UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended June 30, 1995
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) for the transition period from
____________________ to _______________________.
Commission file number: 0-19069
ATC II, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 75-2395356
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6701 Baum Drive, Suit 345, Knoxville, TN 37919
(Address of Principal Executive Offices) (Zip Code)
(423) 588-1018
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 Par Value
Title of Class
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes __ No XX
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer had no revenues for the year ended June 30, 1995.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average bid and asked prices of such stock, as of July 8,
1996, was $0.00, because the Company's Common Stock was not traded on a stock
market or quotation system.
The number of shares outstanding of the issuer's common stock ($0.01 par value),
as of July 8, 1996 was 4,996,811.
Transitional Small Business Format
Yes No XX
Total of Sequentially Numbered Pages: 25
Exhibit Index on Page: 20
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TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS..............................................3
ITEM 2. DESCRIPTION OF PROPERTY..............................................6
ITEM 3. LEGAL PROCEEDINGS....................................................6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................7
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.............................................................8
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION...........................................................8
ITEM 7. FINANCIAL STATEMENTS................................................11
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.......................12
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.................12
ITEM 10. EXECUTIVE COMPENSATION..............................................13
ITEM 11. SECURITY OWNERSHIP OF BENEFICIAL OWNERS.............................14
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................15
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K....................................18
SIGNATURES..................................................19
INDEX TO EXHIBITS...........................................20
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS
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Business Development
ATC II, Inc. is a Delaware corporation with corporate headquarters
located in Knoxville, Tennessee. Hereinafter, unless the context indicates
otherwise, the term "Company" refers to ATC II, Inc., and its predecessors and
former subsidiaries. The Company was originally organized as ATC, Inc. on
February 7, 1979 under the laws of British Columbia, Canada. The Company was
re-domiciled as a Delaware corporation on November 20, 1990. On December 13,
1990, Amertelco, Inc., a Delaware corporation and then the sole owner of the
Company merged into the Company. The Company adopted its present name on July
27, 1993 in conjunction with the revival of its charter under Delaware law.
From July 1984 through June 1992, the Company's primary business was
conducted through its former subsidiary, American Telecommunications Corp., a
Texas corporation ("American"), which provided long-distance telecommunications
management services to the hotel industry. The Company sold American to
ComCentral Corp., a Utah corporation ("ComCentral"), on June 18, 1992.
ComCentral subsequently filed suit against the Company alleging that the Company
breached representations made in connection with the sale, but this suit was
dismissed pursuant to a Release and Indemnification Agreement dated December 29,
1994. For more information on the dispute with ComCentral, see "Item 6 -
Management's Discussion and Analysis or Plan of Operation."
From December 1990 to April 1993, the Company, through its subsidiary,
Reserve-A-Phone Systems, Inc. ("RAP Systems"), was a participant in
Reserve-A-Phone Corporation ("RAP Corporation"), a joint venture providing
cellular phone services to the North American operations of Budget Rent-A-Car
("Budget"). RAP Systems owned a 50% interest in RAP Corporation. Due to a
dispute between the Company and its joint venture partner, Portable Cellular
Communications, Inc., Budget terminated the Portable and Fixed Mount Cellular
Telephone Agreement (the "PFMCT Agreement") it had with RAP Corporation. The
April 19, 1993 termination of the PFMCT Agreement effectively ceased the
business operations of RAP Corporation and RAP Systems. RAP Systems is no longer
an operating company and has no tangible value.
On August 31, 1993, the Company acquired all the outstanding common
stock of Carnegie Film Group, Inc. ("Carnegie") for 56,250 shares1 of the
Company's common stock, par value $0.001 ("Common Stock"), valued at $1,125,000.
On the same day, the Company acquired a promissory note payable by Carnegie in
favor of Communications and Entertainment Corporation ("ComEnt") pursuant to a
Note Purchase Agreement. The note was in the amount of $3.6 million and was
secured by the assets of Carnegie. In exchange for the note, the Company issued
25,000 shares of Common Stock, valued at $500,000, to ComEnt. The Company also
issued 3,076,923 shares of 4% Series A Cumulative Convertible Preferred Stock,
valued at $2,825,207. The preferred stock was convertible into shares of Common
Stock with an initial liquidation preference of $1.30. As part of the Note
Purchase Agreement, the Company guaranteed the payment of a separate $350,000
demand note executed by Carnegie in favor of ComEnt Funding Corp. ("ComEnt
Funding"), a subsidiary of ComEnt. Subsequently, the Company itself borrowed an
additional $150,000, payable on demand, from ComEnt Funding.
ComEnt filed suit against the Company due to the Company's failure to
make payments pursuant to the Note Purchase Agreement on the note it had
executed, as well as the note it had guaranteed. The lawsuit was dismissed
pursuant to a Settlement Agreement entered by and between the Company, ComEnt,
ComEnt Funding and Carnegie on August 15, 1994. Pursuant to the Settlement
Agreement, all 3,076,923 shares of Series A Convertible Preferred Stock held by
ComEnt were returned to the Company and canceled. As consideration, the Company
issued 900,000 shares of a new Series B Convertible Preferred Stock to ComEnt.
The new class of preferred stock had a 7% cumulative dividend. The Company also
transferred to ComEnt all of the assets then held by Carnegie.
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(1) Unless otherwise indicated, all amounts of Common Stock referred to in this
Form 10-KSB have been adjusted to reflect the 1-for-40 reverse split of the
issued and outstanding Common Stock that was effected August 24, 1994. For more
information on this stock split, see "Item 5 - Market for Common Equity and
Related Shareholder Matters."
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On October 2, 1995, the Company paid ComEnt Funding $20,000 in exchange
for the redemption of all Series B Convertible Preferred Stock and in settlement
of all claims. This payment extinguished all debts owed to ComEnt and ComEnt
Funding, including all accrued dividends on the preferred stock. For more
information on the settlement with ComEnt and ComEnt Funding, see "Item 6 -
Management's Discussion and Analysis or Plan of Operation." All shares of the
Series B Convertible Preferred Stock were ultimately canceled by the Company on
July 2, 1996.
On September 20, 1993, the Company acquired all ownership rights, title
and interest in five motion picture films. In exchange, the Company issued
25,000 shares of Common Stock, valued at $930,000, and warrants to purchase an
additional 25,000 shares. On November 5, 1993, the Company formed Filmways
Entertainment Corporation, a Delaware corporation ("Filmways"), for the purpose
of acquiring, producing and marketing feature length films. The Company
capitalized Filmways using cash and the five aforementioned films.
From August 1993 through June 1994, the Company had no active
operations of its own. Its two subsidiaries, Carnegie and Filmways, engaged in
the distribution of feature length motion pictures. During the 1994 fiscal year,
these subsidiaries discontinued all film distribution operations. Effective June
23, 1994, the Company sold any and all rights, title and interest it had in the
common stock of Carnegie to National Media Inventory, Inc. ("NMI"), an affiliate
of the Company. The Company also executed a $400,000 nonrecourse, convertible
promissory note bearing an 8% interest rate in favor of NMI. In exchange, the
Company acquired advertising credits in a weekly Spanish language newspaper and
a Spanish advertising circular having a total face value of $2.55 million and
indoor advertising space in public areas with a face value of $1.35 million. The
advertising credits consisted of prepaid advertising coupons that could be used
by the Company or sold to third parties. The credits expired worthless if not
used by June 23, 1996, and therefore the Company booked the credits at a
discount to face value. These advertising credits were subsequently transferred
to ComCentral pursuant the Compromise, Release and Indemnification Agreement
dated December 29, 1994. The credits were transferred to settle the
aforementioned claim ComCentral had asserted against the Company in connection
with the Company's sale of American. For more information on this settlement,
see "Item 6 - Management's Discussion and Analysis or Plan of Operations."
Effective September 1, 1994, the Company transferred all of its rights
and interests in the stock of Filmways to Xeta Corporation pursuant to the order
of the United States District Court for the Northern District of Oklahoma. For
more information on this transfer to Xeta, see "Item 3 - Legal Proceedings."
The Company, through its subsidiary, Thistle Properties, Inc., an
Illinois corporation ("Thistle"), entered into a Real Estate Sales Agreement
dated June 20, 1994 (the "RES Agreement"). Through the RES Agreement, Thistle
purchased a manufacturing plant located in Canton, Illinois from The Canton
Industrial Corporation, a Nevada corporation ("CIC"). As consideration, the
Company agreed to pay CIC $4 million in either cash or Common Stock. The parties
later amended the RES Agreement, reducing the purchase price to $825,000 based
upon the determination of the Company's independent auditors that the RES
Agreement was not an "arms-length" transaction. The Company executed a Real
Estate Lien Note (the "Note"), secured by 100% of Thistle's capital stock, in
favor of CIC to finance the purchase.
From June 20, 1994 to May 12, 1995, Thistle owned and managed the
manufacturing plant. It leased the plant to commercial tenants and made plans to
convert the plant into a film studio or film warehouse. Neither of these
activities, however, generated revenues sufficient to meet Thistle's obligations
under the Note. On May 4, 1995, Thistle received a Notice of Default from CIC.
Thistle subsequently informed CIC that due to Thistle's poor financial position,
neither Thistle nor the Company would be able to comply with the terms of the
Note. Thistle, with the Company's approval, proposed to forfeit all payments
made to CIC and to allow CIC to foreclose on the security (100% of Thistle's
capital stock) provided by the Amended RES Agreement in exchange for a mutual
release of all claims. Effective May 12, 1995, the Company and Thistle executed
a Mutual Release with CIC, through which 100% of the capital stock of Thistle
was transferred to CIC.
Thistle entered into a Textile Purchase Agreement dated June 20, 1994
with Carousel, Inc., a Utah corporation. Pursuant to that Agreement, Thistle
purchased commercial textiles in exchange for 57,339 shares of Common Stock and
a $650,000 non-recourse promissory note secured by the textiles. These textiles
were also transferred to ComCentral in settlement of its suit against the
Company and in exchange for ComCentral's assumption of payment obligations on
the promissory note. For more information on this settlement, see "Item 6 -
Management's Discussion and Analysis or Plan of Operations."
The Company entered into Exchange Agreements dated June 30, 1994 with
Asset Management Trust, San Pedro Securities, Global Market Systems, and David
Newren pursuant to which the Company acquired additional prepaid
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advertising. The Company issued 100,000 shares of Common Stock for advertising
due bills, which had a total face value of $625,000. The due bills were also
transferred to ComCentral according to the Compromise, Release and
Indemnification Agreement. For more information on this settlement, see "Item 6
- - - Management's Discussion and Analysis or Plan of Operations."
Pursuant to a June 30, 1995 Purchase Agreement with Turner, Turner &
Associates, a Washington corporation ("TTA"), the Company acquired the exclusive
right to license products produced under U.S. Patents Numbers 5,296,216 and
5,306,509 (the "Patents"). The Patents relate to an oral lavage, the trademark
of certain products, and a protocol known as STOMASTAT(TM). In development since
1983, STOMASTAT(TM) is a peroxide and bicarbonate-based solution that cleanses,
irrigates, and protects the oral cavity from stomatitis, a process which results
in mouth ulcers or canker sores. The Purchase Agreement was rescinded in
February 1996 because several conditions of the Purchase Agreement had not been
met and both the Company and TTA desired an alternative structure for the
purchase. After several months of unsuccessful negotiations, both parties
decided to abandon this transaction.
Business of Issuer
Due to the liquidation of Carnegie and Filmways and the surrender of
Thistle to CIC, the Company no longer has any operating subsidiaries. The
Company's business is now directed toward finding a suitable merger or
acquisition candidate who can provide the Company with the basis for successful
operations. On June 13, 1995, the board of directors appointed James L. Thompson
as president and a director of the Company. The board further appointed Jack E.
Hartgrove as chairman of the board of directors, chief financial officer and
director. Mr. Thompson and Mr. Hartgrove were appointed to the board of
directors because the Company believed that their respective business experience
and contacts would assist the Company in its attempts to acquire a suitable
operating subsidiary. Upon the appointments of Mr. Thompson and Mr. Hartgrove,
Dr. Gerald Curtis, Bert Martinez, and Tony Geonnotti resigned from their
respective positions as the Company's directors and officers. The resigning
directors stepped down for personal reasons, without disagreements with the
Company or its management at the time of their respective resignations.
On January 19, 1996 and in order to help facilitate the Purchase
Agreement with TTA, James Thompson resigned as the Company's president and
Richard H. Turner, president of TTA, was appointed as his replacement. On May 6,
1996, Richard Turner resigned as president. Mr. Turner resigned because the
Purchase Agreement had been rescinded and the parties mutually decided to
abandon all negotiations toward a further agreement. Mr. Turner resigned without
any disagreements with the Company or its management. On July 11, 1996, the
Company appointed Leslie Carter as president and a director of the Company. For
more information on the Company's current board of directors, see "Item 9 -
Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act."
As of the date of this filing, the Company has identified potential
merger and acquisition candidates, however all negotiations are in the
preliminary stages and no definitive agreements have been reached.
To help it find an appropriate reorganization partner, the Company
employed the services of Canton Financial Services Corporation, a Nevada
corporation ("CFS"). CFS introduced the Company to TTA. As a finder's fee, CFS
received a quantity of shares that then equaled 19% of the Company's outstanding
Common Stock. CFS provides financial consulting services including
administrative, accounting, and shareholder relations work. CFS was retained on
June 30, 1994 pursuant to a one-year, renewable Consulting Agreement. According
to that agreement, CFS receives a $30,000 monthly fee which the Company can pay
by issuing restricted common stock to CFS. For purposes of such stock payments,
the restricted stock is valued at one half the average bid price over a ten-day
period ending on the 14th day of each month. CFS is a subsidiary of the
aforementioned CIC. For more information on both CFS and CIC, see "Item 12 -
Certain Relationships and Related Transactions."
The Company has no full time employees. However, pursuant to the
consulting agreement with CFS, the Company receives consulting, administrative
and other services from CFS as needed. CFS employs approximately 55 full-time
employees, many of whiom rendered services to the Company during the fiscal
year.
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ITEM 2. DESCRIPTION OF PROPERTY.
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In June 1995, the Company relocated its corporate headquarters from 268
West 400 South, Suite 230, Salt Lake City, Utah, 84101 to 6701 Baum Drive, Suite
345, Knoxville, Tennessee, 37919. This office space is currently being leased by
the Company. The Company does not own any property, and does not anticipate the
purchase of additional property in the near future.
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ITEM 3. LEGAL PROCEEDINGS
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The Company knows of no material legal proceedings or material
developments in any legal proceedings involving the Company or its subsidiaries,
other than those discussed below. However, due to the recent resignations of
officers and directors of the Company and the discontinuation of the businesses
of some of the Company's subsidiaries, there may be other material legal
proceedings pending or threatened against the Company, its subsidiaries or
former officers and directors of which the current management is not aware.
On February 5, 1993, BG Acorn Capital Fund, a trust formed under the
laws of the Province of Ontario, Canada (the "Trust"), filed suit in the Supreme
Court of British Columbia against the Company and former officers of the
Company, Richard L. Liu and Raymond R. Cottrell. The Trust contends that the
Company owed it $500,000 plus interest at 10% from December 1990 and sought
costs and further relief for the Company's failure to repay indebtedness. The
Trust alleged that funds advanced to the Company's subsidiary, American, were
for the benefit of, and used by, the Company. The Trust received a judgment
against American prior to filing this lawsuit. The Company contends that the
court does not have jurisdiction over it and that the money is owed by American,
not the Company. This action was set for trial on September 7, 1994, but the
Trust did not proceed to trial at that time. Trial could be rescheduled by the
Trust.
On October 6, 1993, The Private Lessons Partnerships, L.P., a
California limited partnership ("PLP"), filed suit in the Superior Court of the
State of California for the County of Los Angeles against the Company, Filmways,
Carnegie, the officers of Filmways and Carnegie, and other defendants. PLP is
seeking compensatory damages of $315,000 and punitive damages for an alleged
breach of a distribution agreement and fraud. PLP has attached Carnegie's assets
in California. The suit results from an alleged breach of a distribution
agreement and fraud. The Company is defending the lawsuit on the grounds that it
is not liable for the breach, if any, since the agreement was with its
subsidiaries.
On September 18, 1992, Xeta Corporation, an Oklahoma corporation
("Xeta"), filed suit in the United States District Court for the Northern
District of Oklahoma, against the Company based on a security agreement. On
August 26, 1993, Xeta obtained Summary Judgment against the Company and American
in the principal sum of $119,379.42 plus $30,479.72 for attorney's fees and
costs. The Company accrued the amount of the judgment as an expense. In December
1993, the Company filed an appeal with the Tenth Circuit Court of Appeals,
challenging the Summary Judgment on various procedural issues. The Company was
represented by local counsel on September 26, 1994, at oral arguments of such
appeal. On October 10, 1994, the Tenth Circuit affirmed Summary Judgment. On
July 21, 1994, following several asset hearings and other collections efforts,
the Court issued an Order for Judgment Debtor to Appear and Turn Over Assets and
Property to the Plaintiff (the "Order"). Pursuant to the Order, the Company
transferred all outstanding shares of the capital stock of Filmways to Xeta.
On March 8, 1995, Xeta filed a related suit in the United States
District Court, in the Central District of Utah, case number 95CV-218G. In this
suit, Xeta is seeking to recover $116,500 which it contends was fraudulently
conveyed by the Company in order to avoid payment on the judgment held by Xeta.
Xeta brought suit against The Canton Industrial Corporation ("CIC"), the
recipient of the alleged fraudulent conveyance, as well as Richard Surber and
Dr. Gerald Curtis, both directors of the Company at the time of the transfer. On
April 16, 1996, the Court announced its decision to grant Xeta's Motion for
Summary Judgment against CIC, but denied Xeta's motion in regard to Mr. Surber
and Dr. Curtis. CIC has appealed the granting of Summary Judgment and that
appeal is currently pending. If Xeta ultimately prevails in this litigation, CIC
will likely seek indemnification against the Company for the full $116,500.
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On April 26, 1994, Communications and Entertainment Corp. ("ComEnt")
and ComEnt Funding Corp., a subsidiary of ComEnt ("ComEnt Funding"), filed suit
in the Southern District of New York, case number 94CIV.3589 (RWS). The lawsuit
named the Company and Carnegie as defendants, and sought payment of two
promissory notes. The first note was a $350,000 demand note dated March 31, 1993
that was payable by Carnegie and guaranteed by the Company. The second note was
a $150,000 note dated October 7, 1993 payable by the Company. The law suit was
dismissed pursuant to an August 15, 1994 Settlement Agreement entered by and
between ComEnt, ComEnt Funding, Carnegie, and the Company. According to the Debt
Settlement Agreement, the Company redeemed the Company's Series A Convertible
Preferred Stock, then owned exclusively by ComEnt. The Company issued 900,000
shares of a new Series B Convertible Preferred Stock to ComEnt. The Company
further transferred to ComEnt all assets then held by Carnegie. The Series B
Convertible Preferred Stock was ultimately redeemed pursuant to a cash payment
by the Company to ComEnt. For more information on these transactions, see "Item
1 - Description of Business."
In February 1994, Strategic Growth International, Inc. filed a
complaint in the Supreme Court of the State of New York, County of Nassau,
against the Company in the amount of approximately $89,000 for an unpaid fee
allegedly earned pursuant to a contract for investor relations services. The
Company's management has terminated the contract and is attempting to reach a
settlement. If a reasonable settlement, in light of the facts and actual
services performed, cannot be reached, the Company intends to defend this
lawsuit to the extent the Company's resources permit it to do so.
On December 30, 1994, Krishna Shah, an individual, filed a complaint in
the Superior Court for the State of California, County of Los Angeles case
number BC119166. The complaint was filed against N. Norman Muller, ComEnt, the
Company, Carnegie Film Group, Jerry Minsky, Perry Scheer, Susan Bender, Larry
Meyers, Robert E. Hesse and Double Helix Films, Inc. Shah's complaint alleged
that the defendants had made false promises to the plaintiff and, through a
series of corporate mergers and acquisitions, negligently injured the plaintiff
to the extent of $152,000. The suit seeks unspecified compensatory and punitive
damages as well as emotional distress damages. Shah has filed a motion seeking a
default judgment against the Company, but this motion has yet to be granted. The
Company believes that the suit is without merit and intends to respond in the
appropriate manner.
On July 11, 1995, the Company filed a complaint in the State of Utah,
Third Judicial District Court against Louis Metzer, an individual resident of a
foreign country, civil case number 950904843. On November 1, 1994, Louis Metzer
entered into a stock purchase agreement with the Company, wherein Metzer agreed
to purchase 250,000 shares of the Company's Common Stock in exchange for
$187,500. On the same date, Metzer entered into a written promissory note
promising to pay the Company $187,500 plus 6% per annum on or before February 1,
1995. Metzer has defaulted the promissory note and the Company is seeking
recovery on said note. Efforts to serve Metzer have been unsuccessful. The
Company is currently working to locate Metzer to complete service.
On July 11, 1995, the Company filed a complaint against Christopher
Wells, an individual resident of a foreign country, in the State of Utah, Third
Judicial District Court civil case number 950904842. On October 10, 1994,
Christopher Wells ("Wells"), entered into a stock purchase agreement with the
Company, in which Wells agreed to purchase 1,500,000 shares of the Company's
Common Stock. The transaction was secured by a promissory note entered into
between both parties on October 10, 1994. Wells has defaulted on the promissory
note and the Company seeks to recover on said note. Efforts to serve Wells have
been unsuccessful. The Company is currently working to locate Wells to complete
service.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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The Company did not submit any matters to a vote of security holders
during the fourth quarter of fiscal year 1995 and had not submitted any such
matters as of July 8, 1996.
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PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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Market Information
The common stock of the Company traded over-the-counter on the NASDAQ
Stock Market under the symbol "ATCI" until December 22, 1994 when NASDAQ
delisted the Company's securities for failure to maintain minimum listing
requirements. The Company intends to apply to have its securities traded on the
OTC Bulletin Board, and is in the process of making a filing pursuant to Rule
15c2-11 under the Securities Exchange Act of 1934. The table set forth below
lists the range of high and low bids for the Company's Common Stock as reported
by NASDAQ for each quarter during the Company's fiscal years ended June 30, 1993
and 1994. The prices in the table reflect inter-dealer prices, without retail
markup, markdown or commission and may not represent actual transactions. Note
that these prices have been adjusted for the 1-for-40 reverse split effective
August 24, 1994.
Calendar Year Quarter High Low
1993 Third $38.80 $12.40
----
Fourth $70 $16.40
1994 First $25.20 $10
----
Second $13.60 $1.20
Third $ 6.00 $2.40
Fourth (partial period) $ 3.60 $2.40
1995 The Common Stock was not quoted on any stock exchange or
---- quotation system during 1995, see above.
On August 16, 1994, the Company's shareholders approved one-for-ten
(1:10) and one-for-four (1:4) reverse splits of the Company's common stock
(effectively amounting to a one-for-forty (1:40) reverse split), which took
effect on August 24, 1994. For more information, see the Company's Form 10-QSB/A
for the quarter ending September 30, 1994.
Holders
As of July 8, 1996, there were 423 stockholders of record holding
4,996,811 of the Company's common shares.
Dividends
The Company has not declared any cash dividends for the last three
fiscal years and does not anticipate paying any dividends in the foreseeable
future. The payment of dividends is within the discretion of the Board of
Directors and will depend on the Company's earnings, capital requirements,
financial condition, and other relevant factors.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- - --------------------------------------------------------------------------------
General
The following discussion should be read together with the Company's
consolidated financial statements and notes thereto included in this Form
10-KSB.
From 1984 to 1993, the Company's business was in telecommunications
and producing and distributing feature length motion pictures. In June 1992, the
Company began to divest its interest in certain unprofitable subsidiaries.
Similar
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divestitures followed in fiscal 1993 and 1994. In fiscal 1994, the Company
focused its efforts on discontinuing or winding down unsuccessful operations,
resolving existing and potential liabilities and searching for attractive merger
or acquisition partners and profitable business opportunities. These efforts,
which continued in fiscal 1995, have affected inter-period comparability of the
Company's operating results and financial condition.
On December 29, 1994, the Company and ComCentral Corp., a Utah
corporation n/k/a Tianrong Building Material Holdings, Ltd. ("ComCentral"),
agreed to a Compromise, Release and Indemnification Agreement. The Agreement
settled ComCentral's claim that the Company breached representations it, or its
predecessor in interest, allegedly made in a 1992 agreement between the
companies whereby the Company sold to ComCentral all of the common stock of
American Telecommunications Corp. ("American"). ComCentral claimed that the
Company had misrepresented the value of American's assets and existing contracts
and asserted damages of $2,533,600. The parties agreed to fully settle these
claims with the Company's immediate transfer to ComCentral of textiles valued at
$626,500 and media credits valued at $775,000, and a future transfer of $250,000
worth of media credits. ComCentral agreed to assume the payment obligation of a
$400,000 promissory note secured by the media credits. ComCentral also assumed
the position of payee with respect to a promissory note on the textiles which
was initially payable to Carousel, Inc. by Thistle Properties, Inc., a former
wholly owned subsidiary of the Company. The Company's current management was
unaware of the existence of this potential liability until it was notified by
ComCentral in January 1995.
The reasons behind the Company's decision to settle ComCentral's claims
were numerous. First, the Company decided it would be even more difficult for
the Company to merge with, or acquire assets from, another entity if the Company
was burdened by outstanding claims as large as ComCentral's. Next, the claims
were satisfied with textiles and media credits, assets whose value could not
have been fully utilized by the Company due to its lack of resources.
Additionally, the Company decided that the maintenance of assets as diverse as
textiles and media credits would likely complicate merger and acquisition
discussions and negotiations. The textiles and media credits were both obtained
pursuant to promissory notes requiring regular cash payments, none of which the
Company was able to satisfy, and which would have resulted in the holders of the
notes reclaiming the assets due to nonpayment. The Company expected to have
sufficient funds to meet its obligations with respect to the media credits and
textiles, however, proceeds due from Regulation S sales of the Company's
securities were not paid when due, and although the Company is pursuing all
avenues for collection, there can be no assurances that such monies will be
collected. Therefore, in the interest of allowing the Company to remain as
attractive as possible to outside entities and to realize some benefit from the
textiles and media credits, the Company decided it would be best to resolve the
ComCentral claims in exchange for such assets.
In May 1994, The Canton Industrial Corporation, a Nevada corporation
("CIC"), served Thistle Properties, Inc., then a wholly-owned subsidiary of the
Company ("Thistle"), and the Company with a Notice of Default on the Real Estate
Lien Note executed between the parties. Thistle and the Company informed CIC
that because of Thistle's poor financial position, compliance with the terms of
the June 20, 1994 Real Estate Sales Agreement (the "RES Agreement") entered by
and between the parties was not possible. Thistle proposed to forfeit all
payments previously made under the RES Agreement and to allow CIC to foreclose
on the security (100% of the capital stock of Thistle) provided by the RES
Agreement in exchange for a mutual release of all claims. Effective May 12, 1995
the Company and Thistle executed a Mutual Release with CIC by which the Company
transferred 100% of the capital stock of Thistle to CIC and by which CIC
released the Company from all obligations under the RES Agreement.
Effective September 1, 1994, the Company transferred all of its rights
and interests in the stock of its subsidiary, Filmways Entertainment
Corporation, to Xeta Corporation pursuant to an order of the United States
District Court for the District of Oklahoma. For more information on this
transfer, see "Item 3 - Legal Proceedings."
By the end of the 1994 fiscal year, the Company had disposed of nearly
all of its assets in an attempt to extinguish liabilities and restructure
operations. The Company's emphasis then shifted toward finding a suitable
acquisition or merger candidate. On June 13, 1995, the board of directors
appointed James L. Thompson as president and a director of the Company. The
board further appointed Jack E. Hartgrove as chairman of the board of directors,
chief financial officer and director. Mr. Thompson and Mr. Hartgrove were
appointed to the board of directors because the Company believed that their
respective business experience and contacts would assist the Company in its
attempts to acquire a suitable operating subsidiary. Upon the appointments of
Mr. Thompson and Mr. Hartgrove, Dr. Gerald Curtis, Bert Martinez, and Tony
Geonnotti resigned from their respective positions as the Company's directors
and officers. The resigning directors stepped down for personal reasons, without
disagreements with the Company at the time of their respective resignations.
9
<PAGE>
Effective June 30, 1995, the Company entered into a Purchase Agreement
with Turner, Turner & Associates, a Washington corporation ("TTA"), and TTA's
shareholders. According to the Purchase Agreement, the Company acquired the
rights to United States Patents numbered 5,296,216 and 5,306,509. The patents
were developed by TTA and protect STOMASTATTM, a peroxide and bicarbonate-based
solution that cleanses, irrigates, and protects the oral cavity from stomatitis,
a process which results in mouth ulcers or canker sores. The Company intended to
make the production and distribution of STOMASTATTM the focal point of its
operations.
On January 19, 1996 and in order to help facilitate the Purchase
Agreement, James Thompson resigned as the Company's president and Richard H.
Turner, president of TTA, was appointed as his replacement. The Purchase
Agreement, however, was rescinded in February 1996 because many of its
conditions had not been met and because all parties involved determined that an
alternative structure would be preferable. The Company continued to negotiate
with TTA for several months in an attempt to reach a second agreement, but no
such agreement was reached. The parties ultimately discontinued all negotiations
in May 1996. On May 6, 1996, Richard H. Turner resigned as president and a
director of the Company. On July 11, 1996, Leslie Carter was appointed as
president and a director of the Company.
Under new management, the Company is continuing its search for a
suitable merger or acquisition partner. As of the date of this filing, the
Company has identified potential merger and acquisition candidates, however all
negotiations are in the preliminary stages and no definitive agreements have
been reached.
Results of Operations
The Company had no revenue for the fiscal year ended June 30, 1995. The
Company attributes the absence of revenue to the discontinuation of the
operations of its former subsidiaries.
Operating expenses for fiscal year ended June 30, 1995 increased by
$812,674 over the previous fiscal year ended June 30, 1994. A majority of the
expenses for fiscal 1995 are directly or indirectly attributable to the
Company's search for new business opportunities and potential merger or
acquisition candidates, resolving litigation to which the Company is a party,
and settling liabilities. For the fiscal year ended June 30, 1995, the Company
incurred expenses totaling $1,499,447 for legal, accounting, consulting and
investor relations services related to such efforts. The Company also incurred
expenses of $51,703 on the environmental cleanup of the Canton, Illinois
manufacturing plant owned by the Company's former subsidiary, Thistle. All
liabilities and expenses associated with the property were transferred to CIC
when the Company transferred all of Thistle's capital stock to CIC pursuant to
the Real Estate Lien Note. Approximately 70% of the operating expenses were paid
with the Company's Common Stock. Proceeds from stock issuances in fiscal 1995
and 1994 were $638,461 and $525,000 respectively.
Loss from operations for the fiscal year ended June 30, 1995 increased
by $1,033,559 from the fiscal year ended June 30, 1994. These losses are
attributable to the loss of revenue from operations the Company discontinued or
wound- down, and to the increased expenses associated with the Company's
investigation of new business opportunities and merger or acquisition
candidates, ongoing litigation, and settlement of liabilities.
Interest expense for the fiscal year ended June 30, 1995 was $207,384.
The Company made interest-only payments on three notes: a $397,000 note due
October 1, 1999 and bearing annual interest at prime plus 4%, but not less than
10%, which was discharged through the May 12, 1995 Mutual Release between the
Company and CIC; a $130,000 note bearing 15% annual interest and payable on
demand; and a $27,500 note with 8% annual interest which is also payable on
demand. The Company made interest-only payments on the following two notes until
December 29, 1994: a $400,000 note bearing 8% annual interest which is due June
23, 1996; a $650,000 note due June 20, 1999 that bears 6% annual interest. These
two notes were discharged pursuant to the ComCentral settlement. For more
information on these interest obligations, see "Item 6 - Management's Discussion
and Analysis or Plan of Operation - General."
During the first quarter of fiscal 1995, the Company sold Itex media
credits at a loss. The credits, which had a book value of $250,000, were sold to
CIC in exchange for a $187,500 reduction on the Real Estate Lien Note Thistle
issued to CIC in conjunction with the Thistle purchase of the Plant. The Company
recognized a $62,500 loss on this sale.
As of June 30, 1995, the Company had a working capital deficit of
$703,083 compared with a deficit of $1,349,024 as of June 30, 1994. The Company
attributes this improvement in working capital deficit to the discharge of
current
10
<PAGE>
liabilities through its Mutual Release with Canton and Compromise, Release and
Indemnification Agreement with ComCentral.
Known, expected and potential short term cash requirements include
principal and interest on current notes and potential liabilities associated
with various legal proceedings. As for the current note payments, the Company
intends to use expected proceeds from a private placement of the Company's
Common Stock to pay principal and accrued interest. However, the Company cannot
make any assurances that it will collect sufficient proceeds or, even if it does
collect sufficient proceeds, that it will not use those proceeds for other
purposes. As discussed in "Item 5 - Market for Common Equity and Related
Stockholder Matters," the NASDAQ Stock Market has delisted the Company's
securities for failure to maintain minimum listing requirements. The Company
believes that this action may adversely affect its ability to sell securities in
order to raise capital and settle liabilities because the NASDAQ listing may
have added to the perceived value its Common Stock. If proceeds are not
available for full payment, the Company will attempt to reschedule payments.
However, the Company cannot assure that it will be able to reschedule payments.
Should the Company be unable to do so, the Company's financial condition could
be materially affected.
Litigation costs and potential liability in the BG Acorn Capital Fund
and Private Lessons lawsuits could increase the Company's short-term cash
requirements. BG Acorn Capital Fund is seeking $500,000, and interest at 10%
from March 1990 and court costs. The Private Lessons Partnership, L.P. is
seeking $315,000 for an alleged breach of a film distribution agreement.
The Company has also been threatened with lawsuits for recovery of
deposits delivered to its subsidiaries, breach of distribution agreements and
nonpayment of debts. For more information on these lawsuits see "Item 3 - Legal
Proceedings." If these lawsuits are pursued and judgments are rendered against
the Company, the Company will attempt to settle by issuing shares of its Common
Stock. Although the Company has had success with this strategy, it cannot give
any assurances that it will be able to settle these or other lawsuits in such a
manner.
On October 2, 1995, the Company agreed to pay ComEnt and Robert Hesse,
the holders of the Series B Convertible Preferred Stock, $20,000 in exchange for
a return of the Series B Convertible Preferred Stock and as a settlement of all
claims against the Company. The dividend rate for this class of stock was 3.5%
during the first year and 7% thereafter, with the first dividend payment due
November 14, 1994. The $20,000 was paid in settlement of all claims the holders
may have against the Company, including accrued dividends which equaled $31,500
as of June 30, 1995. All shares of Series B Convertible Preferred stock have
been redeemed pursuant to the payment, and consequently the Company's known
long-term cash requirements have decreased significantly.
The Company hopes that it will successfully negotiate and enter a
merger or acquisition that will enable it to generate sufficient cash flows to
satisfy its cash needs, although no such assurances can be given.
- - --------------------------------------------------------------------------------
ITEM 7. FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Please see Pages F-1 through F-15.
[THIS SPACE LEFT INTENTIONALLY BLANK]
11
<PAGE>
ATC II, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
PAGE
Consolidated Financial Statements (Submitted in response
to Part II, Item 8):
Independent Auditor's Report (Year Ended June 30, 1995) F-2
Consolidated Balance Sheets - June 30, 1995 F-3
Consolidated Statements of Loss - for the Years
Ended June 30, 1995, and 1994 F-4
Consolidated Statements of Stockholders' Equity/Deficit - for the
Period from July 1, 1994 through
June 30, 1995 F-5
Consolidated Statements of Cash Flows - for the Years
Ended June 30, 1995, and 1994 F-7
Notes to Consolidated Financial Statements F-8
<PAGE>
A Partnership of CROUCH, BIERWOLF & CHISHOLM
Professional Corporations Certified Public Accountants
Brent E. Crouch, CPA, PC 50 West Broadway, Suite 1130
Nephi J. Bierwolf, CPA, PC Salt Lake City, Utah 84101
Todd D. Chisholm, CPA, PC
Office (801) 363-1175
Fax (801) 363-0615
Brent's Mobile (801) 599-2725
Nephi's Mobile (801) 597-9494
Todd's Mobile (801) 699-2180
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
ATC II, Inc.
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheet of ATC II, Inc. and
subsidiaries as of June 30, 1995, and the related consolidated statements of
loss, stockholders' equity, and cash flows for the years ended June 30, 1994 and
1995. 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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ATC II, Inc. and
subsidiaries as of June 30, 1995, and the results of their operations and their
cash flows for the years ended June 30, 1994 and 1995 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described more fully in Note 5 to
the consolidated financial statements, the Company has suffered recurring losses
from operations and has an accumulated deficit that raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 5. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
In addition, as described more fully in Note 4 to the consolidated financial
statements, the Company has several significant outstanding contingencies. The
ultimate outcome of these matters can not presently be determined. Accordingly,
no provision for any liability that may result upon the final outcome has been
made in the accompanying consolidated financial statements.
/s/ Crouch, Bierwolf & Call
Crouch, Bierwolf & Call
Salt Lake City, Utah
February 8, 1996
MEMBER AMERICAN INSTITUTE OF CPAS,SEC PRACTIC SECITON,AND UTAH
ASSOCIATION OF CPAS
<PAGE>
<TABLE>
<CAPTION>
ATC II, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
<S> <C>
ASSETS
Film distribution rights (Note 1) $ 315,250
----------------
Total Assets $ 315,250
================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 187,260
Accrued expenses (Note 1) 358,323
Notes payable - current (Note 2) 157,500
----------------
Total Current Liabilities 703,083
----------------
Redeemable Preferred Stock (Note 6)
Series B Redeemable, Convertible, (7%) Cumulative, Preferred Stock;
900,000 shares authorized, 900,000 shares issued and outstanding;
redeemable at $1.00 per share 900,000
Dividends in arrears 31,500
----------------
Total Redeemable Preferred Stock 931,500
----------------
Total Liabilities and Redeemable Preferred Stock 1,634,583
----------------
STOCKHOLDERS' DEFICIT
Common Stock, $.01 par value;
20,000,000 shares authorized;
11,505,481 shares issued and outstanding 115,055
Paid-in capital 23,196,172
Accumulated deficit (24,630,560)
----------------
Total Stockholders' Deficit (1,319,333)
----------------
Total Stockholders' Deficit and Liabilities $ 315,250
================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ATC II, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF LOSS
YEARS ENDED JUNE 30, 1995 AND 1994
1995 1994
<S> <C> <C>
Sales .................................... -- $ 235,300
Cost of sales ............................ -- 14,395
----------- -----------
Gross profit ............................. -- 220,905
----------- -----------
Operating expenses:
General and administrative ............ 1,126,214 1,011,158
Depreciation and amortization ......... -- 21,634
Salaries and consulting fees .......... 1,185,898 466,646
----------- -----------
Total operating expenses ................. 2,312,112 1,499,438
----------- -----------
Loss from operations ..................... (2,312,112) (1,278,533)
----------- -----------
Other income (expense):
Interest income ....................... -- 96,003
Interest expense ...................... (207,384) (21,030)
Asset valuation adjustment ............ (486,850) (276,518)
Loss in value of investments .......... (214,779)
Other income (expense) ................ 250,000
----------- -----------
Total other income (expense) ............. (909,013) 48,455
----------- -----------
Income (loss) from continuing operations . (3,221,125) (1,230,078)
----------- -----------
Loss from discontinued operations (Note 3) (582,769) (4,304,790)
----------- -----------
Net loss before preferred dividends ...... (3,803,894) (5,534,868)
Preferred dividends (Note 6) ............. 31,500 --
----------- -----------
Net loss attributable to common stock .... $(3,835,394) $(5,534,868)
=========== ===========
Loss per share (Note 1)
Loss from continuing operations ....... $ (1.26) $ (5.15)
Loss from discontinued operations ..... $ (0.23) $ (18.02)
----------- -----------
Loss per share ........................... $ (1.49) $ (23.17)
=========== ===========
Weighted average shares outstanding ...... 2,550,446 238,952
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ATC II, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
YEAR ENDED JUNE 30, 1995
Series A Series A Series B Series B Common Common
Preferred Preferred Preferred Preferred Stock Stock
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 3,076,923 $ 30,769 - $ - 503,689 5,037
Shares issued for services 9,481,331 94,813
Shares issued for cash 476,711 4,767
Shares issued for assets 1,043,750 10,438
Conversion of preferred stock (3,076,923) (30,769) 900,000 900,000
Move redeemable stock
above equity section
Transferred Thistle to Canton (Note 7)
Net loss for the year
ended June 30, 1995
---------- --------- ---------- ---------- ------------ -------------
Balance at June 30, 1995 0 $ 0 900,000 900,000 11,505,481 $ 115,055
========== ========= ========== ========== ============ =============
The accompanying notes are an integral part of these financial statments.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ATC II, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
YEAR ENDED JUNE 30. 1995 (Continued)
Total
Paid-In Accumulated Valuation Stockholders'
Capital Deficit Allowance Deficit
<S> <C> <C> <C> <C>
Balance at June 30, 1994 21,552,719 $(20,795,166) $ (441,684) 351,675
Shares issued for services 975,366 1,070,179
Shares issued for cash 633,694 638,461
Shares issued for assets 903,624 914,062
Conversion of preferred stock (869,231) 0
Move redeemable stock
above equity section (900,000)
Transfered Thistle to Canton (Note 7) 441,684 441,684
Net loss for the year
ended June 30, 1995 (3,835,394) (3,835,394)
----------- ------------ ----------- -------------
Balance at June 30, 1995 $23,196,172 (24,630,560) $ 0 $ (1,319,333)
=========== ============ =========== =============
The accompanying notes are an integral part of these financial statments.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ATC II, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
1995 1994
<S> <C> <C>
Cash flow from operations:
Loss from continuing operations $ (3,221,125) $ 1,230,078)
Adjustment to reconcile loss to net cash
provided by (uses for) continuing operations:
Bad debt 750,000 14,203
Depreciation and amortization 21,634
Loss on valuation adj. inventory, receivable 701,629 946,229
Shares issued for services 1,070,179 176,000
Change in assets and liabilities net of acquisitions:
Accounts, notes, and other receiva 40,850 (26,288)
Prepaid expenses 61,086
Accounts payable (68,483) 26,339
Accrued expenses (253,643) 290,760
-------------- ------------
Cash for continuing operations (919,507) 218,799
-------------- ------------
Gain (loss) from discontinued operations: (582,769) (4,304,788)
Adjustments to reconcile gain (loss) to net cash
provided by (used for) discontinued operations:
Disposal of Carnegie subsidiary 3,605,648
Disposal of joint venture 128,228
Loss on marketable securities 250,000
Disposal of RAP assets 120,506
Disposal of Thistle and Filmways 830,719
Depreciation 30,847
Change in assets and liabilities:
Disposal of RAP liabilities (75,888)
Deferered gain (372,538)
-------------- ------------
Cash provided by (used for) discontinued operations 278,797 (648,832)
-------------- ------------
Cash provided by (used for) operating activities (640,710) (430,033)
-------------- ------------
Cash flow from investing activities
Purchase of assets (3,018)
Cash flow from financing activities:
Proceeds from stock issuances 638,461 525,000
Proceeds from long-term debt 27,500
Payment on notes payable, related party (128,337)
-------------- ------------
Cash provided by (used for) financing activities 638,461 424,163
-------------- ------------
Net increase (decrease) in cash (2,249) (8,888)
Cash, beginning of year 2,249 11,137
-------------- ------------
Cash, end of year $ 0 $ 2,249
============== ============
Supplemental cashflow information:
Cash paid for interest $ 207,834 $ 40,274
Noncash investing and financing transactions:
Acquisition of Carnegie with capital stock 4,460,207
Purchase of assets with common stock 914,062 802,100
Purchase of inventory for common stock and note 900,000
Purchase of media due bill for common stock and note 1,235,000
Purchase of real estate for note 694,099
</TABLE>
The accompanying notes are an integral part of these financial statments.
F-7
<PAGE>
ATC II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - ATC II, Inc. (ATC II) was incorporated under the laws of
British Columbia, Canada in 1979 under the name ATC, Inc. ATC II was
redomiciled as a Delaware corporation on November 20, 1990. Its primary
business operating segments have been in telecommunications,
entertainment, and real estate. ATC II is actively pursuing
opportunities in the aforementioned spheres, as well as any other
business opportunity.
Filmways Entertainment Corporation was incorporated in the State of
Delaware on November 5, 1993. Its primary business was the distribution
of films in the United States and intentionally. Filmways was awarded
to another company in settlement of a lawsuit on September 1, 1994.
Thistle Properties, Inc. (FKA TAC) was organized in the State of
Illinois. ATC II purchased Thistle from Canton Industrial Corporation
(CIC) to hold commercial rental real estate (see Note 7). Thistle was
returned to CIC after Thistle defaulted on a loan on May 12, 1995.
Principles of Consolidation - The consolidated financial statements for
the year ended June 30, 1994 include the accounts of ATC II, Inc.
(formerly ATC, Inc.) and its subsidiaries; Filmways Entertainment
Corporation (Filmways) (a Delaware corporation) from its inception on
November 5, 1993 through September 1, 1994; Thistle Properties, Inc.
(Thistle) from the date of acquisition on June 15, 1994 through May 12,
1995; Carnegie Film Group, Inc. (Carnegie) from October 7, 1993 (date
of acquisition) through mid June, 1994. Certain assets of Carnegie were
transferred to Coment Funding Corporation in settlement of certain
litigation (see Note 3); Reserve-A-Phone Systems, Inc. (RAP) a
corporation organized under the Canadian Business Corporation Act. RAP
was wrapping-up operations during the year.
The consolidated financial statements as of June 30, 1995 include the
accounts of ATC II, Inc. and it subsidiaries, Thistle until May 12,
1995, when Thistle was returned to CIC; and Filmways until September 1,
1994, when Filmways was awarded to another company in settlement of a
lawsuit.
Collectively, these entities are referred to as the Company. See Note 3
for discussion of the disposition of subsidiaries during the year. All
significant intercompany transactions and accounts have been
eliminated.
Accounting Method - The Company's financial statements are prepared
using the accrual method of accounting.
Property and Equipment - Depreciation is computed on the straight-
line method over the estimated useful lives. Major renewals and
betterments are capitalized while expenditures for maintenance and
repairs are charged to operations as incurred.
F-8
<PAGE>
ATC II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and equipment are recorded at cost. No depreciation expense was
booked for the year ended June 30, 1994 (only amortization expense was
recorded) because the assets were placed into service on the last day of the
year. Depreciation expense for the year ended June 30, 1995 was included in
the "discontinued operations" (see Note 3) and amounted to $30,847.
Net (Loss) Income per Common Share - The computation of net (loss) income
per common share is based on the weighted average number of common shares
outstanding during the period. Employee stock options and stock purchase
warrants are not included because their effect is immaterial. In August of
1994 the Company authorized a 1-for-40 reverse split of its outstanding
common stock. All share and per share information in these financial
statements and notes have been retroactively restated to reflect this
reverse split.
Income Taxes - The Company and its subsidiaries file separate tax returns.
The Company adopted Statement of Financial Accounting Standards No, 109
"Accounting for Income Taxes" in the fiscal year ended June 30, 1994 and has
applied the provisions of the statement on a retroactive basis to the fiscal
year ended June 30, 1993 which resulted in no significant adjustments.
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" requires an asset and liability approach for financial accounting and
reporting for income tax purposes. This statement recognized (a) the amount
of taxes payable or refundable for the current year and (b) deferred tax
liabilities and assets for future tax consequences of events that have been
recognized in the financial statements or tax returns.
Deferred income taxes result from temporary differences in the recognition
of accounting transactions for tax and financial reporting purposes. There
were no temporary differences at June 30, 1994 and 1995, accordingly, no
deferred tax liabilities or assets have been recognized have been recognized
for temporary differences as of June 30, 1994 and 1995.
The Company had cumulative net operating loss carryforwards of over
$5,000,000 at June 30, 1994, and 1995. No effect has been shown in the
financial statements for the net operating loss carryforwards as the
likelihood of future tax benefit from such net operating loss carryforwards
is not presently determinable. Accordingly, the potential tax benefits of
the net operating loss carryforwards have been offset by valuation reserves
of the same amount.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when purchases to be
cash equivalents.
F-9
<PAGE>
ATC II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accrued Expenses - Accrued expenses include $64,685 in accrued interest
expense, $149, 859 to settle a judgement against the Company from a previous
lawsuit, $113,779 in accrued attorneys fees, and $30,000 for consulting
fees.
Film Distribution Rights - On September 20, 1993 the Company entered into an
agreement to acquire all ownership rights, title and interest in (subject to
existing distribution agreements) five motion picture films for 25,000
shares of common stock valued at $0.02 per share (average price during
period of negotiation and sale). The film distribution rights will be
amortized over five years using the straight line method beginning in the
year the films are placed into service. At June 30, 1995 the film rights
were written-down by $486,850 to reflect the current market price as
established by a film distribution company.
Intangible assets - Film Distribution Rights will be amortized using the
straight line method over the 60 month period they are expected to benefit.
At June 30, 1995 the film rights were written-down by $486,850 to reflect
the current market price as established by a film distribution company.
Method of determining uncollectability of receivables - Aged receivables in
excess of 90 days are reviewed on an individual basis to determine the
collectibility of such account. An allowance is created for the estimated
uncollectible accounts. When all efforts to collect an account have failed,
the receivable is cleared to the allowance account. If the write off exceeds
the allowance account it is cleared to bad debt expense. At June 30, 1995
all of the receivables were written off as uncollectible.
NOTE 2 - NOTES PAYABLE
At June 30, 1995 notes payable consist of the following:
Other Notes Payable:
Various notes payable on demand or are currently due totaling $130,000 at an
interest rate of 15% per annum.
Note payable due on demand for $27,500 at 8% per annum.
Accrued interest on the above notes at June 30, 1995 was $64,685.
NOTE 3 - DISCONTINUED OPERATIONS
Reserve-A-Phone Systems, Inc. (RAP) RAP had no income during the year ended
June 30, 1994. Expenses associated with the winding up of operation, and
legal expenses incurred in regard to RAP were written-off to discontinued
operations in the amount of $44,618. During the year ended June 30, 1995,
the Company also settled a dispute relating to a prior contract by issuing
assets resulting in a loss of $601,500.
F-10
<PAGE>
ATC II, INC. AND SUBSIDISARIES
Notes to Consolidated Financial Statements
NOTE 3 - DISCONTINUED OPERATIONS (Continued)
Carnegie Film Group, Inc. (Carnegie) On October 7, 1993, the Company
acquired all of the outstanding stock of Carnegie for 56,250 share of ATC II
common stock. Simultaneously, the Company acquired from Communications and
Entertainment Corp. (ComEnt), an entity related to Carnegie, a Promissory
Note Receivable in the principal amount of $3,600,000 plus accrued interest
and collection costs of $394,918. As consideration for the purchase, the
Company issued 25,000 shares of common stock, and 3,076,923 shares of 4%
cumulative convertible preferred stock. The preferred stock is convertible
into 3,076,923 shares of ATC II common stock with an initial liquidation
preference of $1.30 per share. The Company ceased operations of Carnegie in
June 1994. Subsequently, the Company transferred substantially all its
rights in the assets of Carnegie to ComEnt pursuant to a settlement
agreement with ComEnt. Accordingly, the note receivable of $3,325,207 was
written off to discontinued operations along with the investment of
$1,134,858 and debt relief of $(199,893).
Thistle Properties, Inc. (Thistle) On May 4, 1995 Thistle received a Notice
of Default from Canton Industrial Corporation (Canton or CIC), on the Real
Estate Lien Note attached to property (See Note 7). The Company subsequently
allowed Canton to foreclose on the security (100% of Thistle's capital
stock) in exchange for a mutual release of all claims. The loss of $42,166
recorded on the books of Thistle is recorded as a loss from discontinued
operations.
Filmways Entertainment Corporation (Filmways) Effective September 1, 1994
the Company transferred all of its rights and interests in the stock of
Filmways to Xeta Corporation pursuant to the order of the United States
District Court for the Northern District of Oklahoma. The accounts of
Filmways were written-off to discontinued operations resulting in a gain of
$45,883.
NOTE 4 - LITIGATION
The Company is a litigant in several law suits resulting from the poor
financial condition of the Company and its prior subsidiaries. The Company
received a summary judgement against it in the amount of $149,859. This
amount has not yet been paid. However, the Company has recorded this expense
during 1994, and the liability is recorded as an accrued expense for the
years ended June 30, 1994 and 1995.
The potential exposure from other litigation at June 30, 1995 is $904,000
plus punitive damages and interest. The actual amount of possible loss can
not be estimated at this time. Management believes that the outcome of any
of the actions against the Company may have a material impact on its
financial position and results of operations. The financial statements have
not been adjusted to reflect the outcome of these contingencies.
On July 21, 1994 following several asset hearings and other collection
efforts, the Untied States District Court of the Northern District of
Oklahoma issued and Order for Judgment Debtor to Appear and Turn over Assets
and Property to the Plaintiff (the Order). The Order required the Company to
turn over and relinquish possession to the Plaintiff all the assets of
Carnegie and Filmways and all documents relating to accounts receivables of
Carnegie and Filmways.
F-11
<PAGE>
ATC II, INC. AND SUBSIDARIES
Notes to Consolidated Financial Statements
NOTE 4 - LITIGATION (Continued)
The Company did not turn over the Weintraub Library as part of its required
compliance with the Order because the library was outside the scope of the
Order. The library had previously been transferred to another wholly owned
subsidiary, Thistle Properties, Inc. Thistle subsequently transferred the
Weintraub Library to ATC II prior to receiving the default notice from
Canton (See Note 3).
On August 15, 1994 the Company entered into a Settlement Agreement with the
holder of the 3,076,923 shares of Series A Convertible Preferred Stock in
which, among other things, the Series A Convertible Preferred Stock was
exchanged for 900,000 shares of Series B Convertible Preferred Stock. The
Series B Preferred Stock is convertible, share for share into Common Stock
at the holders' option. The Preferred Stock pays a 7% cumulative dividend
and will be redeemed for $1 per share if not converted after five years from
the date of issuance.
NOTE 5 - GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As shown in the
accompanying consolidated financial statements the Company has incurred
substantial operating losses in recent years and as of June 30, 1995 has no
current assets to pay the current liabilities. These factors raise
substantial doubt about the Company's ability to continue as a going
concern.
The Company's continued existence is dependent on its ability to obtain
additional debt or equity financing or finding suitable business
opportunities to provide profitable operations. Management's plans are to
seek merger and acquisition candidates that will provide profitable
operations.
The consolidated financial statements do not include any adjustments that
might be necessary if the Company is not able to continue as a going
concern.
NOTE 6 - STOCKHOLDERS' EQUITY
Preferred Stock. On October 2, 1990 shareholder approval was obtained for
the creation of 5,000,000 shares of Class "A" Preferred shares with a par
value of $0.01, 4% cumulative convertible preferred stock. At June 30, 1994
3,076,923 share were issued and outstanding which are convertible into
3,076,923 shares of ATC II common stock with an initial liquidation
preference of $1.30. The preferred stock was issued for the purchase of a
note from ComEnt (see Note 3).
On August 15, 1994 the Company entered into a Settlement Agreement with the
holder of the 3,076,923 shares of Series A Convertible Preferred Stock in
which, among other things, the Series A Convertible Preferred Stock was
exchanged for 900,000 shares of Series B Redeemable Convertible Preferred
Stock. The Series B Preferred Stock is convertible, share for share into
Common Stock at the holders' option. The Preferred Stock pays a 7%
cumulative dividend (3.5% in the first year) and will be redeemed for $1 per
share if not converted after five years from the date of issuance. If the
Company fails to pay dividends for six consecutive quarters, it must redeem
outstanding shares upon demand of the holders at $1.00 per share. At June
30, 1995 the Company is in arrears for four quarters, or $31,500. Since the
stock is redeemable at a fixed price on a fixed date, it is classified as a
liability for financial statement presentation purposes.
F-12
<PAGE>
ATC II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 6 - STOCKHOLDERS' EQUITY (Continued)
Private placement. In July, 1992 the Company sold 9,375 shares of common
stock through a private placement for $590,235, which was used to acquire
cellular phone equipment for RAP and for working capital.
On September 1, 1992 ATC II reached an agreement with certain note holders
to settle claims aggregating $583,481 by issuing 4,118 shares of ATC stock.
In March, 1993 the Company acquired an additional .9% of RAP stock by
issuing 138 shares of ATC II stock. Also, the Company settled a dispute with
the RAP former president for 2,332 shares of ATC stock.
During 1993, 7,446 shares of ATC II stock were issued to four former
officers and directors of the Company as compensation for services performed
or in satisfaction of amounts owed. In addition, warrants were also issued
(see Options and Warrants below).
On October 7, 1993 the Company issued 56,250 shares of common stock for
the purchase of all outstanding stock of Carnegie (see Note 3). The
shares were valued at $1,125,000.
In connection with the acquisition of Carnegie the Company issued 25,000
shares of common stock and preferred stock (see above) for the acquisition
of a note receivable from ComEnt. The common stock was valued at $500,000.
On September 20, 1993 the Company issued 25,000 share of common stock for
the purchase of 5 motion picture films valued at $802,100 (see Note 1).
On December 1, 1993 the Company raised $500,000 in cash from a Regulation S
offering of 25,000 shares of common stock. In December 1993, April 1994, and
June 1994 the Company issued 48,375 shares for various consulting services
valued at $176,000.
In April 1994 the Company issued 21,875 shares to an investor for $25,000
cash.
In June 1994 the Company entered into an agreement with a corporation to
purchase textiles for 57,339 shares of common stock and a note for $650,000.
The shares were valued at $250,000. The inventory was later written down to
market of $626,500.
Effective June 30, 1994, the Company issued 100,000 shares of common stock
for the purchase of 4.5 million face value media "Due Bills." The stock was
valued at $625,000.
F-13
<PAGE>
In August 1994 the Company authorized a 1 for 40 reverse stock split. All
per-share information in these financial statement and notes have been
retroactively restated to reflect the reverse split.
During the year ended June 30, 1995 the Company issued 9,481,331 shares of
common stock to various consultants and officers of the Company for services
rendered valued at $1,070,179.
During the year ended June 30, 1995 the Company issued 476,711 shares of
common stock for cash in the amount of $638,461.
During the year ended June 30, 1995 the Company issued 1,043,750 shares of
common stock for assets (primarily stock in other companies) valued at
$914,062. It was later determined that the stock received was worthless and
was therefore written off.
At June 30, 1995 the Company had issued 2,668,152 shares of common stock to
an escrow agent to hold pending an agreement regarding business opportunity.
At the date of this report, no agreement had been finalized.
Options.
In March, 1990, the Company authorized an Employee Incentive Stock Option
Plan permitting the issuance of options to purchase up to 5,833 shares of
the Company's common stock. In addition, the Board of Directors approved the
issuance to non-employee directors of up to 1,333 shares of the Company's
common stock. The options are to be issued at market value at the time of
the grant. At June 30, 1995 options to purchases 46,417 shares of common
stock at an exercise price between $30.00 and $72.00 were outstanding.
Warrants.
The Company, form time to time, grants warrants at exercise prices equal to
or above market price in consideration of loans to the Company, settlement
of lawsuits, forgiveness of debt, or purchases of assets. At June 30, 1995
warrants to purchase 39,293 shares of common stock at an exercise price
between $40.00 and $122.80 were outstanding.
NOTE 7 - RELATED PARTY TRANSACTIONS
Property purchase. Effective June 30, 1994 the Company purchased property
located in Canton, Ill. from Canton Industrial Corporation (Canton or CIC).
The Company also purchased is wholly owned subsidiary, Thistle, from CIC to
hold the property. CIC was hired by the Company to act as a consultant. The
Company also entered into a consulting agreement with Canton Financial
Services, Inc. (CFS) (a wholly owned subsidiary of CIC) in which CFS
provides general business consulting and administrative services. The
purchase price of the property was recorded at predecessor cost as follows:
F-14
<PAGE>
ATC II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 7 - RELATED PARTY TRANSACTIONS (Continued)
Short-term note payable ................................. $ 428,000
Long-term debt .......................................... 397,000
Assume EPA Liability .................................... 160,000
Property tax payable .................................... 150,783
-----------
Total ................................................. 1,135,783
Net predecessor cost of property ........................ (694,099)
-----------
Valuation allowance ..................................... $ 441684
===========
During the year ended June 30, 1995, the Company paid $60,000 in cash
applied to the principal of the short-term note, $118,000 in interest
payments, and issued $250,000 of media due bills in partial satisfaction of
the short-term note. Effective May 12, 1995 the Company allowed Canton to
foreclose on the security (100% of Thistle capital stock) because Thistle
was in default on the loan to Canton. The loss on this property was recorded
in discontinued operations.
Consulting agreement. The Company has entered into a consultingagreement
with Canton Financial Services, Inc. (CFS) in which CFS provides general
business consulting and administrative services. The agreement is dated
April 29, 1994. The Company will pay CFS $30,000 per month in cash of in
shares of restricted stock of ATC II at the rate of one half (1/2) the
average bid price over a ten day period ending the 14th of the month.
NOTE 8 - SUBSEQUENT EVENTS
On October 2, 1995 the Company purchased the Series B Convertible Preferred
Stock for $20,000.
F-15
<PAGE>
- - --------------------------------------------------------------------------------
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
- - --------------------------------------------------------------------------------
On October 12, 1994, the Company's principal accountants, Swalm &
Associates, were dismissed. Swalm's report on the Company's financial statements
for the year ended June 30, 1993 did not contain an adverse opinion or
disclaimer of opinion nor was it modified as to uncertainty, audit scope or
accounting principles. Swalm's report contained an explanatory paragraph that
there was "substantial doubt about [the Company's] ability to continue as a
going concern." The Company's board of directors approved this dismissal. There
have been no disagreements with Swalm on any matter of accounting principles or
practices, financial statement disclosures or auditing scope or procedures.
However, Swalm did advise the Company that, as of the date of its dismissal,
general ledger and accounting records for Carnegie and Filmways were in the
possession of third parties and not available to the Company. Swalm also advised
the Company that the unavailability of such information was a scope limitation
that would possibly have resulted in an other than an unqualified opinion.
Subsequent to Swalm's dismissal, the Company obtained the requisite general
ledger and accounting records for Carnegie and Filmways. The Company has since
retained the accounting firm of Crouch, Bierwolf and Call as its principal
accountants.
PART III
- - --------------------------------------------------------------------------------
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
- - --------------------------------------------------------------------------------
Directors and Executive Officers
Name Age Title(s)
Leslie Carter 39 President and Director
James L. Thompson 42 Director
Jack E. Hartgrove 59 Chief Financial Officer, Secretary
and Director
Leslie Carter. Ms. Carter was appointed as president and director of
the Company on July 11, 1996. Over the past five years, Ms. Carter has been a
director and advisory board member for Am-Russ, Inc. and Southern Institutional
Management Corporation, both of which are private corporations involved in both
computer and automobile sales operations. In these capacities, Ms. Carter has
been responsible for long-term strategic planning and management. Ms. Carter is
also currently a dental hygenist, and previously spent several years working a
nurse.
James L. Thompson. Since 1986, Mr. Thompson has been the manager of
Power System Services with Electroteck Concepts, Inc. His responsibilities
include the development of new technology to solve classic utility problems. He
received an M.B.A. in management and finance and a B.A. in electrical
engineering from the University of Tennessee in Knoxville, Tennessee. Mr.
Thompson served as president of the Company from June 13, 1995 until January 19,
1996 when he resigned for personal reasons and with no disagreements or
objections with the Company or its management.
Jack E. Hartgrove. Mr. Hartgrove was appointed as secretary, chief
financial officer and a director of the Company on June 13, 1995. Mr. Hartgrove
is a founder and has served as President of Southern Bankers Life Insurance
Company since 1974. He is also the founder of Financial Systems, Inc., a sister
company to Southern Bankers, which sells computers and software used to
facilitate the acquisition of credit insurance accounts in the automotive
industry. Mr. Hartgrove is a major stockholder and member of the board of
directors of many state and national banks in the South.
12
<PAGE>
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of the forms furnished to the Company since
April 29, 1996, the Company is not aware of any person, who at any time during
the fiscal year ended June 30, 1995 was a director, officer, or beneficial owner
of more than ten percent of the Company's Common Stock and failed to file on a
timely basis reports required by Section 16(a) of the Securities Exchange Act
with respect to that fiscal year, other than the following: Mr. James Thompson
failed to file Form 3 for his appointment as the Company's president and a
director.
- - --------------------------------------------------------------------------------
ITEM 10. EXECUTIVE COMPENSATION
- - --------------------------------------------------------------------------------
Executive Compensation
No compensation in excess of $100,000 was awarded to, earned by, or
paid to any executive officer of the Company during the 1995 fiscal year.
The following table provides summary information for each of the last
three fiscal years concerning cash and non-cash compensation paid or accrued by
the Company to or on behalf of: Robert Lapsley, the Company's president and
chief executive officer from January 1992 to April 1994; John Larry Adams, the
Company's president from April 1994 to May 1994; Dr. Gerald Curtis, the
Company's president from May 1994 to June 1995; James L. Thompson, the Company's
president from June 1995 to January 1996; and Leslie Carter, the Company's
current president.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Awards Payouts
Restricted Securities Other
Other Annual Stock Underlying LTIP Compen-
Name & Year Salary Bonus($) Compensation Award(s) ($) Options/SARs(#) Payouts sation
Position
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lelie Carter 1996 0 0 0 0 0 0 0
Current
President
James
Thompson 1996 0 0 0 0 0 0 0
Former President 1995 0 0 0 0 0 0 0
Gerald Curtis 1995 0 0 0 47,5311 0 0 0
Former CEO 1994 0 0 0 9,3752 0 0 0
John L. Adams 1994 0 0 0 0 0 0 0
Former CEO
Robert Lapsley 1994 22,500 0 36,000 0 0 0 0
Former CEO 1993 20,000 0 0 0 50,000 0 0
</TABLE>
- - --------------------------------------------------
1 Gerald Curtis received shares of restricted Common Stock for services rendered
during fiscal 1995. The value above is the product of the closing market price
of unrestricted stock on the date of grant and the number of restricted shares
issued (57,629) net of consideration paid by Gerald Curtis. Dividends declared
by the Company on its Common Stock, if any, would also be applicable to those
shares.
2 Gerald Curtis received shares of restricted Common Stock for services rendered
during fiscal 1994. The value above is the product of the closing market price
of unrestricted stock on the date of grant and the number of restricted shares
issued (2,500) net of consideration paid by Gerald Curtis. Dividends declared by
the Company on its Common Stock, if any, would also be applicable to those
shares.
13
<PAGE>
Director Compensation
Directors may receive a fixed fee or reimbursement of expenses for
attendance at meetings of the directors. Directors are not precluded from
serving in any other capacity as an officer, agent, employee, or otherwise, and
receiving compensation therefor. No director received any cash compensation for
services as a director in the fiscal year ended June 30, 1995.
- - --------------------------------------------------------------------------------
ITEM 11. SECURITY OWNERSHIP OF BENEFICIAL OWNERS
- - --------------------------------------------------------------------------------
The following table sets forth certain information concerning the
Company's stock ownership as of July 8, 1996 with respect to: (i) each person
who is known to the Company to be the beneficial owner of more than 5 percent of
the Company's common stock; (ii) all directors; (iii) each of the executive
officers; and (iv) directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of
Title of Class of Beneficial Owner Beneficial Ownership Percent of Class
<S> <C> <C> <C>
Common Stock Am-Russ CTV, Inc. 1,000,000 19.9%
$0.01 par value 6701 Baum Drive, Suite 345
Knoxville, Tennessee 37919
Common Stock Canton Financial Services Corporation 945,663 19.4%
$0.01 par value 268 West 400 South, Suite 300
Salt Lake City, Utah 84101
Common Stock Jack E. Hartgrove, Director and Chief 1,000,000(1) 19.9%
$0.01 par value Financial Officer
6701 Baum Drive, Suite 345
Knoxville, Tennessee 37919
Common Stock James L. Thompson, Director 1,000,000(1) 19.9%
$0.01 par value 6701 Baum Drive, Suite 345
Knoxville, Tennessee 37919
Common Stock Leslie Carter, Director and President 1,000,000(1) 19.9%
$0.01 par value 6701 Baum Drive, Suite 345
Knoxville, Tennessee 37919
Common Stock Directors and Officers as a Group 1,000,000(1) 19.9%
$0.01 par value
</TABLE>
- - --------------------------------------------------
(1) Jack Hartgrove, James Thompson and Leslie Carter, all directors of the
Company, are also directors and shareholders of Am Russ CTV, Inc. Accordingly,
each exercises indirect beneficial control over the 1,000,000 shares owned by
Am-Russ. For purposes of determining the shares held by all directors as a
group, however, these 1,000,000 shares were only counted once.
Change of Control
The Company underwent a change of control on June 13, 1995 when Dr.
Gerald Curtis, the Company's president and a director, Anthony Geonnotti, the
Company's vice president and a director, and Bert Martinez, a vice president and
a director, appointed Jack E. Hartgrove and James L. Thompson to serve as
directors of the Company. Dr. Curtis, Mr. Geonnotti and Mr. Martinez then
resigned from their respective positions as officers of the Company and then,
acting in their capacity as directors, appointed James L. Thompson to serve as
president and Jack E. Hartgrove to serve as chief financial officer and
secretary of the Company. Subsequent to such appointments, Dr. Curtis, Mr.
Geonnotti and Mr. Martinez resigned their positions as directors of the Company
on June 13, 1995. Neither Dr. Curtis, Mr. Geonnotti nor Mr. Martinez had any
disagreements with the Company at the time of their respective resignations.
14
<PAGE>
On January 19, 1996, James Thompson resigned as the Company's president
and Richard H. Turner was appointed as president and a director. Mr. Thompson
had no disagreements with the Company at the time of his resignation. Mr. Turner
was appointed as president to help facilitate a June 30, 1995 Purchase Agreement
the Company had signed with Mr. Turner and Turner, Turner & Associates, a
Washington corporation. The Purchase Agreement was later rescinded, and after
several months of negotiations, the parties terminated all negotiations toward a
further agreement. On May 6, 1996, Richard Turner resigned as the Company's
President. Mr. Turner had no disagreements with the Company at the time of his
resignation. On July 11, 1996, Leslie Carter was appointed as the Company's
president and director.
The Company knows of no other arrangements which may result in a
further change of control in the Company.
- - --------------------------------------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - --------------------------------------------------------------------------------
Proposed Transactions with Turner, Turner & Associates
During the past year, the Company has been engaged in negotiations with
Turner, Turner & Associates, a Washington corporation ("TTA"). The purpose of
these negotiations was the transfer from TTA to the Company of certain rights in
U. S. Patents Numbers 5,296,216 and 5,306,509 (the "Patents"). TTA developed the
Patents, which relate to an oral lavage, a trademark of certain products, and a
protocol known as STOMASTATTM. In furtherance of the proposed transaction, the
Company appointed Jack E. Hartgrove, and James L. Thompson as directors in June
1995. Hartgrove and Thompson helped introduce the Company to TTA, and were
issued shares of Common Stock which were held in escrow in exchange for their
services rendered in arranging an agreement between the parties.
On June 30, 1995, the Company signed a Purchase Agreement with TTA.
According to the Purchase Agreement, the Company acquired all rights and
interests in the Patents in exchange for $10 Million to be paid in cash and
Common Stock. To facilitate the transfer of the Patents, Richard Turner,
chairman of TTA, was appointed as the Company's president and one its directors
on January 19, 1996. The appointment of Turner was based on the controlling
interest in the Company he was to receive as consideration for his transfer of
all rights to the Patents. The Purchase Agreement, however, was subsequently
rescinded in February 1996 because many of its conditions had not been met and
because both parties determined an alternative structure would be optimal. The
Company continued to negotiate with TTA in an attempt to acquire the Patents.
On May 5, 1996, the Company ceased all negotiations with TTA because
the parties had not made any progress toward reaching a second agreement.
Effective May 6, 1996, Richard Turner resigned as the Company's president. Jack
Hartgrove and James Thompson have remained as directors and are currently
seeking other merger or acquisition targets on behalf of the Company.
Richard Turner is deemed to have had a material interest in the
proposed transaction between the Company and TTA because of his positions as
president with of the Company and Chairman of TTA during the aforementioned
negotiations. Jack Hartgrove and James Thompson may also be deemed to have had a
material interest in the proposed transaction because they were both entitled to
receive shares of the Company's Common Stock once an agreement was reached with
TTA. For more information on the proposed transaction with TTA, see "Item 1 -
Description of Business."
Transactions with The Canton Industrial Corporation
On August 23, 1994, Thistle Properties, an Illinois corporation and
subsidiary of the Company ("Thistle"), entered into a Real Estate Sales
Agreement (the "RES Agreement") with The Canton Industrial Corporation ("CIC").
Pursuant to the RES Agreement, Thistle acquired a manufacturing plant located in
Canton, Illinois from CIC in exchange for $4,000,000 in cash or the Company's
Common Stock and the assumption by Thistle of liabilities related to the plant.
Thistle and CIC later amended the RES Agreement by lowering the purchase price
to $850,000 based on the determination of the Company's independent auditors
that the RES Agreement was not an "arms-length" transaction because the Company
was receiving consulting services from Canton Financial Services Corporation
("CFS"), a Nevada Corporation and subsidiary of CIC.
On May 4, 1995, Thistle received a Notice of Default from CIC. The
Company and Thistle subsequently informed CIC that due to Thistle's poor
financial position, neither entity would be able to comply with the terms of the
Note. Thistle,
15
<PAGE>
with the Company's approval, proposed to forfeit all payments made to CIC and to
allow CIC to foreclose on the security (100% Thistle's capital stock) provided
by the amended RES Agreement in exchange for a mutual release of all claims.
Effective May 12, 1995, the Company and Thistle executed a Mutual Release with
CIC, through which 100% of the capital stock of Thistle was transferred to CIC.
The transactions by and between the Company, Thistle, and CIC may be
considered to be interested transactions because CFS, who was acting as a
financial consultant to the Company, was a subsidiary of CIC and therefore had
an indirect financial interest in these transactions. Moreover, Richard Surber,
who was a director of the Company when these transactions occurred, was also the
president and a director of CIC. The Company estimates the amount of this
interest to be $441,684 which is the difference between the amended purchase
price and CIC's book value of the plant net of depreciation ($694,099), plus the
amount of liabilities Thistle assumed in connection with the purchase
($310,783). For more information about these transactions, see "Item 1 -
Description of Business."
Transactions with National Media Inventory, Inc.
Effective June 23, 1994, the Company entered into an Exchange
Agreement with National Media Inventory, Inc. ("NMI"). Pursuant to the
Agreement, the Company transferred all of its rights, title, and interest in
Carnegie Film Group to NMI and executed a $400,000 nonrecourse, convertible
promissory note in favor of NMI. In return, the Company acquired advertising due
bills in a weekly Spanish newspaper and advertising circular, as well as indoor
advertising space in public areas. These media credits had an aggregate face
value of $3,900,000.
Bert Martinez, who was the Company's secretary and a director when this
transaction occurred, was simultaneously an officer, director, and sole
shareholder of NMI. Based on his status as an officer and director of both
entities, Mr. Martinez had a material personal interest in the transaction.
Because Carnegie had negative equity and was subject to competing claims at the
time of the transaction, the Company has valued Mr. Martinez's interest in the
Exchange Agreement at $400,000, the face amount of the promissory note.
Mr. Martinez received additional compensation for his services
rendered in the acquisition of the media credits. Pursuant to an August 15, 1994
Consulting Agreement, the Company issued 33,000 shares of Common Stock to Mr.
Martinez. Based on the closing market price for the Common Stock on August 15,
1994, the Company believes his interest in the consulting agreement to be
$82,500.
Transactions with Communications and Entertainment Corp.
On October 7, 1993, the Company acquired a promissory note from
Communications and Entertainment Corporation ("ComEnt") pursuant to a Note
Purchase Agreement. The negotiable promissory note was payable to ComEnt, the
holder, by Carnegie Film Group, Inc., then the Company's subsidiary. The note
was in the amount of $3.6 million and was secured by the assets of Carnegie. In
exchange for the note, the Company issued 25,000 shares of the Company's common
stock, valued at $500,000, to ComEnt. The Company also issued 3,076,923 shares
of 4% Series A Cumulative Convertible Preferred Stock, valued at $2,825,207.
Finally, the Company guaranteed a $350,000 promissory note owed by Carnegie to
ComEnt Funding, Corp., a subsidiary of ComEnt.
On April 26, 1994, ComEnt Funding Corp. filed suit against the Company
for payment of the note guaranteed by the Company as well as a separate note
payable to ComEnt Funding. The lawsuit was dismissed pursuant to an August 15,
1994 Settlement Agreement entered by and between the Company, Carnegie, ComEnt,
ComEnt Funding, and certain named individuals. According to the Settlement
Agreement, all 3,076,923 shares of Series A preferred stock were redeemed by the
Company. The Company then issued 900,000 shares of Series B convertible
preferred stock. The Company also transferred to ComEnt all assets then held by
Carnegie. Pursuant to an October 2, 1995 agreement, all shares of the Series B
convertible preferred stock were redeemed in exchange for a cash payment of
$20,000. This payment was made in settlement of all claims held against the
Company by ComEnt and ComEnt Funding, including dividends accrued on the
preferred stock.
By virtue of the 25,000 shares of common stock that was transferred to
ComEnt pursuant to the August 31, 1993 Note Purchase Agreement, the Company
believes ComEnt was the beneficial owner of more than 5% of the Company's voting
securities at the time of these transactions. Thus, ComEnt may be deemed to have
had a material beneficial interest in all the transactions entered between the
Company, ComEnt and ComEnt Funding. For more information on the Note
16
<PAGE>
Purchase Agreement, the law suit or the Settlement Agreement, see "Item 1 -
Description of Business" and "Item 3 - Legal Proceedings."
Transactions with Christopher Wells
On October 1, 1994, the Company entered into a Consulting Agreement
with Christopher Wells, an individual residing in France ("Wells"). Pursuant to
this agreement, the Company retained Wells to introduce the Company to business
opportunities and merger or acquisition candidates in Europe, to perform
business and managerial services for any European business the Company acquires
and to perform other services from time to time at the request of the board of
directors. In consideration of these services, the Company granted Wells an
option to purchase 90,000 shares of the Company's Common Stock at $0.75 per
share. On or about November 11, 1994 Wells exercised his option and the Company
issued 90,000 shares of its Common Stock to Wells pursuant to Regulation S. This
transaction made Wells a beneficial owner of more than 5% of the Company's
Common Stock. Based solely on the difference between the exercise price of the
option and the closing market price of the Company's Common Stock as reported by
NASDAQ on the date of grant, the Company believes the value of Wells' interest
in this transaction is $123,750.
On October 10, 1994, the Company entered into a Stock Purchase
Agreement with Wells to sell 1,500,000 shares of Common Stock pursuant to
Regulation S for $1,250,000, or $0.75 a share. The agreement called for the
Company to issue the shares in increments of 500,000 and for Wells to execute a
recourse promissory note in favor of the Company. Wells subsequently defaulted
on the promissory note, and the Company has filed a complaint against Wells for
payment on the promissory note. The Company is currently trying to locate Wells
to complete service of process. For more information on this matter, see "Item 3
- - - Legal Proceedings."
Transactions with Louis Metzer
On October 1, 1994, the Company entered into a Consulting Agreement
with Louis Metzer, a resident of the Cayman Islands ("Metzer"). Pursuant to this
agreement, the Company retained Metzer to introduce the Company to business
opportunities and merger or acquisition candidates in Europe, to perform
business and managerial services for any European business the Company acquires
and to perform other services from time to time at the request of the board of
directors. In consideration of these services the Company granted Metzer an
option to purchase 90,000 shares of the Company's Common Stock at $0.75 per
share. On or about November 11, 1994, Metzer exercised his option and the
company issued 90,000 shares of its Common Stock to Metzer pursuant to
Regulation S. This transaction made Metzer a beneficial owner of more than 5% of
the company's Common Stock. The Company believes the value of Metzer's interest
in this transaction is $123,750, based solely on the difference between the
exercise price of the option and the closing market price of the company's
Common Stock, as reported by NASDAQ, on the date of grant.
On November 1, 1994, the company entered into a Stock Purchase
Agreement with Metzer to sell 250,000 shares of Common Stock pursuant to
Regulation S for $187,500, or $0.75 a share. The agreement called for the
Company to issue the shares and for Wells to execute a recourse promissory note
in favor of the company. Metzer subsequently defaulted on the promissory note,
and the Company has filed a complaint against Metzer for payment on the
promissory note. The Company is currently trying to locate Metzer to complete
service of process. For more information on this matter, see "Item 3 - Legal
Proceedings."
Transactions with Avi Herson
On October 7, 1994, the Company entered into a Consulting Agreement
with Avi Herson, a resident of the Cayman Islands ("Herson"). Pursuant to this
agreement, the Company retained Herson to introduce the company to business
opportunities and merger or acquisition candidates in Europe, to perform
business and managerial services for any European business the Company acquires
and to perform other services from time to time at the request of the board of
directors. In consideration of these services the company issued 90,000 shares
of the company's Common Stock pursuant to Regulation S to Herson on or about
November 29, 1994. This transaction made Herson a beneficial owner of more than
5% of the Company's Common Stock. Based solely on the closing market price of
the Company's Common Stock as reported by NASDAQ on November 29, 1994 the
Company believes the value of Herson's interest in this transaction is $180,000.
17
<PAGE>
- - --------------------------------------------------------------------------------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- - --------------------------------------------------------------------------------
(a) Index to Exhibits. Exhibits required to be attached by Item 601 of
Regulation S-B are listed in the Index to Exhibits beginning on page 20
of this Form 10-KSB, which is incorporated herein by this reference.
(b) Reports on Form 8-K. The Company did not make any filings on Form 8-K
during the fourth quarter of the fiscal year ending June 30, 1995.
Subsequent to year end, the Company has made one filing on Form 8-K.
This was filed on September 26, 1995 and disclosed the acquisition of
patents from Turner, Turner & Associates, Robert E. Turner, Richard H.
Turner, and Sherry L. Ruxer effective June 30, 1995. No financial
statements were required for that Form 8-K filing.
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, this 15TH day of July, 1996.
ATC II, INC.
/s/ Leslie Carter
Leslie Carter, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ Leslie Carter President and Director July 15, 1996
- - -------------------
Leslie Carter
/s/ Jack Hartgrove Chief Financial Officer and Director July 15, 1996
- - -------------------
Jack E. Hartgrove
/s/ Jim Thompson Director July 15, 1996
- - -------------------
James L. Thompson
19
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. PAGE No. DESCRIPTION
3(i) * Articles of Incorporation of the Company, filed
as Exhibit 3.1 to Registrant's Registration
Statement on Form S-4 filed June 2, 1990, as
amended.
3(ii) * By-laws of the Company, filed as Exhibit 3(ii) to
Registrant's Registration Statement on Form S-4
filed June 2, 1990, as amended.
4(i) * Form of Common Stock certificate.
4(ii) * Form of Designation, Preferences and Rights of 4%
Cumulative Convertible Preferred Stock of the
Registrant, filed as Exhibit 3.4 to the
Registrant's Form 8-K, reporting events as of
October 7, 1993.
MATERIAL CONTRACTS
10(i)(a) * Consulting Agreement between the Company and
Canton Financial Services,Inc., effective April
29, 1994, filed as exhibit of like number to the
Registrant's Form 10-KSB for the period ending
June 30, 1994.
10(i)(b) * Real Estate Sales Agreement between Thistle
Properties, Inc. and The Canton Industrial
Corporation, dated August 23, 1994 and effective
June 29, 1994, filed as exhibit of like number to
the Registrant's Form 10-KSB for the period
ending June 30, 1994.
10(i)(c) * Commercial lease between The Canton Industrial
Corporation and P & O Manufacturing Corporation,
dated August 15, 1994, and Assignment and
Assumption of Lease by The Canton Industrial
Corporation to Registrant, filed as exhibit of
like number to the Registrant's Form 10-KSB for
the period ending June 30, 1994.
10(i)(d) * Exchange Agreement between the Company and
National Media Inventory, Inc. effective June 23,
1994, filed as exhibit of like number to the
Registrant's Form 10-KSB for the period ending
June 30, 1994.
10(i)(e) * Exchange Agreements between the Company and San
Pedro Securities Ltd., Asset Management Trust
Ltd., David Newren and Globe Marketing Systems
all effective June 30, 1994, filed as exhibit of
like number to the Registrant's Form 10-KSB for
the period ending June 30, 1994.
10(i)(f) * Textile purchase Agreement between Thistle
Properties, Inc. and Carousel, Inc. effective
June 20, 1994, filed as exhibit of like number to
the Registrant's Form 10-KSB for the period
ending June 30, 1994.
10(i)(g) * Settlement Agreement between the Company and
Communications and Entertainment Corp. effective
August 15, 1994, filed as exhibit of like number
to the Registrant's Form 10-KSB for the period
ending June 30 1994.
10(i)(h) * Stock Purchase Agreement between the Company and
Lexington Sales Corporation Limited effective
July 22, 1994, filed as exhibit of like number to
the Registrant's Form 10-KSB for the period
ending June 30, 1994.
20
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. PAGE NO. DESCRIPTION
10(i)(i) * Consulting Agreement between the Company and
Kerry R. Fox effective September 23, 1994, filed
as exhibit of like number to the Registrant's
Form 10-KSB for the period ending June 30, 1994.
10(i)(j) * Registration Rights Agreement dated August 31,
1993 among ATC and holders of Carnegie Film
Group, Inc. Common Stock, filed as Exhibit 10.74
to Registrant's Form 8-K reporting events as of
October 7, 1993.
10(i)(k) * Registration Rights Agreement dated August 31,
1993 between ATC and ComEnt, filed as Exhibit
10.75 to Registrant's Form 8-K reporting events
as of October 7, 1993.
10(i)(I) * Letter dated April 19, 1993 from Budget
Rent-a-Car Corporation to Reserve-A- Phone
Systems, Inc., filed as Exhibit 10.76 to
Registrant's Form 10-KSB for the period ending
June 30, 1993, as amended.
10(i)(m) * Guaranteed Demand Promissory Note dated October
4, 1993 in the original principal amount of
$150,000 payable to the offer of ComEnt Funding
Corp. By ATC II, Inc., filed as Exhibit 10.77 to
Registrant's Form 10-KSB for the period ending
June 30, 1993, as amended.
10(i)(n) * Security and Pledge Agreement dated as of October
4, 1993, filed as Exhibit 10.78 to Registrant's
Form 10-KSB for the period ending June 30, 1993,
as amended.
10(i)(o) * Note Purchase Agreement dated April 7, 1993
between Unibank A/S and MJC Leasing Corp. II.,
filed as Exhibit 10.83 to the Registrant's Form
10-KSB for the period ending June 30, 1993, as
amended.
10(i)(p) * Demand Promissory Note dated March 31, 1993 in
the original principal amount of $350,000 payable
to ComEnt Funding Corp. By MJC Leasing Corp. II.,
filed as Exhibit 10.84 to the Registrant's Form
10-KSB for the period ending June 30, 1993, as
amended.
10(i)(q) * Security and Pledge Agreement dated March 31,
1993, filed as Exhibit 10.85 to the Registrant's
Form 10-KSB for the period ending June 30 1993,
as amended.
10(i)(r) * Agreement dated April 12, 1993 between MJC
Leasing Corp. II and ComEnt Funding Corp., filed
as Exhibit 10.86 to the Registrant's Form 10-KSB
for the period ending June 30, 1993, as amended.
10(i)(s) * Termination and Settlement Agreement dated
November 24, 1993 between Richard L. Liu and ATC
II, Inc., filed as Exhibit 10.90 to the
Registrant's Form 10-KSB, for the period ending
June 30, 1993, as amended.
10(i)(u) * Termination and Settlement Agreement dated
November 24, 1993 between Robert Hesse and ATC
II, Inc., filed as Exhibit 10.92 to the
Registrant's Form 10-KSB for the period ending
June 30, 1993, as amended.
10(i)(v) ** Amendment to Real Estate Sales Agreement between
the Company, Thistle properties, Inc., and The
Canton Industrial Corporation effective June 20,
1994, filed as exhibit of like number to
Registrant's Form 10-KSB for the period ending
June 30, 1994.
21
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. PAGE NO. DESCRIPTION
10(i)(w) ** Stock Purchase Agreement between the Company and
Christopher Wells effective October 10, 1994,
filed as exhibit of like number to Registrant's
Form 10-KSB for the period ending June 30,, 1994.
10(i)(y) ** Stock Purchase Agreement between the Company and
Louis Metzer effective November 1, 1994, filed as
exhibit of like number to Registrant's Form
10-KSB for the period ending June 30, 1994.
10(i)(z) ** Consulting Agreement between the Company and
Louis Metzer effective October 1, 1994, filed as
exhibit of like number to Registrant's Form
10-KSB for the period ending June 30, 1994.
10(i)(aa) ** Consulting Agreement between the Company and Ari
Herson effective October 7, 1994, filed as
exhibit of like number to Registrant's Form
10-KSB for the period ending June 30, 1994.
10(i)(bb) ** Consulting Agreement between the Company and
Christopher Wells effective October 1, 1994,
filed as exhibit of like number to Registrant's
Form 10-KSB for the period ending June 30, 1994.
10(i)(cc) *** Compromise, Release and Indemnification Agreement
between the Company and ComCentral Corp.
effective December 29, 1994, filed as Exhibit 10
to Registrant's Form 10-QSB for the period ending
December 31, 1994.
10(i)(dd) **** Purchase Agreement between the Company and
Turner, Turner and Associates effective June 30,
1995, filed as Exhibit 10 to Registrant's Form
8-K Current Report dated September 26, 1995.
10(i)(ee) 43 Rescission Agreement between the Company, Turner,
Turner & Associates, Robert E. Turner, Richard H.
Turner, and Sherry L. Ruxer signed February 21,
MANAGEMENT CONTRACT AND COMPENSATORY PLAN/ARRANGEMENTS
10(ii)(a) * Consulting Agreement between the Company and Bert
Martinez effective April 29, 1994, filed as
exhibit of like number to the Registrant's Form
10-KSB for the period ending June 30, 1994.
10(ii)(b) * Consulting Agreement between the Company and Bert
Martinez effective June 23, 1994, filed as
exhibit of like number to the Registrant's Form
10-KSB for the period ending June 30, 1994.
10(ii)(c) * Employment Agreement between the Company and Dr.
Gerald Curtis dated August 23, 1994, filed as
exhibit of like number to the Registrant's Form
10-KSB for the period ending June 30, 1994.
10(ii)(d) * Employment Agreement between the Company and Tony
Geonnotti dated August 23, 1994, filed as exhibit
of like number to the Registrant's Form 10-KSB
for the period ending June 30, 1994.
22
<PAGE>
16(i) ** Form 8-K/A (Amendment No. 2) dated October 25,
1994 containing the response from Swalm &
Associates to the dismissal as accountants for
ATC II, Inc.
21 * Subsidiaries of the Company, filed as exhibit of
like number to the Registrant's Form 10-KSB for
the period ending June 30, 1994.
27 44 Financial Data Schedule.
* Incorporated herein by reference from the Company's Form 10-KSB filed
with the Commission on August 23, 1994.
** Incorporated herein by reference from the Company's Form 10-KSB/A-1
filed with the Commission on February 28, 1995.
*** Incorporated herein by reference from the Company's Form 10-QSB for the
period ending December 31, 1994.
**** Incorporated herein by reference from the Company's Form 8-K Current
Report dated September 26, 1995.
23
<PAGE>
RESCISSION OF PURCHASE AGREEMENT
AND
RELEASE OF ALL CLAIMS
A Purchase Agreement and corresponding Technology License Agreement
dated June 30, 1995 (the "Agreements"), were entered into by and between Robert
E. Turner, an individual with principal offices at 6523 California Avenue S.W.,
Suite 333, Seattle, WA 98136 ("Seller 1"), Richard H. Turner, an individual with
principal offices at 6523 California Avenue S.W., Suite 333, Seattle, WA 98136
("Seller 2"), Sherry L. Ruxer, an individual with principal offices at 6523
California Avenue S.W., Suite 333, Seattle, WA 98136 ("Seller 3") (Seller 1,
Seller 2, and Seller 3 are collectively referred to as "Sellers"), Turner,
Turner & Associates, a Washington corporation ("TTA"), and ATC II, Inc., a
Delaware corporation ("Purchaser"). Sellers, TTA and Purchaser (the "Parties")
entered into the Agreements to provide for the sale of rights in two United
States Patents Numbers 5,296,216 and 5,306,509 in exchange for cash and common
stock of Purchaser.
The Parties hereby agree to rescind and terminate ab initio, the June
30, 1995 Agreements and agree not to be bound by the terms of the said
Agreements, because all Parties have determined that the terms as set forth in
said Agreements are not in the best interest of the Parties. The Parties further
agree to hold one another harmless, release any and all claims against one
another stemming from the Agreements and indemnify one another with respect to
any obligations arising pursuant to or from the said Agreements.
The Parties further agree to restructure the ownership of shares of
Purchaser's common stock issued in connection with the Agreements and cooperate
in such restructuring. The Parties agree to reissue a quantity of Purchaser's
stock so that the ownership structure of ATC II, Inc. will provide for Turner,
Turner & Associates' ownership of 70% of all issued and outstanding shares,
Southern Bankers' ownership of 10% of all issued and outstanding shares, Canton
Financial Services Corporation's ownership of 10% of all issued and outstanding
shares, and the owners of ATC II, Inc.'s shares prior to the execution of the
Agreements shall possess 10% of all issued and outstanding shares.
Purchaser will acquire the rights in two United States Patents Numbers
5,296,216 and 5,306,509 pursuant to a merger agreement between it and TTA, and
all Parties will cooperate with Richard H. Turner, Purchaser's president, to
achieve this merger and acquisition. The Parties agree to cooperate in the
raising of $3 million pursuant to a private placement of Purchaser's common
stock.
"Seller 1" "Seller 2"
/s/ Robert E. Turner /s/ Richard H. Turner
Robert E. Turner Richard H. Turner
"Seller 3" "Turner, Turner & Associates"
/s/ Sherry L. Ruxer /s/ Richard H. Turner
Sherry L. Ruxer Richard H. Turner
"PURCHASER" "PURCHASER"
/s/ James L. Thompson /s/ Jack E. Hartgrove
James L. Thompson, former President Jack E. Hartgrove, Chief Financial Officer
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS FILED WITH THE COMPANY'S
JUNE 30, 1995 ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000865286
<NAME> ATC II, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Jun-30-1995
<PERIOD-START> Jul-01-1994
<PERIOD-END> Jun-30-1995
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 315,250
<CURRENT-LIABILITIES> 703,083
<BONDS> 0
931,500
0
<COMMON> 115,055
<OTHER-SE> (1,434,388)
<TOTAL-LIABILITY-AND-EQUITY> 315,250
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,312,112
<OTHER-EXPENSES> 909,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 486,850
<INCOME-PRETAX> (3,221,125)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,221,125)
<DISCONTINUED> (582,769)
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<EPS-PRIMARY> (1.49)
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