<PAGE> 1
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
-------------
[ ] 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
----------
AMERICAN TIRE CORPORATION
- --------------------------
(Exact name of registrant as specified in charter)
Nevada 87-0535207
- ------------------------------ -------------------------
State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
1643 Nevada Highway, Boulder City, Nevada 89005
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (702) 293-1930
---------------
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
- ------------------ -----------------------------------------
Securities registered pursuant to section 12(g) of the Act:
None
---------------
(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
-------
<PAGE> 2
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> 3
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: January 14, 1998 By /S/Richard A. Steinke, C.E.O. and
Director (Principal Executive Officer)
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
BOULDER CITY, NEVADA
We have audited the accompanying consoldated 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> 5
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> 6
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> 7
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> 8
<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> 9
<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> 10
<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> 11
<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> 12
<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> 13
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> 14
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> 15
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> 15
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> 16
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> 17
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> 18
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.
