-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E1tWCBjupS8F3u46QXJIMvMy+YvYoyIsXGoy9C89N2sRyipfjyU7IrzBWN4TlDKR xsJJ2oKSJHNAi7VY0jjoFQ== 0000822618-98-000001.txt : 19980401 0000822618-98-000001.hdr.sgml : 19980401 ACCESSION NUMBER: 0000822618-98-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ART CARDS INC CENTRAL INDEX KEY: 0000822618 STANDARD INDUSTRIAL CLASSIFICATION: GREETING CARDS [2771] IRS NUMBER: 840978689 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-17229-D FILM NUMBER: 98581098 BUSINESS ADDRESS: STREET 1: 933 PEARL STREET CITY: DENVER STATE: CO ZIP: 80203 BUSINESS PHONE: 3038319335 MAIL ADDRESS: STREET 1: 933 PEARL STREET CITY: DENVER STATE: CO ZIP: 80203 10-K 1 ANNUAL REPORT ON FORM 10-KSB--DECEMBER 31, 1997 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 December 31, December 31, 1997 1996 ASSETS 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 =====================================================================
ART CARDS, INC. BALANCE SHEETS See independent auditor's report and notes to financial statements.
1997 1996 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
ART CARDS, INC. STATEMENTS OF OPERATIONS For the Years Ended December 31, 1997 and 1996 See independent auditor's report and notes to financial statements.
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 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) ========================================================================
See independent auditor's report and notes to financial statements.
ART CARDS, INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997 and 1996 1997 1996 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 =======================================================================
See independent auditor's report and notes to financial statements.
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. EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR YEAR ENDED 10-KSB
5 1 12-MOS Dec-31-1997 Jan-01-1997 Dec-31-1997 10 0 0 0 0 10 0 0 10 71960 0 87660 0 0 (159610) 10 0 0 0 2157 0 2157 0 (2157) 0 (2157) 0 0 0 (2157) 0 0
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