UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
(Amendment No. 1)
Pursuant to Section 13 OR 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 22, 1998
PALM DESERT ART, INC. (formerly DATABASE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-17623 02-0429620
(State of Jurisdiction) (Commission (IRS Employer
File Number) Identification No.)
39-725 Garand Lane, Suite J, Palm Desert, CA 92211
(Address of Principal Executive offices) (Zip Code)
Registrant's telephone number, including area code 760-360-5911
20 Commerce Park North, Bedford, New Hampshire 03110-6911
(Former address of company)
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Item 1. Changes in Control of Registrant.
On Wednesday, April 22, 1998, in consideration of 32,763,661 of its shares of
$.001 common stock, the Registrant purchased all of the assets of Palm Desert
Art Publishers, Ltd. LLC ("Palm Desert") pursuant to an Asset Purchase and
Subscription Agreement dated February 5, 1998.
Palm Desert is a privately-held limited liability company which publishes on an
exclusive basis the artwork of various well-known contemporary artists. Of the
total consideration, 20,083,918 shares of the Registrant's common stock was
delivered to Palm Desert at the closing. The remaining 12,679,743 shares are to
be delivered to Palm Desert upon the Registrant's holding of a shareholders'
meeting to, among other things, authorize a reverse split of Registrant's stock.
With this transaction, Palm Desert owns approximately 80.34% of the 25,000,000
shares of common stock which has been authorized and issued by Registrant. To
this end, Palm Desert, as majority shareholder, has accepted the resignations of
Robert A. Boyd and Betty L. Wolfe as officers and directors of the Registrant
and has appointed Hugh G. Pike and Jurg Mullhaupt to serve as directors. Mr.
Allan S. Wolfe shall remain a director of the Registrant. Mr. Pike shall serve
as President and Treasurer of Registrant and Ms. Sandra Mitchell shall serve as
Secretary and Vice President of Marketing.
In connection with the Asset Purchase and Subscription Agreement, the
Registrant, Palm Desert and Allan S. Wolfe (a shareholder, officer, director and
creditor of Registrant) also concluded on April 22, 1998, an Asset Purchase
Agreement dated February 5, 1998, pursuant to which Registrant agreed to
transfer to Wolfe certain software assets of Registrant together with a
promissory note from Registrant in favor of Wolfe in the amount of $90,000 in
exchange for Wolfe's agreement to discharge Registrant's debt to Wolfe in the
amount of $184,000. To induce Wolfe to accept Registrant's promissory note, Palm
Desert agreed to guaranty payment of the note and to pledge to Wolfe all shares
of the capital stock of Registrant which Palm Desert acquired under the Asset
Purchase and Subscription Agreement as security for the guaranty.
Item 2. Acquisition or Disposition of Assets. See Item 1 above.
Item 3. Bankruptcy or Receivership. None.
Item 4. Changes in Registrant's Certifying Accountant. None.
Item 5. Other Events. Immediately prior to closing the transactions contemplated
by the Asset Purchase and Subscription Agreement between Registrant and Palm
Desert and and the Asset Purchase Agreement among Registrant, Palm Desert and
Allan S. Wolfe
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<PAGE>
(see Item 1 above), it was discovered that Registrant's Certificate of
Incorporation had lapsed by proclamation of the State of Delaware. Registrant
was able to renew and revive its Certificate of Incorporation, however, it was
required to do so using a new corporate name inasmuch as another company had
since registered in Delaware under the name "Database Technologies." Accordingly
(and in contemplation of the aforementioned transactions), Registrant renewed
and revived its Certificate of Incorporation using the name "Palm Desert Art,
Inc." and is presently in good standing in the State of Delaware. In accordance
with Delaware Corporations Law, the Registrant intends to hold a shareholders
meeting forthwith.
Item 6. Resignation of Registrant's Directors. In connection with the
transactions contemplated by the Asset Purchase and Subscription Agreement
between Registrant and Palm Desert and the Asset Purchase Agreement among
Registrant, Palm Desert and Allan S. Wolfe (see Item 1 above), Mr. Robert A.
Boyd and Mrs. Betty L. Wolfe resigned as directors of Registrant effective April
22, 1998. The new majority shareholder, Palm Desert Art Publishers, Ltd. LLC,
appointed Mr. Hugh G. Pike and Mr. Jurg Mullhaupt to fill the vacancies created
by Mr. Boyd's and Mrs. Wolfe's resignations.
Item 7. Financial Statements and Exhibits. Attached hereto as Exhibit A are the
audited financial statements of the Registrant, Palm Desert Art, Inc. (formerly
Database Technologies, Inc.) for the year ended April 30, 1998. For reporting
purposes, the transactions described in Item 1 hereof were accounted for as a
reverse acquisition of Palm Desert Art Publishers, Ltd., LLC by the Registrant
under the purchase method of accounting. Consequently, the reporting entity
consists of the operations formerly known as Palm Desert Art Publishers, Ltd.,
LLC.
The financial statements presented in Exhibit A represent the financial
statements for the year ended April 30, 1998 and include the first year of
operations for Palm Desert Art Publishers, Ltd., LLC. Consequently, no other
historical financial statements are required to be filed under Item 7.
Since the financial statements presented in Exhibit A are presented on a reverse
acquisition basis which include the full year of operations of Palm Desert Art
Publishers, Ltd., LLC, and the operations of the former Database Technologies,
Inc. did not continue with the Registrant after the acquisition date of April
22, 1998, pro forma financial information would be identical to the historical
information presented in Exhibit A. Therefore, separate pro forma financial
information is not deemed necessary for presentation and Exhibit A substitutes
for the required pro forma information.
Item 8. Change in Fiscal Year. None.
Item 9. Sales of Equity Securities Pursuant to Regulation S. On April 24, 1998,
the Registrant sold 2,450,000 shares of its outstanding $.001 par value common
stock (the "Shares") to Sencorp Ltd., a private company located at National
Westminster Bank Building, Gibraltar. The shares were sold pursuant to
Regulation S for $245,000 on April 24, 1998, the date both parties executed the
Offshore Subscription and Investment Representation Agreement. The proceeds of
sale shall be used for Registrant's working capital needs over the next few
months. No commissions were paid to any third parties.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PALM DESERT ART, INC. (formerly
Database Technologies, Inc.)
(Registrant)
/s/ Hugh G. Pike
Dated: July 6, 1998 ---------------------------------
Hugh G. Pike
Director and President
39-725 Garand Lane, Suite J
Palm Desert, CA 92211
(760) 360-5911
4
<PAGE>
PALM DESERT ART, INC.
FINANCIAL STATEMENTS
April 30, 1998
With Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Palm Desert Art, Inc.
We have audited the accompanying balance sheet of Palm Desert Art, Inc. as of
April 30, 1998, and the related statements of income, changes in stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Palm Desert Art, Inc. as of
April 30, 1998, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
Manchester, New Hampshire
June 17, 1998
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PALM DESERT ART, INC.
Balance Sheet
April 30, 1998
ASSETS
Current assets
Accounts receivable $ 83,319
Inventory 273,043
Prepaid expense 3,600
Direct response advertising 158,462
--------
Total current assets 518,424
--------
Property and equipment
Leasehold improvements 38,661
Furniture and fixtures 6,500
Vehicles 4,552
Equipment 6,957
--------
56,670
Less accumulated depreciation 3,642
--------
Net property and equipment 53,028
--------
Other assets
Deposits 31,836
Direct response advertising 39,615
--------
Total other assets 71,451
--------
Total assets $642,903
========
The accompanying notes are an integral part of these financial statements.
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PALM DESERT ART, INC.
Balance Sheet
April 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Cash overdraft $ 13,270
Loan payable 90,000
Accrued liabilities 9,893
---------
Total current liabilities 113,163
----------
Commitments and contingencies (Notes 5 and 6)
Stockholders' equity
Common stock - $.01 par value, authorized 25,000,000 shares,
22,575,000 shares outstanding 225,750
Common stock subscribed 245,000
Common stock subscription receivable (245,000)
Additional paid-in capital 268,080
Retained earnings 35,910
---------
Total stockholders' equity 529,740
----------
Total liabilities and stockholders' equity $ 642,903
==========
The accompanying notes are an integral part of these financial statements.
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PALM DESERT ART, INC.
Statement of Income
Year Ended April 30, 1998
Sales $ 864,504
Costs of sales 328,426
----------
Gross profit 536,078
Selling, general, and administrative expenses 489,148
----------
Operating income 46,930
Interest expense (11,020)
----------
Net income $ 35,910
==========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
PALM DESERT ART, INC.
Statement of Changes in Stockholders' Equity
Year Ended April 30, 1998
<TABLE>
<CAPTION>
Common Common Stock Additional Retained Earnings
Common Stock Subscription Paid-In (Accumulated
Stock Subscribed Receivable Capital Deficit) Total
----- ---------- ---------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year $ 2,466 $ -- $ -- $ 12,179 $(208,944) $(194,299)
Net income -- -- -- -- 35,910 35,910
Effect of reverse acquisition
Elimination of Database
Technologies, Inc.'s
accumulated deficit -- -- -- -- 208,944 208,944
Common stock issued 223,284 -- -- 255,901 -- 479,185
Common stock subscribed -- 245,000 (245,000) -- -- --
--------- --------- --------- --------- --------- ---------
Balance, end of year $ 225,740 $ 245,000 $(245,000) $ 268,080 $ 35,910 $ 529,740
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PALM DESERT ART, INC.
Statement of Cash Flows
Year Ended April 30, 1998
Cash flows from operating activities
Net income $ 35,910
Adjustments to reconcile net income to net cash used
by operating activities
Depreciation 3,642
(Increase) in
Accounts receivable (83,319)
Inventory (68,593)
Prepaid expense (3,600)
Deposits (31,836)
Direct response advertising (198,077)
Increase in
Accrued liabilities 9,893
---------
Net cash used by operating activities (335,980)
---------
Cash flows from investing activities
Additions to property and equipment (51,670)
---------
Cash flows from financing activities
Net short-term borrowings - cash overdraft 13,270
Stockholders' contributions 374,380
---------
Net cash provided by financing activities 387,650
---------
Net increase in cash and cash equivalents --
Cash and cash equivalents, beginning of year --
---------
Cash and cash equivalents, end of year $ --
=========
Supplemental disclosures of cash flow information
Cash paid for interest $ 11,020
Supplemental schedule of noncash investing and financing activities
Contributed artwork $ 204,450
Contributed equipment 5,000
Loan payable 90,000
The accompanying notes are an integral part of these financial statements.
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PALM DESERT ART, INC.
Notes to Financial Statements
April 30, 1998
Nature of Business, Organization, and Basis of Presentation
On March 19, 1998, the Company changed its name from Database Technologies, Inc.
to Palm Desert Art, Inc. (the Company). On April 22, 1998, the Company executed
two transactions which changed the operations of the Company.
One transaction involved a sale of all of the assets and liabilities of its
database business to the Company's then-majority stockholder in exchange for
reducing its stockholder obligations to $90,000. Consequently, the Company is no
longer in the database business.
The other transaction resulted in the acquisition of substantially all of the
outstanding assets of Palm Desert Art Publishers, Ltd., L.L.C. ("PDAP, Ltd.,
LLC") in exchange for common stock of the Company. This reorganization was
accounted for as a reverse acquisition of PDAP, Ltd., LLC by the Company under
the purchase method of accounting, as the shareholders of PDAP, Ltd., LLC
controlled the entity immediately following the reorganization. Consequently,
the reporting entity consists of the operations formerly known as PDAP, Ltd.,
LLC.
The Company is now in the business of publishing artwork and distributing its
artwork to independent art galleries throughout the country. In addition to the
publishing business, the Company owns an art gallery in Palm Desert, California,
which sells the Company's published artwork and other pieces of art.
For reporting purposes, PDAP, Ltd., LLC's first year of operations commenced May
1, 1997. Consequently, these financial statements are single-year statements,
since the reporting entity was not in existence prior to May 1, 1997.
1. Summary of Significant Accounting Policies
Revenue Recognition Policy
The Company records revenue on sales after the approval period, if any, has
expired. Approval periods do not typically extend beyond 30 days.
Use of 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.
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<PAGE>
PALM DESERT ART, INC.
Notes to Financial Statements
April 30, 1998
1. Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents
For purposes of reporting the statement of cash flows, the Company
considers all cash accounts, which are not subject to withdrawal
restrictions or penalties, and all highly liquid investments with a
maturity of three months or less to be cash equivalents.
Allowance for Doubtful Accounts
The Company's policy for allowance for doubtful accounts is evolving as it
establishes relationships with its gallery customers. As of April 30, 1998,
management deems the accounts receivable as fully collectible. Management
has also obtained from PDAP, Ltd., LLC a written guarantee as to the
collectibility of any outstanding receivable as of April 30, 1998.
Inventory
Inventory includes cost of publishing and reproducing giclee and serigraph
reproductions of original works of art of artists under agreement with the
Company. All inventory items are stated at the lower of cost (specific
identification by print) or market value. All inventory costs are expensed
as cost of sales when the inventory item is sold.
Advertising
The Company expenses the costs of advertising the first time the
advertising takes place, except for direct-response advertising, which is
capitalized and amortized over its expected period of future benefits.
Direct-response advertising consists primarily of magazine advertisements
that include response coupons for the Company products. The capitalized
costs of the advertising are amortized as sales are recognized over a
period, not to exceed three years.
At April 30, 1998, approximately $198,000 of advertising was reported as
assets, of which $39,615 was non-current and $158,462 was current.
Advertising expense was approximately $89,000 in 1998.
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<PAGE>
PALM DESERT ART, INC.
Notes to Financial Statements
April 30, 1998
1. Summary of Significant Accounting Policies (Concluded)
Property and Equipment
Furniture and fixtures, equipment, vehicles and leasehold improvements
purchased are depreciated and amortized by the straight-line method over
the estimated useful lives of the respective assets.
Income Taxes
Deferred income taxes are provided for the expected tax effects of
differences between the financial statement and tax basis of assets and
liabilities.
Due to the change in control and the change in continuity of business,
there are no net operating loss carryforwards.
For the period May 1, 1997 to April 22, 1998, the Company was taxed under
sections of the federal income tax law, which provide that, in lieu of
corporation federal income taxes, the owners separately account for their
prorata shares of the Company's items of income, deduction, losses, and
credits. Therefore, these statements do not include any provision for
corporation federal and state income taxes for the period May 1, 1997 to
April 22, 1998. During the period from April 23, 1998 to April 30, 1998,
the Company was subject to corporate income taxes. However, the corporate
income tax effect for this period is immaterial to the financial statements
and no provision for income taxes is deemed necessary.
Comprehensive Income
The Company has no components of comprehensive income. Consequently, a
statement of comprehensive income is not required.
2. Cash Overdraft
The Company experienced a cash overdraft as of April 30, 1998. The
overdraft was funded by the Company's bank in accordance with a verbal
agreement between management and the bank to fund overdrafts. Management
has chosen this cash management technique, because it has pledged its stock
to collateralize the debt described in Note 3.
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<PAGE>
PALM DESERT ART, INC.
Notes to Financial Statements
April 30, 1998
3. Loan Payable - Stockholder
Loan payable to a minority stockholder, interest at 9%, due July 1998. This
$90,000 note is guaranteed by the majority stockholder, and the guarantee
is collateralized by all of the shares the majority stockholder owns of the
Company's stock. The pledged stock is in the hands of the noteholder.
4. Stockholders' Equity
The Company has entered into a stock subscription agreement for the
issuance of 2,450,000 shares of common stock for $245,000. The Company has
received confirmation that the proceeds have been deposited with an escrow
agent. As of April 30, 1998, however, the stock certificate had not been
issued, because no new share certificates were available bearing the new
corporate name.
5. Commitments and Contingencies
Substantially all of the Company's inventory is located at locations that
are not owned by the Company. The Company does not have insurance coverage
on the inventory at these locations. The Company has obtained
representation from the management of these locations that insurance
coverage is being maintained on its inventory.
The Company has not made an assessment of the Year 2000 issue that may
affect the computer applications of its operations and those of its vendors
and customers. The Company plans to make an assessment of the impact of the
Year 2000 issue in fiscal year 1998. The operations of the Company are not
expected to be materially affected by this issue.
As part of the acquisition described in the Nature of Business,
Organization, and Basis of Presentation footnote, the Company is required
to issue approximately 12,700,000 additional shares to PDAP, Ltd., LLC. It
is expected that those shares will be issued by April 30, 1999.
Management intends to have the Company's stockholders approve a 10-1
reverse stock split at its annual meeting in July 1998.
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6. Operating Leases
The Company leases certain retail and storage facilities under operating
leases that expire from 1999 through 2002. Future minimum lease payments
under noncancelable operating leases are:
1999 $ 124,408
2000 124,408
2001 124,408
2002 15,125
---- ----------
$ 388,349
==========
Total rental expense for operating leases approximated $51,000 in 1998.
7. Income (Loss) Per Share
As of April 30, 1998, the earnings per share and the fully diluted earnings
per share are $.01 and $.00, respectively.
8. Disclosure About Fair Value of Financial Instruments
The Company's financial instruments consist of cash, short-term trade
receivables and payables, and short-term debt. The carrying value of all
instruments approximates their fair value.
9. Subsequent Events
In June 1998, the Company opened a second art gallery in Los Angeles,
California which will operate substantially in the same manner as the
gallery in Palm Desert.
The Company has letters of intent to acquire art galleries in various
regions of the United States.
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