<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
1st amendment
General Form For Registration of Securities
of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Act of 1934
COMPOSITE AUTOMOBILE RESEARCH, LTD.
(Name of Small Business Issuer in Its Charter)
Alberta, BC 93-1202663
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
635 Front Street, El Cajon, CA 92020
(Address of principal Executive Offices) (Zip Code)
(619)444-7254
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
<S> <C>
- -------------------------------- --------------------------------------
- -------------------------------- --------------------------------------
</TABLE>
Securities to be registered under Section 12(g) of the Act:
Common Stock - No Stated Par Value
(Title of Class)
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10SB
ITEM 1
DESCRIPTION OF THE BUSINESS
General
Composite Automobile Research, Ltd. ("CAR") is filing this Form 10-SB on a
voluntary basis in order to make CAR's financial information equally available
to any interested parties or investors and meet certain listing requirements for
publicly traded securities.
CAR has no current plans with respect to deregistration.
CAR will voluntarily make available public information to its shareholders in
the event its obligation to file Exchange Act reports is terminated.
History of the Company:
CAR was incorporated in Calgary, Alberta on January 5, 1996 to provide research
and development as well as financing for a new business venture in the
automotive arena. CAR acquired the shares of World Transport Authority, Inc., a
Nevada Corporation ("WTA") and Thunder Ranch, Inc., a Nevada Corporation on
March 19, 1996 in exchange for 8,000,000 shares (2,666,001 shares after the 3 to
1 reversal of shares on June 3, 1997) of CAR stock.
WTA, was acquired and set up to perform all daily business operations and
develop an inexpensive vehicle specifically for developing nations. Several
prototype vehicles were built, based upon a design called the "Island Car" from
Inno Tech Engineering Services, a Texas company owned by Jahan Eftekhar who is
also a shareholder of CAR. In December, 1996 WTA abandoned the Island Car design
and created a completely new design called the WorldStar using advanced
fiberglass and composite materials. All rights, including intellectual rights
and trademarks for the WorldStar were created by employees of WTA beginning in
December, 1996 and all such rights and trademarks are owned solely by WTA. Mr.
Eftekhar has acknowledged the foregoing in an Affidavit dated January 9, 1998.
Thunder Ranch, Inc. was acquired to provide production facilities, equipment,
and experienced technicians necessary for the support of the WTA vehicle design.
Thunder Ranch, Inc. was in the business of selling "kit" cars, and purportedly
was to provide public exposure for the WTA vehicle concept through automobile
shows and "kit" car magazine articles. It became apparent by June, 1996 that
Thunder Ranch, Inc. did not provide the necessary production support and public
relations results required. In order to remove the Thunder Ranch, Inc.
operations from association with CAR and WTA, an Agreement dated September 27,
1996 was signed, in which Mr. Thomas McBurnie exchanged his CAR stock and rights
in exchange for the transfer of Thunder Ranch, Inc. to Mr. McBurnie.
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Business Development:
CAR is an automotive technology company that sells a combination of products and
services designed to enable its licensees to manufacture, assemble and market
rugged, low-cost vehicles worldwide under the brand name WorldStar. CAR's
target market consists of 189 developing nations with more than two-thirds of
the world's population. Demand for automobiles in developing nations is rising
rapidly, especially at the basic transportation end of the market. As a result,
CAR is positioned to be a significant player in one of the most dynamic global
growth industries of the 21st century.
Business of the Issuer:
Overview:
CAR sells a "Master License" for each predetermined geographic region (or each
country, depending on the estimated vehicle sales in the market). The price for
this Master License varies, again depending upon the population (250,000 persons
per facility), from $250,000 to $50,000,000 or greater. The Master License
holder is responsible for selling our manufacturing licenses only in their
country or region. They will provide all local support for the manufacturing
license holder's marketing, sales and training utilizing their knowledge of
local customs and language. The Master License holder reports directly to CAR
and is responsible to do whatever is necessary to make each license holder
successful.
CAR through its Master License holder sells each individual license to
manufacture our utility style vehicle. The current price for one license is
$372,000, of which the Master Licensee receives $112,000, and CAR receives
$260,000. For this price, the individual license holder owns 70% of the license,
and the Master Licensee owns 30%. CAR has determined this will unite the network
of Master License holders with their individual license holders in order to
provide the maximum incentive for success in every region and country.
If it is determined that a specific region or country is not large enough or
other factors prohibit the sale of a Master License, CAR acts as the Master
Licensee, providing all training and retaining a 30% interest in the license.
CAR controls and coordinates the ordering of all required parts and materials
from its network of international suppliers. Shipments to the license holders
are made using just-in-time inventory management procedures.
CAR's decentralized "micro-enterprise" approach to auto-making is ideally suited
to the vehicle manufacturing needs of developing nations. The company sells and
services WorldStar(R) licenses, each of which include a turnkey
micro-manufacturing facility and a license to produce as many as 324 vehicles
every twelve months. CAR provides purchasing services that give it's licensees
the same just-in-time inventory management and buying power enjoyed by much
larger companies. CAR also conducts research and development to improve product
design and make available new models and options.
Composite technology developed in the United States makes the WorldStar(R) both
inexpensive and simple to produce on a small scale. Its design features an
engine cage supporting a Volkswagen "Boxer" engine and front-wheel-drive
transaxle, which attaches to a single-mold body made of fiberglass reinforced
plastic -- one of the strongest and most resilient materials available.
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The result is an easily serviced, durable vehicle with fewer than 500 parts,
consisting of proven off-the-shelf technology.
Developing countries presently import vehicles from North America, Europe and
Eastern Asia. The average buyer of an import vehicle must contend with expensive
and hard to find spare parts and service. One of the advantages for a buyer of
the WorldStar(R) is the manufacturer is close by to provide local service and
spare parts. Because the vehicle is much simpler and has significantly fewer
parts that the standard small production vehicle of today service requirements
are greatly reduced.
The WorldStar(R) Vehicle:
The vehicle, in its standard pickup configuration, is a 1500 lb. capacity truck
that can hold a driver and two passengers next to the driver. With the addition
of a snap-on van shell the WorldStar(R) then becomes a lockable delivery van.
Removal of the tailgate of the pickup and the addition of a simple bolt-in
seating module in the bed area of the truck transforms the WorldStar(R) into an
11-passenger taxi. CAR has specifically designed the vehicle in this manner and
believes it is the most inexpensive and practical utility vehicle produced
anywhere in the world. The target market for the WorldStar(R) is the developing
nations of the world and not the industrially advanced nations such as the
United States, Canada and Western Europe. The Master License holder for Mexico
has secured all permits necessary to begin production of the WorldStar(R)
vehicle in Tijuana, Mexico on April 1, 1998 for export purposes. The permit for
Mexican sales and use of the WorldStar(R) vehicle has been applied for through
SECOFI and is pending. The permit process in Honduras is the responsibility of
Diamond Plastics and is pending. C.B.N. WorldStar Philippines has passed a
preliminary process approval and will file for a final permit in the Philippines
through the Vehicle Manufacturing Department of the Board of Investment
Applications, with approval anticipated by June, 1998.
The layout of the vehicle varies from a pickup to an open taxi to a van without
changing the basic structure or method of manufacture. The body is constructed
of inner and outer shells bonded together forming the desired vehicle. To that
structure the front drive package is bolted, then rear suspension, front body
shell, windshield, gages and wiring and the vehicle is ready to drive.
The WorldStar(R) is a composite vehicle manufactured from plastic resins,
structural foam, other core materials and fiberglass. The configuration of the
materials provide adequate structure and strength for the vehicle, and has been
proven by a Finite Element Analysis and the design and testing of the prototype
vehicles. The basic version is the pickup with the 1.6 liter VW Boxer engine.
The transaxle is a four speed front wheel drive. The engine/transaxle plus
suspension is bench assembled to a heavy duty tubular engine cage and then the
complete drive is assembled and attached to the composite body.
The vehicle itself can evolve from a basic piece of transportation into a more
prestigious vehicle filled with amenities - but the method of construction
remains the same. Most major manufacturers shun this approach because their
investment is in steel, steel fabricating equipment, robotic welding equipment,
etc. and that investment is enormous.
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The design of the WorldStar(R) vehicle is complete with no material
developments or uncertainties remaining prior to the sale of vehicles. CAR has
produced two complete prototypes of the WorldStar(R) with ongoing engineering
testing performed by Comtec in California. The WorldStar has been subjected to
in-house testing, road testing, and off-road testing. In addition the
WorldStar(R) was entered in a road race in Battle Mountain, Nevada, in 1997 and
finished the race with an average speed of ninety miles per hour with no
mishaps. Comtec, Inc. of Irvine, California will complete all engineering
testing to include structural adequacy, material strength, and crash worthiness
at a remaining cost of $50,000 by September, 1998. The Company has allocated
$50,000 to complete the above testing.
The first vehicle sales are scheduled to occur in May, 1998 by the license
holder for the first production facility in Tijuana, Mexico.
The Market:
There is a vast market for the WorldStar(R). Over five billion people in the
world do not have automotive transportation. Automobile manufacturers have been
slow in meeting the transportation needs of this emerging market. When
traditional automobile manufacturers sell their vehicles in developing
countries, transportation costs and tariffs greatly inflate the selling price,
in many cases adding up to 200% to the price. The target market for the
WorldStar(R) is the developing nations of the world and not the industrially
advanced nations such as the United States, Canada and Western Europe. Existing
automobiles are designed for sophisticated roads and infrastructure and bear the
cost of extensive governmental regulation. The WorldStar(R) has been designed
for unimproved roads. It has up to 10 inches of ground clearance, will get over
35 miles to the gallon, or use propane where gasoline is not readily available.
The car will be manufactured, sold and serviced locally by persons who speak the
same language as the customer. The basic design of the WorldStar(R) can be made
in various colors and configured as a pickup, van or taxi. The WorldStar(R) is a
basic transportation vehicle.
"Emerging markets hold the key" stated a report released by the U.S. Office of
Automotive Affairs in 1996. "These markets accounted for almost 21 percent of
worldwide motor vehicle output and sales in 1995. Projected long-term growth
rates for motor vehicle sales in many emerging markets are ten to fifteen times
higher than those in the United States and Europe. Almost all this growth
represents new vehicle sales, rather than those of replacements. Governments of
the developing world now play a major role in shaping the global motor vehicle
industry through their efforts to develop local manufacturing capability." CAR's
mission is to aid these developing nations by strategically placing
micro-manufacturing facilities within their borders to build infrastructure,
create jobs, teach new skills and act as a magnet for new business rather than
importing vehicles from large factories located outside the country.
It is far more economical and efficient to ship bulk material and components to
local manufacturers than to transport completed vehicles from a distant
manufacturing facility. The WorldStar(R) has been designed for local manufacture
by semi-skilled workers. The local workers who build the WorldStar(R) can be
paid an above-average wage that allows them to also be buyers of these vehicles.
(The Henry Ford Plan).
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The management of CAR believes CAR will prevail in the market place through its
unique manufacturing methods that exactly fit the needs of smaller nations with
restricted capital resources. The response to CAR's manufacturing strategy from
interested business people in developing nations has been overwhelming. The
marketplace today rewards innovation and quality new concepts with rapid
feedback and exponential growth. As examples of companies that combined small
size in their market with dramatic innovation, one can look to what occurred in
United States and Asian steel production when the mini-mill concept displaced
the traditional steel mill, Internet start-ups with spectacular sales competing
against traditional distribution sources, and the massive response to
Volkswagen's reintroduction of its "new" Beetle concept car in 1998.
The Competition:
There are very few automobiles in the world today with a selling price under
$10,000. The Volkswagen Beetle, manufactured in Mexico, is one of the lowest
priced automobiles at a selling price of approximately $8700. In the major
automobile manufacturing countries, Japan, Korea and the United States, the
entry level price is well above $10,000. The raw materials and components for
the WorldStar(R) will cost the local manufacturer about $4200. The manufacturer
adds 100-200 hours of labor at the local rate and sets the sales price. We
estimate the sales price of the WorldStar(R) to be approximately $6,000 to
$7,000 per vehicle. At a direct cost per vehicle of less than $5,000 before
tariffs, the WorldStar(R) has a formidable price advantage over its competition.
We estimate that the total operating costs of the WorldStar(R) are approximately
one-third that of competing vehicles. Developing nations often levy heavy import
duties on finished products, but not on parts. In many markets WorldStar(R) will
thus have as much as a sixfold cost advantage over its nearest competitors.
Major automotive manufacturers, such as Chrysler, GM, Ford and Diahatsu (see
comparison chart below) have also identified this untapped market and begun
design of their concept vehicles, which they estimate to be ready for production
within 5 years. While these established manufacturers have superior marketing
and operational corporate structure, CAR management believes the WorldStar(R) to
be a superior vehicle to any concept vehicle currently under development by
these manufacturers, CAR is also intent upon aiding the developing nations by
placing the micro-manufacturing facilities within their borders to build
infrastructure, create jobs, teach new skills and act as a magnet for new
business rather than importing vehicles from large factories located outside the
country.
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NOTE: The following chart assumes vehicle prices are for vehicles manufactured
and assembled only in country of origin. Shipments of completed vehicles across
national borders normally require payment of 100% or greater duties. While
Chrysler, GM, Ford, Diahatsu, and Fiat have not yet indicated the number of
factories planned, Chrysler estimates its capital cost of $300,000,000 for one
factory is much less than those planned by GM and Ford.
<TABLE>
<CAPTION>
Manufacturer: CAR Regional Chrysler GM Ford Diahatsu Fiat
- ------------- ------------ -------- -- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Vehicle WorldStar CCV Blue Macaw Ka Midget II Uno
Sticker Price $6,000 $6,000 $9,000 $11,000 $4,600 $10,000
Engine 1600cc VW 800cc Briggs 1000cc 1000cc 659cc unknown
Target Market Developing India, China Brazil Europe & Japan Mexico
Nations Dev. Nations Brazil
Truck Yes No No No Yes No
Payload 1500 lbs N/A N/A N/A limited N/A
Delivery Van Yes No No No No No
Passengers Up to 11 4 4 4 1 4
Fuel Gas/Propane Gas Only Gas Only Gas Only Gas Only Gas Only
# of Parts App. 500 ~1100 unknown ~4,000 unknown unknown
Locally built Yes Limited Brazil only Mexico only Japan only Italy
</TABLE>
CAR is utilizing the unique concept of licensing its designs and manufacturing
processes to small localized manufacturing plants in order to compete
successfully in the vehicle manufacturing business in developing countries on a
world-wide basis. With an entry level manufacturing start-up and initial
operating cost of approximately $500,000, our licensee will be producing
vehicles at less than 1% of the traditional vehicle production line capital
cost. CAR's competitors all have significant traditional advantages over CAR
with respect to their size, financial resources, experienced personnel, dealer
networks, purchasing leverage, design and engineering staffs, and advertising
budgets. The competitors' vehicles are all technically more advanced than CAR's.
However, CAR's market niche is specifically to provide vehicles that are simple
to build and maintain and are, therefore, inexpensive entry level vehicles.
While CAR has no current market position, its first production facility will be
in operation in May, 1998, the table below shows what management believes to be
an attainable market position within five years in the low-cost vehicle market
for developing nations:
<TABLE>
<CAPTION>
Manufacturer: CAR Regional Chrysler GM Ford Diahatsu Fiat
- ------------- ------------ -------- -- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
% of market 10 40 10 30 <5 <5
</TABLE>
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The Marketing Plan:
To be successful CAR must reach developing nation manufacturing entrepreneurs.
In order to accomplish this, CAR is marketing its WorldStar(R) directly to
developing nation's trade and privatization agencies. We are also utilizing our
network of business contacts within these nations as well as direct advertising
within each country. The local manufacturer will provide a manufacturing
facility which has electrical service (200amp) and at least 4,000 square feet of
enclosed manufacturing space and 1000-2000 feet of outside storage. CAR does not
manufacture the WorldStar(R), instead it licenses its unique design and
manufacturing process, and provides for a complete turnkey business including
tooling, equipment and materials necessary to build the WorldStar(R). The
regional manufacturer also receives full documentation, including video tapes
and a TV/VCR to provide visual training for their employees. Two technicians
from CAR or its Master Licensee will assist the manufacturer in setting up the
manufacturing facility and training. Subsequent orders for material will be
provided through CAR and it's worldwide network of suppliers directly to the
licensee.
By meeting the expected and designed goal of producing one vehicle per day, per
each single license, or 324 vehicles per year, the license holder has the
ability to recover the cost of the license within one year. This makes the
license an enticing business opportunity for international entrepreneurs.
CAR's target market consists of 189 developing nations worldwide. CAR has sold
Master Licenses in Mexico and the Philippines. Negotiations are currently
ongoing with thirty other potential Master Licensees, with final negotiations
currently in process for nine Individual Licenses in Mexico. The nine Individual
License candidates in Mexico are prepared to sign license agreements within
ninety days of the opening of the Master License's facility in Tijuana, Mexico
in May, 1998. The Master License in Mexico will allow the owner to be the
principal operating center providing support for all marketing, sales and
training for the expected 150 micro-manufacturing facilities throughout Mexico
over the next three years. Assuming a production of 324 vehicles per year, per
facility, Mexico will produce over 48,000 units per year with an anticipated
return of $500 per vehicle to CAR ($24.3M).
The terms and conditions for existing Master Licenses are summarized as follows:
<TABLE>
<CAPTION>
Region License # of years Payments Date of
Fee of license received as sale
of 12/31/97
<S> <C> <C> <C> <C>
Mexico $260,000 perpetual $26,250 (a) 2/4/97
Philippines $2,000,000 perpetual $10,000 (b) 9/3/97
</TABLE>
(a) Balance payable within thirty days of receiving molds & equipment from
CAR, $233,750.
(b) Balance payable: $400,000 upon Master Licensee signing contracts for
eight Manufacturing Licenses, remaining $1,590,000 payable at rate of
$50,000 per each additional License sold.
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CAR provides approximately $150,000 of training, sales literature, parts for
four vehicles, and one set of factory molds, equipment, manuals and tooling. CAR
is responsible for all vehicle design changes and updates and all parts,
supplies, and materials procurement. CAR may terminate Master License for
nonperformance of agreed upon License sales or lack of support of Licenses per
agreement.
Master License holder is responsible for regional sales of Licenses per agreed
upon schedule, auditing of Licenses for control and quality assurance purposes,
liaison between Licenses and CAR, assisting Licenses with marketing and business
planning, and all training of Licenses. Master License holder is responsible for
all costs and expenses incurred by regional office and support staff.
CAR has granted a reduced fee to the Master License holder in Mexico in order to
monitor the Company's first production facility in Tijuana, Mexico scheduled to
begin operations in the first week of May, 1998. The Master License holder has
agreed to work with CAR in order to provide valuable manufacturing systems and
testing feedback in an operating production environment. This should allow CAR
to quickly change and upgrade design and manufacturing processes due to the
close proximity of Tijuana to CAR's facility in El Cajon, California
(approximately 30 miles).
The Master License for Mexico is held by Grana Baja, S.A. de C.V. in conjunction
with Enviromental Process Advanced, S.A. de C.V. ("EPACV") EPACV is the largest
manufacturer and distributor of water purification systems and liquid containers
in Baja California, with its main facilities in Tijuana, Mexico.
The Master License for the Philippines is held by C.B.N. WorldStar Philippines,
Inc. located in Manila. It was set up in conjunction with Gillamac's Inc. with
forty existing automobile sales locations throughout the Philippines and Mr.
Necito Chua with fifty franchise restaurants in the Northern Philippines.
The criteria for choosing a Master License holder is financial strength,
manufacturing experience, length of time in business, advertising and marketing
expertise, name recognition and influence in region of proposed license sales,
and experience in distribution and franchise sales.
The terms and conditions for existing Licenses are summarized as follows:
<TABLE>
<CAPTION>
Region License # of years Payments Date of
Fee of license received as sale
of 12/31/97
<S> <C> <C> <C> <C>
Honduras $260,000 10 $10,000 2/20/97
</TABLE>
CAR provides approximately $150,000 of training, sales literature, parts for
four vehicles, and one set of factory molds, equipment, manuals, and tooling.
CAR is responsible for all vehicle design changes and updates and all parts,
supplies, and materials procurement. CAR may terminate License for
nonperformance of agreed upon vehicle sales of a minimum of 162 units in a
twelve month period, substandard quality control, and any other material
noncompliance with terms of the License Agreement.
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License holder is responsible to provide a proper manufacturing facility,
employees, utilities, all licenses and permits, advertising, and insurance
necessary for all insurance, including liability insurance pertaining to vehicle
production and sales. License holder is responsible for advertising and
promotion sufficient for minimum vehicle sales. License holder must cooperate
with Master License holder for all support and training, allow audit of premises
and books by CAR and Master License holder, and maintain sufficient working
capital in order meet cash flow needs.
The License is held by Diamond Plastics in Tegucialpa, Honduras C.A. The
business has existed over twenty years and is a large manufacturer of plastic
products and medicines in Honduras.
The criteria for choosing a Manufacturing License holder is financial strength,
manufacturing experience, and length of time in business.
In addition to the standard price for a Manufacturing License, $372,000 (CAR
granted a one-time price reduction to our first license holder, Diamond
Plastics), the Licensee must have $300,000 of working capital available for
start-up and production costs. CAR does not provide funding assistance to
Licensees.
Regulation:
The Company only licenses the proprietary right to manufacture the WorldStar(R)
vehicle within a specific country. The Company retains legal council through
each licensee as to its obligations for government regulations and taxes. Each
licensee is contractually responsible to obtain all required permits and
insurance within each country of domicile for the manufacture and sales of motor
vehicles. The permit process is centralized in Mexico through the federal
government's Secretaria De Comercio Y Fomnento Industrial (SECOFI). The Master
License holder for Mexico has secured all permits necessary to begin production
of the WorldStar(R) vehicle in Tijuana, Mexico on April 1, 1998 for export
purposes. The permit for Mexican sales and use of the WorldStar(R) vehicle has
been applied for through SECOFI and is pending. The permit process in Honduras
is the responsibility of Diamond Plastics and is pending. C.B.N. WorldStar
Philippines has passed a preliminary process approval and will file for a final
permit in the Philippines through the Vehicle Manufacturing Department of the
Board of Investment Applications, with approval anticipated by June, 1998. At
this time, there are no material uncertainties as to the approval of the
WorldStar(R) vehicle for manufacture and sale in any of the above countries.
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ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
General:
The Company anticipates that current license sales and negotiations for
near-term license sales should provide sufficient cash flows for the foreseeable
future.
Results of Operations:
The Company had stock sales for cash of $2,144,000 from inception through
December 1997. License sales totaled $15,000 through June 1997 and $31,250 from
July through December 1997. Development of the WorldStar(R) vehicle was
completed by December 1997 at a cost of $1,632,000 including research and
design, demo vehicles, and master molds.
The Company had sold two Master Licenses and one Manufacturing & Distribution
License for WorldStar(R) factories, with nine additional licenses in Mexico
pending financing.
Subsequently, the Master Licensee for Mexico has leased a facility in Tijuana,
Mexico, and will begin vehicle production in May 1998. Utilizing its master
molds, the Company has produced the first set of production molds for the
Tijuana facility and will deliver all molds and equipment to the facility in the
first week of May 1998. Management has had continuing negotiations with
potential licensees who have indicated interest in Mexico and other countries
pending the start up of the first facility in Tijuana. There has been a
significant increase in perspective licensees as the Company has announced the
start-up of the Tijuana facility. Management expects this positive trend to
continue and result in license sales.
Liquidity and Capital Resources:
As of December 1996, the Company had $52,277 cash on hand and in the bank. The
primary source of cash and financing from the January 1996 formation of the
Company until December 1996, was $1,175,000 from sales of equity securities. The
primary uses of cash through December 1996 were $578,000 for product
development, $231,000 for master molds and demo vehicles, $80,000 for fixed
assets, and $234,000 for the Company's operations.
As of December 31, 1997, the Company had $3,913 cash on hand and in the bank.
The primary sources of cash and financing for the Company from January 1997
through December 1997 were $46,000 from sales, $969,000 from sales of equity
securities, and $117,000 from shareholder loans. The primary uses of cash
through December 1997 were $589,000 for product development, $234,000 for master
molds and demo vehicles, and $357,000 for the Company's operations. The Company
also issued $338,000 in stock for services.
Currently, the Company maintains a sufficient positive cash balance for
production and working capital. The substantial losses through December 1997
were due to product development expenses. Subsequent Licensee payments and
additional sales of the Company's equity securities have allowed the Company to
complete production and increase marketing efforts.
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ITEM 3
DESCRIPTION OF PROPERTY
The Company with its wholly-owned subsidiary World Transport Authority, Inc.
leases 18,720 sq. ft. of administrative, registered office, and design center
offices, and training facility space at 635 Front Street, El Cajon, CA USA
92020, for $8,900 per month, pursuant to a noncancelable operating lease which
expires on March 31, 2001. Management considers the Company's current facilities
adequate for current and estimated growth for the term of the existing lease.
The Company uses its attorneys, McLeod & Company Barristers and Solicitors as
its registered office agent for legal service pertaining to Canada, located at
Suite 800 - 11012 MacLeod Trail S., Calgary, Alberta, Canada T2J 6A5.
EMPLOYEES
The Company, through its wholly-owned subsidiary WTA, currently employs three
full-time officers and seven full-time persons including technicians, secretary
and receptionist.
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ITEM 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information on the ownership of the Company's
voting securities by Officers, Directors and major shareholders as well as those
who own beneficially more than five percent of the Company's common stock
through the most current date - April 30, 1998:
<TABLE>
<CAPTION>
Title Of Name & Amount & Percent
Class Address Nature of owner Owned
- ----- ------- --------------- -----
<S> <C> <C> <C>
Common Dean Amaru, 20212 Modoc Rd. 63,334 (c) 1.6%
Apple Valley, CA 92308
Common Jahan Eftekhar, 8627 Cinnamon 311,667 (b) 7.8%
# 301, San Antonio, Texas 78240
Common Maritime International, Ltd. 726,667 (a) 18.3%
Trevor Lloyd, 635 Front St
El Cajon, CA 92020
Common Majid Mehrafza, 8627 Cinnamon 301,666 (b) 7.6%
# 301, San Antonio, Texas 78240
Common Rodger Ward, 1329 Craigmont 28,667 (c) .7%
El Cajon, CA 92019
Common Lyle Wardrop, 19879 49th Ave 13,810 (c) .4%
Langley, BC V3A 3R5
Common Steven Wright, 2635 30,619 (c) .8%
Camino del Rio South, Ste 211
San Diego, CA 92108
</TABLE>
(a) Effective December 1, 1997, the 726,667 shares owned by Maritime
International, Ltd. (Beneficial Owner & Control Person - Trevor Lloyd) were
placed in an irrevocable trust dated December 1, 1997. Due to the size of the
stock ownership by one owner, the Shareholders, including Maritime
International, voted on June 3, 1997 to grant the Board additional control of
the amount of shares that Maritime International could offer for sale. On
December 1, 1997, the Board voted to accept an irrevocable stock trust set up
for three years, with Lyle Wardrop, a director of CAR, as trustee. The trust
requires that any sale or transfer of the trust's shares must be approved by
CAR's Board of Directors. Trustee retains legal right to vote the shares of the
Trust in all required shareholder votes. The purpose of this trust arrangement
is to restrict Maritime International from utilizing its large share holdings to
unduly enrich itself at the expense of the smaller shareholders.
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(b) Includes shares totaling 133,333 jointly held by Jahan Eftekhar and Majid
Mehrafza.
(c) Dean Amaru, Lyle Wardrop, Rodger Ward,and Steven Wright purchased their
shares during 1996 and 1997.
The other Beneficial Owners obtained their shares in the following transaction:
<TABLE>
<CAPTION>
Name Shares Exchanged Shares Received
Thunder Ranch, Composite Auto-
Inc. mobile Research, Ltd
<S> <C> <C>
Jahan Eftekhar 1,950 245,000
Maritime International, Ltd 5,400 726,667
Majid Mehrafza 1,850 235,000
</TABLE>
ITEM 5
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
AND CONTROL PERSONS
The Directors and Officers of the Company, all of those whose terms will expire
6/30/98, or at such a time as their successors shall be elected and qualified
are as follows:
<TABLE>
<CAPTION>
Name & Address Age Position Date First Elected
- -------------- --- -------- ------------------
<S> <C> <C> <C>
Dean Amaru 54 President 6/1/96
20212 Modoc Road
Apple Valley, CA 92308
Steven R. Wright 53 Secretary, 6/1/96
2635 Camino del Rio S. Treasurer &
San Diego, CA 92108 Director
Rodger Ward 77 Vice President of 6/1/96
1329 Craigmont Public Relations
El Cajon, CA 92019
Lyle P. Wardrop 56 Director 3/19/96
19879 49th Avenue
Langley, B.C. Canada V3A 3R5
</TABLE>
Each of the foregoing persons may be deemed a "promoter" of the Company, as that
term is defined in the rules and regulations promulgated under the securities
and Exchange Act of 1933.
14
<PAGE> 15
Directors are elected to serve until the next annual meeting of stockholders and
until their successors have been elected and qualified. Officers appointed to
serve until the meeting of the Board of Directors following the next annual
meeting of stockholders and until their successors have been elected and
qualified.
No Executive Officer or Director of the Corporation has been the subject of any
Order, Judgement, or Decree of any Court of competent jurisdiction, of any
regulatory agency enjoining him from acting as an investment advisor,
underwriter, broker or dealer in the securities industry, or as an affiliated
person, director or employee of an investment company, bank, savings and loan
association, or insurance company or from engaging in or continuing any conduct
or practice in connection with any such activity or in connection with the
purchase or sale of any securities nor has any such person been the subject of
any Order of a State authority barring or suspending for more than sixty (60)
days, the right of such a person to be engaged in such activities or to be
associated with such activities.
No Executive Officer or Director of the Corporation has been convicted in any
criminal proceeding (excluding traffic violations) or is the subject of a
criminal proceeding which is currently pending.
Per Item 8, Pending Legal Proceedings, the Company as well as Dean Amaru and
Steven Wright were named in a complaint filed by Thomas McBurnie in Superior
Court in San Diego on December 10, 1997 due to a dispute involving the
consideration for the sale of Thunder Ranch, Inc. by the Company in 1996. On
April 10, 1998, the Superior Court dismissed Mr. McBurnie's entire complaint.
RESUMES:
DEAN AMARU, PRESIDENT
1989 - Current Owner - Urama Sales & Marketing, Hesperia CA - Company
provides all aspects of sales and marketing to small
businesses including consultation, product development,
market analysis, sponsorships, advertising and graphic
design from concept to design & printing.
1994 - Current Founder, President, Treasurer - Victor Valley Marketing
Group, Victorville CA - Network of local business
owners and professionals who use ethical business
practices and fair market prices for honest work and
goods. Organized as an Advertising Club to increase
quality and quantity of member's business through
networking, referrals, group-buying power, publication
and promotions.
15
<PAGE> 16
1988 - 1989 Sales & Marketing Manager - Trim-Lok Inc., Paramount CA
Responsible for all aspects of sales and marketing for
vinyl extrusion edge trim for United States OEM and
wholesale market. Opened international distribution.
1986 - 1988 Sales Manager / Special Products & Projects - Ford
Wholesale Company Inc., Santa Ana CA - Responsible for
sales program for roofing wholesaler with seven
California locations for all special products.
Designed, implemented and evaluated sales training &
marketing methods promoting new products in market.
1966 - 1986 Regional Sales Manager - Genstar / Flintkote Company,
Los Angeles CA - Responsible for regional sales of
roofing products and supervision of employees in
production, warehouse, office and sales. Established
policies, procedures and training promoting leadership
skills. Smoothly integrated new acquisition and
personnel for company.
Education
University of Las Vegas
Major: Business Administration
STEVEN R. WRIGHT, SECRETARY TREASURER & DIRECTOR
Steven R. Wright, Secretary Treasurer & Director
1978 - Present Owner - Wright & Geis, Inc. Certified Public
Accountants, San Diego, CA - Serve as director and
financial officer for two public companies. Responsible
for all aspects of account ing, Securities & Exchange
filing, taxes and strategic planning. Corporate tax
specialist responsible for corporation, individual,
partnership and fiduciary federal and multi-state
income tax returns. Manage client contact, quality
control, tax review and planning, research, and audit
representation. Provide management advisory services in
design and installation of data processing systems,
budgets, job costing, estimating, financial planning,
analysis and personnel management. Extensive experience
with financial institutions, creditors and investors
for financing and cash management.
1976 - 1978 Manager of Financial Planning - Campbell Industries,
Inc., San Diego, CA - Responsible for financial
projections and strategic planning for board of
directors. Developed project budgets with projected
cash flow, estimating, and cost accounting for new
construction and ship repair work. Supervised cost
accounting and financial planning staff.
16
<PAGE> 17
1974 - 1976 Senior Accountant - Rohr Industries, Inc., Chula Vista,
CA Responsible for accounting for three subsidiaries.
Prepared accounting entries, subsidiary ledgers,
general ledgers, financial statements, cash and sales
forecasts and account analysis.
Education
San Diego State University
B.S. Accounting, 1974
San Diego State University
B.A. Public Administration,1970
LYLE P. WARDROP, DIRECTOR
1963 - Present President - Golden Mile Motors, Ltd. & United Auto
Brokers, Ltd. - Both companies are involved in the sale
of used trucks and autos.
1972 - Present President - Surrey Land Center, Vancouver, B.C. - This
company is involved in the sale, development, and
rental of industrial land and warehouse space.
1976 - 1986 President - International Waterbed Distributors - This
company was involved in the manufacture, distribution,
and retail sale of waterbeds and bedroom furniture and
became Canada's largest waterbed wholesaler.
1978 - 1983 Treasurer - Canadian Waterbed Manufacturing Association
- This association represented the manufacturing
companies in the waterbed industry.
1993 - Present Chairman Used Car Division - Automotive Retailers
Association of British Columbia - This association
represents the automotive retail sector in dealing with
government and private agencies.
1994 - Present Director and Board Member - Automotive Retailers
Association of British Columbia - This association
represents 1300 member companies in six divisions
employing over 25,000 people.
RODGER WARD, VICE PRESIDENT OF PUBLIC RELATIONS
1990 - Present Chief Steward - American IndyCar Series
1986 - Present Owner - Rodger Ward & Associates - Auto and race car
restoration business, President Vintage Racing.
1983 - 1985 President - Citizens Security Systems, Dallas TX
17
<PAGE> 18
1979 - 1982 Team Manager - Circus Circus Hotel, Las Vegas NV -
Manager of the Unlimited Hydroplane Race Team.
1972 - 1976 Owner - Rodger Ward Tire Centers, Rosemead & Monrovia
CA
1969 - 1972 Director of Public Relations - Ontario Motor Speedway,
Ontario CA
1967 - 1970 Owner - Firestone Tire Center, Speedway IN
1946 - 1966 Professional Race Car Driver - Accomplishments include
National Stock Car Championship 1951,Indianapolis 500
Winner 1959 & 1962, and USAC Champion 1959 & 1962.
1990 - Present Board of Directors - San Diego Automotive Museum
1972 - 1976 Board of Directors - Superior Industries
1958 - 1968 Champion Spark Plug Co. Highway Safety Program
1958 - 1966 Board of Directors - USAC
1941 - 1946 U.S. Air Force
Item 6
EXECUTIVE COMPENSATION
The company's current officers receive the following compensation:
<TABLE>
<CAPTION>
Name Position Annual Remuneration
<S> <C> <C>
Dean Amaru President $38,000 Salary
Steven Wright Secretary- $0
Treasurer
</TABLE>
18
<PAGE> 19
Summary Compensation Table
<TABLE>
<CAPTION>
Name & Year Salary Bonus Other Restricted Options LTIP All other
principle ($) ($) annual stock SARs Payouts compen-
position compen- awards ($) (#) ($) sation ($)
sation ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dean Amaru 1996 19,000 -0- -0- -0- -0- -0- -0-
Pres. 1997 38,000 -0- -0- -0- 50,000 -0- -0-
Steven 1996 -0- -0- -0- -0- -0- -0- -0-
Wright 1997 -0- -0- -0- -0- 33,333 -0- -0-
Sec/Tres
Lyle 1996 -0- -0- -0- -0- -0- -0- -0-
Wardrop 1997 -0- -0- -0- -0- 33,333 -0- -0-
Director
Rodger 1997 32,000 -0- -0- -0- -0- -0- -0-
Ward 1997 38,000 -0- -0- -0- 33,333 -0- -0-
V.P.
</TABLE>
There are no current employment agreements between the Company and its executive
officers.
The Directors and Principal Officers have agreed to work with minimum or no
remuneration until such time as the Company receives sufficient revenues
necessary to provide proper salaries to all Officers and compensation for
Directors' participation. A verbal understanding exists to pay the President
$90,000 per year and the Treasurer $75,000 per year at the time sufficient
revenues and cash flow permit.
There are no annuity, pension or retirement benefits proposed to be paid to
officers, directors or employees of the Corporation in the event of retirement
at normal retirement date pursuant to any presently existing plan provided or
contributed to by the Corporation or any of its subsidiaries, if any.
Item 7
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dean Amaru, President and Steven Wright, director and treasurer, have advanced
funds to the Company in order to pay for operating expenses. There are no formal
repayment terms and these funds are classified as a current liability as the
Company intends to repay the amounts in full within one year.
CAR has had a consulting contract with Douglas Norman, a shareholder, since
April 15, 1996 that provides a commission of fifteen percent of gross sales be
paid to Mr. Norman for each fully-paid license agreement he arranges between the
Company and each licensee.
19
<PAGE> 20
As described in Item 1, Description Of The Business, CAR acquired Thunder Ranch,
Inc. from Thomas McBurnie. Mr. McBurnie signed an Agreement dated September 27,
1996 in which Mr. McBurnie severed his relationship with CAR and gave his CAR
stock and rights and agreed to pay $200,000 to CAR in exchange for the transfer
of Thunder Ranch, Inc. to Mr. McBurnie.
Item 8
PENDING LEGAL PROCEEDINGS
The Company entered into binding arbitration with a former shareholder, Thomas
McBurnie regarding the consideration for the disposition by the Company of
Thunder Ranch, Inc., a corporation sold back to its sole original shareholder,
Mr. McBurnie on September 27, 1996. After the sale of Thunder Ranch, a
disagreement between CAR and Mr. McBurnie arose as to consideration each party
to the Agreement was to provide. On November 10, 1997, Mr. McBurnie's attorney,
Daniel Grindle was involuntarily disqualified from the arbitration due to a
conflict of interest. The arbitration was summarily dismissed in favor of the
Company on November 24, 1997.
On December 10, 1997, Mr. McBurnie filed a complaint in Superior Court of the
State of California in San Diego against Composite Automobile Research, Ltd,
World Transport Authoriry, Inc., Douglas Norman, Dean Amaru, and Steven Wright
for "breach of contract, conversion, unjust enrichment, constructive trust and
accounting, and fraud".
On March 6, 1998, the Superior Court ruled against Mr. McBurnie and sustained a
demurrer of all individuals named in his complaint. The judge advised Mr.
McBurnie the documents he had filed were "imperceptible" and allowed him thirty
days in which to amend his complaint. No amended complaint was filed by Mr.
McBurnie. During March, the Company's attorneys filed Requests for Admissions
demanding documented proof of all of Mr. McBurnie's allegations by the scheduled
Superior Court hearing on April 10, 1998. Mr. McBurnie could not substantiate
his claims and provided no documented proof of his allegations. On April 10,
1998, the Superior Court dismissed Mr. McBurnie's entire complaint. The Board of
Directors of CAR is now considering legal options available against Mr. McBurnie
and his attorney, Mr.
Grindle.
Item 9
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company, as of July 24, 1997 has filed for trading on the NNOTC Electronic
Bulletin Board (EBB) which is sponsored by the National Association of
Securities Dealers (NASD). The EBB is a network of security dealers who buy and
sell stock. The dealers are connected by a computer network which provides
information on current "bids" and "asks" as well as volume information. As of
the date of this filing, the above application is pending.
As of December 31, 1997, the Company had 159 shareholders of record.
The Company has paid no cash dividends.
20
<PAGE> 21
ITEM 10
RECENT SALES OF UNREGISTERED SECURITIES
On March 19, 1996 the Company issued the following shares of its common stock in
return for cash and other assets as follows:
<TABLE>
<CAPTION>
Name Shares Exchanged Cash Shares Issued by Less Shares Net Shares
Thunder Ranch, Paid Composite Auto- Canceled at sale Issued
Inc. & World mobile Research, Ltd of Thunder Ranch
Transport Auth for Thunder Ranch & Sept 27, 1996
World Transport Auth
<S> <C> <C> <C> <C> <C>
Jahan Eftekhar 1,950 0 245,000 245,000
Maritime International, Ltd 5,400 0 726,667 726,667
Majid Mehrafza 1,850 0 235,000 235,000
Thomas McBurnie 30,400 0 1,346,667 -1346667 0
Adrian Corbett 400 0 46,667 46,667
Jack Norman 1,257 20,000 20,000
Douglas Norman 1,257 20,000 20,000
Rodger Ward 1,676 26,667 26,667
</TABLE>
The above shares were issued in exchange for 100% of the stock of two
corporations, World Transport Authority, Inc. and Thunder Ranch, Inc., and for
cash. The Company relied upon Section 4(2) of the 1933 Securities act, as
amended, for sales not involving a public offering.
Commencing on approximately March 19, 1996 and continuing until approximately
October 1, 1996, the Company offered and sold common stock warrants. Each
prospective investor was given a private placement memorandum designed to
disclose all material aspects of an investment in the Company. This offering was
not accompanied by general advertisement or general solicitation. Further, each
purchaser acknowledged that the warrants could not be resold without
registration under the Securities Act of 1933, as amended or without an
available exemption therefrom. The Company relied on Rule 504 as the basis of
exemption from registration, as identified on Form D as filed with Commission on
December 2, 1996. Blue Sky filings were made (where required) in each state that
the warrants were offered and sold. All warrants converted to common stock by
vote of shareholders on June 3, 1997.
From the period of approximately January 15, 1997 until December 31, 1997, the
Company offered and sold additional warrants in reliance upon Rule 505 of
Regulation D as the basis for exemption from registration. These shares were
offered and sold in the same manner as the offering above. All warrants
converted to common stock by vote of shareholders on June 3, 1997.
The two offerings combined resulted in the sale to thirty five (35) or fewer
non-accredited investors and raised a total of approximately $1,950,000.
This filing includes as an exhibit a listing of shareholders and warrant holders
through December 31, 1997.
21
<PAGE> 22
NOTE: PER A VOTE OF THE SHAREHOLDERS OF RECORD ON JUNE 3, 1997, THE DIRECTORS OF
COMPOSITE AUTOMOBILE RESEARCH WERE AUTHORIZED TO COMPLETE A 3 TO 1 REVERSAL OF
ALL SHARES, OPTIONS AND WARRANTS. ALL REFERENCES TO A NUMBER OF SHARES IN THIS
DOCUMENT REFLECT THAT REVERSAL.
ITEM 11
DESCRIPTION OF SECURITIES
COMMON STOCK:
The Company's Certificate of Incorporation authorizes the issuance of unlimited
Shares of Common Stock, no stated par value per share, of which 3,975,531 shares
were outstanding as of December 31, 1997. Holders of shares of Common Stock are
entitled to one vote for each share on all matters to be voted on by the
stockholders. Holders of Common Stock have cumulative voting rights. Holders of
shares of Common Stock are entitled to share ratable in dividends, if any, as
may be declared, from time to time by the Board of Directors in its discretion,
from funds legally available therefor. In the event of a liquidation,
dissolution, or winding up of the Company, the holders of shares of Common Stock
are entitled to share pro rata all assets remaining after payment in full of all
liabilities. Holders of Common Stock have no preemptive or other subscription
rights, and there are no conversion rights or redemption or sinking fund
provisions with respect to such shares. All of the outstanding Common Stock is,
and the shares offered by the Company pursuant to this offering will be, when
issued and delivered, fully paid and non-assessable.
PREFERRED STOCK:
There is no preferred stock authorized.
TRANSFER AGENT:
The Company's transfer agent is Pacific Corporate Trust Company, Suite 830 - 625
Howe Street, Vancouver, BC Canada, V6C 3B8. Telephone number is (604) 689-9853.
The Company acts as its own registrar.
ITEM 12
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's By-Laws allow for the indemnification of Company Officers and
Directors in regard to their carrying out the duties of their offices. The
By-Laws also allow for reimbursement of certain legal defenses.
As to indemnification for liabilities arising under the Securities Act of 1933
for directors, officers or persons controlling the Company, the Company has been
informed that in the opinion of the
22
<PAGE> 23
Securities and Exchange Commission such indemnification is against public policy
and unenforceable.
ITEM 13
FINANCIAL STATEMENTS
EXPERTS:
The financial statements of the Company and related notes which are included in
this offering have been examined by Harlan & Boettger, LLP, and have been so
included in reliance upon the opinion of such accountants given upon their
authority as an expert in auditing and accounting.
ITEM 14
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING CONTROL
AND FINANCIAL DISCLOSURE
None.
ITEM 15
FINANCIAL STATEMENTS AND EXHIBITS
(I) Audited financial statements for year end June 30, 1997 and 1996.
23
<PAGE> 24
IMPACT OF YEAR 2000
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruption of normal business activities.
Based on a recent and ongoing assessment, the Company has determined that it
will be required to modify or replace portions of its software so that computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The Company presently believes that with modifications to existing
software or conversions to new software, the Year 2000 issue will not pose
significant operational problems and will not materially affect future financial
results.
The Company has initiated communications with its significant suppliers to
determine the extent to which the Company is vulnerable to any third party's
failure to remedy their own Year 2000 issues. The Company will utilize both
internal and external resources to modify, or replace, and test software for
Year 2000 compliance. The Company currently anticipates completing the Year 2000
project within one year, but not later than September 30, 1999, which is prior
to any anticipated impact on its operating systems. The costs of the project,
which at the current time are projected to be immaterial, and the date on which
the Company believes it will complete Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could
materially differ from those anticipated.
24
<PAGE> 25
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Composite Automobile Research, Ltd.
Date 4-30-98 By /s/ DEAN AMARU
------------------------ --------------------------------
Dean Amaru,
President
Date 4/30/98 By /s/ STEVEN R. WRIGHT
------------------------ --------------------------------
Steven R. Wright,
Director, Secretary & Treasurer
25
<PAGE> 26
COMPOSITE AUTOMOBILE RESEARCH, LTD.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
<PAGE> 27
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT .......................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS AS OF
JUNE 30, 1997 AND JUNE 30, 1996 ................................. F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996 ..................... F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996 ............. F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
JUNE 30, 1997 AND JUNE 30, 1996 ................................. F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ........................ F-7 - F-12
</TABLE>
F-1
<PAGE> 28
[HARLAN & BOETTGER, LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
COMPOSITE AUTOMOBILE RESEARCH, LTD.:
We have audited the accompanying consolidated balance sheets of Composite
Automobile Research, Ltd. (a Canadian corporation) (Note A) as of June 30, 1997
and June 30, 1996, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide 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 Composite Automobile
Research, Ltd. as of June 30, 1997 and June 30, 1996, and the results of its
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.
The consolidated financial statements for the year ended June 30, 1997 and 1996
were audited by us, and our report dated September 8, 1997 expressed an
unqualified opinion. As disclosed in Note L to the consolidated financial
statements, the Company has restated its 1997 consolidated financial statements.
We have not performed any auditing procedures with respect to the 1997
consolidated financial statements since the date of our previous report.
/s/ HARLAN & BOETTGER, LLP
San Diego, California
September 8, 1997, except for Note L, as
to which the date is April 15, 1998
F-2
<PAGE> 29
COMPOSITE AUTOMOBILE RESEARCH, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(As Restated)
June 30, 1997 June 30,1996
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 25,280 $ 117,194
Accounts receivable -- 3,149
Inventory (Note C) -- 132,953
Prepaid expenses 675 675
----------- -----------
TOTAL CURRENT ASSETS 25,955 253,971
----------- -----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $56,463 and $23,974 (Note D) 301,215 332,724
----------- -----------
OTHER ASSETS
Note receivable - former stockholder (Note G) 200,000 --
Goodwill, net of accumulated amortization (Note E) -- 82,751
License -- 10,000
Prepaid consulting (Note G) 100,000 --
Other 29,018 4,347
----------- -----------
TOTAL OTHER ASSETS 329,018 97,098
----------- -----------
TOTAL ASSETS $ 656,188 $ 683,793
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 55,081 $ 49,854
Accrued liabilities 7,124 77,891
Related party debt (Note G) 40,436 --
Customer advance payments on orders -- 131,460
----------- -----------
TOTAL CURRENT LIABILITIES 102,641 259,205
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes H and K) -- --
STOCKHOLDERS' EQUITY (Note I)
Common stock, no par value, unlimited shares
authorized; 3,333,975 and 4,346,141 shares
issued and outstanding, respectively 1,933,001 167,614
Special warrants, 0 and 2,693,815 warrants
issued and outstanding, respectively -- 576,610
Accumulated deficit (1,379,454) (319,636)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 553,547 424,588
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 656,188 $ 683,793
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 30
COMPOSITE AUTOMOBILE RESEARCH, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(As Restated)
For the For the
year ended year ended
June 30,1997 June 30,1996
------------- ------------
<S> <C> <C>
NET SALES $ 67,278 $ 27,140
COSTS OF SALES 17,800 9,450
----------- -----------
GROSS PROFIT 49,478 17,690
----------- -----------
OPERATING EXPENSES:
Selling, general, and administrative 665,365 56,550
Depreciation and amortization 42,779 23,974
Other operating expenses 180,263 --
Loss on sale of equipment 198,646 --
Loss on write-off of capitalized costs -- 253,503
Loss on write-off of goodwill 21,443 --
----------- -----------
TOTAL OPERATING EXPENSES 1,108,496 334,027
----------- -----------
LOSS FROM OPERATIONS (1,059,018) (316,337)
OTHER EXPENSES
Interest expense -- 2,499
----------- -----------
TOTAL OTHER EXPENSES -- 2,499
----------- -----------
LOSS BEFORE INCOME TAXES (1,059,018) (318,836)
INCOME TAXES (Note F) 800 800
----------- -----------
NET LOSS $(1,059,818) $ (319,636)
=========== ===========
NET LOSS PER AVERAGE COMMON SHARE $ (.39) $ (.09)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,736,194 3,450,441
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 31
COMPOSITE AUTOMOBILE RESEARCH, LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Total
and Special Warrants Accumulated Stockholders'
Shares Amount Deficit Equity
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
DATE OF INCEPTION, JANUARY 5, 1996 -- $ -- $ -- $ --
Common stock issued in acquisition
(Notes B and I) 1,652,326 167,614 -- 167,614
Special warrants issued for cash (Note I) 2,693,815 576,610 -- 576,610
Net loss for the year -- -- (319,636) (319,636)
----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1996 4,346,141 744,224 (319,636) 424,588
Special warrants issued for cash (Note I) 3,280,834 1,298,434 -- 1,298,434
Common stock repurchased (Notes A and I) (2,500,000) (52,397) -- (52,397)
Common stock canceled (Note K) (1,793,000) (57,260) -- (57,260)
Net loss for the year -- -- (1,059,818) (1,059,818)
----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1997 3,333,975 $ 1,933,001 $(1,379,454) $ 553,547
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 32
COMPOSITE AUTOMOBILE RESEARCH, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(As Restated)
For the For the
year ended year ended
June 30,1997 June 30, 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,059,818) $ (319,636)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 42,779 5,890
Amortization -- 18,084
Loss on sale of equipment 198,646 --
Changes in assets and liabilities:
Accounts receivable 3,149 (3,149)
Inventory 132,953 (132,953)
Prepaid consulting (100,000) --
Note receivable-former stockholder (200,000) --
Prepaid expenses -- (675)
Goodwill from acquisition 82,751 (82,751)
Other assets (14,671) (14,347)
Accounts payable 5,227 49,854
Accrued liabilities (70,767) 77,891
Customer advance payments on orders (131,460) 131,460
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,111,211) (270,332)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (209,916) (356,698)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (209,916) (356,698)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in related party debt 40,436 --
Repurchase of common stock (52,397) --
Common stock issued in acquisition -- 167,614
Proceeds from issuance of common stock and special warrants 1,241,174 576,610
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,229,213 744,224
----------- -----------
NET (DECREASE) INCREASE IN CASH (91,914) 117,194
CASH AT BEGINNING OF YEAR 117,194 --
----------- -----------
CASH AT END OF YEAR $ 25,280 $ 117,194
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 33
COMPOSITE AUTOMOBILE RESEARCH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Nature of Operations
In January 1996, Composite Automobile Research, Ltd. (the "Company") was
incorporated pursuant to the Alberta Business Corporations Act. The
Company was incorporated to facilitate an initial public offering.
Subsequent to incorporation, the Company acquired Thunder Ranch, Inc.,
("Thunder") and World Transport Authority, Inc. ("WTA"). These
acquisitions have been accounted for under the purchase method with any
difference between fair market value of assets purchased and liabilities
assumed being reflected as goodwill.
On September 27, 1996, the Company sold certain assets and liabilities
to a former stockholder in exchange for common stock of the Company and
promises to pay. The transaction has been accounted for by the purchase
method (Note G). During 1997, common stock issued in accordance with
this agreement was canceled (Note K).
The Company, through its wholly owned subsidiaries, is in the business
of designing, manufacturing, and selling specialty automobile body kits
in markets around the world.
Basis of Consolidation
For purposes of consolidation and presentation, all significant
intercompany transactions and account balances have been eliminated.
Basis of Accounting
The Company's policy is to use the accrual method of accounting and to
prepare and present financial statements which conform to generally
accepted accounting principles. The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
Cash and Equivalents
For purpose of the statements of cash flows, all highly liquid
investments with a maturity of three months or less are considered to be
cash equivalents. There were no cash equivalents as of June 30, 1997 and
1996.
Inventory
The inventory is valued at the lower of cost or market. Cost is
determined under the first-in, first-out (FIFO) method.
F-7
<PAGE> 34
COMPOSITE AUTOMOBILE RESEARCH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization of property and equipment is provided using the straight
line method over estimated useful lives ranging from five to seven
years. Upon retirement or disposal of depreciated assets, the cost and
related depreciation are removed and the resulting gain or loss is
reflected in income. Major renewals and betterments are capitalized
while maintenance costs and repairs are expensed in the year incurred.
Any assets acquired from shareholders are recorded at historical cost at
the time of transfer.
Revenue Recognition
Revenues derived from the sale of specialty automobile body kits are
recorded upon completion of the kits and final payment from the
customer. Customer advance payments on orders are deferred and shown in
the accompanying consolidated financial statements as part of current
liabilities. Revenues from licencing fees are recognized when a vehicle
has been sold.
Net Loss Per Share
The net loss per share is computed by dividing the net loss by the
weighted average number of shares outstanding during the period.
Income Taxes
Income taxes are provided for using the liability method of accounting
in accordance with Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income Taxes." A deferred tax asset or
liability is recorded for all temporary differences between financial
and tax reporting. Deferred tax expense (benefit) results from the net
change during the year of deferred tax assets and liabilities.
B. ACQUISITION:
During 1996, the Company completed the purchase of Thunder and WTA,
which have been accounted for by the purchase method as follows:
<TABLE>
<S> <C>
Assets $ 533,199
Liabilities relieved (448,336)
---------
Net assets 84,863
Purchase price 167,614
---------
Excess of purchase price over net assets $ 82,751
=========
</TABLE>
The excess of purchase price over net assets has been allocated as
follows:
<TABLE>
<S> <C>
Goodwill $ 82,751
=========
</TABLE>
F-8
<PAGE> 35
COMPOSITE AUTOMOBILE RESEARCH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
B. ACQUISITION: (CONTINUED)
The fair values of the net assets acquired and the purchase price
discrepancy were allocated in accordance with generally accepted
accounting principles and based on the recent transactions, as the best
estimate of market value of the assets acquired.
C. INVENTORY:
Inventory is comprised of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
------------ --------
<S> <C> <C>
Stocked inventory $ -- $ 62,904
Work in process -- 70,049
Finished goods -- --
------------ --------
$ -- $132,953
============ ========
</TABLE>
During the year ended June 30, 1997, the Company sold all inventory to a
former stockholder (Note A).
D. PROPERTY AND EQUIPMENT:
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
--------- ---------
<S> <C> <C>
Machinery and equipment $ 54,617 $ 202,594
Automobiles -- 11,019
Office furniture and equipment 17,164 8,228
Leasehold improvements 8,630 3,097
Demo equipment and vehicles 277,267 131,760
--------- ---------
357,678 356,698
Less accumulated depreciation (56,463) (23,974)
--------- ---------
Property and equipment, net $ 301,215 $ 332,724
========= =========
</TABLE>
E. GOODWILL:
The Company recorded goodwill as a result of the purchases of Thunder
and WTA. It is being amortized over its estimated useful life or seven
years. As a result of the sale of assets and liabilities to a former
stockholder during the year ended June 30, 1997, the goodwill related to
these assets was written off.
F-9
<PAGE> 36
COMPOSITE AUTOMOBILE RESEARCH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
F. INCOME TAXES:
The provision for income taxes for the years ended June 30, 1997 and
June 30, 1996 consists solely of the $800 minimum California franchise
tax.
The Company's total deferred tax asset as of June 30, 1997 is as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Net operating loss carryforward $ 257,536 $ 96,027
Valuation allowance (257,536) (96,027)
--------- ---------
Net deferred tax asset $ -- $ --
========= =========
</TABLE>
The valuation allowance increased $161,509 for the year ended June 30,
1997.
G. RELATED PARTY TRANSACTIONS:
The Company has agreed to accept consulting services from a former
stockholder as part of the sale of certain assets and liabilities (Note
A), the value of which was determined by actual consulting services the
former stockholder performed in the past. Additionally, the Company is
owed $200,000 as of June 30, 1997 from the former stockholder for the
purchase of certain assets (Note A). Amounts outstanding are
non-interest bearing, due on demand, and unsecured. (See Note K for
additional transactions.)
Related party debt at June 30, 1997 consists of amounts loaned to the
Company by a stockholder. There are no formal repayment terms and it is
classified as a current liability as the Company intends to repay the
amount in full within one year.
H. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities under an operating lease that
expires in March 2001. This lease was entered into on March 1, 1996.
This operating lease provides that the Company pay, in addition to the
base rent, 83% of common area operating expenses as determined by a
prorated share of total square footage of the building. Rent expense
amounted to $121,978 and $18,649 for the years ended June 30, 1997 and
1996, respectively. Future minimum lease payments due under this
operating lease are as follows:
<TABLE>
<CAPTION>
Year ending
June 30,
--------
<S> <C>
1998 $107,856
1999 107,856
2000 107,856
2001 26,964
--------
Total $350,532
========
</TABLE>
F-10
<PAGE> 37
COMPOSITE AUTOMOBILE RESEARCH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
I. STOCKHOLDERS' EQUITY:
Since inception through the year ended June 30, 1997 the Company has
issued shares of common stock warrants in exchange for $1,875,044 in
cash. Additionally, the amount of shares authorized by the Articles of
Incorporation was amended to an unlimited amount of common and preferred
shares.
Changes in common stock warrants during the years ended June 30, 1997
and June 30, 1996 consisted of the following:
<TABLE>
<CAPTION>
Warrants Price Range
---------- -----------
<S> <C> <C>
Outstanding at January 5, 1996 -- --
Issued 2,693,815 $.10-$0.35
Exercised -- --
Outstanding at June 30, 1996 2,693,815 $.10-$0.35
Issued 3,280,834 $.10-$1.04
Exercised (5,974,649) $.10-$1.04
Outstanding at June 30, 1997 -- --
</TABLE>
Additionally, under the terms of the purchase of Thunder and WTA (Notes
A, B and G), the Company received 2,500,000 of its common stock as
consideration. The value of these shares was determined by the
difference between the assets given up and liabilities relieved and
recorded as a reduction in stockholders' equity.
All equity disclosures have been retroactively restated to effect a 3
for 1 reverse stock split as of June 30, 1997.
J. LICENSE AGREEMENTS:
During the year ended June 30, 1997, the Company entered into two
agreements with unrelated third party representatives in Mexico and
Honduras whereby the Company has issued licenses to the representatives
to build and sell vehicles in that country on behalf of the Company. As
consideration for these agreements, the Company will receive $260,000
for each license and a per-vehicle royalty of $275. For the year ended
June 30, 1997, performance on these agreements was pending.
K. SUBSEQUENT EVENTS:
The Company has entered into binding arbitration with a former business
partner (an individual) regarding payment of certain expenses incurred
on behalf of Thunder Ranch, Inc. The Company previously had agreed to
issue 1,793,000 shares of common stock to this individual. However, as
of June 30, 1997, the stock had been canceled as recorded by the stock
transfer agent, Pacific Corporate Trust. Pending resolution of
arbitration, these shares could be reinstated, reissued, or remain
canceled.
In September 1997, the Company entered into an additional licensing
agreement with an unrelated third party representative in the Philippine
Islands under similar terms as those outlined in Note J.
F-11
<PAGE> 38
COMPOSITE AUTOMOBILE RESEARCH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
L. RESTATEMENT:
The financial statements as of and for the year ended June 30, 1997 and
1996 have been restated to conform to requirements of the Securities and
Exchange Commission (SEC). The loss on sale of equipment and write-off
of goodwill of $198,646 and $21,443, respectively, have been
reclassified from "Other Expenses" to "Operating Expenses" in the
accompanying consolidated statement of operations for the year ended
June 30, 1997. Additionally, the loss on write-off of capitalized costs
of $253,503 has been reclassified from "Other Expenses" to "Operating
Expenses" in the accompanying consolidated statement of operations for
the year ended June 30, 1996. Additionally, the name of the Company
which was previously stated as Composite Automobile Research, Inc., has
been corrected in accordance with the Articles of Incorporation to
Composite Automobile Research, Ltd. Further, Note G was corrected by
stating certain transactions were with a former stockholder instead of a
stockholder, and Note M was added. These adjustments have no effect on
income taxes.
M. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental disclosures of cash flow information for the years ended
June 30, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
Cash paid for interest and income taxes: 1997 1996
------ ------
<S> <C> <C>
Interest $ -- $2,499
Income taxes -- --
</TABLE>
F-12
<PAGE> 39
COMPOSITE AUTOMOBILE RESEARCH, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
12-31-96 12-31-97
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH 52,277 3,913
PREPAID EXPENSES 9653 675
---------- ----------
TOTAL CURRENT ASSETS 61,930 4,588
FIXED ASSETS
EQUIPMENT & FURNITURE 80,411 80,411
DEMO EQUIP 378,839 232,701
MASTER MOLDS 231,881
LESS DEPRECIATION (66,416) (104,137)
---------- ----------
NET FIXED ASSETS 392,834 440,856
OTHER ASSETS
ORGANIZATION COSTS 712 712
CONSULTING CONTRACT 100,000 100,000
DEPOSITS 3,884 33,818
NOTE RECEIVABLE - SHAREHOLDER 200,000 200,000
LESS AMORTIZATION (71) (251)
---------- ----------
TOTAL OTHER ASSETS 304,525 334,279
---------- ----------
TOTAL ASSETS 759,289 779,723
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE 101,927 140,666
ACCRUED LIABILITIES 1,600 18,774
SHAREHOLDER LOANS 36,150 117,135
---------- ----------
TOTAL CURRENT LIABILITIES 139,677 276,575
LONG TERM LIABILITIES
---------- ----------
TOTAL LONG TERM LIABILITIES 0 0
---------- ----------
TOTAL LIABILITIES 139,677 276,575
COMMITMENTS & CONTINGENCIES - NOTE 4
STOCKHOLDERS' EQUITY
COMMON STOCK, NO PAR VALUE, UNLIMITED SHARES 1,360,427 2,593,428
AUTHORIZED, 1,652,326 and 3,975,531 shares
issued & outstanding respectively, 4,465,532
and 0 warrants issued & outstanding respectively
BEGINNING ACCUMULATED DEFICIT (319,636) (1,379,454)
NET LOSS (421,179) (710,826)
ENDING ACCUMULATED DEFICIT (740,815) (2,090,280)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 619,612 503,148
---------- ----------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY 759,289 779,723
========== ==========
</TABLE>
<PAGE> 40
COMPOSITE AUTOMOBILE RESEARCH, LTD.
INCOME STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
12-31-96 12-31-97
<S> <C> <C>
NUMBER LICENSES 1
CUMULATIVE TOTAL 3
REVENUE
LICENSE FEES - WORLDSTAR 31,250
REVENUE - T RANCH 52,446
---------- ----------
TOTAL REVENUE 52,446 31,250
COST OF SALES
COSTS - T RANCH 17,800
---------- ----------
TOTAL COST OF SALES 17,800 0
---------- ----------
GROSS PROFIT 34,646 31,250
OPERATING EXPENSES
SALARIES & WAGES 66,679 32,455
SALARIES - OFFICERS 8,176 30,290
ADVERTISING & MARKETING 14,177 220,482
AMORTIZATION 72 72
DEPRECIATION 29,507 47,674
OUTSIDE SERV 89,636 210,842
OTHER G & A 48,132 203,283
LOSS - SALE EQUIP T RANCH 198,646
---------- ----------
TOTAL OPERATING EXPENSES 455,025 745,098
---------- ----------
LOSS FROM OPERATIONS (420,379) (713,848)
OTHER INCOME & EXPENSE
INTEREST EXP (178)
RENTAL INCOME 3,200
---------- ----------
TOTAL OTHER INCOME & EXPENSE 0 3,022
---------- ----------
LOSS BEFORE INCOME TAXES (420,379) (710,826)
CALIF FRANCHISE TAX 800
---------- ----------
NET LOSS (421,179) (710,826)
========== ==========
NET LOSS PER AVERAGE COMMON SHARE (0.15) (0.22)
WEIGHTED AVER. COMMON SHARES OUTSTANDING 2,858,108 3,259,935
</TABLE>
<PAGE> 41
Composite Automobile Research, Ltd.
Consolidated Statements Of Changes In Stockholders' Equity
<TABLE>
<CAPTION>
Shares & $ Retained Total
Warrants Deficit Stockholders'
Equity
<S> <C> <C> <C> <C>
Common stock issued in acquisition 1,652,326 167,614 167,614
Special warrants issued for cash 2,693,815 576,610 576,610
Net loss for the year (319,636) (319,636)
---------- ---------- ---------- ----------
BALANCE AT JUNE 30, 1996 4,346,141 744,224 (319,636) 424,588
Special warrants issued for cash 1,771,717 646,298 646,298
Common stock repurchased (2,500,000) (30,095) (30,095)
Net Loss for the period (421,179) (421,179)
---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1996 3,617,858 1,360,427 (740,815) 619,612
Common stock cancelled per Agreement (1,793,000) (57,260) (57,260)
dated 9/27/96
Special warrants issued for cash 1,509,117 629,834 629,834
Net loss for the period (638,639) (638,639)
---------- ---------- ---------- ----------
BALANCE AT JUNE 30, 1997 3,333,975 1,933,001 (1,379,454) 553,547
Common stock issued for cash 319,405 322,175 322,175
Common stock issued for services 322,151 338,251 338,251
Net loss for the period (710,826) (710,826)
---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1997 3,975,531 2,593,427 (2,090,280) 503,147
========== ========== ========== ==========
</TABLE>
NOTE: THESE STATEMENTS REFLECT THE NUMBER OF SHARES AND WARRANTS AS STATED AFTER
A 3 TO 1 REVERSE SPLIT.
<PAGE> 42
COMPOSITE AUTOMOBILE RESEARCH, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
12-31-96 12-31-97
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS (421,179) (710,826)
LESS DEPREC & AMORTIZATION 29,579 47,746
LOSS ON DISPOSAL OF EQUIPMENT 198,646
DECREASE IN ACCTS RECVB 3,149
DECREASE IN INVENTORY 132,953
(INCREASE) IN CONSULTING CONTRACT (100,000)
(INCREASE) IN NOTE RECV - SHRLDR (200,000)
(INCREASE) IN PREPAID EXPENSES (8,978)
DECREASE IN ACQUIRED GOODWILL 38,999
(INCREASE) IN MISCELLANEOUS ASSETS (250)
INCREASE IN ACCOUNTS PAYABLE 52,073 85,585
INCREASE (DECREASE) IN ACCRUED LIABILITIES (76,291) 11,650
(DECREASE) IN CUSTOMER DEPOSITS (131,460)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (482,759) (565,845)
CASH FLOWS FROM INVESTING ACTIVITIES
PURCHASE OF FIXED ASSETS (102,552) (192,648)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (102,552) (192,648)
CASH FLOWS FROM FINANCING ACTIVITES
STOCK ISSUED 593,901 660,427
STOCK CANCELED (109,657)
LOANS - SHAREHOLDERS 36,150 76,699
-------- --------
NET CASH PROVIDED FROM FINANCING ACTIVITIES 520,394 737,126
-------- --------
NET INCREASE (DECREASE) IN CASH (64,917) (21,367)
BEGINNING CASH 117,194 25,280
ENDING CASH 52,277 3,913
</TABLE>
<PAGE> 43
COMPOSITE AUTOMOBILE RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Nature of Operations
In January 1996, Composite Automobile Research, Inc. ("the Company") was
incorporated pursuant to the Alberta Business Corporations Act. The Company
was incorporated to facilitate an initial public offering. Subsequent to
incorporation, the Company acquired Thunder Ranch, Inc., ("Thunder") and
World Transport Authority, Inc. ("WTA"). These acquisitions have been
accounted for under the purchase method with any difference between fair
market value of assets purchased and liabilities assumed being reflected as
goodwill.
In September 1996, the Company sold certain assets and liabilities to a
former stockholder in exchange for common stock of the Company and promises
to pay. The transaction has been accounted for by the purchase method (Note
3). During 1997, common stock issued in accordance with this agreement was
canceled (Note 7).
The Company, through its wholly owned subsidiaries, is in the business of
designing, manufacturing, and selling specialty automobile body kits in
markets around the world.
Basis of Consolidation
For purposes of consolidation and presentation, all significant
intercompany transactions and account balances have been eliminated.
Basis of Accounting
The Company's policy is to use the accrual method of accounting and to
prepare and present financial statements which conform to generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting periods. Actual results could
differ from those estimates.
Cash and Equivalents
For purpose of the statements of cash flows, all highly liquid investments
with a maturity of three months or less are considered to be cash
equivalents. There were no cash equivalents as of December 31, 1997 and
1996.
<PAGE> 44
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
of property and equipment is provided using the straight line method over
estimated useful lives ranging from five to seven years. Upon retirement or
disposal of depreciated assets, the cost and related depreciation are
removed and the resulting gain or loss is reflected in income. Major
renewals and betterments are capitalized while maintenance costs and
repairs are expensed in the year incurred. Any assets acquired from
shareholders are recorded at historical cost at the time of transfer.
Revenue Recognition
Revenues derived from the sale of specialty automobile body kits are
recorded upon completion of the kits and final payment from the customer.
Customer advance payments on orders are deferred and shown in the
accompanying consolidated financial statements as part of current
liabilities. Revenues from licencing fees are recognized when a vehicle has
been sold.
Net Loss Per Share
The net loss per share is computed by dividing the net loss by the weighted
average number of shares outstanding during the period.
Income Taxes
Income taxes are provided for using the liability method of accounting in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes." A deferred tax asset or liability is
recorded for all temporary differences between financial and tax reporting.
Deferred tax expense (benefit) results from the net change during the year
of deferred tax assets and liabilities.
2. INCOME TAXES:
The provision for income taxes for the years ended June 30, 1997 and June
30, 1996 represents $800 for the minimum California franchise tax.
3. RELATED PARTY TRANSACTIONS:
The Company has agreed to accept consulting services from a former
stockholder as part of the sale of certain assets and liabilities (Note 1),
the value of which was determined by actual consulting services the former
stockholder performed in the past. Additionally, the Company is owed
$200,000 as of December 31, 1997 from the former stockholder for the
purchase of certain assets (Note 1). Amounts outstanding are non-interest
bearing, due on demand, and unsecured.
Related party debt at December 31, 1997 consists of amounts loaned to the
Company by Stockholders. There are no formal repayment terms.
<PAGE> 45
4. COMMITMENTS AND CONTINGENCIES:
The Company leases its office and design facilities under an operating
lease that expires in March 2001. This lease was entered into on March 1,
1996. This operating lease provides that the Company pay, in addition to
the base rent, 83% of common area operating expenses as determined by a
prorated share of total square footage of the building.
Rent expense was $42,000 for the six months ended 12/31/96, and $58,500 for
the six months ended 12/31/97.
Future minimum lease payments due under the operating lease for office and
design facilities are as follows:
<TABLE>
<CAPTION>
Year ending June 30
-------------------
<S> <C>
1998 $107,856
1999 107,856
2000 107,856
2001 26,964
--------
Total 350,532
========
</TABLE>
5. STOCKHOLDERS' EQUITY:
For the period ended December 31, 1997 the Company issued shares of common
stock in exchange for $322,175 in cash and $338,251 in services. Stock for
services was based upon the current trading price per share of $1.04. For
the period ended December 31, 1996 the Company issued shares of common
stock in exchange for $646,298 in cash.
Under the terms of the purchase of Thunder and WTA (Notes 1, and 3), the
Company received 2,500,000 of its common stock as consideration. The value
of these shares was determined by the difference between the assets given
up and liabilities relieved and recorded as a reduction in stockholders'
equity.
Changes in common stock and common stock warrants during the period ended
December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
Number Price
------ -----
<S> <C> <C>
Outstanding at 1/5/96
Common stock & warrants issued 4,346,141 $.02 - $.35
---------
Total stock & warrants at 6/30/96 4,346,141 $.02 - $.35
Warrants issued 1,771,717 $.25 - $.35
Shares canceled (2,500,000) $.02
---------
Outstanding at 12/31/96 3,617,858 $.02 - $.35
</TABLE>
<PAGE> 46
5. STOCKHOLDERS' EQUITY (CONTINUED):
Changes in common stock and common stock warrants during the period ended
December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
Number Price
------ -----
<S> <C> <C>
Warrants issued 1,509,117 $.35
(Warrants converted to common stock
- 3,847,674)
Shares canceled (1,793,000) $.02
----------
Outstanding common stock at 6/30/97 3,333,975 $.02 - $.35
Common stock issued for cash 319,405 $1.04
Common stock issued for services 322,151 $1.04
----------
Outstanding at 12/31/97 3,975,531 $.02 - $1.04
</TABLE>
All equity disclosures have been retroactively restated to effect a 3 for 1
reverse stock split as of June 30, 1997.
6. LICENSE AGREEMENTS:
During the period ended December 31, 1997, the Company entered into one
agreement with an unrelated third party representative in the Philippines
whereby the Company has issued a Master License to the representative to
sell Licenses and provide support to Licensees to build and sell vehicles
in that country on behalf of the Company. As consideration for this
agreement, the Company will receive $2,000,000 for the Master License,
payable $10,000 at signing, $400,000 upon their signing of eight licenses,
and the remainder payable at the rate of $50,000 per each additional
license. For the period ended December 31, 1997, performance on this
agreement was pending.
7. SUBSEQUENT EVENTS:
The Company entered into binding arbitration with a former business
partner, Thomas McBurnie regarding the consideration to be paid for the
sale of Thunder Ranch, Inc. to Mr. McBurnie in an Agreement dated September
27, 1996. The arbitration was summarily dismissed in favor of the Company
on November 24, 1997. Mr. McBurnie filed a complaint in Superior Court of
San Diego, California against the Company on December 10, 1997 concerning
the same Agreement dated September 27, 1996. On April 10, 1998, the
Superior Court dismissed the entire complaint. The Company previously had
agreed to issue 1,793,000 shares of common stock to this individual.
However, as of June 30, 1997, the stock had been canceled as recorded by
the stock transfer agent, Pacific Corporate Trust. These shares will remain
canceled per the Superior Court decision of April 10, 1998.
<PAGE> 47
8. DISCLOSURES REQUIRED BY FAS-128
Reconciliation of computations used for basic and diluted EPS:
<TABLE>
<CAPTION>
1996 Basic EPS
<S> <C>
Loss (421,179)
Weighted 2,858,108
Shares
Calculation (421,179)
--------
2,858,108
</TABLE>
<TABLE>
<CAPTION>
1997 Basic EPS
<S> <C>
Loss (710,826)
Weighted 3,259,935
Shares
Calculation (710,826)
--------
3,259,935
</TABLE>
The disclosure for diluted earnings per share is not presented as the results of
calculations were antidilutive.
<PAGE> 48
COMPOSITE AUTOMOBILE RESEARCH, LTD
FORM 10-SB
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
10.1 Consulting Agreement - Douglas Norman
10.2 Affidavit of Jahan Eftekhar regarding design ownership
of WorldStar vehicle.
23.1 Consent of Harlan & Boettger, LLP
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
CONSULTING AGREEMENT
This Agreement is entered into and effective as of April 15, 1996, by and
between World Transport Authority, Inc. a subsidiary of Composite Automobile
Research, Ltd. ("CAR"), ("CLIENT"), and Douglas Norman ("CONTRACTOR").
RECITALS
This Agreement is entered into in contemplation of the following facts,
circumstances, representations, and intentions:
A CONTRACTOR is prepared to utilize its contacts and influence in order
to directly assist CLIENT with the sale of CLIENT's proprietary
vehicle manufacturing licenses in a world-wide developing nation
program. It is understood the aforementioned licenses are not for
sale in the United States or any other industrialized or developed
nation.
B CLIENT desires to enter into this agreement with CONTRACTOR, and to
set forth the terms of CLIENT's Agreement with CONTRACTOR pursuant to
the terms and conditions as more specifically set forth herein.
TERMS AND CONDITIONS OF ENGAGEMENT
In consideration of the premises and mutual convents and agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereby agree as follows:
1 ENGAGEMENT: CLIENT hereby engages CONTRACTOR as an independent
contractor. CONTRACTOR hereby accepts the engagement upon the terms
and conditions set forth in the Agreement.
2 TERM: The term of this Agreement shall be for a period of one year,
beginning on the date of this Agreement. This Agreement may renewed
by mutual consent each year by the anniversary date of this Agreement.
3 DUTIES: CONTRACTOR shall use its associations, business relationships
and name recognition in order to assist CLIENT with the sale of
CLIENT's proprietary vehicle manufacturing licenses in developing
nations.
4 TIME COMMITMENTS: In addition to the term described in Paragraph 2,
CONTRACTOR shall use reasonable common business practices in
assisting CLIENT in securing license sales in a timely fashion,
considering "time is of the essence" in the business affairs of
CLIENT.
<PAGE> 2
5 COMPENSATION: For services rendered by CONTRACTOR pursuant to the
terms of this agreement, CONTRACTOR shall be paid a fifteen percent
commission for each fully-paid license sale arranged by CONTRACTOR
per the period in Paragraph 2.
6 TERMINATION OF CONSULTING AGREEMENT: This Agreement may be terminated
by either CONTRACTOR or CLIENT with thirty days written notice.
COOPERATION, ARBITRATION, INTERPRETATION, MODIFICATION, ATTORNEY FEES AND
MISCELLANEOUS PROVISIONS
The parties agree that they will do all that is required and necessary to
accomplish and facilitate the purposes of this Agreement and that they will
sign and execute and all documents necessary to bring about and perfect the
purposes of this Agreement.
The parties agree that should any provision of this Agreement be found to be
ambiguous in any way, such ambiguity shall not be resolved by construing such
provisions or any part of or the entire Agreement in favor of or against any
party herein, but rather by construing the terms of this Agreement fairly and
reasonably in accordance with their generally accepted meaning.
No amendment, modification or waiver of any provision of this Agreement shall
in any event be effective unless the same shall be in writing and signed by the
parties hereto.
None of the parties rights, duties or obligations under this Agreement are
assignable by any of the parties hereto without the prior written consent of
the other party and any attempted assignment without prior written consent
shall be null and void.
This Agreement constitutes the entire Agreement and understanding of the
parties hereto with respect to the matters herein set forth, and all prior
negotiations, writings and understandings relating to the subject matter of
this Agreement are merged herein and are superseded and canceled by this
Agreement.
The parties will attempt through good faith negotiation to resolve their
disputes. The term "disputes" includes, without limitation, any disagreements
between the parties concerning the existence, formation and interpretation of
this Agreement and their obligation thereunder. If the parties hereto are
unable to resolve their disputes by negotiation, they shall attempt to resolve
their disputes through mediation.
<PAGE> 3
If mediation proves unsuccessful, either party may commence arbitration by
sending a written notice of arbitration to the other party. The notice will
state the dispute with particularity. As part of the arbitrators decision, the
arbitrator may allocate the cost of arbitration, including fees of attorneys
and experts, as the arbitrator deems fair and equitable in light of all
relevant circumstances. The arbitration hearing shall be commenced thirty (30)
days following the date of delivery of notice of arbitration to the other party,
or as soon thereafter as set by the arbitrator(s).
If any legal action or any arbitration or other proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorney's fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
/s/ DEAN AMARU /s/ DOUGLAS NORMAN
- ------------------------------------ -----------------------------------
Dean Amaru, President Douglas Norman
Composite Automobile Research, Ltd. 1022 Topper Ln
635 Front Street, El Cajon, Ca 92020 El Cajon, Ca 92020
<PAGE> 1
EXHIBIT 10.2
AFFIDAVIT OF JAHAN "JOHN" EFTEKHAR
- --------------------------------------------------------------------------------
BEFORE ME, the undersigned authority, on this day personally appeared
JAHAN ("JOHN") EFTEKHAR, known to me to be the person whose name is subscribed
to the foregoing instrument, and after being duly sworn by me, on oath,
deposed and stated as follows:
"My name is JAHAN ("JOHN") EFTEKHAR. I am a resident of San Antonio, Bexar
County, Texas. I received a Ph.D. in Mechanical Engineering from the University
of Texas at Arlington in May, 1983. I am currently an Associate Professor of
Mechanical Engineering at the University of Texas at San Antonio. In addition to
my duties with the University of Texas at San Antonio, I am a principal in Inno
Tech Engineering Services, 8627 Cinnamon Creek, Bldg. 301, San Antonio, Texas
78240. Further, I was initially a share holder in Thunder Ranch which
subsequently became Composite Automobile Research, Ltd.
Mr. Michael Van Steenburg was employed with Inno Tech Engineering Services when
he was contacted by Mr. Brock Vinton (sic) to design a composite vehicle which
was named "Island Car". Mr. Thomas McBurnie was commissioned by Vinton and Van
Steenburg to fabricate the "Island Car" according to the supplied
specifications and blue prints. The island car project was quickly terminated
and Brock/Van Steenburg started on another design of this passenger vehicle.
The "WorldStar" is an all composite utility truck manufactured and designed by
Composite Automobile Research Ltd. This vehicle which is designed for production
and use in developing countries. The design layout of this vehicle is of such
that it can convert from an open truck to a van or a car. This vehicle, except
for the body material, has no resemblance to the "Island Car" which was designed
by Michael Van Steenburg.
Further, affiant sayeth not.
/s/ J.E. Eftekhar
------------------------------------
Jahan ("John") Eftekhar, Ph.D., P.E.
SUBSCRIBED AND SWORN TO BEFORE ME by the said JAHAN ("JOHN") EFTEKHAR, PH.D.,
P.E. on the 9th day of January, 1998, to certify which witness my hand and
official seal of office.
[SEAL] ANTONIO M. ALVARADO /s/ Antonio M. Alvarado
Notary Public: State of Texas ------------------------------------
My Commission Expires 02/11/98 Notary Public, State of Texas
Printed Name: ANTONIO M. ALVARADO
My Commission Expires: 2/11/98
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTS
We hereby consent to the use of our report included in the Registration
Statement on Form 10-SB dated May 5, 1998 relating to the financial statements
of Composite Automobile Research, Ltd.
/s/ HARLAN & BOETTGER, LLP.
San Diego, California
May 5, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERIM
FINANCIAL STATEMENTS FOR SECOND QUARTER 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH COMPOSITE AUTOMOBILE RESEARCH, LTD 10-SB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,913
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,588
<PP&E> 544,993
<DEPRECIATION> 104,137
<TOTAL-ASSETS> 779,723
<CURRENT-LIABILITIES> 276,575
<BONDS> 0
0
0
<COMMON> 2,593,428
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 779,723
<SALES> 0
<TOTAL-REVENUES> 31,250
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 745,098
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 178
<INCOME-PRETAX> (710,826)
<INCOME-TAX> 0
<INCOME-CONTINUING> (710,826)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (710,826)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
