SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
AUSTRIAN TRADING SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3106038
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Landstrasse 66/3, Linz, Austria A-4020
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code 011-43-732-771317
Securities to be registered under Section 12(b) of the Act:
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.025 par value
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TABLE OF CONTENTS
Description of Business ................................................... 3
Management's Discussion and Analysis ...................................... 12
Description of Property ................................................... 15
Security Ownership of Certain
Beneficial Owners and Management ......................................... 16
Directors, Executive Officers, Promoters
and Control Persons ...................................................... 18
Executive Compensation .................................................... 19
Certain Relationships and
Related Transactions ..................................................... 21
Description of Securities ................................................. 21
Market Price of and Dividends
On the Registrant's Common Equity and
Other Shareholder Matters ................................................ 23
Legal Proceedings ......................................................... 24
Changes in and Disagreements With Accountants ............................. 24
Recent Sales of Unregistered Securities ................................... 24
Indemnification of Directors and Officers ................................. 26
Financial Statements ...................................................... 27
Exhibits .................................................................. 27
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Austrian Trading Services, Inc. ("Company"), formerly known as Big
Apple Farms, Inc. ("Big Apple"), was incorporated in the State of Delaware on
May 28, 1981 with an authorized capital of two hundred common shares, no par
value. Big Apple was formed to engage in the business of breeding, purchasing
and selling thoroughbred race horses. In June 1981, the number of authorized
common shares of the Company was increased to 20,000,000 and the par value was
increased to $.005 per share. In 1982, Big Apple became a public company by
offering 2,000,000 shares of common stock pursuant to a registration statement
on Form S-18. On February 14, 1984 Big Apple filed a Form 15 with the Securities
and Exchange Commission terminating Big Apple's duty to file reports under the
Securities and Exchange Act of 1934 pursuant to Rule 12g-4 thereunder. On July
5, 1989, by a vote of the majority of shareholders, Big Apple discontinued the
horse breeding business and focused its activities on the real estate and
construction industries. In October 1995, the par value of the Company's common
shares was increased to $.025 per share ("Common Stock") and a class of
1,000,000 shares of undesignated preferred stock, $.01 par value, was
authorized. On October 23, 1995, Big Apple entered into a Stock Exchange
Agreement (the "Agreement") whereby Big Apple acquired 100% of the issued and
outstanding capital stock of HMA Handels und Montage GmbH ("HMA"), a private
Austrian company controlled by Kurt Reichenberger. Pursuant to the Agreement,
Big Apple's Board of Directors was replaced by directors designated by HMA. In
consideration of the sale, Mr. Reichenberger received 2,241,036 shares of Common
Stock or approximately 89.6% of the Company. In February 1996, HMA changed its
name to Austrian Trading Services, GmbH ("ATSI"). On December 5, 1995, Big Apple
changed its name to Austrian Trading Services, Inc. On May 15, 1998, the Company
increased its authorized shares of Common Stock from 20,000,000 to 50,000,000
shares.
The Company intends to seek out the acquisition of various operating
companies in Europe as well as the entry into joint venture and other
participation agreements with other entities in Europe, Indonesia and South
America. There can be no assurance that any of such transactions will be
consummated.
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Pursuant to the Company's reorganization in October 1995, the Company
issued an aggregate of 175,000 shares of Common Stock (25,000 each to seven
individuals) to officers, directors and an unaffiliated individual for services
rendered. In addition, the Company issued (i) 190,000 shares of the Company's
Common Stock to Helmut Presske, a former officer and director of Windischgarten
GmbH, an Austrian company ("WGH"). Mr. Presske subsequently became a director of
the Company until his resignation in July 1997; and (ii) 66,666 shares of the
Company's Common Stock to Aribert Vogle in consideration and retirement of debts
owed by WGH to Messrs. Presske and Vogle of $400,000 and $150,000, respectively.
In December 1995, the Company issued an aggregate of 235,000 shares of Common
Stock pursuant to Rule 504 of the Securities Act of 1933, as amended and
Regulation D promulgated thereunder, in consideration of legal and accounting
services rendered in connection with the Company's previous operations and in
connection with the Agreement.
In January and February of 1996, the Company accepted two subscription
agreements for the purchase of 1,400,000 shares of Common Stock at approximately
$2.25 per share and 2,500,000 shares of Common Stock at approximately 2.50 per
share, respectively, from foreign investors pursuant to Regulation S of the
Securities Act of 1933, as amended ("Regulation S"), and issued an aggregate of
3,900,000 shares of Common Stock. The Company received $9,377,679 in proceeds
pursuant to the
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subscriptions. The Company used the proceeds to (i) retire and cancel an
aggregate of $1,758,000 in debt owed by WGH; (ii) (ii) pay a license fee of
approximately $1,846,000 for the Kunstoff Vertrieb Micheldorf GmbH ("KVM")
product (see "KVM" below), which proceeds were used by KVM for product research
and development; (iii) fund approximately $1,300,000 in improvements and
renovations to the WGH therapy center; (iv) loan $1,033,521 at 8% interest to
Agricola y Forestal Tegualda, S.A. ("Agricola"), a Chilean timber company (see
"Additional Transactions" below); and (v) purchase 700,000 shares of Clariti
Telecommunications International, Ltd. f/k/a Sigma Alpha Group, Ltd. common
stock at $4.75 per share. The remaining proceeds were used for general
administrative expenses.
In September 1996, the Company accepted a subscription agreement for
the issuance of 300,000 shares of Common Stock to a foreign investor under
Regulation S, at a purchase price of approximately $3.50 per share. The Company
received $436,218 of such funds as of December 31, 1996 and an additional
$282,012 as of May 1, 1998. There can be no assurance that balance of the
remaining subscription price will be paid.
In April, May and June 1997, the Company accepted an aggregate of four
subscription agreements from P.T. Platinum Perkasa Nusantara, an Indonesian
company ("Platinum") for the purchase of 2,000,000 shares each of the Company's
Common Stock at $2.50 per share. Pursuant to the subscription agreements,
Platinum paid the Company an aggregate of $200,000 in cash and the Company
accepted four promissory notes from Platinum in the amount of $4,950,000 each
("Notes"). The Notes had originally demanded payment on various dates through
August 1, 1997. The Company then extended repayment of the Notes to August 1,
1998. The Company issued 7,500,000 of the 8,000,000 shares to Platinum and its
designees, and placed 7,000,000 of such shares in escrow pending full
satisfaction of the Notes. The Company delivered 500,000 of the shares to
Platinum. As of December 31, 1997, the Company had received an additional
$5,300,000 as payment against the Notes. Therefore, as of such date, Platinum
had paid the Company $5,500,000. Subsequently, on December 31, 1997, the Company
entered into an agreement with Platinum, whereby, among other things, Platinum
waived all right, title and interest to the unissued 500,000 shares and agreed
to the release from escrow of 1,100,000 shares to be returned to the Company.
(See "Platinum" below).
In October 1997, the Company accepted a subscription agreement from a
foreign investor pursuant to Regulation S for the purchase of 2,000,000 shares
of Common Stock at a purchase price of $1.00 per share. The Company received
$100,000 of such funds as of December 31,
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1997 and an additional $45,000 as of May 1, 1998. There can be no assurance that
the balance of the remaining subscription price will be paid.
ATSI
ATSI is a wholly owned subsidiary of the Company. ATSI owns (i) 100% of
WGH, an outpatient medical treatment facility in Windischgarten, Austria; (ii)
100% of KVM, an Austrian company which manufactures and markets a special
drinking glass container; (iii) 60% of Mark It GmbH ("Mark It"), an Austrian
company which intends to market pre-inked stamping devices for office and
personal use in Europe; (iv) 40% of Components Development GmbH ("Components")
an Austrian company in the process of developing certain proprietary technology
which it believes will be applied in the design of automobile emissions control
systems; (v) 45% of Power Pool Getraenkevertriebs GmbH ("Power"), a German
company which markets and distributes promotional canned soft drinks; and (vi)
75% interest of Moudry Backwarenindustrie GmbH, an Austrian company that
operates a bakery in Vienna, Austria ("Bakery").
WGH
WGH, a private Austrian company formed in 1992, was acquired by ATSI in
October 1995. WGH operates a 90 room out-patient medical center ("Center")
located on a 6.5 acre parcel in Windischgarsten, Austria. The Center specializes
in the treatment of patients who have hip, spinal column and joint injuries.
Patients are referred to the Center by insurance companies. The Austrian
government issues licenses to therapy facilities which meet certain standards
and provide out-patient medical care for rehabilitation in connection with
hospitalization. In October 1996, WGH received its license for this service. WGH
is paid a fee by the insurance providers ranging from $95 to $150 per night
based on the medical treatment provided.
During the Company's ownership of WGH, the Austrian government amended
and revised the law governing insurance paid therapy. The new law provides that
each insured must pay 10% of the cost of the therapy, and restricts the use of
the Center to once every two years. The old law allowed patients to use the
Center once a year with no payment necessary.
From December 1995 to March 1996, the Company renovated the Center,
which included the addition of an indoor swimming pool. This renovation forced
the Center to close from December 1995 to February 1996, and to remain partially
closed through March 1996.
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In order to increase occupancy levels, which had fallen approximately
20% since the Company acquired the Center, the Company entered into agreements
with a medical physician and a sports therapist to facilitate and guide patients
to the Center. The decrease in occupancy was directly related to the change in
Austrian insurance laws and the need to renovate the facility, both as described
above. The Company proposes to both market the Center for use as a sports
therapy center and to enter into a management contract with a third party to
manage the facility in consideration for a percentage of revenues.
In the third quarter of 1998, the Center occupancy had increased 100%.
This increase can be attributed to the ability of the aforementioned therapists
to guide patients to the Center. Also, as patients begin the better understand
the new laws governing insurance claims, they appear to feel more confident in
using the Center
In December 1998, WGH settled its outstanding debt of approximately
$1,500,000. The settlement provides that WGH shall pay to its creditors 20% of
the outstanding debt, or $300,000. WGH currently employs 19 persons, including a
licensed medical doctor. The Center competes with a number of larger facilities
throughout Austria.
KVM
KVM, a private Austrian company was formed by the Company in March 1996
for the purpose of producing and distributing a proprietary new product. The
product is a glass container with a mixer inside. This "Mix and Drink" glass
enables the user to conveniently mix substances and then drink the mixture.
Vertrieb Innovativer Produkte ("VIP"), a private company located in Austria,
obtained an exclusive license from the inventor of the product ("Inventor") to
produce and market worldwide the Mix and Drink glass in June 1995. The Inventor
is not affiliated with the Company or any of its subsidiaries. VIP originally
sublicensed the production of the product to KVM pursuant to an exclusive
license agreement dated October 31, 1995 and amended on April 24, 1996. KVM then
purchased the License for approximately $1,846,000. KVM has subcontracted out
the production of Mix & Drink glass to a single manufacturer. The Company
intends to seek out additional subcontractors in order to minimize dependence on
such subcontractors.
A patent for the Mix and Drink glass was issued to the Inventor by the
United States Patent and Trademark Office, thereby ensuring the proprietary
nature of the product. Currently, however, similar products are being marketed
and distributed in the United States by larger companies in direct competition
with KVM.
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The Company is evaluating its options concerning this matter, including the
protection of its patent rights. Should KVM be unsuccessful in protecting its
rights, KVM's market share would be substantially reduced. KVM currently has one
employee and has sold limited numbers of mix and drink glasses in Europe.
KVM has not produced any of the Mix and Drink glasses to date. The
delay in obtaining the patent gave an opportunity for competitors to enter and
glut the market with similar type drink assemblies. The Company believes that
with its issued patent it may be able to forestall future production of these
similar assemblies. There can be no assurance that the Company will be
successful in re-entering the market.
In November 1996, Manfred Schonbauer, the treasurer and a director of
the Company, was appointed chief executive officer and a director of KVM.
PLATINUM
In May 1997 the Company entered into an agreement with Platinum
providing for the establishment of a joint project to develop and enhance the
indigenous livestock of the Republic of Indonesia through importing and
transplanting embryos of genetically superior foreign livestock into the
indigenous herd. Specifically, Platinum intended to buy purebred boer goat
embryos which are obtained in the United States from International Agricultural
Genetics, Inc., a company located in Edmond, Oklahoma. Platinum would transfer
and implant the embryos into indigenous goats to develop a genetically superior
hybrid. The new hybrid goat would then be exported throughout the Southeast
Asian and Middle East regions. The Company believes that little or no
competition in such breeding exists as of yet.
The agreement required the Company to invest an aggregate of $4,000,000
into the project in return for a 40% interest therein. $6,000,000 in additional
capital was to be provided by
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Platinum and other Indonesian based shareholders. In order to meet its
obligation under the agreement, the Company accepted an aggregate of four
subscription agreements from Platinum for the purchase of 2,000,000 shares each
of the Company's Common Stock at $2.50 per share. Pursuant to the subscription
agreements, Platinum paid the Company an aggregate of $200,000 in cash and the
Company accepted four promissory notes from Platinum in the amount of $4,950,000
each ("Notes"). The Notes had originally demanded payment on various dates
through August 1, 1997. The Company then extended repayment of the Notes to
August 1, 1998. The Company issued 7,500,000 of the 8,000,000 shares to Platinum
and its designees, and placed 7,000,000 of such shares in escrow pending full
satisfaction of the Notes. The Company delivered 500,000 of the shares to
Platinum. As of December 31, 1997, the Company had received an additional
$5,300,000 as payment against the Notes. As of such date, Platinum had paid the
Company $5,500,000 of which $4,000,000 was invested by the Company in Platinum
in return for a 40% interest therein.
Subsequent to the Company's investment of $4,000,000, Platinum was
unable to raise the balance of the proceeds needed to commence the project due
to downturns in the Indonesian financial markets. On December 31, 1997, the
Company and Platinum entered into an agreement, whereby the Company would return
its 40% interest in Platinum to Platinum in consideration for Platinum's waiver
of all right, title and interest in and to the 500,000 unissued shares and
Platinum's agreement to the release from escrow for return to the Company of
1,100,000 shares of the Company's Common Stock. Therefore, effective December
31, 1997, (i) the Company is holding 5,900,000 shares of Common Stock in escrow
pending satisfaction of the Notes; and (ii) the Company no longer has an
interest in Platinum, other than the Notes, which have been adjusted pursuant to
the aforesaid agreement.
In August 1997, the Company entered into a Voting Trust Agreement with
Platinum and its designees, providing for sole discretion to vote the shares of
the Company's Common Stock held in escrow for the Platinum designees as Kurt
Reichenberger, the Company's president directs. The Agreement expires on June
30, 2006.
In September 1997, Kurt Reichenberger, the chief executive officer,
president and a director of the Company, was appointed a director of Platinum.
He held that position until his resignation in December 1997.
MARK IT
In June 1997 the Company, through ATSI, formed an Austrian based
company called Mark It Gmbh ("Mark It"). ATSI retained a 60% interest in Mark It
which will engage in the sale of pre-ink stamping devices for office and
personal use in Europe. Pre-ink stamps are devices which enable a user to
repetitively stamp a symbol, phrase or other notation on a surface. Mark It
intends to market its product through wholesale outlets and direct marketing
throughout Europe.
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Mark It has applied in Europe for a patent for its "roller stamp", which
provides the user with a larger surface area to imprint the users preferred
notation. Mark It is in the process of negotiating with a Shanghai entity to act
as Mark It's principal supplier. The Company believes it is not dependent on any
supplier, as the components for the stamp are readily available. All research
and development for the product was conducted by the two principals of Mark It
prior to any involvement by the Company. Mark It presently has two employees and
subcontracts out the manufacture of all stamping devices which it markets.
The Company is currently reviewing its interest in Mark It. No products
have as yet been produced.
COMPONENTS
In June 1997, ATSI acquired a 40% interest in Components Development
Gmbh ("Components"), an Austrian corporation formed in February 1997, in
exchange for approximately $17,000 and a commitment to provide funding to
Components over a six month period of $500,000. Components has represented to
the Company that it is the owner of certain proprietary technology involving the
application and design of automobile and emission control systems. Currently
Components is completing development of a product known as the Turbo Loader.
Components has represented that the Turbo Loader will act as an add-on device to
existing automobile engines which will result in compliance with a variety of
emission control systems as well as result in fuel economy and improvement to
the performance of the vehicle's engine. Components has not yet completed a
market prototype of the Turbo Loader and there can be no assurance that the
Turbo Loader will be a commercially feasible product. Components has advised the
Company that approximately $1,700,000 in total funding will be required in order
to be in a position to bring the Turbo Loader to market. Components intends to
engage in
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discussions with automobile manufacturers and automobile parts suppliers
regarding the possible entry into licensing and marketing agreements for the
Turbo Loader. There can be no assurance that the Turbo Loader will be
successfully developed, or if developed, generate revenues on behalf of the
Components.
Components states that it has invested approximately $1.5 million in
research and development of the product prior to the ATSI's involvement.
Components believes that based on the current environmental climate, that such a
device, if developed and marketed, will provide a cheap, efficient means of
complying with vehicle emission requirements worldwide. Components currently
employs three persons.
POWER
Power Pool Getraenkevertriebs GmbH, a German company formed in January
1998 ("Power"), intends to market and distribute promotional soft drinks through
exclusive licensing agreements with corporate, entertainment and sport entities.
ATSI received a 45% interest in Power by loaning $119,000 to Power.
As background to the Power transaction, the Company had loaned
approximately $189,000 to Fill In Handel und Vertrieb, GmbH ("Fill In"), a
German corporation which markets a product similar to the Power product, and
issued 109,500 shares of the Company's Common Stock to Johann Fleishman, one of
three Fill In principals, in exchange for a 25% ownership interest for ATSI in
Fill In. A balance of $164,250 was owed to ATSI by Fill In as payment for the
aforesaid shares. Two of the principals of Fill In agreed to terminate their
participation in Fill In. The two principals subsequently formed Power. ATSI
also terminated its participation in Fill In by agreement dated February 6,
1998. According to the aforesaid agreement, (i) Fill In satisfied its
outstanding loan with the Company by paying the Company $100,000 in cash and the
balance in the form of goods and materials. Fill In also returned 36,500 of the
shares of the original 109,500 shares to the Company. The Company subsequently
invested $119,000 in Power, of which $30,000 represented cash and $89,000
represented the goods and materials returned to the Company by Fill In pursuant
to the aforesaid agreement.
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Power is a start up company that has successfully marketed soft drink
cans bearing promotional images. Dis Drankenindustrie Sittard, a Netherlands
corporation, currently supplies Power with soft drink cans. Power does not
believe it is dependent on this supplier due to the availability of soft drink
cans. Power currently employs four full-time employees.
ATSR
ATS Restaurant Corp., a New York corporation ("ATSR"), formed in April
1997, is wholly owned by the Company. ATSR operates a Japanese restaurant in New
York City under the name Kabuki Restaurant. ATSR opened its doors for business
in or about September 1997. ATSR has been issued a temporary permit to serve
liquor on the premises and is currently in the process of obtaining from the New
York State Liquor Authority a permanent liquor license. No assurance can be made
that such application will be successful, and the inability of ATSR to serve
alcohol would have a detrimental effect on the restaurant.
The closest Japanese restaurant to ATSR is approximately four blocks
away. In the densely populated area in which the restaurant operates, and the
current interest in Japanese food, ATSR believes that competition from Japanese
and other restaurants, though intense, will not detrimentally effect the
operations of the business. The ability to create appetizing meals in a
comfortable setting at competitive prices has a greater effect on the
survivability of restaurants in the area.
ATSR is not dependent on any suppliers for foods and other supplies,
and currently employs 8 full-time and 6 part-time employees.
BAKERY
In March 1997, the Company entered into an agreement with Moudry
Backwarenindustrie Gesellschaft GmbH ("Bakery") whereby the Company acquired a
75% equity interest in the Bakery in consideration for repayment by the Company
of the Bakery's outstanding loan to an Austrian bank, Bank fuer Tirol und
Vorarlberg. The Bakery owed the Bank approximately $4,000,000. The Company
agreed to pay the bank $40,000 per month until the loan is repaid. Pursuant to
this agreement, the bank reduced the loan from $4,000,000 to $1,500,000. On
April 15, 1998, the Company made its first payment to the Bank of $40,000.
Should the Company default on repaying the loan, the agreement will be
terminated and the Bank will have no recourse against the Company. The Company's
75% interest in the Bakery's capital stock is held in escrow pending full
satisfaction by the Company of Bakery's aforesaid debt.
The Bakery owns a 30,000 square feet building in Stockerau, a city on
the outskirts of Vienna, Austria. The Bakery occupies approximately 7,220 square
feet. The property was valued in April 1998 at $1,200,000. The equipment in the
building was valued at $1,300,000.
The Bakery is not dependent on any suppliers for raw materials and
other supplies, and
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currently employs 18 full-time employees.
ADDITIONAL TRANSACTIONS
In addition to the Company's investments in KVM, WGH, Platinum, Mark
It, Fill-In and ATSR, the Company has entered into certain additional
transactions which are summarized below:
In December 1995 and January 1996, the Company loaned an aggregate of
$1,033,521 at 8% interest to Agricola. Agricola purchases land in Chile for the
sole purpose of planting fast growing eucalyptus trees. Agricola then harvests
these trees for timber purposes. As of May 1, 1998, the Company is still owed
approximately $58,000 on the promissory note.
The Company has the right to convert, at any time prior to the
repayment of the loan, the outstanding amount of the loan into shares of capital
stock of the corporation. The Company would receive that number of shares
necessary to give the Company that percentage of the outstanding capital stock
that corresponds to the percentage that the loan represents of the corporation's
total equity. The Company does not presently intend to convert the promissory
note, although there can be no assurance that the Company may not do so in the
future.
In 1996 the Company entered into an agreement to fund a wax museum in
Vienna, Austria and has deposited $200,000 towards this agreement. The Company's
capital requirement for the wax museum is approximately $2,000,000, which the
Company has not yet fulfilled.
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The terms of the agreement do not set forth a date certain for the
infusion of the additional funds, and the Company intends to provide the
additional funds only upon consummation of the Platinum Agreement. Should the
Platinum Agreement not be consummated, the Company is under no obligation to
provide the aforesaid funds.
On July 4, 1997, the Company entered into an agreement with Hans
Stuchetz, a foreign individual ("Stuchetz") to establish a Swiss company, Villa
Sassa Verwaltungs SA/AG ("VSV") for the purpose of acquiring the Villa Sassa
Hotel, located in Lugano, Switzerland, from Union Bank of Switzerland. The
purchase price for the hotel was $27,118,644 and would be financed by Rieger
Bank, an Austrian bank. Initially, the Rieger Bank loan was secured by
approximately $10,000,000 in cash from Stuchetz and 5,000,000 shares of the
Company's Common Stock. Upon consummation of the transaction, the Company would
own 49% of VSV and Stuchetz would own 51%. Rieger Bank was to accept a mortgage
on the hotel as security for its loan. Upon issuance of the mortgage, Rieger
Bank would release the aforesaid collateral. The Company issued the 5,000,000
shares to VSV and delivered the shares to Rieger Bank to be deposited in escrow
pending the approval of a mortgage. Stuchetz deposited the sum of $10,000,000 in
Rieger Bank. Subsequently and as of May 1, 1998, Union Bank of Switzerland has
notified the Company that it will require more time to review the transaction.
In the meantime, Rieger Bank has returned the Company's 5,000,000 shares to the
Company. The Company will likely cancel such shares. The transaction has not
progressed since January 1998, and there can be no assurance that the
transaction will be consummated. The Villa Sassa Hotel is a 134 room luxury
hotel built in or about 1990 at a construction price of $81,355,932.
In 1995 and 1996, the Company purchased an aggregate of 700,000 shares
of Clariti Telecommunications International, Ltd. (formerly Sigma Alpha Group,
Ltd.), a Delaware corporation ("Clariti"), common stock at a cost of $3,340,033.
During 1997, the Company sold 305,630 shares of Clariti common stock for
$653,022. The Company currently holds approximately 200,000 shares of Clariti
common stock. Clariti's Form 10-K for the period ended June 30, 1998 reflects
23,737,283 shares of common stock outstanding. Based on these shares
outstanding, the Company's ownership is percentage is less than 1%. Clariti is
not affiliated with the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
This registration statement contains certain forward-looking statements
which involve substantial risks and uncertainties, both known and unknown. When
used in this Memorandum, the words "anticipates," "intends," "hopes," "wishes,"
"expects," "believes" and similar words, as they relate to the Company or its
management, are intended to identify such forward-looking statements. The
Company's actual results, performance or achievements may differ materially from
those expressed or implied by such forward-looking statements.
General
The Company, formerly known as Big Apple Farms, Inc. ("Big Apple"), was
incorporated in the State of Delaware on May 28, 1981. Big Apple was formed to
engage in the business of breeding, purchasing and selling thoroughbred race
horses. In 1982, Big Apple became a public company by offering 2,000,000 shares
of common stock pursuant to a registration statement on Form S-18. On July 5,
1989, by a vote of the majority of shareholders, Big Apple discontinued the
horse breeding business and focused its activities on the real estate and
construction industries. On October 23, 1995, Big Apple entered into a Stock
Exchange Agreement (the "Agreement") whereby Big Apple acquired 100% of the
issued and outstanding capital stock of HMA Handels und Montage GmbH ("HMA"), a
private Austrian company controlled by Kurt Reichenberger. Pursuant to the
Agreement, Big Apple's Board of Directors was replaced by directors designated
by HMA. In consideration of the sale, Mr. Reichenberger received 2,241,036
shares of Common Stock or approximately 89.6% of the Company. In February 1996,
HMA changed its name to Austrian Trading Services, GmbH. On December 5, 1995,
Big Apple changed its name to Austrian Trading Services, Inc.
Results of Operations
Nine Months Ended September 30, 1998
as Compared to September 30, 1997
The Company's revenues for the period ended September 30, 1998
increased to $1,216,213 from $724,522 in the period ended September 30, 1997, an
increase of approximately 60%. The aforesaid increase stems mainly from a 100%
higher occupancy level at the WGH therapy center ("Hotel"). This increase is
primarily attributable to improved management controls on expenses and the
acceptance of the facilities by two additional insurance companies.
Furthermore, in order to increase revenues, the Company acquired
interests in (i) Power, a company which markets and distributes promotional soft
drink cans; (ii) Mark It, a company which markets and distributes a pre-ink
stamp for personal and office use; and (iii) ATSR, a Japanese restaurant located
in New York City.
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Operating expenses for the period ended September 30, 1998 increased by
$844,135 from the corresponding prior period, reflecting a loss on the sale of
marketable securities in the amount of $1,487,602.
As a result of the above, the Company's net loss increased from
$1,730,359 in the period ended September 30, 1998 to $2,092,398 in the current
period.
Liquidity and Capital Resources
The Company's cash position was $355,670 at September 30, 1998, an
increase of $63,848 as compared to December 31, 1997. Short term receivables
from a promissory note and other receivables were valued at $1,641,523.
Underwriters' receivable from Platinum, Private Placement Brokerage and City
Capital Corp on the sale of an aggregate of 10,000,000 shares of Common Stock
are $19,725,040.
The Company has settled with WGH creditors in connection with its
approximately $1,500,000 in outstanding debt. The settlement provides for the
payment of $300,000 in full settlement for such debt. These funds have been
obtained through the sale of the Company's marketable securities. As of
September 30, 1998, $400,000 has been collected from the sale of marketable
securities. ATSR is expected to produce profits in fiscal 1998. The Company
intends to use the proceeds from the Underwriters' receivable to pay off all
bank debts and for additional investments.
Year Ended December 31, 1997
as Compared to December 31, 1996
16
<PAGE>
The Company's revenues for the period ended December 31, 1997 ("Fiscal
1997") declined to $981,120 from $1,652,405 in the period ended December 31,
1996 ("Fiscal 1996"), a decrease of approximately 29%. The aforesaid decline
stems mainly from a 20% reduction in occupancy levels for the WGH therapy center
("Hotel"). This decrease is primarily attributable to the change in the Austrian
insurance laws which changed the reimbursement policies for patients to include
a 10% deductible and mandatorily shortened the reimbursed duration of time
patients can stay at the Hotel. The Company is in discussion with two sports
groups to manage the sports therapy operation for a fixed fee payment, plus
payment based on profitability.
In Fiscal 1997, in order to increase revenues, the Company acquired
interests in (i) Fill In, a company which markets and distributes promotional
soft drink cans; (ii) Mark It, a company which markets and distributes a pre-ink
stamp for personal and office use; and (iii) ATSR, a Japanese restaurant located
in New York City.
Operating expenses for Fiscal 1997 increased by $2,866,993 reflecting
(i) the addition and the start up of the three aforesaid new businesses; (ii) a
loss of $805,093 from the sale of marketable securities; and (iii) amortization
and depreciation of $1,144,036.
As a result of the above, the Company's net loss increased to
$3,999,144 in Fiscal 1997 from $1,787,625 in Fiscal 1996.
Year Ended December 31, 1996
as Compared to December 31, 1995
Sales during Fiscal 1996 included $1,296,238 from the operation of the
Hotel and $356,168 from products sold by the Company's subsidiaries. The Company
began operations in October 1995 and therefore, most comparisons of Fiscal 1996
and the period from inception to December 31, 1995 ("Fiscal 1995") would be
misleading. However, in reviewing the Company's financial position for such
periods, the Company believes some relevant and informative comparisons can be
made.
Gross profit margin for Fiscal 1996 decreased approximately 23% as
compared to Fiscal 1995. Revenues from the Hotel were $1,296,238 in Fiscal 1996
as compared to $1,772,765 in Fiscal 1995, a decrease of approximately 26.9%. The
aforesaid declines stem mainly from a 20% reduction in occupancy levels for the
Hotel in Fiscal 1996. The Company attributes the decreased occupancy level to
the renovation of the Hotel and the change in Austrian insurance laws which
changed the reimbursement policies for patients to include a 10% deductible and
mandatorily shortened the reimbursed duration of time patients can stay at the
Hotel. The Hotel was closed from December 1995 to February 1996 and remained
partially closed through March 1996 for renovations. The Company improved
accommodations and built a new indoor swimming pool. The Company intends to
restructure the Hotel to also include a sports therapy operation, which the
Company believes will generate an influx of private funds to supplement and
ameliorate the
17
<PAGE>
Hotel's insurance dependence. The Company is in discussion with two sports
groups to manage the sports therapy operation for a fixed fee payment, plus
payment based on profitability.
Operating expenses increased in Fiscal 1996 as a result of the Company
write-off of $1,485,000 represented by the advance to KVM.
The Year 2000
The use of computer systems that rely on two-digit programs to perform
computations or other functions may cause such systems to malfunction with
respect to the year 2000 and subsequent years. Like many other entities, the
Company is currently assessing its computer software and database with respect
to its functionality beyond the turn of the century. The extent and estimated
cost of the modifications which will be required cannot yet be determined,
although it is expected that such expenditures will not have a material effect
on the financial condition and results of operations of the Company. There can
be no assurance, however, that the year 2000 problem will be resolved
successfully and in a timely fashion or that any failure or delay by the Company
or any third parties which interact with the Company in achieving year 2000
compliance will not have an adverse effect on its operations.
ITEM 3. DESCRIPTION OF PROPERTY
ATSI leases a 1,500 square foot office pursuant to a written lease
expiring in 2000. The office is located at Landstrasse 66/3, A-4020 Linz,
Austria. ATSI's annual rent is $28,363, subject to certain customary increases.
WGH owns a 70,000 square foot therapy center with 90 beds. The therapy
center is located in Windischgarsten, Austria. The Company owns the property
pursuant to a $2,682,282 mortgage at 8.5% annual interest. The Company pays
monthly principal and interest amounts in the amount of approximately $26,000
per month.
KVM leases a 500 square foot office from Manfred Schonbauer, a director
of the Company, located at Mr. Schonbauer's home in Micheldorf, Austria,
pursuant to a written lease. The annual rent is $2,500. The Company believes
this office is sufficient for its needs.
The Bakery owns a 30,000 square feet building in Stockerau, a city on
the outskirts of Vienna, Austria. The Bakery occupies approximately 7,220 square
feet. The property was valued in April 1998 at $1,200,000. The equipment in the
building was valued at $1,300,000.
18
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN SECURITY HOLDERS
The following table sets forth, as of January 31, 1999, the beneficial
ownership of the Company's Common Stock by the Company's officers and directors,
and each person known by the Company to beneficially own more than 10% of the
Company's Common Stock outstanding on such date and by the officers and
directors of the Company as a group. Except as otherwise indicated, all shares
are owned directly.
Amount and
Nature of
Beneficial Percent
Name and Address Position Ownership(1) of Class
- - ---------------- -------- ------------ --------
Kurt Reichenberger President, 1,241,036 5.9%
Chief Executive Officer
and Director
Manfred Schonbauer Director and 25,000(2) **
Treasurer
Michael Hason Director and 36,500(3) **
Secretary
Helmut Trenkwalder Director 0 0
Johann Moudry Director 3,100 **
Tan Sri Datuk Husein Ahmad Director 0 0
Count F.J. Metternich Director 0 0
All officers and 1,305,136 6.0%
directors as a group (6 persons)
- - --------------------
** Less than 1%
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire within 60 days of January 31, 1999. For purposes of
computing the percentage of outstanding shares of Common Stock held by each
person or group of persons named above, any security which such person or
persons has or have the right to acquire within such date is deemed to be
outstanding but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person. Except as indicated
in the footnotes to this table and pursuant to applicable community
property laws, the Company believes based on information supplied by such
persons, that the persons named in this table have sole voting and
investment power with respect to all shares of Common Stock which they
beneficially own.
19
<PAGE>
(2) Does not include an aggregate of 39,800 Shares beneficially owned by
members of Mr. Schonbauer's family, of which Mr. Schonbauer disclaims
beneficial ownership.
(3) Represents shares of Common Stock held by Mr. Hason's wife.
20
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS
The following information sets forth the names of the officers and
directors of the Company, their present positions with the Company and
biographical information.
Kurt Reichenberger has been the president, chief executive officer and a
director of the Company since October, 1995. From 1994 to November 1995, Mr.
Reichenberger was the general manager of Private Placement Brokerage ("PPM"), a
private Austrian venture capital company specializing in providing business
expertise and funding to emerging companies. Since 1992, Mr. Reichenberger has
been a director of Mid-West Consultants Corp., an offshore private venture
capital company. Mr. Reichenberger has been in the venture capital business
since 1985.
Manfred Schonbauer has been a director of the Company since October 1995, was
appointed treasurer in April 1997, and since November 1996 has been the chief
executive officer and a director of KVM. From 1991 to 1995, Mr. Schonbauer was
the youngest director ever appointed at Raiffeisenbank in Austria. Mr.
Schonbauer responsibilities with the bank included managing the credit and
financing department. From 1995 to 1996, Mr. Schonbauer was a branch director of
PPM.
Michael Hason has been a director of the Company since August 1997. Mr. Hason is
a certified public accountant and has worked since 1989 with Wirstschaftskanzlei
Burkert, an Austrian accounting firm.
Helmut Trenkwalder has been a director of the Company since August 1997. Mr.
Trenkwalder is an attorney and since 1980 has been with the law firm Zamponi,
Weixelbaum & Partner, located in Austria.
Johann Moudry has been a director of the Company since August 1997. Mr. Moudry
is the Chief Executive Officer of the Bakery since 1992 and was awarded the
title "Kommerzialrat" by the Austrian government, a special award for leading
business persons.
Count F.J. Metternich has been a director of the Company since August 1997.
Since 1985, Mr. Metternich has been the Director and owner of Eiffel Fango Chem.
Pharma Werke, a German chemical and pharmaceutical company. Mr. Metternich is
also a director of Platinum.
21
<PAGE>
Tan Sri Datuk Husein Ahmad has been a director of the Company since August 1997.
Mr. Ahmad has worked for the government of Malaysia as Cabinet member since
1960. Mr. Ahmad is a citizen of Malaysia. Mr. Ahmad is also chairman of the
board of directors of Platinum.
22
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation of the Company's Chief Executive Officer and the other most highly
compensated executive officers of the Company for the fiscal year ended December
31, 1998. There are no Option/SAR Grants, Aggregated Option/SAR Exercises or
Fiscal Year-End Option/SAR Value Table for the year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
For the Years Ended December 31, 1998, 1997 and 1996
Annual Compensation Awards Payouts
Name
and
Principal Year Restricted
Position Ended Salary Stock Award(s)($)
- - -------- ----- ------ -----------------
Kurt Reichenberger, 1998 $42,000 --
President and CEO 1997 $42,000 --
1996 $36,000 --
No other officer of the Company received compensation from the Company
in excess of $100,000 during the years ended December 31, 1998, 1997 and 1996.
The Company is not a party to any employment agreements with its
officers and directors.
The Company does not generally compensate its directors, other than
reimbursement for their expenses incurred in attending meetings of the Board of
Directors. In October 1995, the Company did issue 25,000 shares of common stock
(valued at $2.25 per share) to each of Manfred Schonbauer, Harald
Schneidergruber, Bernhard Perner, Helmut Presske, Anton Moser and Franz
Holzinger, as compensation. Messrs. Schneidergruber, Perner, Presske and
Holzinger resigned as directors of the Company in July 1997. Mr. Moser resigned
in April 1996.
1996 Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan ("Plan"), provides for
the grant of options to employees, directors, officers, consultants and advisors
of the Company for the purchase of up to an aggregate of 1,000,000 shares of
Common Stock. The plan is administered
23
<PAGE>
by the Board of Directors, which has complete discretion to select eligible
individuals to receive and to establish the terms of option grants. The number
of shares of Common Stock available for grant under the Plan is subject to
adjustment for changes in capitalization. As of December 31, 1998, the Company
had issued an aggregate of 69,444 shares of Common Stock under the Plan.
24
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1995, as part of the Company's reorganization, the Company
issued 2,241,026 shares of Common Stock in consideration of $50,000, to Kurt
Reichenberger in consideration for the acquisition of HMA Handels-und Montage
GmbH, an Austrian company wholly owned by Mr. Reichenberger. Mr. Reichenberger
subsequently became president and chief executive officer of the Company.
In October 1995, as part of the Company's reorganization, the Company
issued 190,000 shares of Common Stock to Helmut Presske in consideration of the
retirement and satisfaction of debts owed to him by WGH. WGH incurred the debt
prior to the Company's involvement in WGH. Mr. Presske made cash loans to WGH in
the amount of $400,000. The shares issued to Mr. Presske were valued at
approximately $2.10. Mr. Presske subsequently became a director of the Company,
until his resignation in July 1997. The Company believes that the terms of the
transaction were as favorable to the Company as terms it could have received
from an unaffiliated party.
In October 1995, the Company authorized and issued 25,000 shares of
Common Stock each to the following officers and directors of the Company, for an
aggregate issuance of 150,000 shares: Harold Schneidergruber, Manfred
Schonbauer, Bernhard Perner, Helmut Presske, Anton Moser and Franz Holzinger in
consideration for services rendered. Of the aforementioned officers and
directors, only Manfred Schonbauer currently serves in such position. The
Company valued these shares at $1.50 per share.
In February 1996, the Company accepted the subscription of Cash
Consulting Limited ("CCL") whereby CCL purchased 2,500,000 shares of Common
Stock from the Company at $2.50 per share. Franz Holzinger, a former director of
the Company, serves as a consultant to Cash Consulting Limited. Mr. Holzinger
holds a power of attorney for CCL, to act on its behalf. Mr. Holzinger is not an
officer or director of CCL.
In October 1997, the Company accepted the subscription of City Capital
Corp. ("CCC") whereby CCC purchased 2,000,000 shares of Common Stock from the
Company at $1.00 per share. Manfred Schonbauer, a director of the Company,
serves as a consultant to CCC. Mr. Schonbauer holds a power of attorney for CCC,
to act on its behalf. Mr. Schonbauer is not an officer or director of CCC.
ITEM 8. DESCRIPTION OF SECURITIES
25
<PAGE>
Common Stock
Each holder of Common Stock is entitled to one vote per share on all
matters to be voted upon by the Company's stockholders. Stockholders do not have
cumulative voting rights in the election of directors. Subject to preferences
that may be applicable to any shares of Preferred Stock, the holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. The Company has not paid and does not presently intend to pay
dividends on its Common Stock. In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets, remaining after payment of liabilities, subject to prior
distribution rights of holders of Preferred Stock, if any, then outstanding. The
Common Stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions available to the
Common Stock. All outstanding shares of Common Stock are validly authorized and
issued and are fully paid and non-assessable.
26
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the National Association of
Securities Dealers, Inc., over-the-counter market on the OTC Bulletin Board
("Bulletin Board") under the symbol "AUTR". The Common Stock commenced listing
on the Bulletin Board on January 17, 1996.
The following table sets forth, for the periods indicated, the high and
low bid prices per share of Common Stock as reflected in the Bulletin Board
Fiscal Year Ended
December 31, 1996
High Bid Low Bid
-------- -------
First Quarter 5.375 1.00
Second Quarter 4.75 3.375
Third Quarter 8.125 3.50
Fourth Quarter 4.00 4.00
Fiscal Year Ended
December 31, 1997
High Bid Low Bid
-------- -------
First Quarter 4.75 4.00
Second Quarter 5.125 2.50
Third Quarter 5.875 4.00
Fourth Quarter 4.875 3.75
Fiscal Year Ended
December 31, 1998
High Bid Low Bid
-------- -------
First Quarter 4.00 1.5
Second Quarter 1.5 0.5
27
<PAGE>
The Company has outstanding 69,444 stock options to purchase Common
Stock of the Company.
On February 10, 1999, the last sale price of the Company's Common Stock
as reported on the Bulletin Board was $1.00 per share.
As of October 12, 1998, the Company estimates that it had 965
stockholders of record. Such number of record holders was derived from the
stockholder list maintained by the Company's transfer agent, American Stock
Transfer & Trust Co., and does not include beneficial owners of the Company
whose shares are held in the names of various dealers and clearing agencies.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends and does not
intend to do so for the foreseeable future. The Company currently intends to
retain all earnings, if any, to finance the continued development of its
business. Any future payment of dividends will be determined solely in the
discretion of the Company's Board of Directors.
ITEM 2. LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened against the
Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
In October 1995, the accounting firm of Scarano & Lipton, P.C. was
replaced by Cogen Sklar LLP as the Company's independent accounting firm. There
were and are no disagreements with Scarano & Lipton, P.C.
28
<PAGE>
On April 3, 1998, the Company dismissed its independent accountants,
Cogen Sklar LLP. Cogen Sklar LLP was replaced by St. Clair, Easton & England,
P.C. There were and are no disagreements with Cogen Sklar LLP.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In October 1995, as part of the Company's reorganization, the Company
issued 2,241,026 shares of Common Stock to Kurt Reichenberger in consideration
for the acquisition of HMA Handels-und Montage GmbH, an Austrian company wholly
owned by Mr. Reichenberger. Mr. Reichenberger subsequently became president and
chief executive officer of the Company. The Company issued the aforesaid shares
pursuant to Section 4(2) of the Act in a private transaction not involving a
public offering.
In October 1995, the Company issued (i) 190,000 Shares to Helmut
Presske, a former director of the Company, in consideration of the retirement
and satisfaction of debts totaling an aggregate of $400,000 owed to him by WGH.
Mr. Presske subsequently became a director of the Company, until his resignation
in January 1997; and (ii) 66,666 Shares to Aribert Vogel in consideration of the
retirement and satisfaction of debts totalling $150,000 owed to him by WGH. The
Company issued the aforesaid shares pursuant to Section 4(2) of the Act in a
private transaction not involving a public offering.
In October 1995, the Company authorized and issued 25,000 shares of
Common Stock each to the following officers and directors of the Company, for an
aggregate issuance of 150,000 shares: Harold Schneidergruber, Manfred
Schonbauer, Bernhard Perner, Helmut Presske, Anton Moser and Franz Holzinger in
consideration for services rendered. Of the aforementioned officers and
directors, only Manfred Schonbauer currently serves in such position. At this
time, the Company also issued 25,000 shares to Gustaf Klenner for consulting
services rendered. The Company issued the aforesaid shares pursuant to Section
4(2) of the Act in a private transaction not involving a public offering.
29
<PAGE>
In December 1995, pursuant to Rule 504 ("Rule 504") of the Securities
Act and Regulation D promulgated thereunder, the Company issued an aggregate of
200,000 shares of Common Stock for a total purchase price of $40,000 in
consideration for legal and accounting services rendered. The Company also
issued 35,000 shares of Common Stock to Silverman, Collura, Chernis & Balzano,
P.C. pursuant to Rule 504 for a total purchase price of $10,000 in consideration
for legal services rendered in connection with the Company's reorganization. At
the time of the issuance, the Company met all the criteria and requirements of
Rule 504.
In January 1996, the Company accepted the subscription of Hanover
Capital Corp., a foreign entity, for the purchase of 1,400,000 shares of Common
Stock at $2.25 per share. The proceeds were used to satisfy outstanding debts
owed by WGH of $1,758,000 and KVM of $1,200,000. The balance of $192,000 was for
improvements to the WGH facility and working capital. The Common Stock was
issued pursuant to Regulation S of the Securities Act. The Company was able to
issue the aforesaid Common Stock under Regulation S based on the fact that
Hanover Capital Corp. is a foreign entity.
In February 1996, the Company accepted the subscription of Cash
Consulting Ltd., a foreign entity, for the purchase of 2,500,000 shares of
Common Stock at $2.50 per share. The Common Stock was issued pursuant to
Regulation S of the Securities Act. The proceeds were used to loan $1,033,521 to
Agricola, $1,846,000 to purchase the KVM license, and approximately $3,340,033
to purchase 700,000 shares of Sigma Alpha Group, Ltd. common stock. The Company
was able to issue the aforesaid Common Stock under Regulation S based on the
fact that Cash Consulting Ltd. is a foreign entity.
In September 1996, the Company accepted the subscription of Amerikan
Investments, Ltd. for the purchase of 300,000 shares of Common Stock at
approximately $3.50 per share, pursuant to Regulation S. The Company intends to
use these proceeds to alleviate its current working capital deficit. The Company
was able to issue the aforesaid Common Stock under Regulation S based on the
fact that Amerikan Investments, Ltd. is a foreign entity.
In December 1996, the Company issued to Franz Holzinger, Lindinger
Karl, Karin Eidloth, Herbert Habschied, representing a former officer of the
Company and consultants, respectively, an aggregate of 69,444 shares of Common
Stock pursuant to the Company's 1996 Employee Stock Purchase Plan. The shares
were issued at $2.25 per share.
30
<PAGE>
The Company issued the aforesaid shares pursuant to Section 4(2) of the Act in a
private transaction not involving a public offering.
In April, May and June 1997, the Company accepted an aggregate of four
subscription agreements from P.T. Platinum Perkasa Nusantara ("Platinum") for
the purchase of 2,000,000 shares each of the Company's Common Stock at $2.50 per
share. Pursuant to the subscription agreements, Platinum paid the Company an
aggregate of $200,000 in cash and the Company accepted four promissory notes
from Platinum in the amount of $4,950,000 each ("Notes"). The Notes had
originally demanded payment on various dates through August 1, 1997. The Company
then extended repayment of the Notes to August 1, 1998. The Company issued
7,500,000 of the 8,000,000 shares to Platinum and its designees, and placed
7,000,000 of such shares in escrow pending full satisfaction of the Notes. The
Company delivered 500,000 of the shares to Platinum. As of December 31, 1997,
the Company had received an additional $5,300,000 as payment against the Notes.
Therefore, as of such date, Platinum had paid the Company $5,500,000.
Subsequently, on December 31, 1997, the Company entered into an agreement with
Platinum, whereby, among other things, Platinum waives all right and title to
the unissued 500,000 shares and will return 1,100,000 shares to the Company.
(See "Business-Platinum").
In October 1997, the Company accepted a subscription agreement from
City Capital Corp., a foreign investor, pursuant to Regulation S for the
purchase of 2,000,000 shares of Common Stock at a purchase price of $1.00 per
share. The Company received $100,000 of such funds as of December 31, 1997 and
an additional $30,000 as of May 1, 1998. There can be no assurance that the
balance of the remaining subscription price will be paid. The Company was able
to issue the aforesaid Common Stock under Regulation S based on the fact that
City Capital Corp. is a foreign entity.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended Certificate of Incorporation and Amended Bylaws
limit the liability of directors and officers to the maximum extent permitted by
Delaware law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, including gross negligence, except liability for (i) breach of the
directors' duty of loyalty; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, (iii) the
unlawful payment of a dividend or unlawful stock purchase or redemption, and
(iv) any transaction from which the director derives an improper personal
benefit. Delaware law does not permit a corporation to eliminate a director's
duty of care, and this provision of the Company's Amended and Restated
Certificate of Incorporation has no effect on the availability of equitable
remedies, such as injunction or
31
<PAGE>
rescission, based upon a director's breach of the duty of care.
PART F/S
FINANCIAL STATEMENTS
The Company's audited Financial Statements are attached hereto.
32
<PAGE>
PART III
INDEX TO EXHIBITS
Exhibit No. Description
- - ----------- -----------
3.1* Certificate of Incorporation of Registrant, as amended
3.2* By-laws of Registrant, as amended
4.1** Specimen certificate representing Registrant's Common Stock
5.1 Opinion of Silverman, Collura, Chernis & Balzano, P.C. with
respect to legality of the securities of the Registrant being
registered
27. Financial Data Schedule
* previously filed.
** to be filed by amendment
33
<PAGE>
Signatures
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AUSTRIAN TRADING SERVICES, INC.
By: s/Kurt Reichenberger
-------------------------------------
Kurt Reichenberger, President
Date: February 11, 1999
34
<PAGE>
CBS 30.09.98
AUSTRIAN TRADING SERVICES INC. AND SUBSIDIARIES
Consolidated Balance Sheet
30.Sep.98
September 30, December 31,
1998 1997
----------- --------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash 335,670.58 271,822.32
Accounts receivable
Trade 129,160.57 34,443.32
Other 834,065.12 717,887.60
Affiliate 0.00 0.00
Subscription receivable 0.00 0.00
Note receivable 678,298.20 665,658.69
Inventories 26,047.17 23,242.79
Prepaid expenses 16,396.16 228.44
------------- -------------
TOTAL CURRENT ASSETS 2,019,637.79 1,713,283.16
------------- -------------
PROPERTY AND EQUIPMENT 5,524,956.19 5,361,342.10
------------- -------------
OTHER ASSETS
Investment associates 252,470.08 167,964.72
Investment affiliates 0.00 0.00
Marketable equity securities 0.00 640,851.26
License 57,947.64 79,157.76
Loan receivable associates 182,306.78 247,762.56
Loan receivable affiliates 0.00 0.00
Deposits 29,971.45 39,798.89
------------- -------------
522,695.95 1,175,535.19
------------- -------------
TOTAL ASSETS 8,067,289.92 8,250,160.45
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable bank 207,953.53 145,373.27
Current portion of notes payable-banks 372,617.13 347,660.89
Accounts payable
Trade 541,687.90 623,989.74
Other 1,110,764.33 783,236.81
Accrued expenses 115,877.86 93,179.02
Income taxes payable 1,164.96 296.84
------------- -------------
2,350,065.72 1,993,736.57
------------- -------------
LONG-TERM DEBT
Due to former stockholders 315,131.35 294,426.76
Notes payable banks 1,813,372.02 1,703,716.52
Accruals for severance payments 60,905.02 56,903.51
Other liabilities 0.00 0.00
------------- -------------
2,189,408.40 2,055,046.79
------------- -------------
TOTAL LIABILITIES 4,539,474.12 4,048,783.36
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock $ 0,025 par value, authorized
1.000.000 shares; none issued and out-
standing
Common stock $ 0,025 par value, authorized
20.000.000 shares; 17,402,557 and
17,439,057 shares issued and 17,402,557
and 17,439,057 shares outstanding in
1998 and 1997 434,939.00 435,851.50
Additional paid-in capital 32,180,143.00 33,233,980.50
Minority interest (22,428.54) (17,716.92)
Receivable from underwriter (19,702,782.74) (20,806,770.66)
Accumulated deficit (8,496,734.46) (6,404,336.40)
Net unrealized gain/loss on marketable
securities 0.00 (1,241,086.75)
Equity adjustment from foreign currency (865,320.45) (998,544.18)
translation
------------- -------------
3,527,815.81 4,201,377.09
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUTIY 8,067,289.92 8,250,160.45
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
AUSTRIAN TRADING SERVICES INC AND SUBISIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
September, 30
-------------------------------
Predecessor
-------------
1998 1997
(Unaudited) (Unaudited)
------------- -------------
SALES 1,216,213.76 724,522.44
COST OF SALES (853,915.08) (721,157.54)
------------- -------------
GROSS PROFIT 362,298.68 3,364.90
OPERATING EXPENSES (2,661,082.24) (1,816,947.59)
------------- -------------
LOSS FROM OPERATIONS (2,298,783.56) (1,813,582.69)
OTHER INCOME 206,385.23 83,223.29
------------- -------------
NET LOSS (2,092,398.32) (1,730,359.40)
============= =============
WEIGHTED NUMBER OF OUSTANDING SHARES 30,067,902 19,675,980
NET LOSS PER SHARE (.07) (.09)
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
September, 30
------------------------
Predecessor
1998 1997
(unaudited) (unaudited)
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (before changes in reserves) (2,092,399) (1,730,359)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities 0 0
Foreign currency translation adjustment 0 0
Depreciation 318,322 224,752
Amortization 29,779 239,790
Provision for losses on accounts receivable 0 0
Gain on sale of marketable equity securities (128,665) 0
Loss on sale of marketable equity securities 1,487,602 471,614
Interest on note receivable (17,372) 0
(Increase) decrease in
Accounts receivable (86,507) (64,669)
Other receivables (104,613) (36,711)
Inventories (1,371) 4,115
Other assets (3,885) 0
Prepaid expenses (15,165) (4,037)
Increase (decrease) in
Accounts payable (114,634) (289,258)
Other payables 261,446 88,418
Accrued expenses 18,301 (18,159)
Income taxes payable 794 0
Accruals for severance payments 0 0
Other liabilities 0 49,383
--------- ---------
Net cash provided by (used in) operating activities (448,367) (1,065,121)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (132,086) (119,423)
Advance to affiliates 0 0
Advances to associates 70,266 (199,691)
Purchase of marketable equity securities (194,370) 0
Proceeds from sale of marketable equity securities 717,371 509,278
Advances 0 (307,184)
Investment in subsidiary 0 (20,000)
Purchase of investment (68,135) (4,324,495)
Acquisition of license 0 0
Deposits 10,000 (12,902)
--------- ---------
Net cash used in investing activities 403,046 (4,474,417)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Advance from (repayment to) former stockholders 0 0
Minority interest (4,848) (6,709)
Proceeds from bank loans including
Repayment of bank loans and
Bank overdraft refinanced as long-term debt 40,329 853,647
Advance from affiliates 0 0
Additional paid in capital 0 0
Proceeds from common stock subscribed 49,028 5,872,702
Proceeds from exercise of stock options 0 0
--------- ---------
Net cash provided by financing activities 84,509 6,719,640
--------- ---------
Effect of exchange rate changes on cash 24,660 (65,003)
--------- ---------
NET INCREASE (DECREASE) IN CASH 63,848 1,115,099
CASH, BEGINNING OF PERIOD 271,822 (1,075,046)
CASH, END OF PERIOD 335,671 40,053
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
JANUARY 1, 1998 TO SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ADDITIONAL COMMON EQUITY ADJUSTMENT FROM
PAID-IN STOCK ACCUMULATED FOREIGN CURRENCY
COMMON STOCK CAPITAL SUBSCRIBED DEFICIT TRANSLATION
----------------------------------------------------------------------------------------
SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 17,439,057 435,852 33,233,981 0 (6,404,336) (998,544)
Issuance of common stock (36,500) (913) (53,838)
Net loss for the nine months
ended September 30, 1998 (2,092,398)
Foreign currency translation adjustment 133,224
---------- ------- ---------- - --------- -------
17,402,557 434,939 33,180,143 0 (8,496,735) (865,320)
========== ======= ========== = ========= =======
</TABLE>
<PAGE>
AUSTRIAN TRADING SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
<PAGE>
AUSTRIAN TRADING SERVICES, INC.
AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
Contents
Exhibit Page
- - ------- ----
Independent Auditors' Report 1
Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-21
<PAGE>
[LETTERHEAD OF ST. CLAIR, EASTON & ENGLAND, P.C.
Independent Auditors' Report
To the Board of Directors
Austrian Trading Services, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of AUSTRIAN TRADING
SERVICES, INC. AND SUBSIDIARIES as of December 31, 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. The consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audit. We did not
audit the consolidated financial statements of AUSTRIAN TRADING SERVICES GmbH
AND SUBSIDIARIES, four wholly-owned foreign subsidiaries, which statements
reflect total assets of $5,766,433 as of December 31, 1997 and total revenue of
$864,457 for the year then ended. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion insofar as it
relates to the amounts included for AUSTRIAN TRADING SERVICES GmbH AND
SUBSIDIARIES, is based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain assurance
about whether the consolidated 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 and the report of the other auditors provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of AUSTRIAN TRADING SERVICES, INC. AND
SUBSIDIARIES as of December 31, 1997, and the results of its operations and cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred significant losses
of $3,999,144 and $1,787,625 during the years ended December 31, 1997 and 1996,
and at December 31, 1997 had an excess of current liabilities over current
assets of $400,160 that raise substantial doubt about its ability to continue as
a going concern. Management's plans regarding those matters are described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
The Registrant will maintain on file a manually executed report for the period
described by Rule 402(e) of Regulation C.
/s/ St. Clair, Easton & England, P.C.
Certified Public Accountants
May 14, 1998
- 1 -
<PAGE>
-1-
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholders of
Austrian Trading Services GmbH and Subsidiaries
We have audited the accompanying consolidated balance sheet of Austrian Trading
Services GmbH and Subsidiaries as of December 31, 1997 and the related
consolidated profit and loss and cash flow statement for the year ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Austrian Trading
Services GmbH and Subsidiaries as of December 31, 1997 and the results of its
operations and its cash flows for the year ended December 31, 1997 in conformity
with general accepted accounting principles.
The accompanying consolidated financial statements of Windischgarstnerhof GmbH
have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 2 to the consolidated financial statements, the Company's
subsidiary, Windischgarstnerhof GmbH, has continuous net losses and negative
cash flows from operating activities for the years ended December 31, 1992 until
1997. These factors and the fact that involuntary bankruptcy was opened in
February 1998 raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 2.
Hamerle & Partner
Wirtschaftstreuhand GmbH
Wirtschaftsprufunds- und Steuerberatungsgesellschaft
/s/ Dr. Vinzenz Hamerle
-----------------------
Dr. Vinzenz Hamerle
March 26, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Austrian Trading Services, Inc.
We have audited the accompanying consolidated balance sheet of Austrian Trading
Services, Inc. and subsidiaries as of December 31, 1996, and the related
consolidated statement of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these consolidated 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 consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Austrian Trading
Services, Inc. and subsidiaries as of December 31, 1996 and the results of their
operations and cash flows for the year then ended, in conformity with general
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred a significant loss
of $1,787,625 during the year ended December 31, 1996 and at December 31, 1996
had an excess of current liabilities over current assets of $1,255,498 that
raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters are described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ Cogen Sklar LLP
-------------------
COGEN SKLAR LLP
Bala Cynwyd, Pennsylvania
May 13, 1997
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1996 1997
---- ----
Current assets
Cash $ 271,822 $ 11,691
Receivables
Trade, net of allowance for doubtful
accounts of $0 and $346,500, respectively 34,443 35,595
Officer (Note 3) 252,806 --
Affiliate 292,787 54,798
Other 358,851 393,530
Stock subscription -- 63,375
Note receivable (Note 4) 215,969 1,116,221
Inventory 23,243 26,670
Prepaid expenses 9,983 58,805
------------ -----------
TOTAL CURRENT ASSETS 1,459,904 1,760,685
------------ -----------
Property and equipment (Note 5) 4,971,023 5,833,204
------------ -----------
Other assets
Marketable equity security (Note 6) 640,851 2,012,500
Notes receivable (Note 7) 678,422 --
Deposits 39,799 194,060
Goodwill, net of accumulated amortization 380,565 --
License, net of accumulated amortization
(Note 8) 79,158 1,477,089
Organization costs, net of accumulated
amortization 438 --
------------ -----------
1,819,233 3,683,649
------------ -----------
TOTALS $ 8,250,160 $11,277,538
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable, bank, for overdrafts (Note 9) $ 145,373 $ 1,086,737
Current portion of long-term debt (Note 10) 221,868 254,738
Payables
Trade 623,990 966,137
Officer (Note 3) 75,150 47,465
Other 649,054 630,846
Accrued expenses 144,332 29,918
Income taxes payable 297 342
------------ -----------
TOTAL CURRENT LIABILITIES 1,860,064 3,016,183
------------ -----------
Long-term liabilities
Long-term debt, net of current portion (Note 10) 1,829,509 1,344,809
Due to former shareholders (Note 11) 302,306 259,061
Accruals for severance payments 56,904 42,447
------------ -----------
2,188,719 1,646,317
------------ -----------
TOTAL LIABILITIES 4,048,783 4,662,500
------------ -----------
Commitments
Shareholders' equity
Preferred stock, $.01 par value, authorized
1,000,000 shares;
none issued and outstanding
Common stock, $.025 par value, authorized
20,000,000 shares; 13,888,455 and
7,307,557 shares issued and outstanding
in 1997 and 1996, respectively (Note 12) 435,852 182,564
Additional paid-in capital 33,233,980 11,273,688
Minority interest (17,717) --
Receivable from underwriter (20,806,771) (613,782)
Accumulated deficit (6,404,336) (2,405,192)
Net unrealized loss on marketable equity
security (Note 6) (1,241,087) (1,327,533)
Foreign currency translation adjustment (998,544) (494,707)
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 4,201,377 6,615,038
------------ -----------
TOTALS $ 8,250,160 $11,277,538
============ ===========
See accompanying notes.
- 2 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
------------ ------------
Revenue $ 981,120 $ 1,652,405
Cost of revenue 1,329,827 1,490,302
------------ ------------
Gross profit (loss) (348,707) 162,103
Operating expenses 2,991,314 2,150,320
------------ ------------
Loss from operations (3,340,021) (1,988,217)
------------ ------------
Other income (expense)
Loss on sale of marketable securities (805,093) --
Other income 145,970 200,592
------------ ------------
(659,123) 200,592
------------ ------------
Net loss ($ 3,999,144) ($ 1,787,625)
============ ============
Loss per common share ($ 0.39) ($ 0.27)
============ ============
Weighted average number of shares 10,168,539 6,558,612
============ ============
See accompanying notes.
- 3 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Receivable Common Currency
------------------- Paid-in From Stock Accumulated Translation
Shares Amount Capital Underwriter Subscribed Deficit Adjustment
------ ------ ------- ---------------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 3,114,778 $ 77,745 $ 772,256 $ -- $ 4,628,444 ($ 617,567) ($ 7,405)
Common stock subscribed -- -- -- -- 5,821,557
Issuance of common stock 4,200,000 105,000 10,345,001 (613,782) (10,450,001) -- --
Issuance of common stock
under stock option plan 69,444 1,736 154,514 -- -- --
Return and cancellation of
common stock from a director (76,665) (1,917) 1,917 -- -- --
Net loss for the year ended
December 31, 1996 -- -- -- -- -- (1,787,625) --
Foreign currency translation
adjustment -- -- -- -- -- -- (487,302)
----------- ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 7,307,557 182,564 11,273,688 (613,782) -- (2,405,192) (494,707)
Issuance of common stock 10,514,124 253,288 21,960,292 (20,192,989) -- -- --
Common stock surrendered (3,933,226) -- -- -- -- -- --
Net loss for the year ended
December 31, 1997 -- -- -- -- -- (3,999,144) --
Foreign currency translation
adjustment -- -- -- -- -- -- (503,837)
----------- ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 $ 13,888,455 $ 435,852 $ 33,233,980 ($20,806,771) $ -- ($ 6,404,336) ($ 998,544)
============ ============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
- 4 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss ($ 3,999,144) ($ 1,787,625)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 1,444,036 699,854
Provision for losses on accounts receivable -- 357,300
Loss on sale of marketable securities 805,073 --
(Increase) decrease in assets
Receivables
Trade 1,152 (240,606)
Affiliate (237,989) (494,312)
Inventory 3,427 (13,676)
Prepaid expenses 48,822 11,222
Increase (decrease) in liabilities
Accounts payable (342,147) 316,397
Other payables -- 576,980
Accrued expenses 114,414 2,759
Income taxes payable (45) --
Accruals for severance payments 14,457 9,408
Other liabilities -- (248,895)
------------ ------------
Net cash used in operating activity (2,147,944) (811,194)
------------ ------------
Cash flows from investing activities
Capital expenditures (232,572) (281,166)
Advance to officer, net (225,121) --
Advances (repayments) by associates 52,887
Advances (repayments) under notes receivable 221,830 (98,390)
Purchase of marketable equity security -- (2,682,848)
Proceeds from sale of marketable equity securities 653,022 --
Advances to investment joint ventures (183,623) --
Acquisition of license -- (703,980)
Deposits 154,261 (199,800)
------------ ------------
Net cash provided (used) in investing activities 440,684 (3,966,184)
------------ ------------
Cash flows from financing activities
Note payable, bank/bank overdraft (941,364) 861,777
Advance to former shareholders 43,245 --
Acquisition of minority interest (17,717) --
Proceeds from (repayment) of bank loans 451,830 (1,371,441)
Bank overdraft refinanced as long-term debt -- 246,002
Proceeds from common stock subscribed 2,083,966 5,207,775
Proceeds from exercise of stock option -- 92,875
------------ ------------
Net cash provided by financing activities 1,619,960 5,036,988
------------ ------------
Effect of exchange rate changes on cash 347,431 (249,434)
------------ ------------
Net increase in cash 260,131 10,176
Cash, beginning 11,691 1,515
------------ ------------
Cash, ending $ 271,822 $ 11,691
============ ============
Supplemental disclosure of cash flows
information
Cash paid during the year for:
Interest $ 248,775 $ 353,773
============ ============
Supplemental disclosure of non-cash
investing and financing
activities
Receivable from underwriter $ 20,192,989 $ 617,567
============ ============
Subscription receivable $ -- $ 63,375
============ ============
Net unrealized gain (loss) on marketable
equity security $ 86,446 ($ 1,282,719)
============ ============
</TABLE>
See accompanying notes.
- 5 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 1 Summary of Significant Accounting Policies and Other Information
Organization and History
AUSTRIAN TRADING SERVICES, INC., formerly known as BIG APPLE FARMS,
INC. ("BIG APPLE") was incorporated on May 28, 1981 in the State of
Delaware.
BIG APPLE was initially in the business of boarding, breeding,
purchasing and selling thoroughbred race horses. On July 5, 1989, by a
vote of the majority shareholders, the Company discontinued the horse
breeding business. Until October 22, 1995, BIG APPLE focused on the
real estate and construction industries, conducing its operations
through its wholly owned subsidiary BAF ENTERPRISES, INC. ("BAF") in
Newburg, New York.
Pursuant to a registration statement filed with the Securities and
Exchange Commission on Form S-18, effective June 17, 1982, BIG APPLE
FARMS, INC. made an initial public offering of 2,000,000 shares of
common stock.
In May 1995, the Company's Board of Directors declared a 1 for 70
reverse stock split thereby reducing its outstanding shares of common
stock from 11,727,500 to 167,536 and increasing its par value from
$.005 to $.025.
Reorganization and Financial Statement Presentation
On October 23, 1995, BIG APPLE FARMS, INC. exchanged 89.6% of its
common shares or 2,241,036 post reverse split common shares for 100% of
the outstanding shares of AUSTRIAN TRADING SERVICES, GmbH ("ATSI"),
formerly known as HMA HANDELS-UND MONTAGE-GmbH ("HMA"). ATSI (formerly
HMA) was formed in April, 1993 under the laws of Austria and was
inactive with no operations until it was acquired by Mr. Reichenberger
on September 11, 1995 and capitalized with $25,000. Prior to the stock
exchange on October 23, 1995, BIG APPLE FARMS, INC. sold the
outstanding capital stock of BAF to existing officers and directors of
BIG APPLE FARMS, INC. for nominal consideration. Subsequent to the
stock exchange, BIG APPLE FARMS, INC. changed its name to AUSTRIAN
TRADING SERVICES, INC. (the Company).
ATSI acquired the Windischgarstnerhof GmbH ("WGH"), a hotel and therapy
center on September 30, 1995 for 67,250,000 Austrian schillings or
approximately $6,710,000. The acquisition has been accounted for by the
purchase method of accounting and the purchase price approximated the
fair value of the net assets acquired.
Since ATSI acquired control of the Company on October 23, 1995, ATSI
became the acquiring entity and accounting survivor. Accordingly, the
acquisition of ATSI was accounted for as a reverse acquisition whereby
the historical financial statements became those of the accounting
acquirer, ATSI, and not the financial statements of the legal acquirer,
the registrant.
In March 1996, ATSI formed a wholly-owned subsidiary, Kunstoff vertrieb
Micheldorf, GmbH (KVM) for the purpose of marketing, producing and
distributing innovative consumer products, including the product under
the licensing agreement described in Note 8.
- 6 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 1 Summary of Significant Accounting Policies and Other Information
(Continued)
In May 1997, the Company entered into an agreement with P.T. PLATINUM
PERKASA NUSANTRARA ("PLATINUM") providing for the establishment of a
joint project to develop and enhance the indigenous livestock of the
Republic of Indonesia through importing and transplanting embryos of
genetically superior foreign livestock into the indigenous herd.
Specifically, PLATINUM intended to buy purebred Boer goat embryos which
are obtained in the United States from International Agricultural
Genetics, Inc., a company located in Edmond, Oklahoma. PLATINUM would
transfer and implant the embryos into indigenous goats to develop a
genetically superior hybrid. The new hybrid goat would then be exported
throughout the Southeast Asian and Middle East regions. The Company
believes that little or no competition in such breeding exists as of
yet.
In June 1997 the Company, through ATSI, formed an Austrian based
company called MARK IT GmbH ("MARK IT"). ATSI retained a 60% interest
in MARK IT which will engage in the sale of pre-ink stamping devices
for office and personal use in Europe. Pre-ink stamps are devices which
enable a user to repetitively stamp a symbol, phrase or other notation
on a surface. MARK IT intends to market its product through wholesale
outlets and direct marketing throughout Europe. MARK IT has applied for
a patent for its "roller stamp", which provides the user with a larger
surface area to imprint the users preferred notation. MARK IT is in the
process of negotiation with a Hong Kong entity to act as MARK IT's
principal supplier. The Company believes it is not dependent on any
supplier, as the components for the stamp are readily available. All
research and development for the product was conducted by the two
principals of MARK IT prior to any involvement by the Company. MARK IT
presently has two employees and subcontracts out the manufacture of all
stamping devices which it markets.
In June 1997, ATSI acquired a 40% interest in COMPONENTS DEVELOPMENT
GmbH ("COMPONENTS"), an Austrian corporation formed in February 1997,
in exchange for approximately $17,000 and a commitment to provide
funding to COMPONENTS over a six month period of $500,000. COMPONENTS
has represented to the Company that it is the owner of certain
proprietary technology involving the application and design of
automobile and emission control systems. Currently COMPONENTS is
completing development of a product known as the Turbo Loader.
COMPONENTS has represented that the Turbo Loader will act as an add-on
device to existing automobile engines which will result in compliance
with a variety of emission control systems as well as result in fuel
economy and improvement to the performance of the vehicle's engine.
COMPONENTS has not yet completed a market prototype of the Turbo Loader
and there can be no assurance that the Turbo Loader will be a
commercially feasible product. COMPONENTS has advised the Company that
approximately $1,700,000 in total funding will be required in order to
be in a position to bring the Turbo Loader to market. COMPONENTS
intends to engage in discussions with automobile manufacturers and
automobile part suppliers regarding the possible entry into licensing
and marketing agreements for the Turbo Loader. There can be no
assurance that the Turbo Loader will be successfully developed, or if
developed, generate revenue on behalf of the Company.
- 7 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 1 Summary of Significant Accounting Policies and Other Information
(Continued)
POWER POOL, an Austrian company formed in 1998 ("POWER"), intends to
market and distribute promotional soft drinks through exclusive
licensing agreements with corporate, entertainment and sport entities.
ATSI purchased a 45% interest in POWER by contributing $175,000 to the
venture.
ATS RESTAURANT CORP., a New York corporation ("ATSR"), formed in April
1997, is wholly owned by the Company. ATSR operates a Japanese
restaurant in New York City under the name Kabuki Restaurant. ATSR
commenced operations for business September 1997. ATSR currently is in
the process of filing with the New York State Liquor Authority for a
liquor license application. No assurance can be made that such
application will be successful, and the inability of ATSR to serve
alcohol could have a detrimental effect on the restaurant.
The 1997 operations of the registrant (the Company) reflect the only
U.S. subsidiary (ATSR) and the consolidated foreign operations of ATSI
and its wholly and partly owned subsidiaries (WGH, KVM and MARK IT).
The 1996 operations of the registrant (the Company) reflect the
consolidated foreign operations of ATSI and its wholly-owned
subsidiaries (WGH and KVM).
Summary of the Company's Entities
Name Status Ownership Country
---- ------ --------- -------
ATS, INC. Parent Shareholders USA
ATSR Subsidiary - 100% ATS, INC. USA
ATSI Subsidiary - 100%
(Parent of International
Operations) ATS, INC. Austria
WGH Subsidiary - 100% ATSI Austria
KVM Subsidiary - 100% ATSI Austria
MARK IT Subsidiary - 60% ATSI Austria
Basis of Consolidation
The accompanying consolidated financial statements as of December 31,
1997 and 1996, include the accounts of AUSTRIAN TRADING SERVICES, INC.
and its wholly and partly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in
consolidation.
Revenue Recognition
Fees for the hotel and therapy center are reported in the period the
related services are rendered at amounts billed to patients and
third-party payors. Revenue from sales of products are recognized upon
shipment to customers.
- 8 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 1 Summary of Significant Accounting Policies and Other Information
(Continued)
Marketable Equity Securities
Investments in public companies are carried at quoted market price and
are classified as available-for-sale. Unrealized gains and losses are
recorded as a component of shareholders' equity.
Property and Equipment and Depreciation
Property and equipment of WGH was recorded at its estimated fair values
as of October 23, 1995 plus the cost of additions from October 24, 1995
through December 31, 1996. All other property and equipment is recorded
at cost. Depreciation of property and equipment has been provided using
the straight-line method over the estimated useful lives (5 to 25
years) of the related assets.
Goodwill
Goodwill recorded in the acquisition of COMPONENTS, MARK IT and ATSR is
being amortized on a straight-line method over 5 -15 years.
License
Costs incurred in acquiring and securing rights of proprietary items
are being amortized on a straight-line method over a five year life
unless determined to have less value by Management (see Note 6).
Organization Costs
Costs incurred in the formation of ATSR are being amortized on a
straight-line method over a five-year life.
Income Taxes
Deferred income taxes are determined in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Under the liability method specified by SFAS No. 109, deferred tax
assets and liabilities are determined based on the difference between
the financial statement and tax bases of assets and liabilities as
measured by the enacted rates which will be in effect when these
differences are settled or realized. Deferred tax expense is the result
of changes in deferred tax assets and liabilities.
Foreign Currency Translation
Assets and liabilities of the foreign subsidiaries have been translated
using the exchange rate at the balance sheet date. The average exchange
rate for the period has been used to translate revenue and expenses.
Translation adjustments are reported separately and accumulated in a
separate component of equity (foreign currency translation adjustment).
- 9 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 1 Summary of Significant Accounting Policies and Other Information
(Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles, requires the use of estimates based on
management's knowledge and experience. Accordingly, actual results
could differ from those estimates.
Financial Instruments
The carrying amount of cash, accounts and notes receivable, accounts
payable and other liabilities approximates fair value as of December
31, 1997 because of their short maturities.
The carrying value of the fixed rate long-term debt approximates fair
value since the interest rate associated with the long-term debt
approximates the current market interest rate.
Loss Per Share
Effective year ended December 31, 1997, the Company adopted SFAS No.
128 "Earnings Per Share" (EPS). This statement establishes standards
for computing and presenting EPS, replacing the presentation of
currently required primary EPS with a presentation of Basic EPS. For
entities with complex capital structures, the statement requires the
dual presentation of both Basic EPS and Diluted EPS on the face of the
statement of operations. Under this new standard, Basic EPS is computed
based on weighted average shares outstanding and excludes any potential
dilution: Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock or from other contracts to
issue common stock and is similar to the currently required fully
Diluted EPS. SFAS 128 was effective for financial statements issued for
periods ending after December 15, 1997 and requires restatement of the
prior years' earnings per share. Prior year amounts for net loss per
common share were recomputed in accordance with SFAS No. 128; however,
such recomputed amounts were unchanged from those previously reported.
Recoverability of Long Lived Assets
Effective January 2, 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". The Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. The Company is not aware of
any events or circumstances which indicate the existence of any
impairment which would be material to the Company's annual financial
statements, except for the material decrease in the carrying value of
the "Mix and Drink" license. (See Note 8).
- 10 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 1 Summary of Significant Accounting Policies and Other Information
(Continued)
Accounting for Stock-Based Compensation
Compensation costs attributable to stock option and similar plans are
recognized based on any differences between the quoted market price of
the stock on the date of the grant over the amount the employee is
required to pay to acquire the stock (the intrinsic value method under
Accounting Principles Board Opinion 25). Such amount, if any, is
accrued over the related vesting period, as appropriate. Effective
January 1, 1996, the Company implemented SFAS No. 123, "Accounting for
Stock-Based Compensation". The Statement encourages employers to
account for stock compensation awards based on their fair value on
their date of grant. Entities may choose not to apply the new
accounting method but instead, disclose in the notes to the financial
statements the pro forma effects on net income and earnings per share
as if the new method had been applied. The Company has adopted the
disclosure-only approach of the Standard.
Recently Issued Accounting Pronouncements
During June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income". This Statement establishes standards for
reporting and display of comprehensive income and its components. The
reporting and display requirements of SFAS No. 130 are effective for
fiscal years beginning after December 15, 1997. The Company presently
intends to comply with this Statement for its year ended December 31,
1998.
During June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". This Statement
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and related disclosures about products and services,
geographic areas and major customers. The reporting and disclosure
requirements of SFAS No. 131 are effective for periods beginning after
December 15, 1997. The Company presently intends to comply with this
Statement for its year ended December 31, 1998.
- 11 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 2 Management's Plans For Financial Reorganization
The Company's consolidated financial statements have been presented on
the basis that it is a going concern which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business. As reflected in the financial statements, the Company has
incurred losses of $3,999,144 and $1,787,625 for the years ended
December 31, 1997 and 1996, respectively, and had a working capital
deficit of $400,160.
Management's discussions of each subsidiaries' operations in the past,
as compared to future expectations, attempts to address this "going
concern" issue.
WGH
After WGH was bought in September 1995 by AUSTRIAN TRADING
SERVICES GmbH a reorganization took place. The managing board
is operating a "therapy center" and qualified to be reimbursed
through health insurance plans. In order to obtain an approval
by the Austrian authorities, certain requirements had to be
fulfilled. After the reconstruction of the building was
completed, WGH had gotten the approval from the Austrian
authorities in October 1996. Since then, the management board
is able to cooperate with health insurance plans. WGH's
ability to continue as a going concern is contingent on the
further cooperation with the sickness insurance plans of
Austria.
Although the total shareholder's equity of WGH is negative, it
is not heavily indebted since there are hidden reserves in
"land with buildings". According to the opinion of an expert,
the hidden reserves approximate $3,800,000.
In February 1998, an application form was filed for opening
the bankruptcy over the property of WGH by the Austrian tax
authority. Since the Corporation with sickness insurance plans
could be enlarged at the end of 1997 and continuing in 1998,
management is optimistic that an "in court settlement" will be
agreed upon with creditors.
Revenue is up 47% presently in 1998 and no additional funding
is needed for this subsidiary.
KVM
ATSI's second subsidiary, KVM, has had an operating loss of
$1,258,803 in its second fiscal year 1997. The loss in 1997
was due to the fact that the license was written down by
Management by $1,150,827. This amortization was necessary
since only 12,000 units were sold in 1997 and the idea of the
new product was copied by other companies and sold at a much
lower price than KVM was able to sell since the cost of the
license had to be amortized. Another reason was that the
distribution Company, VIP GmbH, had difficulties contacting
wholesalers. In order not to be dependent on VIP GmbH,
management arranged a new contract with the inventor of the
glass. In the beginning of 1998, KVM received the patent for
the American and German market. KVM's ability to continue as a
going concern is contingent on higher sales volume and
successful complaints against the companies, who have copied
the glass.
- 12 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 2 Management's Plans For Financial Reorganization (Continued)
MARK IT
MARK IT was founded in 1997. The Company has taken over 60% of
the shares. MARK IT anticipates selling stamps throughout the
world. In 1997, the tools for production had to be designed
and produced. MARK IT is going to sell the first stamps in
1998.
MARK IT has had an operating loss of $98,430 in its first
fiscal year 1997. Since this loss has its origin in planned
losses at the beginning, 40% of the nonrepayable grant to the
amount of $34,348 is shown as goodwill and amortized within a
term of five (5) years.
ATSR
ATS RESTAURANT is fully funded and Management expects this
entity to produce profits in 1998. Also, the Company's loan to
the restaurant should produce interest income of approximately
$25,000 in 1998.
BAKERY MOUDRY
This new partly-owned subsidiary in 1998, produced
approximately $300,000 of profit in 1997. However, ATSI's
obligation to the bank for this entity would be short of
$180,000 for 1998 assuming a comparable profit as 1997.
Therefore, additional funding will be needed to support this
entity during 1998.
POWER POOL
A new partly-owned subsidiary in 1998, to market soft drink
cans bearing promotional images. The present management of
this subsidiary has successfully achieved this marketing with
a prior entity. Presently in 1998, POWER POOL is positive in
cash flow.
To summarize cash flow for 1998, Management anticipates the following
transactions which are not part of the above mentioned subsidiary
operations:
o Sales from marketable security $ 400,000
o Payment of notes receivable 250,000
o Payments of underwriters receivable 800,000
-----------
Total anticipated cash flow to be used for
1998 working capital $1,450,000
==========
All additional funds received from Underwriters' receivable will be
used to pay off the bank debts and use for additional investments.
- 13 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 3 Receivables (Payables) with Officer
The principal officer of the Company, in the normal course of business
investment ventures, borrows and lends funds to the Company on a demand
basis with an annual interest rate of 8.5% on average net outstanding
balances.
The outstanding receivable (payable) balances on this officer loan as
of December 31, 1997 and 1996 is as follows:
1997 1996
---------- -------
Receivable - K. Reichenberger $252,806 $ --
Payable - K. Reichenberger (75,150) (47,465)
---------- --------
Net due to (from) the Company $177,656 ($47,465)
======== =======
Note 4 Note Receivable
The Company entered into an agreement with a Chilean corporation to
loan the corporation up to $1,100,000 between October 1995 and January
1996 with interest. The business of the Chilean corporation is the
purchase of land for planting fast growing eucalyptus trees and
harvesting the trees for lumber. The Company was to receive a one year
interest payment in the amount of $82,700 on December 15, 1996. The
entire principal amount ($1,033,521) plus all outstanding interest
thereon ($82,700) were due on December 15, 1997. The Company has the
right to convert, at any time prior to the repayment of the loan, the
outstanding amount into shares of capital stock of the corporation. The
Company would receive that number of shares necessary to give the
Company that percentage of the outstanding capital stock of the
corporation that corresponds to the percentage that the loan represents
of the corporation's total equity (approximately 30%). The Chilean
corporation is not affiliated with the Company. During 1997, this note
receivable was materially repaid along with the related interest.
The outstanding balances of this note receivable were $215,969 and
$1,116,221 as of December 31, 1997 and 1996, respectively.
- 14 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 5 Property and Equipment
Property and equipment consists of the following:
1997 1996
---------- ----------
Land $ 485,876 $ 485,876
Buildings and improvements 5,407,257 5,313,777
Machinery and equipment 77,455 50,050
Furniture and fixtures 975,235 863,548
---------- ----------
6,945,823 6,713,251
Less: accumulated depreciation 1,068,629 598,159
---------- ----------
5,877,194 6,115,092
Construction in progress 2,374 2,740
---------- ----------
5,879,568 6,117,832
Foreign exchange differences (908,545) (284,628)
---------- ----------
$4,971,023 $5,833,204
========== ==========
Note 6 Marketable Equity Security
At December 31, 1995, the Company purchased 138,000 shares of CLARITI
TELECOMMUNICATIONS INTERNATIONAL, LTD. (formerly SIGMA ALPHA GROUP,
LTD.) (CLARITI) for $657,185. CLARITI is developing wireless
telecommunications products which utilize radio frequencies transmitted
by FM radio stations. During the year ended December 31, 1996, an
additional 562,000 shares were purchased for $2,682,848 which increased
its holdings to 700,000 shares (approximately 3.9% ownership) at a cost
of $3,340,033. During 1997, the Company sold 305,630 shares of CLARITI
for $653,022 resulting in a loss of $805,073. At December 31, 1997 and
1996, this investment is stated at the average of the closing bid and
asked price of $640,851 and $2,012,500, respectively. Unrealized losses
of $1,241,087 and $1,327,533 in 1997 and 1996, respectively, are
recorded as a component of shareholders' equity. CLARITI is not
affiliated with the Company.
Note 7 Notes Receivable - Investments
Investment joint venture agreements with unaffiliated third parties
have resulted in notes receivable due the Company for these investments
as follows:
Annual Interest Amount Due Maturity
Note Receivable From Rate 12/31/97 Date
-------------------- --------------- ---------- --------
PLATINUM None stated $455,000 None stated
FILL IN (a) 5.5% 194,020 2/98
POWER POOL 5.5% 29,402 None stated
--------
$678,422
========
(a) Note receivable was repaid in full in February, 1998.
- 15 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 8 License Agreement
On October 31, 1995 and amended April 24, 1996, the Company entered
into an agreement with an unaffiliated third party to license the
rights to produce and market a proprietary new glass product. This "Mix
and Drink" glass enables the user to conveniently mix substances and
then drink the mixture. Sales are dependent upon the approval of its
patent applications in the Western Hemisphere. During March 1997, the
Company received a Notice of Allowance of its application from the U.S.
Patent and Trademark Office for its new glass product. After certain
fees were paid, the application was issued as a patent in 1998. The
original purchase price for the license was approximately $1,142,000
and amended in April 1996 for a total cost of approximately $1,846,000.
The cost of the licensing agreement acquired was recorded as an asset
and was being amortized over five years. Due to the patent not being
issued until early 1998, Management believes the Company lost its
advantage of early marketing and now has direct competition for this
product. Therefore, Management has written the license value downward
17,500,000 schillings (approximately $1,400,000) to reflect a fair
value of this license of $79,158 as of December 31, 1997.
Note 9 Notes Payable, Bank
The Company periodically maintains corporate bank overdrafts which,
according to ATSI's Austrian banking relationship, immediately become
short-term lines of credit against the principal officer's (Mr.
Reichenberger) individual line of credit and bank guarantee.
Note 10 Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ------------
<S> <C> <C>
Note payable to a bank in monthly installments of 130,000
schillings ($10,300 at December 31, 1997 exchange rate)
including interest at 6.5%. $ 862,708 $ -
Note payable to a bank in monthly installments of 86,500
schillings ($6,850 at December 31, 1997 exchange rate)
including interest at 8.5% through March 31, 2014. The
The note is collateralized by the building. 722,907 862,520
Note payable to a bank in monthly installments of 150,000
schillings ($11,900 at December 31, 1997 exchange rates)
including interest at 5.5% beginning May 1, 1997. The note is
due May 31, 2001 and is collateralized by the
building. 465,762 737,027
---------- ----------
2,051,377 1,599,547
Less: current portion 221,868 254,738
---------- ----------
$1,829,509 $1,344,809
========== ==========
</TABLE>
- 16 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 10 Long-Term Debt (Continued)
The aggregate maturities of the long-term debt are as follows:
Year Ending December 31,
------------------------
1998 $ 221,868
1999 235,803
2000 250,635
2001 162,603
2002 120,199
Thereafter 1,060,269
----------
$2,051,377
==========
Interest expense for all debt was $260,661 and $353,773 for the years
ended December 31, 1997 and 1996, respectively.
Note 11 Due to Former Shareholders
The amounts due to former shareholders mature on December 31, 1998.
Interest is payable annually at 8 1/2%.
Note 12 Capital Stock
In January and February 1996, the Company accepted the subscription for
the purchase of 1,400,000 shares of common stock at approximately $2.25
per share and 2,500,000 shares of common stock at approximately $2.50
for a total of $9,400,000 of which proceeds of $4,628,444 had been
received as of December 31, 1995. The balance of the proceeds were
received during 1996.
In September 1996, the Company accepted the subscription for the
purchase of 300,000 shares of common stock at approximately $3.50 per
share for a total of $1,050,000 of which 436,218 had been received as
of December 31, 1996. The balance of the proceeds of $613,782 was due
from the underwriter at December 31, 1996.
The Company maintains an Employee Stock Purchase Plan whereby stock
options may be issued to certain employees, consultants, officers and
directors at a price of $2.25 per share. Shares issued under the plan
are restricted and must be held for at least two years. The Company has
reserved 1,000,000 shares of common stock under the plan. In December
1996, 69,444 shares were issued at $2.25 per share for $156,250, of
which proceeds of $92,875 had been received as of December 31, 1996.
The balance of the proceeds of $63,375 was received in February 1997.
No shares in the Company were issued under this Employee Stock Purchase
Plan during 1997.
- 17 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 12 Capital Stock (Continued)
In April, May and June 1997, the Company accepted an aggregate of four
subscription agreements from P.T. PLATINUM PERKASA NUSANTARA, an
Indonesian company ("Platinum") for the purchase of 2,000,000 shares
each of the Company's common stock at $2.50 per share. Pursuant to the
subscription agreements, PLATINUM paid the Company an aggregate of
$200,000 in cash and the Company accepted four promissory notes from
PLATINUM in the amount of $4,950,000 each ("Notes"). The Notes had
originally demanded payment on various dates through August 1, 1997.
The Company then extended repayment of the Notes to August 1, 1998. The
Company issued 7,500,000 of the 8,000,000 shares to PLATINUM and its
designees, and placed 7,000,000 of such shares in escrow pending full
satisfaction of the Notes. The Company delivered 500,000 of the shares
to PLATINUM. As of December 31, 1997, the Company had received an
additional $5,300,000 as payment against the Notes. Therefore, as of
such date, PLATINUM had paid the Company $5,500,000. Subsequently, on
December 31, 1997, the Company entered into an agreement with PLATINUM,
whereby, among other things, PLATINUM waived all right, title and
interest to the unissued 500,000 shares and agreed to the release from
escrow of 1,100,000 shares to be returned to the Company.
In October 1997, the Company accepted a subscription agreement from a
foreign investor pursuant to Regulation S for the purchase of 2,000,000
shares of common stock at a purchase price of $1.00 per share. The
Company received $100,000 of such funds as of December 31, 1997 and an
additional $45,000 as of May 1, 1998.
Note 13 Income Taxes
Deferred income tax assets and liabilities are computed annually for
temporary differences between the financial statement and tax basis of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to
the periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities.
There are no significant temporary differences for the years ended
December 31, 1997 and 1996.
As of December 31, 1997, the Company had approximately $3,302,671 of
net operating loss carryforwards expiring through 2011, available to
offset future U.S. Federal income taxes. Also, as of December 31, 1997,
the Company had approximately $6,494,000 of net operating loss
carryforwards with no expiration period available to offset future
foreign income taxes.
- 18 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 13 Income Taxes (Continued)
As a result of the capital transactions and change in control described
in Notes 1 and 12, the Company is subject to limitations on the future
utilization of its U.S. net operating loss carryforwards. These
limitations, described in Section 382 of the Internal Revenue Code,
limit the amount of future taxable income which may be offset by
pre-change net operating loss and capital loss carryforwards. This
limitation is calculated by reference to the value of the Company
immediately before the change date, multiplied by a discount factor,
known as the "long-term tax-exempt rate". Due to the limited market for
the stock, its is difficult to ascertain what value would be assigned
to the Company for purposes of Section 382. However, Section 382 of the
Code also provides that in the event the business enterprise of the
loss corporation is not continued for the two year period commencing on
the change date, the net operating loss carryforwards may no longer be
available.
There is no income tax benefit for operating losses for the years ended
December 31, 1997 and 1996 due to the following:
Current tax benefit - the operating losses cannot be carried
back to earlier years.
Deferred tax benefit - the tax benefit of the net operating
losses described above were offset by a 100% valuation
allowance. Management believes that a valuation allowance is
considered necessary since it is more likely than not that the
deferred tax asset will not be realized through future taxable
income.
Note 14 Concentration of Credit Risk
WGH, the therapy center, grants credit without collateral to its
patients, most of whom are insured under third party payor agreements.
The Company maintains cash balances in high credit quality
institutions. The Company believes it is not exposed to any significant
credit risk on cash balances and accounts receivable.
Note 15 Rental Commitments
The Company leases its various facilities under operating leases
expiring in various years through 2009.
Minimum future rental payments under non-cancelable operating leases
having remaining terms in excess of 1 year as of December 31, 1997 for
each of the next 5 years and in the aggregate are:
December 31, Amount
------------ ------
1998 $ 103,863
2000 109,863
2001 115,863
2002 93,500
2003 99,500
Thereafter 792,500
----------
Total minimum future rental payments $1,315,089
==========
- 19 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 16 Subsequent Events
KVM, a wholly-owned subsidiary of ATSI, was formally issued a patent on
its "Mix and Drink" glass in the first quarter, 1998. (See Notes 2 and
8).
In February 1998, an application form was filed for opening the
bankruptcy over the property of WGH by the Austrian tax authority.
Since the Corporation with sickness insurance plans could be enlarged
at the end of 1997 and continuing in 1998, management is optimistic
that an "in court settlement" will be agreed upon with creditors.
POWER POOL GETRAENKEVERTRIEBS GmbH, a German company formed in January
1998, ("POWER"), intends to market and distribute promotional soft
drinks through exclusive licensing agreements with corporate,
entertainment and sport entities. ATSI received a 45% interest in POWER
by loaning $119,000 to POWER. As background to the POWER transaction,
the Company loaned approximately $189,000 to FILL IN HANDEL UND
VERTRIEB, GmbH ("FILL IN), a German corporation which markets a product
similar to the POWER product, and issued 109,500 shares of the
Company's common stock to Johann Fleishman, one of three FILL IN
principals, in exchange for 25% ownership interest for ATSI in FILL IN.
A balance of $164,250 was owned to ATSI by FILL IN as payment for the
aforesaid shares. Two of the principals of FILL IN agreed to terminate
their participation in FILL IN. The two principals subsequently formed
POWER. ATSI also terminated its participation in FILL IN by agreement
dated February 6, 1998. According to the aforesaid agreement, (i) FILL
IN satisfied its outstanding loan with the Company by paying the
Company $100,000 in cash and the balance in the form of goods and
materials. FILL IN also returned 36,500 of the shares of the original
109,500 shares to the Company. The Company subsequently invested
$119,000 in POWER, of which $30,000 represented cash and $89,000
represented the goods and materials returned to the Company by FILL IN
pursuant to the aforesaid agreement.
In March 1998, the Company entered into an agreement with MOUDRY
BACKWARENINDUSTRIE GESELLSCHAFT GmbH ("BAKERY") whereby the Company
acquired a 75% equity interest in the BAKERY in consideration for
repayment by the Company of the BAKERY's outstanding loan to an
Austrian bank, Bank fuer Tirol und Vorarlberg. The BAKERY owed the Bank
approximately $4,000,000. The Company agreed to pay the bank $40,000
per month until the loan is repaid. Pursuant to this agreement, the
bank reduced the loan from $4,000,000 to $1,500,000. On April 15, 1998,
the Company made its first payment to the Bank of $40,000. Should the
Company default on repaying the loan, the agreement will be terminated
and the Bank will have no recourse against the Company. The Company's
75% interest in the BAKERY's capital stock is held in escrow pending
full satisfaction by the Company of BAKERY's aforesaid debt. The BAKERY
owns a 30,000 square foot building in Stockerau, a city on the
outskirts of Vienna, Austria. The BAKERY occupies approximately 7,200
square feet. The property was valued in April 1998 at $1,200,000. The
equipment in the building was valued at $1,300,000.
- 20 -
<PAGE>
AUSTRIAN TRADING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 16 Subsequent Events (Continued)
In 1996, the Company entered into an agreement to fund a wax museum in
Vienna, Austria and has deposited $200,000 towards this agreement. The
Company's capital requirement for the wax museum is approximately
$2,000,000, which the Company has not yet fulfilled. The terms of the
agreement do not set forth a date certain for the infusion of the
additional funds, and the Company intends to provide the additional
funds only upon consummation of the PLATINUM agreement. Should the
PLATINUM agreement not be consummated, the Company is under no
obligation to provide the aforesaid funds.
On July 4, 1997, the Company entered into an agreement with Hans
Stuchetz, a foreign individual ("Stuchetz") to establish a Swiss
company, VILLA SASSA VERWALTUNGS SA/AG ("VSV") for the purpose of
acquiring VILLA SASSA HOTEL, located in Lugano, Switzerland, from Union
Bank of Switzerland. The VILLA SASSA HOTEL is a 134 room luxury hotel
built in or about 1990 at a construction price of $81,355,932. The
purchase price for the hotel was $27,118,644 and would be financed by
Rieger Bank, an Austrian Bank. Initially, the Rieger Bank loan was
secured by approximately $10,000,000 in cash from Stuchetz and
5,000,000 shares of the Company's common stock. Upon consummation of
the transaction, the Company would own 49% of VSV and Stuchetz would
own 51% . Rieger Bank was to accept a mortgage on the hotel as security
for its loan. Upon issuance of the mortgage, Rieger Bank would release
the aforesaid collateral. The Company issued the 5,000,000 shares to
VSV and delivered the shares to Rieger Bank to be deposited in escrow
pending the approval a mortgage. Stuchetz deposited the sum of
$10,000,000 in Rieger Bank. Subsequently and as of May 1, 1998. Union
Bank of Switzerland has notified the Company that it will require more
time to review the transaction. In the meantime, Rieger Bank has
returned the Company's 5,000,000 shares to the Company. The Company
will likely cancel such shares. The transaction has not progressed
since January 1998, and there can be no assurance that the transaction
will be consummated.
- 21 -
[LETTERHEAD OF SILVERMAN, COLLURA, CHERNIS & BALZANO, P.C.]
February 12, 1999
Austrian Trading Services, Inc.
Landstrasse 66/3
A-4020 Linz, Austria
Re: Registration Statement on Form 10-SB
Gentlemen:
We have acted as counsel to Austrian Trading Services, Inc.
("Company"), a Delaware corporation, pursuant to Amendment No. 1 to the
Registration Statement on Form 10-SB, as filed with the Securities and Exchange
Commission on February 12, 1999.
In acting as counsel for the Company and arriving at the opinions as
expressed below, we have examined and relied upon originals or copies, certified
or otherwise identified to our satisfaction, of such records of the Company,
agreements and other instruments, certificates of officers and representatives
of the Company, certificates of public officials and other documents as we have
deemed necessary or appropriate as a basis for the opinions expressed herein.
In connection with our examination we have assumed the genuineness of
all signatures, the authenticity of all documents tendered to us as originals,
the legal capacity of natural persons and the conformity to original documents
of all documents submitted to us as certified or photostated copies.
Based on the foregoing, and subject to the qualifications and
limitations set forth herein, it is our opinion that:
1. The Common Stock has been duly authorized and is validly issued,
fully paid and non-assessable.
We express no opinion with respect to the laws other than those of the
State of New York and Federal Laws of the United States of America, and we
assume no responsibility as to the applicability thereto, or the effect thereon,
of the laws of any other jurisdiction.
<PAGE>
Austrian Trading Services, Inc.
February 12, 1999
Page 2
We are furnishing this opinion to the Company solely for its benefit in
connection with the Registration Statement. It is not to be used, circulated,
quoted or otherwise referred to for any other purpose.
Very truly yours,
SILVERMAN, COLLURA, CHERNIS
& BALZANO, P.C.
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