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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to __________
Commission File Number 33-94318-C
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AMERICAN TIRE CORPORATION
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(Exact name of registrant as specified in charter)
Nevada 87-0535207
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State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
1643 Nevada Highway, Boulder City, Nevada 89005
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (702) 293-1930
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Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
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Securities registered pursuant to section 12(g) of the Act:
None
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(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. (1) Yes
[X] No [ ] (2) Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is 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. [X]
State issuer's revenues for its most recent fiscal year: $69,518
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State the aggregate market value of the voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days:
Based on the average bid and asked prices of the common stock at November
12 1997, of $4.625 share, the market value of shares held by nonaffiliates
would be $7,798,897.
As of November 13, 1997, the Registrant had 3,297,248 shares of common stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the form 10-KSB (e.g., part I, part II, etc.) into which the
document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or other information statement; and (3) Any prospectus filed pursuant to
rule 424(b) or (c) under the Securities Act of 1933: NONE
PAGE
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS
Business in General
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American Tire Corporation, a Nevada corporation (the "Company"), was
organized on January 30, 1995, to take advantage of existing proprietary and
non-proprietary technology available for the manufacturing of flat-free
specialty tires. The Company has had limited operations since its organization
and is a "development stage" company. However, the Company believes that the
experience and intellectual contributions of its management and other
employees are key components to the future success of the Company. (See ITEM
9. DIRECTORS AND EXECUTIVE OFFICERS.)
The Company has spent extensive time analyzing the tire industry, its
perceived major competitors, potential markets, and its own strengths and
weaknesses. The Company believes that the tire industry is dominated by
several large competitors, has competitive pressures from cheaper imported
tires from the Pacific Rim, and maintains a commitment to the traditional
pneumatic tire with innovations focusing on tread design not tire design. The
Company also feels that the tire industry can be divided into several segments
each with its own dynamics, dominant companies, target customers, and
competitive pressures. The Company believes that its technology will allow it
to produce flat-free tires that offer the same safety and ride as the
traditional pneumatic tire, at competitive prices, without the associated
problems resulting from a flat tire. The ability to avoid down time from flat
tires will be particularly appealing to industrial concerns where down time
can be readily equated into lost dollars.
The Company feels its strengths are in its technology and research and
development capabilities. Its weaknesses are in its size and financial
capabilities and in changing Original Equipment Manufacturer ("OEM") attitudes
and consumer views on pneumatic tires versus the advantages of a flat-free
tire. Based on this analysis of the tire industry, a two-pronged approach has
been formulated by the Company's management to manufacture and market its
flat-free tires concept.
First, the Company has identified certain industry segments where it
feels the cost of the tires, the consumer, and the competition will allow it
to compete effectively against existing pneumatic tires and the companies that
produce them. These industry segments are segments the Company believes will
be accessible, its products will be readily acceptable, and the Company will
not be at an insurmountable competitive disadvantage. A few of these areas
are the bicycle tire, wheelchair tire and lawn and garden product tire markets
where almost all tires are currently imported.
Second, in industry segments where the Company feels it will not
initially have the financial or manufacturing resources to compete
effectively, the Company will seek an industry partner to manufacture and
market tires products developed from the Company's technology. The Company
will, therefore, have a very fluid organization that will not be bound to the
traditional role as strictly a manufacturer and marketer of products, but
instead, a company exploring the non-traditional avenues, including joint
ventures for developing and licensing the Company's technology. The Company
feels that through these means, with respect to some products developed
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utilizing the Company's technology, the Company will be able to attain broader
public recognition without incurring the additional equipment and related
costs and expenses associated with being strictly a manufacturer and marketer.
With respect to products developed through joint ventures and license
agreements, the Company will maintain a profit interest by having a royalty or
other carried interest in every unit of production sold through such
arrangements based on gross sales price.
Hayes Development and License Agreement
In September 1995, the Company and Hayes Wheels International ("Hayes")
entered into a Development and License Agreement (the "Hayes Development and
License Agreement") wherein the Company and Hayes have agreed to jointly
develop a prototype tire-wheel assembly utilizing the DSS Technology, together
with associated molds and equipment, for submission to the United States
Department of Transportation ("DOT") for DOT's approval under FMVSS 129. FMVSS
129 is the applicable U.S. safety standard for non-pneumatic tires used on
passenger vehicles and describes the energy cycle a non-pneumatic tire/wheel
must absorb to be provided for commercial sale in the United States. The
Company has received notice from the United States Office of Patents and
Trademarks that the patent application relating to the DSS Technology contains
allowable subject matter and the Company expects the patent to be issued in
the very near future.
Non-Pneumatic or "Flat-Free" Tire Technology
Flat-free tire technology differs from pneumatic tires in that pneumatic
tires are made from rubber and require an inner tube which is inflated with
air, while the Company's low density foam tires are manufactured from
polyurethane, have no inner tube (solid throughout), and do not require
inflation. In addition, the Company's shell elastomer tires have no inner
tube, are hollow throughout and do not require inflation, but rely on the
infrastructure of the tire to maintain the tires stability. The flat-free tire
is mounted on the wheel rim in much the same way a pneumatic tire is mounted,
with the assistance of a tire lever. The flat-free tires are approximately
the same weight as pneumatic tires and tubes and ride characteristics are
comparable. Apart from cleaning, the Company's bicycle tires are maintenance
free and eliminate tedious puncture repair or the need for a bicycle pump.
The flat-free tires are designed for use by "On/Off" road and "Highway"
bicycles.
The Company's marketing strategy will be to initially introduce the
flat-free tires through sales to OEMs, tire distributors and direct
advertising to consumers through television commercials. The Company intends
to target three main segments of the tire market:
(1) Original Equipment Manufacturers. By selling to OEMs, the Company
believes it will be able to develop product identification and consumer demand
by emphasizing "Made in the USA," the "flat-free," and "maintenance-free,"
characteristics of the tires while relying on the efforts of OEMs in marketing
their products with the Company's tires.
(2) Tire Distributors. By selling to tire distributors, the Company
believes it will be able to take advantage of existing distribution channels
for moving its tires into the aftermarket, while emphasizing the uniqueness of
the flat-free and maintenance free characteristics of the tires versus
traditional pneumatic tires.
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(2) Direct Advertising. In April 1995, the Company entered into a
television commercial agreement with American Independent Network of Ft.
Worth, Texas ("AIN"), to air a commercial (the "Commercial") produced by the
Company for a one year period beginning as soon as airless bicycle tires are
available for shipment. AIN covers approximately 150 stations, in 75 markets,
covering 34,668,949 households. AIN will air the Commercial at times selected
by it and the Company at time slots between 6:00 AM and 12:00 Midnight on an
average of once an hour, with particular emphasis placed during the airing of
afternoon children's programs, news reports, and sports programming. The
total program will give the Company approximately 10 airings per day during
the one year term. The Company has established an 800 telephone number that
will allow customers to call the Company to make purchases direct from the
Company utilizing a credit card. The Company has agreed to pay AIN a
commission of $2.00 for each bicycle tire sold by the Company resulting from
direct advertising effort. The Company has not made any substantive studies
to determine the degree of market penetration it can reasonably expect to
obtain from the airing of the Commercial, nor has it established an exact date
to begin airing the Commercial.
Competition
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Currently, there are three tire manufacturers that utilize a liquid phase
technology manufacturing process to produce non-pneumatic tires from a low
density polyurethane foam (Green Tire, Norwich, UK; Woo Tire, Waihai, China;
and Krypton-India, Calcutta, India), and very limited numbers of their tires
have been marketed in the United States. The technology that these companies
use to manufacture their tires was originally developed by Vincent Panaroni,
who has in the past provided consulting services to the Company, and the
co-inventor of the Company's flat-free tire technology.
The Company knows of no companies that currently offer a flat-free or
non-pneumatic tire made from a polyurethane shell elastomer. The Company's
flat free tire technology differs from existing non-pneumatic tire technology
in (1) the formulation of the polyurethane; (2) the manner in which the
polyurethane is distributed throughout the mold; and (3) the use of a simple
mechanical locking system that allows the tire to stay secure on the wheel. In
addition to manufacturers of low density foam tires, the Company will be
competing directly with firms that manufacture and market pneumatic bicycle
tires.
The Company estimates that over 98% of all domestic bicycle tire sales
are pneumatic tires. The bicycle tire industry is highly competitive and
there are several of the Company's competitors that have financial resources
which substantially exceed those of the Company. In addition, many
competitors are large companies (i.e. Michelin [France], Kenda [Japan], and
Chengshin Rubber [China]) that have established name recognition of their
product, have established distribution networks for their products, and
developed consumer loyalty to such products. Principal factors in marketing
the Company's tires will be that it is domestically produced with "flat-free"
and "maintenance free" characteristics. This may give the Company a
competitive advantage against pneumatic tires produced by foreign
manufacturers that are subject to puncture and loss of air.
PAGE
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Manufacturing, Supplies, and Quality Control
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The Company manufactures the flat-free tires utilizing single and/or
multiple head, centrifugal molding machines. These machines centrifugally
mold elastomer products, such as the bicycle tires, by pouring a predetermined
amount of polyurethane into a mold, which is then spread out in the mold
through centrifugal force. The molding process occurs when the liquid
polyurethane formula (made up of isocyanide and polyol) is combined with a
catalyst. This combination causes a chemical reaction that results in the
cross linking of the chemicals, which thereafter become solid. The mold then
moves to the next station where the tire is removed and the process is
repeated.
The Company has acquired a 6-station and a 12-station carousel of
centrifugal molding machines and the related pouring equipment that based on
manufacturer's specifications should permit the Company to produce
approximately 1,500,000 tires annually. At present, the Company has not
accumulated a sufficient number of molds in the various tire sizes necessary
to determine with any degree of consistency the maximum production efficiency
of its production equipment. The Company estimates that it could produce
about 8 to 10 million tires per year without expansion from its Ravenna
facility. At that level of production, the Company would require approximately
150 employees as well as additional equipment. The Company will train its
employees in the use of this specialized manufacturing equipment and process,
which will be utilized for other types of specialty tires as well. The
Company intends to utilize multiple suppliers to purchase polyurethane and
believes that it will be able to obtain significant quantities of polyurethane
and other chemicals without significant problems or delays.
All products produced by the Company will be inspected following the
manufacturing process and prior to shipment to ensure quality. Products
considered by the Company's quality control personnel to be defective could be
ground into pellets, which can be melted and reused in the Company's
manufacturing process to make new products and reduce waste of raw materials.
Patents
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Dynamic Steerable Spring
The Company is a party to a technology license agreement (the "DSS
License Agreement") with Dennis S. Chrobak (a former affiliate of the Company)
and Richard A. Steinke (an affiliate of the Company), to develop DSS
Technology. DSS Technology is a combination of a spring compressively loaded
and a one piece spiral hoop load in tension. DSS Technology can be utilized
in tire-wheel assemblies for many types of mobile products including spare
tires, passenger car tires, and light, medium, and heavy truck tires. Mr.
Chrobak and Mr. Steinke are the owners of the DSS Technology for which an
application for United States Letters Patent has been filed and issuance of a
patent is pending. The term of the DSS License Agreement will be for the life
of the underlying U.S. patent when issued. The Company is required to pay a
royalty to Mr. Chrobak of $0.50 for each unit of production manufactured and
sold directly by the Company. At such time as Mr. Steinke is no longer an
affiliate of the Company, Mr. Steinke would be entitled to a royalty on the
same terms as Mr. Chrobak. (See ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.)
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Non-Pneumatic Tire
The Company is a party to a technology license agreement (the "Non-
Pneumatic Tire License Agreement") with Mr. Chrobak and Mr. Steinke, to
develop certain technology relating to a low density foam tire for which an
application for United States Letters Patent has been filed and a patent is
pending. The term of the Non-pneumatic Tire License Agreement will be for the
life of the underlying U.S. patent when issued. The Company is required to
pay a royalty to Mr. Chrobak of $0.125 for each bicycle tire manufactured and
sold by the Company utilizing the technology. At such time as Mr. Steinke is
no longer an affiliate of the Company, Mr. Steinke would be entitled to a
royalty on the same terms as Mr. Chrobak.
The Company has received notice from the United States Office of Patents
and Trademarks that the patent application relating to the DSS Technology
contains allowable subject matter and the Company expects the patent to be
issued in the very near future. The Company has not yet received notice from
the United States Patent Office passing on the patentability of the claims of
the case with respect to the Non-Pneumatic Tire Technology. The Company is
unable to predict when any office action will be taken or a patent issued.
Although a patent has a statutory presumption of validity in the United
States, the issuance of a patent is not conclusive as to its validity, nor as
to the enforcement scope of the claims contained therein. The Company intends
to, but has not as of the date of this report, applied for patent protection
in other countries. The Company intends to vigorously police its patents and
there can be no assurance that its patents will not be infringed upon or
modified by others.
The Company has not retained intellectual property counsel to render an
opinion regarding the DSS Technology and the Non-Pneumatic Tire Technology as
to whether the Company is infringing on the intellectual property rights of
others. In that regard, the Company believes the DSS Technology is unique in
that the Company knows of no other manufacturer of airless passenger vehicle
tires or tire-wheel assemblies. With respect to the Non-Pneumatic Tire
Technology, the Company believes that its technology substantially differs
from the existing technology currently being utilized to produce non-pneumatic
tires. The Company believes that although its patents are important, such
factors as product innovation, technical expertise and experience, and the
confidentiality of proprietary data and trade secrets are equally as
important. The Company will attempt to preserve and protect its proprietary
technology principally through trade secret protection and has obtained
confidentiality/nondisclosure agreements with all of its employees.
Trademark
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Through its wholly owned subsidiary UTI-UK, the Company owns the U.S.
registered trademark "Urathon" which has been utilized by UTI-UK on urethane
tire products distributed in the United Kingdom and Europe.
Regulation and Environmental Compliance
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The Company knows of no particular federal or state regulations
applicable to its manufacturing processes. Certain tire-wheel assemblies
designed to be manufactured for use on passenger vehicles and light trucks are
required to meet certain Department of Transportation, Federal Motor Vehicle
Safety Standards ("FMVSS"), including FMVSS 129, which applies to non-
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pneumatic tires for passenger cars. This standard specifies tire dimensions
and laboratory tests requirements for lateral strength, endurance, and high
speed performance, defines the tire load rating, and specifies labeling
requirements for non-pneumatic spare tires.
The Company is subject to various local, state, and federal laws and
regulations including, without limitation, regulations promulgated by federal
and state environmental and health agencies, the federal Occupational Safety
and Health Administration, and laws pertaining to hiring, treatment, safety,
and discharge of employees. The Company's manufacturing operations must also
meet federal, state, and local regulatory standards in the areas of labor,
safety, and health. The Company believes that it will be able to operate in
compliance with such regulations, including laws related to the handling and
use of environmentally hazardous materials.
Employees
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As of November 13, 1997, the Company had 14 full-time employees. Except
for Mr. Steinke, all of the Company's executive officers are employees at
will. (See ITEM 10. EXECUTIVE COMPENSATION.) None of the Company's employees
are represented by a labor union. The Company believes that it will be able
to hire a sufficient quantity of qualified laborers in the local area to meet
the Company's employment needs. The Company's manufacturing process does not
require special training, other than orientation to the Company's production
techniques and specific equipment.
ITEM 2. DESCRIPTION OF PROPERTIES
Offices
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The Company's 26,000 sq. ft. manufacturing/distribution/office facility
is located on 4.15 acres of real property at 446 West Lake Street, Ravenna,
Ohio, and consists of 1,000 sq. ft. of administrative offices and 25,000 sq.
ft. of manufacturing space. The facility is constructed of masonry and steel
and is equipped with a one-half ton chain hoist, overhead sprinkler system,
and two loading docks. The Ravenna facility will be utilized for bicycle tire
production and management of the Company believes that the Ravenna facility
will be sufficient to handle projected production needs for the next five
years. The Company maintains an executive office suite consisting of
approximately 1,100 square feet located at 1643 Nevada Highway, Boulder City,
Nevada, and is currently provided to the Company free of charge. It is the
opinion of management that the Company maintains adequate insurance coverage
for loss or damage to its facility under its existing insurance policy.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of shareholders of the Company during
the fourth quarter of the fiscal year ended June 30, 1997.
PAGE
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Lack of Prior Public Market and Possible Volatility of Stock Price
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The Company completed its initial public offering in October 1996. Prior
to that time there was no "established trading market" for shares of the
Company's common stock. The table on the following page sets forth, for the
respective periods indicated, the prices for the Company's common stock in the
over-the-counter market as reported by the NASD's OTC Bulletin Board. The
bid prices represent inter-dealer quotations, without adjustments for retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
High Bid Low Bid
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Fiscal Year Ended June 30, 1995
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First, Second, Third and Fourth Quarters N/A N/A
Fiscal Year Ended June 30, 1996
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First, Second, Third and Fourth Quarters N/A N/A
Fiscal Year Ending June 30, 1997
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First Quarter N/A N/A
Second Quarter $9.375 $6.00
Third Quarter $9.125 $6.00
Fourth Quarter $6.125 $2.25
At November 12, 1997, the Company's Common Stock was quoted on the OTC
Bulletin Board at a bid and asked price of $4.50 and $4.75, respectively.
Since its inception, the Company has not paid any dividends on its Common
Stock, and the Company does not anticipate that it will pay dividends in the
foreseeable future. At November 13, 1997, the Company had approximately 220
shareholders of record based on information provided by the Company's transfer
agent.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation
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In October 1996 the Company completed an initial public offering of
344,083 shares of Common Stock at a purchase price of $6.00 per share for
gross offering proceeds of $2,064,498. The Company has used the proceeds from
the offering to initiate production of "flat-free" bicycle and other specialty
tires which will compete with the traditional pneumatic tires (i.e., tires
with an inner tube or tubeless tires inflated with air), repurchase the shares
of Common Stock subject to the Recision Offer, repay loans from Officers, and
for working capital.PAGE
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The Company's production equipment consists of several "centrifugal
molding machines" and other related specialized manufacturing equipment to
produce tires. During the fiscal year ended June 30, 1997, the Company
utilized $469,392 from its initial public offering to purchase additional
molding machines and related production equipment, which has now been
installed and is ready for production, subject to the completion of a
sufficient quantity of production molds to produce those tires the Company
intends to initially introduce into the market.
The Company believes that its two-pronged approach for manufacturing and
marketing its technology and products will be the most cost effective means
for the Company to be successful. Because the Company is in the development
stage, has had an operating loss since inception of $2,254,392, has limited
working capital and limited internal financial resources the report of the
Company's auditor contains a going concern modification as to the ability of
the Company to continue. The Company is currently operating at a loss of
approximately $100,000 per month and expects operating expenses to continue at
such rate until such time as the Company begins to receive substantial
revenues from the sale of tires.
Since its inception on January 30, 1995 to June 30, 1997, the Company has
expended $2,282,871 in expenses, consisting in large part of consulting fees
($484,792), payroll and payroll taxes ($774,347) and selling, general and
administrative expenses ($772,758), resulting in an operating loss of
$2,254,392 since inception.
As of June 30, 1997, the Company had not commenced the commercial sale of
its products in any substantial quantities and substantially all sales revenue
recognized during the fiscal year ended June 30, 1997 were attributed to the
operations of UTI-UK. As a result, the delays in selling its products have
caused the Company's limited resources to be more depleted than originally
anticipated and the Company has utilized substantially all of the proceeds of
its initial public offering.
During the fiscal year ended June 30, 1997, the Company effected measures
to reduce cash outflows and increase working capital thru the issuance of
additional shares of the Company's common stock. On October 31, 1996, the
Company approved the issuance of 27,000 shares of the Company's restricted
common stock in exchange for the cancellation of approximately $56,735 in
principal and accrued interest due certain of its officers and directors, plus
additional compensation to such officers and directors of $105,265, for a
total of $162,000. In addition, in February 1997, the Company raised offering
proceeds of $930,000 from the sale of 155,000 shares of restricted common
stock in a private placement.
The Company will be relying on the proceeds from the Company's recent
securities offerings or other debt or equity financing that may be available
to meet further operating requirements for the fiscal year ended June 30,
1998, should the Company fail to receive sufficient revenues from the sale of
products to meet its operational needs.
Effective February 28, 1997, the Company completed the acquisition of all
of the capital stock of UTI Chemicals (Europe) Ltd, a corporation incorporated
under the laws of England and Wales ("UTI-UK"), from Coronel Investments
Limited, a Jersey corporation ("Coronel"). The acquisition was made pursuant
to a Share Purchase Agreement dated January 14, 1997 (the "Agreement"),
between the Company, UTI-UK and Coronel, wherein the Company agreed to acquire
UTI-UK from Coronel in exchange for the payment of 200,000 shares of the
Company's restricted common stock and a cash payment of $400,000.
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The Company utilized proceeds derived from the February 1997 private
placement of its equity securities to make the cash portion of the purchase
price. The closing bid price for the Company's common stock on February 28,
1997 (the "Closing Date") was $7.75. Based on the closing bid price for the
Company's common stock and the $400,000 cash, the purchase price of UTI-UK was
valued at $1,950,000. For purposes of accounting treatment, the acquisition
of UTI-UK was treated as a purchase by the Company.
The principles followed by the Company in determining the amount of
consideration given by the Company to Coronel in negotiating the acquisition
of UTI-UK was based the following criteria:
1. The value of the assets of UTI-UK (which includes the "Urathon"
registered trademark), consisting mainly of inventory and accounts receivables
of approximately $200,000 at December 31, 1996;
2. An existing relationship between UTI-UK and Michelin Tire Company
("Michelin") to sell bicycle tires through 540 Michelin owned ATS stores in
the United Kingdom;
3. UTI-UK's working relationship with the technical development
manager of Dunlop-Slazenger relating to a proposed tire/wheel design; and
UTI-UK's working in partnership with Weihai Yicklong Industrial Development
Co., Ltd., Weihai, China, to work in partnership to supply tires for export
markets from China. In addition, UTI-UK has been working on an agreement with
Super Tires Industries, Ltd. in Pakistan to sell an equipment package for
bicycle tire production at a cost of approximately $2 million.
4. In June 1995, in an effort to assist the Company's cash flow from
operations while waiting for its production facility to be completely
operational, the Company purchased thousands of low density foam bicycle tires
from UTI-UK, to be used for resale in the U.S. market. However, UTI-UK was
not able to provide the Company with a sufficient quantity of tires for an
orderly sales program to be implemented due to operating problems from
UTI-UK's provider. Although UTI-UK has shipped the Company some tires, the
balance of the Company's payment to UTI-UK, $87,401, was treated as a deposit
against delivery of additional tires. The $87,401 was returned to the Company
by UTI-UK as a condition to the acquisition. The tires being held for resale
by the Company were thereafter returned to UTI-UK for sale in the European
market.
UTI-UK has since 1990 been a distributor of urethane bicycle, wheelchair
and other specialty tires in the United Kingdom and Europe. UTI-UK
distributes urethane bicycle tires under the trade name "Urathon TM" in
approximately 540 Michelin Tire Company owned ATS stores in England, Scotland
and Wales. UTI also sells products in France, Denmark, Austria, the
Netherlands and Germany through independent representatives and distributors.
In connection with the acquisition of UTI-UK, the Company and Coronel
entered into a lock-up agreement, wherein Coronel agreed not to sell during
the 24 month period following the Closing Date (i.e., March 1, 1999), more
than 50,000 shares of the Company's common stock acquired, provided however,
all such sales of the Company's common stock during the lock-up period are
made in a market transaction pursuant to an effective registration statement
or in reliance on an exemption from registration under the Securities Act of
1933, as amended.
PAGE
<PAGE> 12
In addition, the Company entered into a management agreement with
Coronel, wherein Coronel has been retained to manage the day-to-day operations
of UTI-UK for a 12-month period beginning February 1, 1997, in exchange for a
monthly fee of US$9,990, and Hugh-Sims Hilditch, the principal and sole
shareholder of Coronel was appointed to the Company's board of directors and
to serve as Managing Director for European Operation. The management
agreement was amended to provide for the issuance of 15,000 shares of the
Company's common stock as full consideration for the management of UTI
operations during the term of the agreement. The Company plans to continue in
each aspect the business of UTI-UK as described above, and to utilize UTI-UK
to market the Company's products in the United Kingdom and Europe.
Because of the Company's limited financial resources, the Company does
not anticipate expending any substantial sums for new research and development
during the fiscal year ended June 30, 1998. However, as financial resources
are available to justify such expenditures, the Company will continue
development of the Company's shell elastomer tire concepts.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are set forth immediately
following the signature page to this form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no disagreements with its certified public
accountants with respect to accounting practices or procedures or
financial disclosure. (See ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.)
PAGE
<PAGE> 13
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth as of November 13, 1997, the name, age,
and position of each executive officer and director and the term of office of
each director of the Company.
Name Age Position Director or Officer Since
---- --- -------- -------------------------
Richard Steinke 55 Chairman, Director, CEO January 1995
Roger A. Fleming 57 President and Director February 1997
Hugh Sims-Hilditch 61 Vice-President and Director February 1997
Louis M. Haynie 69 Director July 1997
Ping Zhang 31 Vice-President and Director February 1997
David K. Griffiths 60 Treasurer/Controller February 1995
Marcy L. Janis 29 Secretary February 1997
The term of office of each director is one year and until his successor
is elected and qualified at the Company's annual meeting, subject to removal
by the Shareholders. The term of office for each Officer is one year and
until a successor is elected at the annual meeting of the Board of Directors
and is qualified, subject to removal by the Board of Directors. The Company
will reimburse Directors for their expenses associated with attending
Directors' meetings. However, Directors have not, nor is it anticipated they
will, receive any additional compensation for attending Directors' meetings.
Biographical Information
- ------------------------
Set forth below is certain biographical information for each of the
Company's Officers and Directors and other key personnel.
Richard Steinke is a founder of the Company and currently serves as its
Chairman and Chief Executive Officer. From January 1992 to December 1994, Mr
Steinke served as Chairman and C.E.O. of Alanco Environmental Resources, Inc.,
a manufacturer of environmental/pollution control equipment, Salt Lake City,
Utah. From June 1985 to December 1991, he was the Chairman and C.E.O. of UTI
Chemicals, Inc., a developer and manufacturer of urethane chemicals, El Toro,
California. Mr. Steinke received a B.A. in Political Science and Economics
from the University of Arizona, Tucson, Arizona, in 1967.
Roger A. Fleming, joined the Company in February 1997 as its
Vice-President of Technology. Prior to joining the Company Mr. Fleming was a
senior engineer at Goodyear Tire & Rubber Company, Akron, Ohio, were Mr.
Fleming had worker for over 31 years. Mr. Fleming holds many patents in
product and process design and has managed the development of Goodyear's
liquid phase united spare tire. Mr. Fleming received a degree in Chemical
Engineering from North Carolina State University, Raleigh, North Caroline in
1963.
Hugh-Sims Hilditch joined the Company in February 1997 in connection with
the Company's acquisition of UTI-UK and currently serves as a Vice President
in charge of the Company's European operations. Mr. Sims-Hilditch has in
excess of the past five years served as the Manager of UTI-UK, Hilmarton,
England, a distributor of urethane products in the United Kingdom and Europe.
<PAGE> 14
Louis M. Haynie, was recently appointed to the Company's board of
directors and currently is General Counsel and a Director of Research Medical,
Inc. [NASDAQ: RMED], Salt Lake City, Utah, a developer, manufacturer and
distributor a diversified line of health care products, focusing on
specialized cardiovascular, vascular and blood management surgical devices and
specialty pharmaceuticals. Mr. Haynie's past board services include the
University of Utah Regents Advisory Board, Redwood Land Co., Salt Lake City,
Utah, and MIS Corporation, Franklin, Tennessee. Mr. Haynie has a law degree
from the University of Utah and has been in the private practice of law since
1951.
Ping Zhang became a director of the Company in February 1997 and
currently serves as a Vice-President. Mr. Zhang's responsibilities included
investigating and developing opportunities and business relationships for the
Company and its products in the Far East. Mr. Zhang has for the past four
years been actively involved in promoting U.S.- China business and trade
relationships. Mr. Zhang received a Masters Degree in Manufacturing and
Industrial Technology from Arizona State University, Tempe, Arizona, in 1993,
and a degree in Mechanical Engineering from Shanghai Jiatong University,
Shanghai, China, in 1991.
David K. Griffiths currently serves as the Company's Treasurer and
principal accounting officer and has since 1960 been self-employed as an
accountant/consultant for various small businesses. Mr. Griffiths offers the
Company 36 years experience in accounting and accounting related systems.
Mr.
Griffiths received a B.S. in Accounting from Arizona State University, Tempe,
Arizona in 1961.
Marcy L. Janus currently serves as the Company's Secretary. In December
1989, Marcy received a B.A. in Communications from Kent State University,
Kent, Ohio. Ms. Janis brings to the Company seven years experience in
executive office management and computer services.
KEY EMPLOYEES
- -------------
Derek A. Bowers, joined the Company in June 1995 and is employed as the
Company's Senior Development Engineer. From May 1994 to June 1995, Mr. Bowers
was employed by Huffy Bicycle Company, Celina, Ohio, as an engineer. Mr.
Bowers received a M.S. in Mechanical Engineering from Carnegie Mellon
University, Pittsburgh, Pennsylvania, in May 1994 and a B.S. in Mechanical
Engineering from Old Dominion University, Norfolk, Virginia, in May 1993.
James G. Moore, Jr. joined the Company in August 1997 and is employed as
the Company's manager of mold design and processing. Prior to his employment
with the Company, Mr. Moore worked at Goodyear Tire & Rubber Company, Akron,
Ohio, were he had over 25 years of experience as a master tire carver, which
included five years at the Goodyear apprentice school for tire tread pattern
carving and mold carving. Mr. Moore also took multiple engineering courses
while enrolled in the civil engineering school at the University of Akron,
Akron, Ohio.
Sid Asthana joined the Company in October 1997 and is employed as the
Company's senior chemist. Mr. Asthana has received a B.S. in Chemical
Engineering from the Regional Engineering College of India, Rourkela, India,
July 1990, and a M.S. in Polymer Engineering from the University of Toledo,
Toledo, Ohio in December 1993, and will be receiving his Ph.D. in Polymer
Science from the University of Akron's Polymer Institute, Akron, Ohio, in
January 1998.
<PAGE> 15
Shanley Brown joined the Company in January 1997 and serves as the
Company's domestic sales manager. Mr. Brown brings to the Company over 20
years of experience in both domestic and international sales for bicycles and
light duty pneumatic tires. From 1994 to 1996, Mr. Brown, was Vice President
of the Industrial Tire Division of Shinko USA, Carson City, California, a
division of Shin Hung Co., Ltd., Osaka, Japan. From 1991 to 1994, he was the
National Sales Manager for Kenda Tire USA, Columbus, Ohio. From 1984 to 1991,
Mr. Brown was the Midwest Regional Manager for Greenball Corporation, Long
Beach, California, a distributor of products for Cheng Shin Rubber, Taipei,
Taiwan and from 1976 to 1984, Mr. Brown was the District Manager for Carlisle
Tire and Rubber, Carlisle, Pennsylvania.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
- -------------------------------------------------
The Company is not subject to the requirements of Section 16(a) of the
Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Company's last three completed
fiscal years to the Company's or its principal subsidiaries chief executive
officer and each of its other executive officers that received compensation in
excess of $100,000 during such period (as determined at June 30, 1997, the end
of the Company's last completed fiscal year):
<TABLE>
<CAPTION> Summary Compensation Table
Long Term
Compensation
- ----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options
LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs
Payout Compensation
- ------------------ ---- ------ -------- ------------ ------ -------
- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
Richard A. Steinke 1997 $70,000 -0- $20,000* -0- -0-
- -0- -0-
C.E.O. and Chairman 1996 -0- -0- -0- -0- -0-
- -0- -0-
1995 -0- -0- -0- -0- -0-
- -0- -0-
</TABLE>
* Effective May 1, 1997, Mr. Steinke declined to receive any further
compensation from the Company based on his employment agreement, therefore all
employment compensation due under Mr. Steinke's employment contract since May
1, 1997 has been accrued.PAGE
<PAGE> 16
Employment Agreements and Benefits
- ----------------------------------
The Company has entered into Employment Agreements with Richard A.
Steinke, its Chief Executive Officer. Beginning October 1, 1996, the
Employment Agreement called from Mr. Steinke to be employed for a term of 36
months, with monthly compensation of $10,000, subject to increase at the
discretion of the Board of Directors. The Company provides group health,
medical, and life insurance, similar to that which will be made available to
all full time employees and reimburses Mr. Steinke for out-of-pocket expenses
incurred in connection with the Company's business. In the event of
termination of Mr. Steinke's employment, for reasons other than cause, as
defined in the employment agreement, Mr. Steinke's monthly salary would
continue throughout the balance of the term of the employment agreement.
Effective May 1, 1997, Mr. Steinke declined to receive any further
compensation from the Company based on his employment agreement, therefore all
employment compensation due under Mr. Steinke's employment contract since May
1, 1997 has been accrued.
As a condition to employment, all the Company's managers and key
personnel are required to sign a nondisclosure and noncompetition agreement.
Under the terms of the nondisclosure and noncompetition agreement, employees
will not be able to provide services or information deemed confidential by the
Company to any other company or person which directly or indirectly competes
with the Company in the tire industry or an industry which at the time of the
employees' employment, the Company intended to enter. There is no time
limitation on the nondisclosure aspect of the agreement. The noncompetition
clause is for a period of two years and prevents a former employee or
consultant of the Company from acting as an employee, consultant or in any
other capacity for a competitor of the Company. Additionally, all employees
will be required, as a condition of their employment, to enter into a
nondisclosure agreement related to any information or process deemed
confidential by the Company.
Pension Table
- -------------
None.
Other Compensation
- ------------------
None.
Compensation of Directors
- -------------------------
None.
PAGE
<PAGE> 17
Termination of Employment and Change of Control Arrangement
- -----------------------------------------------------------
Unless otherwise disclosed below, there are no compensatory plans or
arrangements, including payments to be received from the Company, with respect
to any person named in Cash Compensation set out above which would in any
way result in payments to any such person because of his resignation,
retirement, or other termination of such person's employment with the Company
or its subsidiaries, or any change in control of the Company, or a change in
the person's responsibilities following a changing in control of the Company.
On August 19, 1997, the Company entered into an agreement with a
principal shareholder and former officer and director, Dennis S. Chrobak
("Chrobak"), to resolve all disputes between them relating to Chrobak's
employment and ownership interest in the Registrant. In connection therewith
the Registrant has agreed to pay Chrobak:
1. $80,000, the amount of Chrobak's accrued salary under his employment
agreement, which amount represents the aggregate amount of Chrobak's monthly
employment compensation for the period from October 1996 through May 1997;
2. $30,000, towards the recission and cancellation of an October 1996
transaction between the Company and Chrobak, wherein the Company had issued to
Chrobak 15,000 shares of its common stock in exchange for cancellation of a
promissory note from the Company to Mr. Chrobak in the principal amount of
$30,000; and
3. $200,000, towards the purchase and cancellation of 1,255,000 shares
of the Company's common stock beneficially owned by Chrobak (the "Chrobak
Shares"). The Chrobak Shares had been issued to Chrobak in February 1995 in
connection with the organization of the Company. The Company has agreed pay
Chrobak $10,000 per month for 20 consecutive months beginning September 1,
1997.
On August 19, 1997, the Registrant had 4,567,248 shares of its common
stock issued and outstanding. After giving effect to the cancellation of the
1,270,000 shares of common stock pursuant to the above transaction, the
Company will have 3,297,248 shares of common stock outstanding.
PAGE
<PAGE> 18
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of November 13, 19976, the name and the
number of shares of the Company's Common Stock, par value $0.001 per share,
held of record or beneficially by each person who held of record, or was known
by the Company to own beneficially, more than 5% of the 3,297,248 issued and
outstanding shares of the Company's Common Stock, and the name and
shareholdings of each director and of all officers and directors as a group.
Security Ownership of Certain Beneficial Owners
Title
of Name and Address Amount and Nature of Percentage
Class Beneficial Owner Beneficial Ownership(1) of Class
- ----- ---------------- -------------------- ----------
Common Gemini Funding Services D 455,000 13.8
Profit Sharing Plan
1643 Nevada Highway
Boulder City, NV 89005
Common S102 Irrevocable Trust D 800,000 24.3
1643 Nevada Highway
Boulder City, NV 89005
Common Coronel Investments Limited D 242,000 7.3
Thane House, Hilmarton
Wiltshire, England SN11 8SB
SECURITY OWNERSHIP OF MANAGEMENT OF THE COMPANY
Title
of Name and Position of Amount and Nature of Percentage
Class Officer and/or Director Beneficial Ownership(1) of Class
- ----- ----------------------- -------------------- ----------
Common Roger A. Fleming, President D 60,000 1.8
and Director
Common Richard A. Steinke, C.E.O. I (2) 455,000 13.8
and Director (3) 800,000 24.3
Common Ping Zhang, V.P. and Director D 2,000 .1
Common Hugh Sims-Hilditch, V.P. and I (4) 242,000 7.3
Director
Common Louis M. Haynie, Director D 30,000 .9
I (5) 2,000 .1
Common David K. Griffiths, Treasurer D 20,000 .6
Common Marcy L. Janus, Secretary D - -
All Officers and Directors
as a Group (7 person) D 112,000 3.4
I 1,499,000 45.5
--------- ----
Total Beneficial Ownership 1,611,000 48.9
========= ====
[Footnotes continue on next page]
<PAGE> 19
(1) Indirect and Direct ownership are referenced by an "I" or "D",
respectively. All shares owned directly are owned beneficially and of record
and such shareholder has sole voting, investment, and dispositive power,
unless otherwise noted.
(2) Represent shares owned beneficially and of record by Gemini Funding
Services Profit Sharing Account, of which Richard A. Steinke is the principal
beneficiary.
(3) Represent shares owned beneficially and of record by S102 Irrevocable
Trust, for which Richard A. Steinke is the trustee.
(4) Represent shares owned beneficially and of record by Coronel Investments
Limited, a Jersey corporation, of which Hugh Sims-Hilditch is the principal
owner.
(5) Represent shares owned beneficially and of record by Gae Haynie, spouse of
Louis M. Haynie, and which Mr. Haynie may be deemed to have beneficial
ownership of such shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DSS License Agreement
On August 19, 1997, the Company entered into a revised agreement amending
the terms of the June 5, 1995, DSS License Agreement with AMS, a Nevada
corporation controlled by Dennis S. Chrobak and Richard A. Steinke, affiliates
of the Company. The DSS License Agreement was amended to provide that the
license be directly between the Company and Mr. Chrobak and Mr. Steinke. The
DSS License Agreement grants the Company an exclusive to use, sell, license,
or otherwise exploit the DSS Technology worldwide in exchange for a royalty.
The revision of the DSS License Agreement provides for the royalty to be
reduced from $1.00 to $0.50 for each unit of production produced and sold by
the Company. All royalties payable under the DSS License Agreement will be
paid to Mr. Chrobak. Mr. Steinke will not receive a royalty under the
agreement so long as he is affiliated with the Company. Due to the
relationship of Mr. Steinke and Mr. Chrobak with the Company, the DSS License
Agreement and the revisions thereto cannot be considered to have been
negotiated at arm's length.
Airless Tire License Agreement
On August 19, 1997, the Company entered into a revised agreement amending
the terms of the October 27, 1995, Airless Tire License Agreement with AMS.
The Airless Tire License Agreement was amended to provide that the license be
directly between the Company and Mr. Chrobak and Mr. Steinke. The Airless
Tire License Agreements grants the Company an exclusive license to use, sell,
license, or otherwise exploit the technology worldwide in exchange for a
royalty. The revision of the Airless Tire Technology Agreement provides for
the royalty to be reduced from $0.25 to $0.125 for each bicycle tire produced
and sold by the Company utilizing the technology. All royalties payable under
the Airless Tire Technology Agreement will be paid to Mr. Chrobak. Mr.
Steinke will not receive a royalty under the agreement so long as he is
affiliated with the Company. Due to the relationship of Mr. Steinke and Mr.
Chrobak with the Company, the Airless Tire License Agreement cannot be
considered to have been negotiated at arm's length.
PAGE
<PAGE> 20
Stock Subscriptions Receivables
In April 1995, the Company entered into subscription agreements with Gary
Dalton, Philip Chrobak, and David Griffiths, three of its Officers, to acquire
an aggregate of 170,000 shares of its Common Stock at a purchase price of
$1.00 per share, in exchange for promissory notes bearing interest at 8% per
annum, payable in 36 months. The promissory notes were subsequently amended
to become due six months from the close of the Company's initial public
offering.
During the fiscal year ended June 30, 1997, additional services were
provided valued at $40,000, which were offset against the amounts owed under
the promissory notes. At June 30, 1997, $50,000 was owed under the promissory
notes, including $5,000 of accrued interest,
Number of Consideration Relationship
Name of Shareholder Shares Issued to be Paid to the Company
- ------------------- ------------- ------------- --------------
Gary Dalton (1) 100,000 $100,000 Officer/Director
Philip J. Chrobak (2) 50,000 50,000 Officer
David Griffiths (3) 20,000 20,000 Officer
------- --------
Totals 170,000 $170,000
======= ========
(1) As of June 30, 1997, Mr. Dalton had paid full consideration for his
shares which amounts were applied against the principal and interest to be
paid under the promissory note.
(2) As of June 30, 1997, Mr. Chrobak had provided services to the Company
valued at $5,000, which amount has been applied against the principal and
interest to be paid under the promissory note. Subsequent to June 30, 1997,
the full consideration for the shares was paid in full.
(3) At June 30, 1996, the value of the accounting services provided by Mr.
Griffiths exceeded the amount required for payment in full of the promissory
note and were applied against principal and interest so that the full
consideration for the shares has been paid.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1)FINANCIAL STATEMENTS. The following financial statements are included
in this report:
Title of Document Page
- ----------------- ----
Independent Auditors' Report of Jones, Jensen & Company 22
Independent Auditors' Report of Saltz, Shamis & Goldfarb, Inc. 23
Consolidated Balance Sheet as of June 30, 1997 24
Consolidated Statements of Operations for the years ended June 30, 1997
and 1996 and from inception on January 30, 1995 through June 30, 1997 26
Consolidated Statements of Stockholders' Equity 27
Consolidated Statements of Cash Flows for the years ended June 30, 1997
and 1996 and from inception on January 30, 1995 through June 30, 1997 29
Notes to Consolidated Financial Statements 31
(a)(2)FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules are included as part of this report: None.
<PAGE> 21
(a)(3)EXHIBITS. The following exhibits are included as part of this report:
SEC
Exhibit Reference
Number Number Title of Document Location
- ------- --------- ----------------- ------------
1 10 Revised DSS Technology License Agreement This Filing
2 10 Revised Airless Tire Technology
License Agreement This Filing
27 27 Financial Data Schedule This Filing
(b) Reports on Form 8-K.
During the quarter ended June 30, 1996, the Company filing the following
reports on Form 8-K filed with the Commission:
Date of Report Items Covered By Report
- -------------- -----------------------
6/13/97 Item 4, Change in Registrant's Certifying Accountant
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
AMERICAN TIRE CORPORATION
Date: November 14, 1997 By /S/Richard A. Steinke, C.E.O. and
Director (Principal Executive Officer)
Date: November 14, 1997 By /S/Roger A. Fleming, President and
Director
Date: November 14, 1997 By /S/Louis M. Haynie, Director
Date: November 14, 1997 By /S/David K. Griffiths, Treasurer
(Principal Accounting Officer)
Date: November 14, 1997 By /S/Ping Zhang, Director
Date: November 14, 1997 By/S/Hugh Sims-Hilditch, Director
PAGE
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
Board of Directors
American Tire Corporation and Subsidiary
(A Development Stage Company)
Boulder City, Nevada
We have audited the accompanying consolidated balance sheet of American Tire
Corporation and Subsidiary (A Development Stage Company) as of June 30, 1997
and the related consolidated statements of operations, stockholders' equity
and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. We did not audit the financial statements of
UTI Chemicals (Europe) Limited, a wholly-owned subsidiary, which statements
reflect total assets of $384,184 as of June 30, 1997 and total revenues of
$55,012 for the four months then ended. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for UTI Chemicals (Europe) Limited, is based
solely on the report of the other auditors.
We have conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit and the report of other auditors provide a reasonable basis for
our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of American Tire
Corporation and Subsidiary (A Development Stage Company) as of June 30, 1997,
and the results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As described in Note 7 to the
consolidated financial statements, the Company has incurred significant losses
which have resulted in an accumulated deficit, raising substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 7. The consolidated financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/S/ Jones, Jensen & Company
November 8, 1997
PAGE
<PAGE> 23
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
American Tire Corporation
We have audited the statements of operations, shareholders' equity, and cash
flows of American Tire Corporation for the year ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of its operations and its cash flows of
American Tire Corporation for the year ended June 30, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the company
will continue as a going concern. As described in Note 7 to the financial
statements, the Company's ability to bring its product to market are dependent
on its successful obtainment of capital to fund its activities.
In the event the Company is unsuccessful in obtaining sufficient capital,
there is substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/S/ SALTZ, SHAMIS & GOLDFARB, INC.
Akron, Ohio
October 9, 1996
PAGE
<PAGE> 24
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
ASSETS
------
June 30,
1997
------------
CURRENT ASSETS
Cash and cash equivalents $ 501,449
Accounts receivable 73,922
Accounts receivable - related party (Note 3) 2,237
Inventory (Note 1) 303,704
Prepaid expenses 91,320
------------
Total Current Assets 972,632
------------
PROPERTY AND EQUIPMENT (Note 1)
Land 59,000
Building and improvements 278,501
Equipment and vehicles 660,793
Furniture and fixtures 32,808
Less - accumulated depreciation (150,627)
------------
Total Property and Equipment 880,475
------------
OTHER ASSETS
Patents (Note 1) 24,822
Deposits 4,414
Goodwill (Note 1) 1,694,111
------------
Total Other Assets 1,723,347
------------
TOTAL ASSETS $ 3,576,454
============
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 25
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
June 30,
1997
------------
CURRENT LIABILITIES
Accounts payable $ 69,077
Accounts payable - related parties (Note 3) 150,000
Accrued expenses 16,032
Line of credit (Note 6) 55,380
------------
Total Current Liabilities 290,489
------------
TOTAL LIABILITIES 290,489
------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY
Preferred stock: 5,000,000 shares authorized
of $0.001 par value, 0 shares issued and outstanding -
Common stock: 25,000,000 shares authorized
Of $0.001 par value, 4,561,748 shares issued
and outstanding 4,562
Additional paid-in capital 5,582,811
Stock subscription receivable (Note 2) (50,000)
Currency translation adjustment 2,984
Deficit accumulated during the development stage (2,254,392)
------------
Total Stockholders' Equity 3,285,965
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,576,454
============
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 26
<TABLE>
<CAPTION> AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
From
Inception on
January 30,
For the Years Ended 1995 Through
June
30, June 30,
1997
1996 1997
- ------------ ------------ ------------
<S> <C>
<C> <C>
NET SALES $ 69,518 $
- - $ 69,518
------------
- ------------ ------------
COST OF SALES 47,882
- - 47,882
------------
- ------------ ------------
EXPENSES
Consulting 292,414
43,261 484,792
Payroll and payroll taxes 521,773
222,757 774,347
Depreciation and amortization 189,563
37,994 228,862
Bad debt expense 21,112
- - 21,112
Selling, general and administrative 457,439
246,418 772,758
------------
- ------------ ------------
Total Expenses 1,482,301
550,430 2,281,871
------------
- ------------ ------------
INCOME (LOSS) BEFORE OTHER INCOME EXPENSES (1,460,665)
(550,430) (2,260,235)
------------
- ------------ ------------
OTHER INCOME (EXPENSES)
Other income 56,096
- - 56,096
Interest income 17,649
8,161 29,421
Interest expense (19,090)
(53,821) (76,012)
Loss on disposition of assets (3,662)
- - (3,662)
------------
- ------------ ------------
50,993
(45,660) 5,843
------------
- ------------ ------------
NET (LOSS) $ (1,409,672) $
(596,090) $ (2,254,392)
============
============ ============
NET (LOSS) PER SHARE $ (0.33) $
(0.16)
============
============
WEIGHTED AVERAGE SHARES OUTSTANDING 4,246,888
3,840,642
============
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 27
<TABLE>
<CAPTION> AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
Deficit
Accumulated
Additional Currency
Stock During the
Common Stock Paid-in Translation
Subscription Development
Shares Amount Capital Adjustment
Receivable Stage
---------- --------- --------- -----------
- ------------ -------------
<S> <C> <C> <C> <C>
<C> <C>
BALANCE, January 30, 1995
(Inception) - $ - $ - $ -
$ - $ -
Common stock issued for
cash during February
1995 at $0.001 per share 2,510,000 2,510 -
- - - -
Common stock issued for
services rendered in
February 1995 at $0.10
per share 300,000 300 29,700
- - - -
Common stock issued for
services rendered during
April 1995 at $1.00 per
share 100,000 100 99,900
- - - -
Common stock issued for
notes receivable valued
at $1.00 per share 170,000 170 169,830 -
(170,000) -
Repayment of stock
subscriptions receivable
with cash or services
rendered - - - -
76,100 -
Common stock issued for
cash at $1.00 per share 720,000 720 719,280
- - - -
Stock offering costs - - (78,271)
- - - -
Net loss for the period
ended June 30, 1995 - - -
- - - (248,630)
---------- --------- ---------- ----------
- ------------ ------------
Balance, June 30, 1995 3,800,000 3,800 940,439 -
(93,900) (248,630)
Common stock issued for
cash at $6.00 per share 40,642 41 243,811
- - - -
Stock offering costs - - (1,600)
- - - -
Repayment of stock
subscriptions receivable
by providing services - - -
- - 8,900 -
Net loss for the year
ended June 30, 1996 - - -
- - - (596,090)
---------- --------- ---------- -----------
- ------------ ------------
Balance, June 30, 1996 3,840,642 $ 3,841 $1,182,650 $ - $
(85,000) $ (844,720)
---------- --------- ---------- -----------
- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 28
<TABLE>
<CAPTION> AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
Deficit
Accumulated
Additional Currency
Stock During the
Common Stock Paid-in Translation
Subscription Development
Shares Amount Capital Adjustment
Receivable Stage
---------- --------- --------- -----------
- ------------ -------------
<S> <C> <C> <C> <C>
<C> <C>
Balance, June 30, 1996 3,840,642 $ 3,841 $1,182,650 $ - $
(85,000) $ (844,720)
Cancellation of common
stock (34,977) (35) (209,827)
- - - -
Common stock issued for
cash at $6.00 per share
pursuant to public
offering 344,083 344 2,064,154
- - - -
Stock offering costs - - (307,509)
- - - -
Common stock issued in lieu
of debt at $6.00 per share
during November 1996 27,000 27 161,973
- - - -
Common stock issued for
cash at $6.00 per share
during January 1997 155,000 155 929,845
- - - -
Common stock issued to
acquire UTI Chemicals
(Europe) Limited at $7.75
per share 200,000 200 1,549,800
- - - -
Common stock issued for
services rendered at
$6.125 per share during
February 1997 15,000 15 91,860
- - - -
Common stock issued for
services rendered at
$7.99 per share during
June 1997 15,000 15 119,865
- - - -
Repayment of stock
subscriptions receivable
by providing services - - - -
40,000 -
Interest accrual on stock
subscription receivable - - - -
(5,000) -
Currency translation
adjustment - - -
2,984 - -
Net loss for the year
ended June 30, 1997 - - -
- - - (1,409,672)
---------- --------- ---------- ----------
- ------------ ------------
Balance, June 30, 1997 4,561,748 $ 4,562 $5,582,811 $ 2,984 $
(50,000) $ (2,254,392)
========== ========= ========== ==========
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 29
<TABLE>
<CAPTION> AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
From
Inception on
January 30,
For the Years
Ended 1995 Through
June
30, June 30,
1997
1996
1997
- ------------ ------------ ------------
<S> <C>
<C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $ (1,409,672) $
(596,090) $ (2,254,392)
Adjustments to Reconcile Net (Loss) to
Net Cash (Used) by Operating Activities:
Depreciation and amortization 189,563
37,994 228,862
Loss on disposition of assets 3,662
- - 3,662
Common stock issued for services 211,755
- - 340,755
Services provided in lieu of cash payment
on subscriptions receivable 40,000
8,900 75,000
Common stock issued in lieu of debt 162,000
- - 162,000
Changes in Assets and Liabilities:
(Increase) decrease in accounts receivable (43,399)
(18,348) (66,166)
(Increase) decrease in inventory (172,419)
(131,285) (303,704)
(Increase) decrease in prepaid expenses (58,413)
(4,794) (91,320)
(Increase) decrease in other assets 192,921
107,455 93,693
Increase (decrease) in accounts payable and
accrued expenses (129,401)
72,443 (25,891)
------------
- ------------ ------------
Net Cash (Used) by Operating Activities (1,013,403)
(523,725) (1,837,501)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (469,392)
(140,505) (992,048)
Purchase of investments (400,000)
- - (400,000)
------------
- ------------ ------------
Net Cash (Used) in Investing Activities $ (869,392) $
(140,505) $ (1,392,048)
------------
- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 30
<TABLE>
<CAPTION> AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
From
Inception on
January 30,
For the Years
Ended 1995 Through
June
30, June 30,
1997
1996 1997
------------ ------------ ------------
<S> <C>
<C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable $ - $
463,000 $ 852,838
Payment made on notes payable (244,458)
(104,000) (536,458)
Common stock issued for cash 2,624,235
216,968 3,414,618
------------
- ------------ ------------
Net Cash Provided by Financing Activities 2,379,777
575,968 3,730,998
------------
- ------------ ------------
NET INCREASE (DECREASE) IN CASH 496,982
(88,262) 501,449
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 4,467
92,729 -
------------
- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 501,449 $
4,467 $ 501,449
============
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES
CASH PAID FOR:
Interest $ 19,090 $
26,654 $ 47,572
Income taxes $ - $
- - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for services rendered $ 211,755 $
- - $ 340,755
Common stock issued in lieu of debt $ 162,000 $
- - $ 162,000
Common stock issued for acquisition of subsidiary $ 1,550,000 $
- - $ 1,550,000
</TABLE>
In April 1995, the Company issued 170,000 shares of common stock at $1.00 per
share in exchange for notes receivable. During the period ended June 30,
1995, services were provided valued at $26,100, which were offset against the
notes receivable. During the years ended June 30, 1997 and 1996, an
additional $40,000 and $8,900, respectively, of services were provided, which
were offset against the notes receivable.
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 31
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
Notes to the Consolidated Financial Statements
June 30, 1997
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The consolidated financial statements include those of American Tire
Corporation (ATC) and its wholly-owned subsidiary, UTI Chemicals (Europe)
Limited (UTI). Collectively, they are referred to herein as "the Company".
ATC was incorporated under the laws of the State of Nevada on January 30,
1995. The Company organized to take advantage of existing proprietary and
non-
proprietary technology available for the manufacturing of specialty tires.
ATC has had limited operations since its organization and is a "development
stage" company. The Company intends to engage in the manufacturing,
marketing, distribution, and sale of airless specialty tires and tire-wheel
assemblies and currently is manufacturing airless tires in limited quantities
at its manufacturing facility located in Ravenna, Ohio.
On February 28, 1997, ATC purchased UTI for $1,950,000 by issuing 200,000
shares of its common stock plus $400,000 in cash in exchange for 100% of the
issued and outstanding stock of UTI. The purchase of UTI resulted in the
creation of goodwill of $1,694,111 at June 30, 1997.
UTI Chemicals (Europe) Limited (UTI) was incorporated under the laws of
England and Wales on October 8, 1990 for the purpose of promoting and
developing products within the chemical industry. Since 1990, UTI has been a
distributor of urethane bicycle, wheelchair and other specialty tires in the
United Kingdom and Europe. UTI distributes urethane tires under the
registered trade name "Urathon" in approximately 540 retail outlets in
England, Scotland and Wales. UTI also sells product in France, Denmark,
Austria, the Netherlands and Germany through independent distributors.
b. Accounting Method
The Company's consolidated financial statements are prepared using the accrual
method of accounting. The Company has elected a June 30 year end.
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with maturities
of three months or less at the time of acquisition.
d. Net (Loss) Per Share
The computations of net (loss) per share of common stock are based on the
weighted average number of shares outstanding.
PAGE
<PAGE> 32
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1997
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
e. Principles of Consolidation
The June 30, 1997 consolidated financial statements include those of American
Tire Corporation and its wholly-owned subsidiary, UTI Chemicals (Europe)
Limited. All significant intercompany accounts and transactions have been
eliminated.
For the Company's foreign subsidiary (UTI), the functional currency has been
determined to be the local currency. Accordingly, assets and liabilities are
translated at year-end exchange rates, and operating statement items are
translated at average exchange rates prevailing during the year. The
resultant cumulative translation adjustments to the assets and liabilities are
recorded as a separate component of stockholders' equity. Exchange
adjustments resulting from foreign currency transactions are included in the
determination of net income (loss). Such amounts are immaterial for all years
presented.
In accordance with Statement of Financial Accounting Standards No. 95
"Statement of Cash Flows," cash flows from the Company's foreign subsidiary
are calculated based upon the local currencies. As a result, amounts related
to assets and liabilities reported on the consolidated statements of cash
flows will not necessarily agree with changes in the corresponding balance
sheets.
f. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires managements to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
g. Provision for Taxes
As of June 30, 1997, the Company has net operating loss carry forwards of
approximately $2,250,000 which will expire in 2012. No tax benefit has been
reported in the consolidated financial statements because the potential tax
benefits of the loss carry forwards are offset by a valuation allowance of the
same amount.
h. Inventory
Inventory is stated at the lower of cost (computed on a first-in, first-out
basis) or market. The inventory consists of finished goods produced in the
Company's plant and products purchased for resale.
PAGE
<PAGE> 33
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1997
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
i. Property and Equipment
Property and equipment are stated at cost. Expenditures for small tools,
ordinary maintenance and repairs are charged to operations as incurred. Major
additions and improvements are capitalized. Depreciation is computed using
the straight-line method over estimated useful lives as follows:
Building and improvements 40 years
Equipment and vehicles 5 to 7 years
Furniture and fixtures 7 years
Depreciation expenses for the years ended June 30, 1997 and 1996 was $68,555
and $37,994, respectively.
j. Revenue Recognition
Revenue is recognized upon shipment of goods to the customer.
k. Concentrations of Risk
Foreign Currency Translation
- ----------------------------
Since UTI is a foreign company whose financial statements must be translated
into U.S. Dollars to conform with the requirements of the Securities and
Exchange Commission, major changes in the currency exchange rate between Pound
Sterling and U.S. Dollars may have a significant impact on operations of the
Company. Although the Company does not anticipate the currency exchange rate
to be significantly different over the 12 months, no such assurances can be
given.
Accounts Receivable
- -------------------
Credit losses, if any, have been provided for in the consolidated financial
statements and are based on managements' expectations. The Company's accounts
receivable are subject to potential concentrations of credit risk. The
Company does not believe that it is subject to any unusual, or significant
risks in the normal course of its business.
l. Goodwill
Goodwill consists of the excess of the purchase price of fair value of net
assets of the purchased subsidiary and is amortized on the straight-line
method over a 5 year period.
The Company periodically reviews goodwill for impairment by comparing undiscount
ed projected income over the remaining amortization period to the unamortized
balance of goodwill. No impairments have been recorded. Amortization expense
on the goodwill for the year ended June 30, 1997 was $121,008.
<PAGE> 34
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1997
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
m. Patents
Patents and related technology have been capitalized at June 30, 1997. The
patents are still pending, thus, no amortization of the costs has been
recorded for the year ended June 30,1997.
NOTE 2- STOCK SUBSCRIPTION RECEIVABLE
In April 1995, the Company entered into subscription agreements for three of
its officers to acquire an aggregate of 170,000 shares of common stock at a
purchase price of $1.00 per share, in exchange for promissory notes bearing
interest at 8% per annum, principal and interest payable in April, 1998. The
officers provided accounting and consulting services valued at $26,100 which
have been charged to operations during the period ended June 30, 1995, and
offset against the amount owed under the promissory notes. The promissory
notes were amended to become due no later than six months form the close of
the Company's initial public offering.
During the year ended June 30, 1996, an officer provided $8,900 of accounting
services, which was offset against the amounts owed under the promissory note,
and another officer paid $50,000 toward his note receivable. During the year
ended June 30, 1997, additional services were provided valued at $40,000 which
were offset against the amount owed under the promissory note. At June 30,
1997, $50,000 was owed under these notes including $5,000 of accrued interest,
which has been presented as a reduction of stockholders' equity.
NOTE 3- RELATED PARTY TRANSACTIONS
In August 1995, the Company entered into employment agreements with two of its
officers. These agreements are for 36 months at a monthly compensation of
$10,000 each. At June 30, 1997, $100,000 was owed to the two officers for
unpaid wages. In addition, $50,000 was due to another officer at June 30, 1997
for services rendered to the Company from February 1, 1997 to June 30, 1997.
In October 1995, the Company entered into a Technology License Agreement with
a related party providing for a royalty of $0.25 to be paid for each tire sold
by the Company utilizing the "airless tire technology" as defined by the
agreement.
As of June 30, 1997, $2,237 was owed to the Company by certain employees and
related entities.
NOTE 4- COMMITMENTS AND CONTINGENCIES
On January 31, 1997, the Company entered into a management agreement with a
corporation to manage the day-to-day operations of UTI, the Company's wholly-
owned subsidiary. The Company issued 15,000 shares of its common stock as
full consideration for the management services. The agreement expires on
January 31, 1998.
PAGE
<PAGE> 35
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1997
NOTE 4- COMMITMENTS AND CONTINGENCIES (Continued)
On June 5, 1995, the Company entered into a Technology License Agreement with
a related party. The agreement provides the Company the exclusive license to
use, sell and license the technology for manufacturing a wheel-tire assembly
known as the "Dynamic Steerable Spring." The agreement specified that a
royalty of either $1 per unit sold directly by the Company or eight percent of
any royalty the Company should receive from any third party licensee to be
paid quarterly. The agreement was superceded subsequent to June 30, 1997
(Note 9).
NOTE 5- STOCK TRANSACTIONS
Pursuant to a recission offer and agreement, the Company repurchased and
canceled 34,977 shares of its outstanding common stock at $6.00 per share
during the year ended June 30, 1997.
During the year ended June 30, 1997, the Company completed a public offering
of 344,083 shares of common stock at $6.00 per share for total proceeds of
$2,064,498. The Company also completed a private placement during February
1997 of 155,000 shares at $6.00 per share for total proceeds of $930,000.
During the year ended June 30, 1997, the Company issued 27,000 shares of
common stock valued at $162,000 in lieu of outstanding debt. The Company also
issued 15,000 shares of common stock valued at $119,880 pursuant to a
management agreement (Note 4) and 15,000 shares for services rendered valued
at $91,875 (Note 8).
NOTE 6 - LINE OF CREDIT
The Company has a line of credit with a bank with a maximum of $41,605. The
loan is secured and accrues interest at a variable rate of approximately 12%
per annum. The balance outstanding on the line of credit at June 30, 1997 was
$55,380.
NOTE 7- GOING CONCERN
The Company's consolidated financial statements are prepared using
generally accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. The Company has historically incurred significant
losses which have resulted in an accumulated deficit of $2,254,392 at June 30,
1997 which raises substantial doubt about the Company's ability to continue as
a going concern. The accompanying consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result from the outcome of this uncertainty. It is the intent of
management to create additional selling avenues through the development and
sales of its patented tires and to rely upon additional equity financing if
required to sustain operations.
PAGE
<PAGE> 36
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1997
NOTE 8- STOCK OPTIONS OUTSTANDING
The Company's Board of Directors has authorized a Non-Qualified Stock
Option Plan that allows for the Company to issue options to purchase up to
35,000 shares of the Company's common stock that may be issued to consultants
or others that provide professional services to the Company. The stock
options have been valued at fair market value according to FAS 123,
"Accounting for Stock-Based Compensation.") Stock option activity for the year
ended June 30, 1997 consisted of the following:
Number of Weighted Average
Shares Price per Share
--------- ----------------
Outstanding at June 30, 1996 - $ -
Granted during the year 35,000 3.80
Exercised during the year (15,000) (1.73)
--------- ------
Outstanding at June 30, 1997 20,000 $ 2.07
========= ======
The 20,000 stock options outstanding at June 30, 1997 are summarized as
follows:
Date Number of Exercise Expiration
Issued Options Price Date
- ------ --------- -------- ----------
May 31, 1997 14,500 $2.00 May 31, 1999
June 9, 1997 5,500 $2.25 June 9, 1999
NOTE 9- SUBSEQUENT EVENTS
Subsequent to June 30,1997, the following events occurred.
1. The Company entered into an Agreement of Settlement and Mutual
Release on August 19, 1997 with two former officers and an other employee of
the Company. As part of the settlement agreements, the Company has agreed to
pay a total of $360,000 for accrued wages and the purchase and cancellation of
1,270,000 shares of the Company's outstanding common stock. $160,000 was paid
on the date of the agreement and the remaining $200,000 is to be paid in
twenty equal consecutive monthly payments.
2. On August 19, 1997, in connection with the Agreement of Settlement
and Mutual Release, the Company entered into a new Technology License
Agreement relating to the "Dynamic Steerable Spring" with a former officer of
the Company to replace the original agreement (Note 4). The terms of the
Agreement were amended to reduce the royalty payment from $1.00 per unit sold
to $0.50 per unit sold. In addition, the Technology License Agreement
relating to the "non-pneumatic tire technology" was amended to reduce the
royalty payment from $0.25 per unit sold to $0.125 per unit sold. All royalty
payments are to be paid quarterly.
PAGE
<PAGE> 37
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1997
3. The Company entered into a Development Agreement on September 30,
1997, whereby an unrelated company shall provide the tire technology relating
to shape and tread pattern and performance evaluation personnel and the
Company shall provide the Urethane technology and personnel. If the result of
the testing is positive and the parties hereto are interested in the joint
commercialization of urethane tires, then the parties shall enter into a
separate agreement covering said commercialization.
NOTE 9 - SUBSEQUENT EVENTS (Continued)
4. 5,500 common stock options were exercised on August 1, 1997 at $2.25
per share.
5. The stock subscription receivable of $50,000 was received by the
Company during August 1997.
<PAGE> 1
Exhibit 1
TECHNOLOGY LICENSE AGREEMENT
THIS TECHNOLOGY LICENSE AGREEMENT (this "Agreement") is made and entered
into this 19th day of August, 1997, by and between DENNIS S. CHROBAK., an
individual ("Licensor"), and AMERICAN TIRE CORPORATION, a Nevada corporation
("Licensee"), on the following:
It is expressly and mutually warranted and agreed that Dennis S. Chrobak
(hereinafter "Chrobak") is the inventor of a method for manufacturing a
combined wheel-tire assembly otherwise known as the "Dynamic Steerable Spring"
(the "Technology" as defined in section 2(f) below), and is the direct
beneficiary to this Agreement in its totality and to all material provisions
hereof with full legal rights to protect and enforce any expressed or implied
rights or interests herein.
It is expressly and mutually warranted and agreed that this Agreement
supercedes that prior Technology License Agreement entered into the 5th day of
June, 1995, between AMERICAN MOBILITY SYSTEMS, INC., a Nevada corporation, of
which Chrobak was a third-party beneficiary.
Premises
A. Licensor is the owner of certain technology, proprietary data, and
know-how relating, in general, to a certain new and useful invention relating
to a method for manufacturing a combined wheel-tire assembly otherwise known
as the "Dynamic Steerable Spring"for which an application for United States
Letters Patent has been filed.
B. Licensee desires to utilize such technology on the terms and
conditions set forth in this Agreement.
Agreement
NOW, THEREFORE, based on the foregoing premises and for and in
consideration of the covenants and agreements hereinafter set forth and the
mutual benefits to the parties to be derived therefrom, it is hereby agreed as
follows:
1. Incorporation of Premises. The foregoing premises are incorporated
herein by this reference.
2. Certain Definitions. The following defined terms have the stated
meaning as used herein:
(a) Confidential Information. "Confidential Information" as used herein
shall mean information in the possession of a party which is held and treated
by such party as proprietary or trade secret information and not disclosed to
the trade or public by such party. Confidential Information shall not include
information (i) which is known to the receiving party at the time of
disclosure by the disclosing party, (ii) which after disclosure by the
disclosing party to the receiving party is received by the receiving party
from another who, with respect to the disclosing party, has the right to
disclose such information, or (iii) which is available to the public or
subsequently becomes available to the public through no breach of obligations
of confidence and trust by the receiving party to the disclosing party.
PAGE
<PAGE> 2
(b) Improvements. The term "Improvements" means any material,
composition, organism, process, data, or information which is developed from,
utilizing, or based upon the Technology, which modifies, enhances, or improves
any Product(s) or Process(es), as hereinafter defined, which is part of the
Technology.
(c) Patent Rights. The term "Patent Rights" shall mean all United
States patents and foreign patents and applications for patent, including
continuing and divisional and other patent applications derived therefrom, in
this or any country in the world which have been filed or granted or which
may be filed or granted which describe and claim or are based upon all or part
of the Technology, including such Improvements as become subject to this
Agreement, including, but not limited to, any and all patents granted on or
respecting the application for United States Letters Patent, Serial No.
08/398,422, titled "Dynamic Steerable Spring and Method for its Manufacture"
filed with the United States Office of Patents and Trademarks, respecting an
invention by Dennis S. Chrobak for the Technology (the "Patent Application").
(d) Process(es). The term "Process(es)" shall mean any formulation(s),
composition(s), or combination(s) of compositions based upon or manufactured
or used in accordance with the Technology.
(f) Technology. The term "Technology" shall mean all scientific and
technical data and all information and know-how related to the inventions and
developments relating to a method to manufacture a wheel-tire assembly
otherwise known as the "Dynamic Steerable Spring," including, but not limited
to, all information and know-how relating to the Patent Application, whether
or not any such inventions or developments are patentable, including, but not
limited to, the formulas, methods, processes, procedures, experimental data,
disclosures, reports, findings, ideas, and trade secrets. Technology includes
all Improvements, Patent Rights, Products, Processes, and Confidential
Information as described herein.
3. License. Licensor hereby grants, and Licensee hereby accepts, an
exclusive license to use, sell, license, or otherwise exploit the Technology,
and any and all Improvements, Processes, Products, and Confidential
Information related thereto, in the World-wide territory and on the conditions
herein set forth, subject to the obligation of Licensee to pay a Royalty as
provided below, including specifically, but without limitation, the right to
sublicense others under the rights granted hereunder, to likewise sue, sell,
sublicense, or otherwise exploit the Technology and any and all Improvements,
Processes, Products, and Confidential Information related thereto and to
disclose Confidential Information to sublicensees to the extent sublicenses
requires to effectively enjoy the rights of such sublicenses.
4. Territory of Licensee. As used herein, the term "World-wide
Territory" of the Licensee shall refer to all territories, countries,
principalities, and kingdoms collectively referred to as the "Earth."
5. Marketing by Licensee. Licensee shall devote its time and best
efforts to market, promote, and exploit the Technology in a effort to foster
its commercialization and use.
6. Term. Unless earlier terminated by the mutual agreement of the
parties or pursuant to another provision of this Agreement, this Agreement
shall continue in full force and effect and shall have a term expiring on the
last date of expiration of any patent included in the Patent Rights. If
however, the Licensee fails to market, promote, and otherwise exploit the
<PAGE> 3
Technology so that Licensor has not received any royalty payment as provided
under paragraph 9 of this Agreement within 24 months of the date hereof, this
Agreement shall automatically terminate, without further notice from Licensor
to the Licensee.
7. Additional Technology. It is anticipated that Licensor may from time
to time develop additional technology. In the event Licensor desires to
market, distribute, or otherwise exploit any additional technology relating to
the manufacture of a wheel-tire assembly that is not included within the above
defined Technology (the "Additional Technology") in the World-wide Territory
of Licensee, Licensor shall provide Licensee with a written notice (the
"Initial Notice") setting forth full details concerning the Additional
Technology, and Licensee shall have the exclusive right and option to have the
Additional Technology made subject to this Agreement at any time during a
period of 90 days following the date such Initial Notice is given. Licensee
can exercise such option by delivery of a notice of its intent to do so within
the option period. If Licensee does not exercise its option within the
prescribed period, Licensor shall be entitled to enter into any agreement
respecting the Additional Technology within the World-wide Territory of
Licensee with any other entity. If Licensee is granted rights to Additional
Technology, such rights shall be subject to all the terms and provisions of
this Agreement and the Additional Technology shall be treated as Technology
under this Agreement.
8. Testing. Either party may from time to time undertake testing and
development in the World-wide Territory of the Technology or Additional
Technology, and either party undertaking such testing shall make the results
of such testing and development fully available to the other.
9. Royalty. During the term of this Agreement, Licensee shall pay to
Licensor a Royalty (the "Royalty") in the amount of fifty-cents ($0.50) for
each unit sold by Licensee (or its sublicensees'), which was produced
utilizing the Technology. Such Royalty shall be due and payable 45 days after
the close of each calendar quarter. Licensee shall provide to Licensor a
written statement of production, presented in sufficient detail to permit
verification of the Royalty due. Such written statement shall be certified as
accurate by an officer or authorized agent of Licensee. Licensee shall
maintain accurate books and records for the same which shall be made available
to Licensor, on reasonable notice, for inspection and audit by Licensor or its
representative. In the event that Licensor cause such books and records to be
audited and such audit establishes that Licensee did not pay Licensor the full
amount of Royalty actually due Licensor, Licensee shall pay Licensor the
additional amount owned within 30 days after demand. In addition, if such
audit establishes that Licensee has underpaid Licensor for Royalty owed by 5%
or more, Licensee shall reimburse Licensor for the full cost of such audit.
The amount of Royalty not paid Licensor when due shall bear interest at an
annual rate of interest equal to two percentage points above the prime rate
quoted for international money center banks in the Wall Street Journal on the
day the payment was due. As used herein "Units Sold" shall not include (a)
any Units returned (b) any Units utilized for testing purposes; and (c) any
Units used for promotional purposes. As used herein, "Royalty" shall be
applicable to any Unit sold for cash or cash equivalent.
10. Documentation and Technical Assistance. Licensor shall at its own
cost provide Licensee with available written technical information and
know-how in its possession, and shall stand ready, at the request and expense
of Licensee, to disclose know-how and technology known to Licensor respecting
the Technology and, at the request and expense of Licensee, and within
reasonable
<PAGE> 4
time and resource constraints, provide technical and scientific aid and
assistance to assist Licensee in the development of the Licensed Technology.
Licensor's charges to Licensee for such technical assistance shall not exceed
Licensor's cost of providing the same.
11. Documentation and Confirmation of Rights. Licensor shall, upon
request of and at the expense of Licensee, execute such documents and take
such actions as are necessary and proper to evidence the rights granted
hereunder to Licensee.
12. Authority and Reservation of Rights to Licensor
(a) Authority. Licensor represents and warrants to Licensee that it
owns the Technology free and clear of any and all liens, claims, encumbrances,
royalty interests, or other charges; that it has full legal power to grant the
rights to Licensee as set forth in this Agreement; that it has not made and
covenants that it will not make any commitment to others inconsistent with
such grant; that it is not aware of any third party (including without
limitation any university, research foundation, or institute) who holds from
or under Licensor directly or indirectly any rights to or under the Technology
which would preclude Licensor from granting to Licensee all rights purportedly
granted to Licensee hereunder.
(b) Reservation of Rights. Licensor reserves the right to use the
Technology in the course of its research, but shall not have the right to
exploit the same commercially or to license others to make, use, or sell the
same with the World-wide Territory of Licensee. Further provided that in the
event the territorial exclusivity or period of exclusivity of the license
granted hereunder is limited by applicable laws and regulations concerning
government rights pertaining to the subject matter hereof, or by the action,
laws, or regulations of any government, the license granted hereunder shall
not terminate, but shall remain exclusive to the extent permitted by such
government action and shall become nonexclusive to the extent necessary to
conform to applicable laws and regulations.
13. Patent Applications and Prosecution. Licensor shall, at its own
cost and expense, apply for and prosecute applications for United States and
foreign patents as the Licensee may from time in writing designate to
Licensor. Licensor shall control and direct the filing and prosecution of
such applications for patent and maintenance of such patents through a
registered patent lawyer of Licensor's choosing who shall (unless Licensor and
Licensee agree otherwise) be instructed to obtain the maximum available valid
patent protection. Licensor shall seek prompt examination of all such
applications for patent in all countries in which application for patent is
made, keep Licensee, or such patent attorney as Licensee may designate,
informed as to all activities respecting such applications for patents and
regularly provide copies of all documents and correspondence respecting such
applications for patent to Licensee, or its designee, and give full weight and
due consideration to information and requests from Licensee respecting such
patents and applications. Licensee shall have the right to authorize the
abandonment of such patents or applications, provided, however, that Licensor
shall have the right, but no obligation, to assume prosecution and/or
maintenance of the same. Licensor may, but shall not be required to, file,
prosecute, or maintain applications of patent and patents in countries in
which Licensee does not elect for filing. Licensor does not represent or
warrant (i) that any patent applications will issue into a patent, (ii) that
should a patent issue and be licensed hereunder that such patent will be
valid, or (iii) that the sale of the Technology will not infringe the patent
rights of third parties.
<PAGE> 5
14. Disclosure of Improvements. Licensor shall keep Licensee fully
informed as to Improvements made by Licensor and shall promptly comply with
the obligations of section 10 in providing technical assistance respecting the
same.
15. Litigation.
(a) Licensee shall have the first right to sue any infringer of any
patent licensed hereunder, at its own expense in the name of Licensor, if
necessary, and Licensor agrees to join in such suit at Licensee's expense and
to execute any necessary papers for such suit. If Licensee fails within a
reasonable time to sue such infringer, Licensor shall have the right to file
and maintain, at its own expense, such suits for infringement; however,
nothing in this Agreement shall obligate Licensor to assume any responsibility
or liability respecting any action or possible action for infringement.
(b) Any sum recovered in such suit or in settlement thereof shall be
used first to reimburse Licensee and Licensor, pro rata, for all direct
out-of-pocket costs and expenses of every kind and character, including
attorneys' fees, expert witness fees, court costs, and the like incurred in
the prosecution of any suit. For this purpose, cost and expenses paid from
Royalty withheld by Licensee pursuant to this section of this Agreement shall
be considered to have been incurred by Licensor pursuant to this paragraph of
this Agreement. If, after such reimbursement, any funds shall remain from
such recovery, such funds shall, at the option of Licensee, be divided with
Licensor, pro tanto in lieu of Royalty on infringing sales at one-half the
rates specified in section 9 of this Agreement.
(c) During any time Licensee is engaged in an infringement action
involving an allegation that any patents licensed hereunder are infringed,
Licensee shall be entitled to withhold up to one-half of all Royalty otherwise
payable to Licensor under section 9 of this Agreement as may be necessary to
offset expenses of such action. Upon termination of the litigation, any
balance of the withheld one-half remaining after payment of Licensee's
expenses shall be paid promptly to Licensor.
16. Defense of Licensed Rights. Licensor shall not be obligated to
defend or save harmless Licensee against any suit, damage, claim, or demand
based on actual or alleged infringement of any patent or trademark or any
unfair trade practice resulting from the use or exercise of the rights or
license granted hereunder; but shall cooperate fully with Licensee, at
Licensee's cost and expense, in the defense of any such suit, claim, or demand
and shall provide expert testimony at reasonable times and for reasonable
periods without cost, except that Licensee shall pay travel, lodging, and
related expenses actually incurred in providing such testimony.
17. Product Liability. Licensee and Licensor recognize that the
Technology is not developed to the point of practical application and that
safety and efficacy have not been established; accordingly, it shall be the
responsibility of Licensee to assure that environmentally and legally
acceptable standards respecting safety and efficacy are complied with
respecting the Technology, and Licensee shall hold, and require in all
sublicenses that sublicensees hold, Licensor harmless from all liability,
costs, and fees relating to any claim, demand, or suit and the defense thereof
arising from the use, sale, or license of the Technology. Licensor shall use
its best efforts to verify the accuracy of the information furnished to
Licensee, but Licensor shall not be liable for damages arising out of or
resulting from any information or substance(s) made available to Licensee
hereunder or the use or application thereof nor, shall Licensor be liable to
Licensee for consequential damages under any circumstances, other than breach
of its warranty that it has the full right to enter this Agreement.
<PAGE> 6
18. Default. Upon the occurrence and during the continuance of any one
or more of the events hereinafter enumerated, Licensor may forthwith or at any
time thereafter during the continuance of any such event, by notice in writing
to Licensee, terminate this Agreement, such events being as follows:
(a) Default in the payment of any Royalty or other amount due hereunder
when the same shall become due and payable, unless cured with 30 days after
the notice thereof by Licensor to Licensee;
(b) Default in the due observance or performance of any other covenant
or obligation contained in this Agreement, unless observed or performed with
30 days after notice thereof by Licensor to Licensee; provided, that if
compliance is not reasonably practicable within 30 days, default shall occur
upon failure within said 30 days to take steps that will produce compliance as
soon as is reasonably practicable;
(c) Licensee shall file a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization, or shall file an answer admitting
the jurisdiction of the court and any material allegations of any involuntary
petition filed pursuant to any act of Congress relating to bankruptcy or to
any act purporting to be amendatory thereof, or shall be adjudicated bankrupt,
or shall make an assignment for the benefit of creditors, or shall apply for
or consent to the appointment of any receiver or trustee for Licensee, or of
all or any substantial portion of its property; or Licensee shall make an
assignment to an agent authorized to liquidate any substantial part of its
assets; or
(d) An order shall be entered pursuant to any act of Congress relating
to bankruptcy or to any act purporting to be amendatory thereof approving an
involuntary petition seeking reorganization of Licensee, or an order of any
court shall be entered appointing any receiver or trustee of or for Licensee,
or any receiver or trustee of all or any substantial portion of the property
of Licensee, or a writ or warrant of attachment or any similar process shall
be issued by any court against all or any substantial portion of the property
of Licensee, and such order approving a petition seeking reorganization or
appointing a receiver or trustee is not vacated or stayed, or such writ,
warrant of attachment, or similar process is not released or bonded within 60
days after its first entry or levy.
19. Termination. In the event of termination of the license rights
granted hereunder for any reason(s) whatsoever, all options granted Licensee
hereunder shall also automatically terminate; and:
(a) All obligations of confidentiality shall remain in full force and
effect for the full term of this Agreement;
(b) Licensee shall return, deliver, and assign to Licensor all written
records containing know-how, notebooks, reports, data, applications for
approval, approvals and all writings, including magnetically recorded writings
or legible and readable copies thereof which relate to or describe the
manufacture, use, sale, or characteristics of the Technology which are in its
possession, custody, or control;
(c) Licensee shall not grant any third-party any right to the Technology
after termination of the license hereunder;
(d) All sublicenses granted hereunder shall inure to the benefit of
Licensor and Licensor shall become the licensor with respect to the same.
<PAGE> 7
Such sublicenses shall continue according to the terms thereof and Licensor
shall be entitled to all consideration and Royalty from the sublicensee
therein. Licensee shall make such assignment of such sublicenses and execute
all documents necessary and proper to substitute Licensor as the licensor
therein.
20. Patent Marking. Licensee agrees that it shall provide the necessary
legal patent marking required for the country for which the Technology covered
by Patent Rights are made or sold, provided that Licensor shall have advised
Licensee regarding the same.
21. Confidentiality. Each party agrees that any Confidential
Information disclosed to it by the other in writing and marked confidential
(or in the case of any oral disclosure, subsequently confirmed in writing and
marked confidential) shall be held in confidence for five years after
disclosure, notwithstanding any prior termination of this Agreement, and shall
not use the same other than as to the extent permitted under this Agreement.
22. Non-warranted Matters. Nothing contained in this Agreement shall be
construed as a warranty or representation by Licensor (i) as to the validity
or scope of Licensor's Patent Rights, (ii) as to whether any manufacture, use,
or sale hereunder will be free from infringement of any patents owned or
controlled by any third party, or (iii) as to efficiency or efficacy of the
Technology.
23. Notices. All notices, demands, requests, or other communications
required or authorized hereunder shall be deemed given sufficiently if in
writing and if personally delivered; if sent by facsimile transmission,
confirmed with a written copy thereof sent by overnight express delivery; if
sent by registered mail or certified mail, return receipt requested and
postage prepaid; or if sent by overnight express delivery:
If to Licensor, to: Dennis S. Chrobak
2914 Silver Lake Blvd.
Silver Lake, OH 44224
Fax: (216) 929-5305
If to Licensee, to: American Tire Corporation
Attn.: Richard A. Steinke, C.E.O.
1643 Nevada Highway
Boulder City, Nevada 89005
Fax: (702) 294-3873
or such other addresses and facsimile numbers as shall be furnished in writing
by any party in the manner for giving notices hereunder, and such notice,
demand, request, or other communication shall be deemed to have been given as
of the date so delivered or sent by facsimile transmission, three days after
the date so mailed, or one day after the date so sent by overnight delivery.
24. Attorneys' Fees. In the event that any party institutes any action
or suit to enforce this Agreement or secure relief from any default hereunder
or breach hereof, the breaching party or parties shall reimburse the
nonbreaching party or parties for all costs, including reasonable attorneys'
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.
PAGE
<PAGE> 8
25. Specific Performance. The parties acknowledge that the rights in
this Agreement are extraordinary and unique, and that remedies at law may be
inadequate to compensate the parties for the breach or threatened breach of
the terms and conditions of this Agreement. The parties consent to the
granting of equitable relief, including specific performance or injunction,
whether temporary, preliminary, or final, in favor of the other party without
proof of actual damages.
26. Third-Party Beneficiaries. Licensor and Licensee are intended
beneficiaries of this Agreement and the consummation of the transactions in
accordance with this Agreement. No director, officer, stockholder, employee,
agent, independent contractor, or any other person or entity shall be deemed
to be a third-party beneficiary of this Agreement.
27. Entire Agreement. This Agreement and the exhibits hereto represent
the entire agreement between the parties relating to the subject matter
hereof. All negotiations and all other previous agreements between the
parties, whether written or oral, have been merged into this Agreement, and
this Agreement and the documents delivered in connection with the consummation
hereof fully and completely express the agreement of the parties relating to
the subject matter hereof. There are no other courses of dealing,
understandings, agreements, representations, or warranties, written or oral,
except as set forth herein.
28. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which take
together shall be but a single instrument.
29. No Assignment. This Agreement cannot be assigned in whole or in
part by one of the parties without the prior written consent of all parties to
this Agreement.
30. Amendment or Waiver. Every right and remedy provided herein shall
be cumulative with every other right and remedy, whether conferred herein, at
law, or in equity, and such remedies may be enforced concurrently, and no
waiver by any party of the performance of any obligation by the other shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. This Agreement may be amended by a writing
signed by all parties hereto, with respect to any of the terms contained
herein, and any term or condition of this Agreement may be waived or the time
for performance thereof may be extended by a writing signed by all parties to
be charged therewith.
Dated as of the year and date first above written.
LICENSOR:
/S/Dennis S. Chrobak
LICENSEE:
AMERICAN TIRE CORPORATION,
a Nevada corporation
By/S/ Richard A. Steinke,
Its Duly Authorized Officer
<PAGE> 1
Exhibit 2
TECHNOLOGY LICENSE AGREEMENT
[For Non-Pneumatic Tire]
THIS TECHNOLOGY LICENSE AGREEMENT (this "Agreement") is entered into the
19th day of August, 1997, between DENNIS S. CHROBAK, an individual, and
RICHARD A. STEINKE, an individual (hereinafter "Licensors") and AMERICAN TIRE
CORPORATION, a Nevada corporation (hereinafter "Licensee").
It is expressly and mutually warranted and agreed that Dennis S. Chrobak
(hereinafter "Chrobak") and Richard A. Steinke (hereinafter "Steinke"),
individually and/or collectively are the inventors of an apparatus and method
for manufacturing an item from polyurethane foam (the "Technology" as defined
in section 2(f) below), and are the direct beneficiaries to this Agreement in
its totality and to all material provisions hereof with full legal rights to
protect and enforce any expressed or implied rights or interests herein.
It is expressly and mutually warranted and agreed that this Agreement
supercedes that prior Technology License Agreement entered into the 27th day
of October, 1995, between AMERICAN MOBILITY SYSTEMS, INC., a Nevada
corporation, of which Chrobak and Steinke were third-party beneficiaries.
Premises
A. Licensors are the owner of certain technology, proprietary data, and
know-how relating, in general, to a certain new and useful invention relating
to an apparatus and method for molding items formed from a resinous material
(i.e., polyurethane) known as "non-pneumatic tire technology," for which an
application for United States Letters Patent has been filed.
B. Licensee desires to utilize such technology on the terms and
conditions set forth in this Agreement.
Agreement
NOW, THEREFORE, based on the foregoing premises and for and in
consideration of the covenants and agreements hereinafter set forth and the
mutual benefits to the parties to be derived therefrom, it is hereby agreed as
follows:
1. Incorporation of Premises. The foregoing premises are incorporated
herein by this reference.
2. Certain Definitions. The following defined terms have the stated
meaning as used herein:
(a) Confidential Information. "Confidential Information" as used herein
shall mean information in the possession of a party which is held and treated
by such party as proprietary or trade secret information and not disclosed to
the trade or public by such party. Confidential Information shall not include
information (i) which is known to the receiving party at the time of
disclosure by the disclosing party, (ii) which after disclosure by the
disclosing party to the receiving party is received by the receiving party
from another who, with respect to the disclosing party, has the right to
disclose such information, or (iii) which is available to the public or
subsequently becomes available to the public through no breach of obligations
of confidence and trust by the receiving party to the disclosing party.
PAGE
<PAGE> 2
(b) Improvements. The term "Improvements" means any material,
composition, organism, process, data, or information which is developed from,
utilizing, or based upon the Technology, which modifies, enhances, or improves
any Product(s) or Process(es), as hereinafter defined, which is part of the
Technology.
(c) Patent Rights. The term "Patent Rights" shall mean all United
States patents and foreign patents and applications for patent, including
continuing and divisional and other patent applications derived therefrom, in
this or any country in the world which have been filed or granted or which
may be filed or granted which describe and claim or are based upon all or part
of the Technology, including such Improvements as become subject to this
Agreement, including, but not limited to, any and all patents granted on or
respecting the application for United States Letters Patent, Serial No.
08/562,838 "Apparatus and Method for Manufacturing an item from a Polyurethane
Foam" filed with the United States Office of Patents and Trademarks,
respecting an invention by Richard A. Steinke, Dennis S. Chrobak, and Vincent
Panaroni for the Technology (the "Patent Application").
(d) Process(es). The term "Process(es)" shall mean any formulation(s),
composition(s), or combination(s) of compositions based upon or manufactured
or used in accordance with the Technology.
(f) Technology. The term "Technology" shall mean all scientific and
technical data and all information and know-how related to the inventions and
developments relating to an apparatus and method for molding items formed
from a resinous material (i.e., polyurethane) known as "non-pneumatic tire
technology," including, but not limited to, all information and know-how
relating to the Patent Application, whether or not any such inventions or
developments are patentable, including, but not limited to, the formulas,
methods, processes, procedures, experimental data, disclosures, reports,
findings, ideas, and trade secrets. Technology includes all Improvements,
Patent Rights, Products, Processes, and Confidential Information as described
herein.
3. License. Licensor hereby grants, and Licensee hereby accepts, an
exclusive license to use, sell, license, or otherwise exploit the Technology,
and any and all Improvements, Processes, Products, and Confidential
Information related thereto, in the World-wide territory and on the conditions
herein set forth, subject to the obligation of Licensee to pay a Royalty as
provided below, including specifically, but without limitation, the right to
sublicense others under the rights granted hereunder, to likewise sue, sell,
sublicense, or otherwise exploit the Technology and any and all Improvements,
Processes, Products, and Confidential Information related thereto and to
disclose Confidential Information to sublicensees to the extent sublicenses
requires to effectively enjoy the rights of such sublicenses.
4. Territory of Licensee. As used herein, the term "World-wide
Territory" of the Licensee shall refer to all territories, countries,
principalities, and kingdoms collectively referred to as the "Earth."
5. Marketing by Licensee. Licensee shall devote its time and best
efforts to market, promote, and exploit the Technology in a effort to foster
its commercialization and use.
6. Term. Unless earlier terminated by the mutual agreement of the
parties or pursuant to another provision of this Agreement, this Agreement
shall continue in full force and effect and shall have a term expiring on the
<PAGE> 3
last date of expiration of any patent included in the Patent Rights. If
however, the Licensee fails to market, promote, and otherwise exploit the
Technology so that Chrobak has not received any royalty payment as provided
under paragraph 9 of this Agreement within 24 months of the date hereof, this
Agreement shall automatically terminate, without further notice from Licensor
to the Licensee.
7. Additional Technology. It is anticipated that Licensors may from
time to time develop additional technology. In the event Licensors desires to
market, distribute, or otherwise exploit any additional technology relating to
the manufacture of a non-pneumatic tire that is not included within the above
defined Technology (the "Additional Technology") in the World-wide Territory
of Licensee, Licensors shall provide Licensee with a written notice (the
"Initial Notice") setting forth full details concerning the Additional
Technology, and Licensee shall have the exclusive right and option to have the
Additional Technology made subject to this Agreement at any time during a
period of 90 days following the date such Initial Notice is given. Licensee
can exercise such option by delivery of a notice of its intent to do so within
the option period. If Licensee does not exercise its option within the
prescribed period, Licensor shall be entitled to enter into any agreement
respecting the Additional Technology within the World-wide Territory of
Licensee with any other entity. If Licensee is granted rights to Additional
Technology, such rights shall be subject to all the terms and provisions of
this Agreement and the Additional Technology shall be treated as Technology
under this Agreement.
8. Testing. Either party may from time to time undertake testing and
development in the World-wide Territory of the Technology or Additional
Technology, and either party undertaking such testing shall make the results
of such testing and development fully available to the other.
9. Royalty. During the term of this Agreement, Licensee shall pay to
Chrobak a Royalty (the "Royalty") in the amount of twelve and one-half cents
($0.125) for each unit sold by Licensee (or its sublicensees'), which was
produced utilizing the Technology. Such Royalty shall be due and payable 45
days after the close of each calendar quarter. Licensee shall provide to
Chrobak a written statement of production, presented in sufficient detail to
permit verification of the Royalty due. Such written statement shall be
certified as accurate by an officer or authorized agent of Licensee. Licensee
shall maintain accurate books and records for the same which shall be made
available to Licensors, on reasonable notice, for inspection and audit by
Licensor or its representative. In the event that Licensors cause such books
and records to be audited and such audit establishes that Licensee did not pay
Chrobak the full amount of Royalty actually due Chrobak, Licensee shall pay
Chrobak the additional amount owned within 30 days after demand. In addition,
if such audit establishes that Licensee has underpaid Licensor for Royalty
owed by 5% or more, Licensee shall reimburse Licensors for the full cost of
such audit. The amount of Royalty not paid Chrobak when due shall bear
interest at an annual rate of interest equal to two percentage points above
the prime rate quoted for international money center banks in the Wall Street
Journal on the day the payment was due. As used herein "Units Sold" shall not
include (a) any Units returned (b) any Units utilized for testing purposes;
and (c) any Units used for promotional purposes. As used herein, "Royalty"
shall be applicable to any Unit sold for cash or cash equivalent. Steinke
shall not receive a Royalty under this Agreement.
10. Documentation and Technical Assistance. Licensors shall at their
own cost provide Licensee with available written technical information and
<PAGE> 4
know-how in its possession, and shall stand ready, at the request and expense
of Licensee, to disclose know-how and technology known to Licensors respecting
the Technology and, at the request and expense of Licensee, and within
reasonable time and resource constraints, provide technical and scientific aid
and assistance to assist Licensee in the development of the Licensed
Technology. Licensors' charges to Licensee for such technical assistance
shall not exceed Licensors' cost of providing the same.
11. Documentation and Confirmation of Rights. Licensors shall, upon
request of and at the expense of Licensee, execute such documents and take
such actions as are necessary and proper to evidence the rights granted
hereunder to Licensee.
12. Authority and Reservation of Rights to Licensor
(a) Authority. Licensors represent and warrant to Licensee that they
owns the Technology free and clear of any and all liens, claims, encumbrances,
royalty interests, or other charges; that they has full legal power to grant
the rights to Licensee as set forth in this Agreement; that they have not made
and covenants that they will not make any commitment to others inconsistent
with such grant; that they are not aware of any third party (including without
limitation any university, research foundation, or institute) who holds from
or under Licensors directly or indirectly any rights to or under the
Technology which would preclude Licensors from granting to Licensee all rights
purportedly granted to Licensee hereunder.
(b) Reservation of Rights. Licensors reserve the right to use the
Technology in the course of its research, but shall not have the right to
exploit the same commercially or to license others to make, use, or sell the
same with the World-wide Territory of Licensee. Further provided that in the
event the territorial exclusivity or period of exclusivity of the license
granted hereunder is limited by applicable laws and regulations concerning
government rights pertaining to the subject matter hereof, or by the action,
laws, or regulations of any government, the license granted hereunder shall
not terminate, but shall remain exclusive to the extent permitted by such
government action and shall become nonexclusive to the extent necessary to
conform to applicable laws and regulations.
13. Patent Applications and Prosecution. Licensors shall, at their own
cost and expense, apply for and prosecute applications for United States and
foreign patents as the Licensee may from time in writing designate to
Licensors. Licensors shall control and direct the filing and prosecution of
such applications for patent and maintenance of such patents through a
registered patent lawyer of Licensor's choosing who shall (unless Licensors
and Licensee agree otherwise) be instructed to obtain the maximum available
valid patent protection. Licensors shall seek prompt examination of all such
applications for patent in all countries in which application for patent is
made, keep Licensee, or such patent attorney as Licensee may designate,
informed as to all activities respecting such applications for patents and
regularly provide copies of all documents and correspondence respecting such
applications for patent to Licensee, or its designee, and give full weight and
due consideration to information and requests from Licensee respecting such
patents and applications. Licensee shall have the right to authorize the
abandonment of such patents or applications, provided, however, that Licensors
shall have the right, but no obligation, to assume prosecution and/or
maintenance of the same. Licensors may, but shall not be required to, file,
prosecute, or maintain applications of patent and patents in countries in
which Licensee does not elect for filing. Licensors do not represent or
<PAGE> 5
warrant (i) that any patent applications will issue into a patent, (ii) that
should a patent issue and be licensed hereunder that such patent will be
valid, or (iii) that the sale of the Technology will not infringe the patent
rights of third parties.
14. Disclosure of Improvements. Licensors shall keep Licensee fully
informed as to Improvements made by Licensors and shall promptly comply with
the obligations of section 10 in providing technical assistance respecting the
same.
15. Litigation.
(a) Licensee shall have the first right to sue any infringer of any
patent licensed hereunder, at its own expense in the name of Licensors, if
necessary, and Licensors agree to join in such suit at Licensee's expense and
to execute any necessary papers for such suit. If Licensee fails within a
reasonable time to sue such infringer, Licensors shall have the right to file
and maintain, at their own expense, such suits for infringement; however,
nothing in this Agreement shall obligate Licensors to assume any
responsibility or liability respecting any action or possible action for
infringement.
(b) Any sum recovered in such suit or in settlement thereof shall be
used first to reimburse Licensee and Licensors, pro rata, for all direct
out-of-pocket costs and expenses of every kind and character, including
attorneys' fees, expert witness fees, court costs, and the like incurred in
the prosecution of any suit. For this purpose, cost and expenses paid from
Royalty withheld by Licensee pursuant to this section of this Agreement shall
be considered to have been incurred by Licensors pursuant to this paragraph of
this Agreement. If, after such reimbursement, any funds shall remain from
such recovery, such funds shall, at the option of Licensee, be divided with
Licensors, pro tanto in lieu of Royalty on infringing sales at one-half the
rates specified in section 9 of this Agreement.
(c) During any time Licensee is engaged in an infringement action
involving an allegation that any patents licensed hereunder are infringed,
Licensee shall be entitled to withhold up to one-half of all Royalty otherwise
payable to Chrobak under section 9 of this Agreement as may be necessary to
offset expenses of such action. Upon termination of the litigation, any
balance of the withheld one-half remaining after payment of Licensee's
expenses shall be paid promptly to Chrobak.
16. Defense of Licensed Rights. Licensors shall not be obligated to
defend or save harmless Licensee against any suit, damage, claim, or demand
based on actual or alleged infringement of any patent or trademark or any
unfair trade practice resulting from the use or exercise of the rights or
license granted hereunder; but shall cooperate fully with Licensee, at
Licensee's cost and expense, in the defense of any such suit, claim, or demand
and shall provide expert testimony at reasonable times and for reasonable
periods without cost, except that Licensee shall pay travel, lodging, and
related expenses actually incurred in providing such testimony.
17. Product Liability. Licensee and Licensors recognize that the
Technology is not developed to the point of practical application and that
safety and efficacy have not been established; accordingly, it shall be the
responsibility of Licensee to assure that environmentally and legally
acceptable standards respecting safety and efficacy are complied with
respecting the Technology, and Licensee shall hold, and require in all
<PAGE> 6
sublicenses that sublicensees hold, Licensor harmless from all liability,
costs, and fees relating to any claim, demand, or suit and the defense thereof
arising from the use, sale, or license of the Technology. Licensors shall use
their best efforts to verify the accuracy of the information furnished to
Licensee, but Licensors shall not be liable for damages arising out of or
resulting from any information or substance(s) made available to Licensee
hereunder or the use or application thereof nor, shall Licensor be liable to
Licensee for consequential damages under any circumstances, other than breach
of its warranty that it has the full right to enter this Agreement.
18. Default. Upon the occurrence and during the continuance of any one
or more of the events hereinafter enumerated, Licensors may forthwith or at
any time thereafter during the continuance of any such event, by notice in
writing to Licensee, terminate this Agreement, such events being as follows:
(a) Default in the payment of any Royalty or other amount due hereunder
when the same shall become due and payable, unless cured with 30 days after
the notice thereof by Chrobak to Licensee;
(b) Default in the due observance or performance of any other covenant
or obligation contained in this Agreement, unless observed or performed with
30 days after notice thereof by Licensors to Licensee; provided, that if
compliance is not reasonably practicable within 30 days, default shall occur
upon failure within said 30 days to take steps that will produce compliance as
soon as is reasonably practicable;
(c) Licensee shall file a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization, or shall file an answer admitting
the jurisdiction of the court and any material allegations of any involuntary
petition filed pursuant to any act of Congress relating to bankruptcy or to
any act purporting to be amendatory thereof, or shall be adjudicated bankrupt,
or shall make an assignment for the benefit of creditors, or shall apply for
or consent to the appointment of any receiver or trustee for Licensee, or of
all or any substantial portion of its property; or Licensee shall make an
assignment to an agent authorized to liquidate any substantial part of its
assets; or
(d) An order shall be entered pursuant to any act of Congress relating
to bankruptcy or to any act purporting to be amendatory thereof approving an
involuntary petition seeking reorganization of Licensee, or an order of any
court shall be entered appointing any receiver or trustee of or for Licensee,
or any receiver or trustee of all or any substantial portion of the property
of Licensee, or a writ or warrant of attachment or any similar process shall
be issued by any court against all or any substantial portion of the property
of Licensee, and such order approving a petition seeking reorganization or
appointing a receiver or trustee is not vacated or stayed, or such writ,
warrant of attachment, or similar process is not released or bonded within 60
days after its first entry or levy.
19. Termination. In the event of termination of the license rights
granted hereunder for any reason(s) whatsoever, all options granted Licensee
hereunder shall also automatically terminate; and:
(a) All obligations of confidentiality shall remain in full force and
effect for the full term of this Agreement;
(b) Licensee shall return, deliver, and assign to Licensors all written
records containing know-how, notebooks, reports, data, applications for
<PAGE> 7
approval, approvals and all writings, including magnetically recorded writings
or legible and readable copies thereof which relate to or describe the
manufacture, use, sale, or characteristics of the Technology which are in its
possession, custody, or control;
(c) Licensee shall not grant any third-party any right to the Technology
after termination of the license hereunder;
(d) All sublicenses granted hereunder shall inure to the benefit of
Licensors and Licensor shall become the licensor with respect to the same.
Such sublicenses shall continue according to the terms thereof and Licensors
shall be entitled to all consideration and Royalty from the sublicensee
therein. Licensee shall make such assignment of such sublicenses and execute
all documents necessary and proper to substitute Licensors as the licensors
therein.
20. Patent Marking. Licensee agrees that it shall provide the necessary
legal patent marking required for the country for which the Technology covered
by Patent Rights are made or sold, provided that Licensors shall have advised
Licensee regarding the same.
21. Confidentiality. Each party agrees that any Confidential
Information disclosed to it by the other in writing and marked confidential
(or in the case of any oral disclosure, subsequently confirmed in writing and
marked confidential) shall be held in confidence for five years after
disclosure, notwithstanding any prior termination of this Agreement, and shall
not use the same other than as to the extent permitted under this Agreement.
22. Non-warranted Matters. Nothing contained in this Agreement shall be
construed as a warranty or representation by Licensor (i) as to the validity
or scope of Licensors' Patent Rights, (ii) as to whether any manufacture, use,
or sale hereunder will be free from infringement of any patents owned or
controlled by any third party, or (iii) as to efficiency or efficacy of the
Technology.
23. Notices. All notices, demands, requests, or other communications
required or authorized hereunder shall be deemed given sufficiently if in
writing and if personally delivered; if sent by facsimile transmission,
confirmed with a written copy thereof sent by overnight express delivery; if
sent by registered mail or certified mail, return receipt requested and
postage prepaid; or if sent by overnight express delivery:
If to Licensor, to: Dennis S. Chrobak
2914 Silver Lake Blvd.
Silver Lake, OH 44224
Fax: (216) 929-5305
If to Licensee, to: American Tire Corporation
Attn.: Richard A. Steinke, C.E.O.
1643 Nevada Highway
Boulder City, NV 89005
Fax: (702) 294-3873
or such other addresses and facsimile numbers as shall be furnished in writing
by any party in the manner for giving notices hereunder, and such notice,
demand, request, or other communication shall be deemed to have been given as
of the date so delivered or sent by facsimile transmission, three days after
the date so mailed, or one day after the date so sent by overnight delivery.
<PAGE> 8
24. Attorneys' Fees. In the event that any party institutes any action
or suit to enforce this Agreement or secure relief from any default hereunder
or breach hereof, the breaching party or parties shall reimburse the
nonbreaching party or parties for all costs, including reasonable attorneys'
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.
25. Specific Performance. The parties acknowledge that the rights in
this Agreement are extraordinary and unique, and that remedies at law may be
inadequate to compensate the parties for the breach or threatened breach of
the terms and conditions of this Agreement. The parties consent to the
granting of equitable relief, including specific performance or injunction,
whether temporary, preliminary, or final, in favor of the other party without
proof of actual damages.
26. Third-Party Beneficiaries. Licensors and Licensee are intended
beneficiaries of this Agreement and the consummation of the transactions in
accordance with this Agreement. No director, officer, stockholder, employee,
agent, independent contractor, or any other person or entity shall be deemed
to be a third-party beneficiary of this Agreement.
27. Entire Agreement. This Agreement and the exhibits hereto represent
the entire agreement between the parties relating to the subject matter
hereof. All negotiations and all other previous agreements between the
parties, whether written or oral, have been merged into this Agreement, and
this Agreement and the documents delivered in connection with the consummation
hereof fully and completely express the agreement of the parties relating to
the subject matter hereof. There are no other courses of dealing,
understandings, agreements, representations, or warranties, written or oral,
except as set forth herein.
28. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which take
together shall be but a single instrument.
29. No Assignment. This Agreement cannot be assigned in whole or in
part by one of the parties without the prior written consent of all parties to
this Agreement.
30. Amendment or Waiver. Every right and remedy provided herein shall
be cumulative with every other right and remedy, whether conferred herein, at
law, or in equity, and such remedies may be enforced concurrently, and no
waiver by any party of the performance of any obligation by the other shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. This Agreement may be amended by a writing
signed by all parties hereto, with respect to any of the terms contained
herein, and any term or condition of this Agreement may be waived or the time
for performance thereof may be extended by a writing signed by all parties to
be charged therewith.
Dated as of the year and date first above written.
LICENSORS:
/S/Dennis S. Chrobak
/S/Richard A. Steinke
LICENSEE:
AMERICAN TIRE CORPORATION,
a Nevada corporation
By:/S/Richard A. Steinke
Its Duly Authorized Officer
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<CIK> 0000945828
<NAME> AMERICAN TIRE CORPORATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 501,449
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<RECEIVABLES> 73,922
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<INVENTORY> 303,704
<CURRENT-ASSETS> 972,632
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<TOTAL-ASSETS> 3,576,454
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0
0
<COMMON> 5,540,357
<OTHER-SE> (2,254,392)
<TOTAL-LIABILITY-AND-EQUITY> 3,576,454
<SALES> 69,518
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<CGS> 47,882
<TOTAL-COSTS> 1,482,301
<OTHER-EXPENSES> (3,662)
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (1,409,672)
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