President of Marigold Enterprises,
Ltd., a publisher and distributor of
fine art graphics, limited edition
prints and posters.
John W. 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.
(2) Directorships. 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.
(f) Involvement in Certain Legal Proceedings.
Not Applicable.
(g) Promoters and Control Persons.
Not Applicable.
The Company does not have a class of equity securities registered pursuant
to Section 12 of the Exchange Act.
ITEM 10. MANAGEMENT REMUNERATION AND TRANSACTIONS
(a)(1) Cash Compensation.
There was no cash compensation to any officers in 1997 or 1996.
(b)(1) Compensation Pursuant to Plans.
The Company has no option, pension, benefit plans or similar types of
compensation arrangements.
(b)(2)&(3) Pension Table and Alternative Pension Plan Disclosure.
Not Applicable.
(b)(4) Stock Option and Stock Appreciation Right Plans.
The Company has no stock option or stock appreciation right plans for its
executive officers.
(c) Other Compensation.
The Company does not pay other compensation to executive officers.
However, the Company may, from time to time, pay incidental compensation
consisting primarily of reimbursement for business related activities on
behalf of the Company. No such reimbursements were made in 1996 or 1995.
(d) Compensation of Directors.
(1) Standard Arrangements.
There are no arrangements whereby directors are compensated for their
services as directors.
(2) Other Arrangements.
Not Applicable.
(e) Termination of Employment and Change of Control Arrangement.
Not Applicable.
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 March
31, 1998, owned beneficially more than 5% of the Company's $0.0001 par
value common stock, its only class of outstanding voting securities:
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership (1) Of Class
Richard H. Miller
800 Pearl Street, #906
Denver, Colorado 80203 414,315,800 48.1%
(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 March 31, 1998, 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:
Amount of Shares and Nature Percent
Name of Beneficial Owner of Beneficial Ownership (1) of Class
Richard H. Miller 414,315,800 48.1%
Richard M. Gawlik 1,350,000 0.16%
Marilyn R. Goldberg 10,000,000 1.20%
John W. Rapparlie 100,000 0.01%
All Officers and Directors
as a Group (4 Persons) 425,765,800 49.4%
(1) The beneficial owners listed have sole voting and investment power
with respect to the shares.
(c) Changes in Control.
There are no arrangements which may result in a change in control of the
Company.
ITEM 12. MANAGEMENT TRANSACTIONS
(a) and (b) Transactions With Management and Others and Certain
Business Relationships.
The Company has entered into two license agreements with Marigold
Enterprises, Ltd. (Marigold), of which Marilyn Goldberg, a director and
shareholder of the Company, is an officer, director and 100 percent
shareholder. See item 1(c)(iv). No payments were required to be paid to
Marigold during 1997 and 1996 pursuant to the two agreements.
(c) Indebtedness of Management.
No director or executive officer of the Company and no associate of any
such director or executive officer was indebted to the Company at any time
since the beginning of the Company's last fiscal year in an amount in
excess of $100,000.
(d) Transactions with Promoters.
Not Applicable.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements included in this Report:
Independent Auditor's Report
Balance Sheets
Statements of Operations
Statements of Stockholders' Deficit
Statements of Cash Flows
Notes to Financial Statements
Janet Loss, C.P.A., P.C.
3525 S. Tamarac Drive, 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, 1997 and 1996, and the related statements of
operations, shareholders' deficit and cash flows for the years ended
December 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. 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, 1997 and 1996, and the results of its operations and its cash
flows for the years ended December 31, 1997 and 1996 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As shown in the financial
statements, the Company has incurred net loss of ($2,157) and net income
of $3,052 for the years ended December 31, 1997 and 1996, respectively. In
addition, the Company has incurred losses to date in the amount of
$1,109,983. 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.
Janet Loss, C.P.A., P.C.
March 30, 1998
<TABLE>
<CAPTION>
ART CARDS, INC.
BALANCE SHEETS
</CAPTION>
December 31, December 31,
1997 1996
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 10 $ 62
- ----------------------------------------------------------------------
TOTAL CURRENT ASSETS 10 62
- ----------------------------------------------------------------------
OTHER ASSETS:
Organization Costs, net of
accumulated amortization of
$14,509 0 0
- ----------------------------------------------------------------------
TOTAL OTHER ASSETS 0 0
- ---------------------------------------------------------------------
TOTAL ASSETS $ 10 $ 62
======================================================================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts Payable $ 0 $ 0
Accrued liabilities, officer 71,960 69,855
- ---------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 71,960 69,855
- ---------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common Stock, $.0001 par value,
3,000,000,000 shares authorized,
876,602,000 shares
issued and outstanding as of
December 31, 1997 and 1996,
Respectively 87,660 87,660
Additional paid-in capital 950,373 950,373
Accumulated deficit (1,109,983) (1,107,826)
- --------------------------------------------------------------------
TOTAL SHAREHOLDERS' DEFICIT (71,950) (69,793)
- --------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT $ 10 $ 62
=====================================================================
<CAPTION>
See independent auditor's report and notes to financial statements.
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
ART CARDS, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997 and 1996
</CAPTION>
1997 1996
<S> <C> <C>
Sales, net $ - $ -
- -----------------------------------------------------------------------
OPERATING EXPENSES:
Bank charges 72 48
Legal and accounting fees 575 12,735
Filing fees 1,510 500
Shipping and handling - -
Travel expenses - 875
- -----------------------------------------------------------------------
TOTAL OPERATING EXPENSES 2,157 14,148
- ----------------------------------------------------------------------
NET INCOME (LOSS) BEFORE
OTHER INCOME AND EXPENSES ( 2,157) (14,148)
- -----------------------------------------------------------------------
OTHER INCOME AND (EXPENSES):
Income from proposed
acquisition payments 0 17,200
- ---------------------------------------------------------------------
NET INCOME (LOSS) $ (2,157) $ 3,052
======================================================================
NET INCOME (LOSS)
PER SHARE OF COMMON STOCK $ * $ *
======================================================================
AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 876,602,000 876,602,000
======================================================================
* less than $.01 per share
<CAPTION>
See independent auditor's report and notes to financial statements.
</CAPTION>
</TABLE>
<TABLE>
ART CARDS, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
For the Years Ended December 31, 1997 and 1996
Number of
Shares Par Value Additional
Paid-In
Capital Accumulated
Deficit
<S> <C> <C> <C> <C>
Balances,
January 1, 1996 876,602,000 $87,660 $950,373 $(1,110,878)
Net Income for
Year Ended
December 31,
1996 -- -- -- 3,052
- ----------------------------------------------------------------------
Balances,
December 31,
1996 876,602,000 87,660 950,373 (1,110,878)
Net Loss for
Year Ended
December 31,
1997 -- -- -- (2,157)
- ----------------------------------------------------------------------
Balances,
December 31,
1997 876,602,000 $87,660 $950,373 $(1,109,983)
========================================================================
<CAPTION>
See independent auditor's report and notes to financial statements.
</CAPTION>
</TABLE>
<TABLE>
ART CARDS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 and 1996
1997 1996
<S> <C> <C>
Operating Activities:
Net Income (Loss) $ (2,157) $ 3,052
Adjustments to reconcile net loss
to net cash used in operating
activities:
Changes in operating assets
and liabilities:
Increase (decrease) in accounts
payable and other current
liabilities 2,105 (2,990)
- ------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES 2,105 (2,990)
- ------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (.52) (2,990)
CASH, BEGINNING OF YEAR $ 62 $ 0
=======================================================================
CASH, END OF YEAR $ 10 $ 62
=======================================================================
<CAPTION>
See independent auditor's report and notes to financial statements.
</CAPTION>
</TABLE>
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 although it accepts special orders for
greeting cards.
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 require 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.
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.
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. Recycled
Paper has the option to extend the license agreement for an additional
five years provided certain minimum royalties and license fees are paid by
Recycled Paper.
ART CARDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE D - SHAREHOLDERS' DEFICIT
In connection with the Company's public offering, the Company issued ten
callable Class A common stock purchase warrants. Each Class A warrant
consists of one callable Class B common stock purchase warrant and also
entitles 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 entitles 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, 1997, $71,960 was owed to the president for
expenses and accrued salaries.
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, 1997, the Company had net operating loss carry forwards
for income tax purposes of approximately $1,000,000 to offset future
taxable income. The net operating loss carry forwards 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 carry
forwards that give rise to significant portions of the deferred tax assets
at December 31, 1997, are presented below. The entire valuation allowance
was recorded during 1996.
Net operating loss
carry forwards $ 185,100
Compensation expense not
allowed for income tax
reporting purposes 8,000
Valuation allowance (193,100)
Balance, December 31, 1997 $ 0
There is no provision for income taxes in 1997 and 1996 because the
Company had net operating loss carryforwards of $185,100.
ART CARDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE G - LETTER OF INTENT
The Company signed a letter of intent with Legacy Brands, Inc. to enter
into a merger which may or may not be tax-free under Internal Revenue Code
Section 368. This acquisition transaction with Legacy Brands, Inc. was
not successful.
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 under signed, thereunto duly authorized.
ART CARDS, INC.
Dated: 3/30/98 By:
Richard H. Miller, President
Dated: 3/30/98 By:
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.
Dated: 3/30/98 By:
Richard H. Miller, Director
Dated: 3/30/98 By:
Richard M. Gawlik, Director
Dated: 3/30/98 By:
Marilyn R. Goldberg, Director
Dated: 3/30/98 By:
John W. Rapparlie, Director
Supplemental Information to be Furnished With Reports Filed Pursuant
to Section 15(d) of the Act by Registrants Which Have Not Registered
Securities Pursuant to Section 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.
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