<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________.
Commission file number: 33-94318-C
-------------
AMERICAN TIRE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 87-0535207
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1643 Nevada Highway, Boulder City, Nevada 89005
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(702) 293-1930
---------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- ---------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes [X] No [ ] and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, was 3,337,248 shares of common stock, par value $0.001, as of December
31, 1997.
PAGE
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB pursuant to the rules and
regulations of the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a complete presentation of
the financial position, results of operations, cash flows, and stockholders'
equity in conformity with generally accepted accounting principles. In the
opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included and all such adjustments are of a normal recurring nature.
The unaudited balance sheet of the Company as of December 31, 1997; the
related audited balance sheet of the Company as of June 30, 1997; the
related unaudited statements of operations and cash flows for the three and
six month periods ended December 31, 1997 and 1996 and from January 30, 1995
(inception) through December 31, 1997; and the unaudited statement of
shareholders' equity for the period from January 30, 1995 (inception) through
December 31, 1997 are attached hereto and incorporated herein by this
reference
Operating results for the three and six month periods ended December 31,
1997 are not necessarily indicative of the results that can be expected for
the Company's fiscal year ending June 30, 1998.
PAGE
<PAGE> 3
FINANCIAL STATEMENTS
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
1997 JUNE 30,
(Unaudited) 1997
------------ ------------
Current Assets:
Cash and cash equivalents $ 186,437 $ 501,449
Accounts receivable 92,147 73,922
Accounts receivable - related party 99 2,237
Inventory 291,149 303,704
Prepaid expenses 154,642 91,320
---------- ----------
Total Current Assets 724,474 972,632
---------- ----------
Property and Equipment
Land 59,000 59,000
Building and improvements 301,197 278,501
Equipment and vehicles 747,579 660,793
Furniture and fixtures 33,236 32,808
Less: accumulated depreciation (219,183) (150,627)
---------- ----------
921,829 880,475
---------- ----------
Other Assets:
Patents 46,921 24,822
Deposits 854 4,414
Goodwill and technology 1,512,599 1,694,111
---------- ----------
Total Other Assets 1,560,374 1,723,347
---------- ----------
TOTAL ASSETS $3,206,677 $3,576,454
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 4
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31,
1997 JUNE 30,
(Unaudited) 1997
------------ ------------
Current Liabilities:
Accounts payable $ 293,319 $ 69,077
Accounts payable - related parties 81,332 150,000
Accrued expenses 1,858 16,032
Line of credit 107,335 55,380
Notes payable 400,000 -
---------- ----------
Total current liabilities 883,844 290,489
---------- ----------
TOTAL LIABILITIES 883,844 290,489
Stockholder Equity:
Preferred stock, par value $0.001,
5,000,000 shares authorized, 0 shares
issued and outstanding - -
Common stock, par value $0.001, 25,000,000
shares authorized, 3,337,248 and 4,561,748
shares issued and outstanding, respectively 3,337 4,562
Additional paid-in capital 5,529,661 5,582,811
Stock subscription receivable - (50,000)
Currency transactions adjustment 19,614 2,984
Deficit accumulated during the development stage (3,229,779) (2,254,392)
---------- ----------
Total stockholders' equity 2,322,833 3,285,965
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,206,677 $3,576,454
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 5
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
For the For the
Three Months Three Months
Ended Ended
December 31, December 31,
1997 1996
------------ ------------
NET SALES $ 115,101 $ -
COST OF SALES 76,863 -
------------ ------------
GROSS PROFIT 38,238 -
------------ ------------
EXPENSES
Consulting 29,970 -
Payroll and payroll taxes 189,295 43,814
Depreciation and amortization 131,201 12,623
Bad debt expense - -
Selling, general and administrative 161,731 188,311
------------ ------------
Total Expenses 512,197 244,748
------------ ------------
INCOME BEFORE OTHER INCOME (EXPENSES) (473,959) (244,748)
------------ ------------
OTHER INCOME (EXPENSES)
Other income - -
Interest income 774 5,763
Interest expense (51,908) (424)
Loss on disposition of assets (2,898) -
------------ ------------
TOTAL OTHER INCOME (EXPENSES) (54,032) 5,339
------------ ------------
NET LOSS $ (527,991) $ (239,409)
============ ============
NET LOSS PER SHARE $ (0.16) $ (0.05)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 3,323,081 4,176,748
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 6
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From
For the For the Inception on
Six Months Six Months January
30, Ended Ended 1995
Through
December 31, December 31, December 31,
1997 1996
1997 ------------ ------------
- ------------
NET SALES $ 221,159 $ - $ 290,677
COST OF SALES 162,202 - 210,084
------------ ------------ ------------
GROSS PROFIT 58,957 - 80,593
------------ ------------ ------------
EXPENSES
Consulting 68,040 - 552,832
Payroll and payroll taxes 361,916 110,317 1,136,263
Depreciation and amortization 252,654 23,493 481,516
Bad debt expense - - 21,112
Selling, general and
administrative 296,154 237,234 1,068,912
------------ ------------ ------------
Total Expenses 978,764 371,044 3,260,635
------------ ------------ ------------
INCOME BEFORE OTHER INCOME
(EXPENSES) (919,807) (371,044) (3,180,042)
------------ ------------ ------------
OTHER INCOME (EXPENSES)
Other income 442 - 56,538
Interest income 2,971 7,480 32,392
Interest expense (56,095) (23,169) (132,107)
Loss on disposition of assets (2,898) - (6,560)
------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSES) (55,580) (15,689) (49,737)
------------ ------------ ------------
LOSS $ (975,387) $ (386,733) $ (3,229,779)
============ ============ ============
NET LOSS PER SHARE $ (0.27) $ (0.09)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 3,667,486 4,118,480
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 7
<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> 8
<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> 9
<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, 1997 4,561,748 $ 4,562 $5,582,811 $ 2,984 $
50,000 $ (2,254,392)
Common Stock issued in
July 1997 for services
rendered by exercising
stock option issued at
$2.50 per share 5,500 5 13,745
- - - -
Cancellation of
common stock (1,270,000) (1,270) (228,730)
- - - -
Repayment of stock
subscription
receivable
with cash - - - -
(50,000) -
Common Stock issued for
Prepaid Interest on
Additional Borrowing 40,000 40 161,835
- - - -
Currency translation
adjustment (unaudited) - - -
16,630 - -
Net loss for the period
ended December 31, 1997
(unaudited) - - -
- - - (975,387)
---------- --------- --------- ---------
- ------------ -----------
Balance at
December 31, 1997
(Unaudited) 3,337,248 $ 3,337 $5,529,661 $ 19,614
$ - $(3,229,779)
========= ========= ========== =========
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 10
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (527,991) $ (239,409)
Adjustments to reconcile net (loss) to
Net cash (Used) by operating activities:
Depreciation and amortization 131,201 12,623
Currency Translation 11,229 -
Bad debt expense - -
Loss on disposition of assets 2,898 -
Common stock issued for services - -
Services provided in lieu of cash payment
on subscriptions receivable - -
Common stock issued in lieu of debt - -
Common stock issued for prepaid interest 161,875 -
Changes in Assets and Liabilities:
(Increase) decrease in accounts receivable 28,341 65
(Increase) decrease in inventory (1,801) -
(Increase) decrease in prepaid expenses (96,513) (6,454)
(Increase) decrease in other assets (16,776) (1,893)
Increase (decrease) in accounts payable and
accrued expenses 22,834 25,751
Increase (decrease) in accounts payable
related parties 30,024 30,000
------------- ------------
Net cash (Used) by operating activities (254,679) (179,317)
------------- ------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchase of property, plant and equipment (83,323) (148,681)
Purchase of investments - -
------------- ------------
Net cash (Used) in Investing activities $ (83,323) $ (148,681)
------------- ------------
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 11
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock subscription receivable $ - $ 300,012
Repurchase of common stock - -
Payment of stock offering costs - (101,025)
Borrowing on line of credit 44,176 -
Proceeds from notes payable 400,000 -
Payments made on notes payable - -
Common stock issued for cash - -
------------- ------------
Net cash provided (used) by
Financing activities 444,176 198,987
------------- ------------
NET INCREASE (DECREASE) IN CASH 106,174 (129,011)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 80,263 763,348
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 186,437 $ 634,227
============= ============
CASH PAID FOR:
Interest $ 704 $ 424
Income Taxes $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for services rendered $ - $ -
Common stock issued in lieu of debt $ - $ -
Common stock issued for acquisition of
subsidiary $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 12
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FROM
FOR THE FOR THE INCEPTION ON
SIX MONTHS SIX MONTHS JANUARY 30,
ENDED ENDED 1995 THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997
------------ ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (975,387) $ (386,733) $ (3,229,779)
Adjustments to reconcile net (loss)
to net cash (Used) by operating
activities:
Depreciation and amortization 252,654 23,493 481,516
Currency Translation 16,630 - 19,614
Bad debt expense - - 21,112
Loss on disposition of assets 2,898 - 6,560
Common stock issued for services 13,750 - 355,505
Services provided in lieu of cash
payment on subscriptions
receivable - - 75,000
Common stock issued in lieu of debt - - 162,000
Common stock issued for prepaid
interest 161,875 - 161,875
Changes in Assets and Liabilities:
(Increase) decrease in accounts
receivable (16,087) (3,803) (92,246)
(Increase) decrease in inventory 12,555 - (291,149)
(Increase) decrease in prepaid
expenses) (63,322) (3,671) (154,642)
(Increase) decrease in other assets (18,539) (4,152) (47,775)
Increase (decrease) in accounts
payable and accrued expenses 210,068 (60,879) 295,177
Increase (decrease) in accounts
payable related parties (68,668) 30,000 81,332
------------ ------------ ------------
Net cash (Used) by Operating
Activities (471,573) (405,745) (2,155,900)
------------ ------------ ------------
CASH FLOWS FROM (USED IN)
INVESTING ACTIVITIES:
Purchase of property, plant and
equipment (115,394) (150,782) (998,616)
Purchase of investments - - (400,000)
------------ ------------ ------------
Net cash (Used) in Investing
activities $ (115,394) $ (150,782) $ (1,398,616)
------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 13
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
FROM
FOR THE FOR THE INCEPTION ON
SIX MONTHS SIX MONTHS JANUARY 30,
ENDED ENDED 1995 THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997
------------ ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from stock subscription
receivable $ 50,000 $ - $ 100,000
Repurchase of common stock (230,000) (209,862) (439,862)
Payment of stock offering costs - (127,201) (387,380)
Borrowing on line of credit 51,955 (299,838) 107,335
Proceeds from notes payable 400,000 110,000 1,362,838
Payments made on notes payable - (317,000) (962,838)
Common stock issued for cash - 2,030,298 3,960,860
------------ ------------ ------------
Net cash provided (used) by
Financing activities 271,955 1,186,397 3,740,953
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (315,012) 629,870 186,437
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 501,449 4,467 -
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 186,437 $ 634,337 $ 186,437
============ ============ ============
CASH PAID FOR:
Interest $ 4,891 $ 23,169 $ 91,608
Income Taxes $ - $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for services
rendered $ 13,750 $ - $ 354,505
Common stock issued in
lieu of debt $ - $ - $ 162,000
Common stock issued for
acquisition of subsidiary $ - $ - $ 1,550,000
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
<PAGE> 14
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
December 31, 1997 and June 30, 1997
NOTE l- CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by the
company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at December 31, 1997
and for all periods presented have been made.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's June 30, 1997
audited financial statements. The results of operations for the periods ended
December 31, 1997 and 1996 are not necessarily indicative of the operating
results for the full year.
NOTE 2- RELATED PARTY TRANSACTION
On August 19, 1997 the Company entered into Agreements of Settlement and
Mutual Release with two former officers and another employee of the Company.
The Company agreed to pay a total of $317,525 and 1,270,000 shares of the
Company's outstanding common stock were returned for cancellation. An
aggregate of $117,525 was paid to the parties on the date the agreements were
executed and the remaining $200,000 is being paid in twenty consecutive
monthly payments. At December 31, 1997 the remaining balance is $160,000.
NOTE 3- STOCK TRANSACTIONS
Pursuant to the Agreements of Settlement and Mutual Release, the Company
canceled 1,270,000 shares of its outstanding common stock during the quarter
ended September 30, 1997.
The Company has received additional funds for use in its operations upon
issuing promissory notes with a maturity date of six months. Interest is
prepaid by issuing 5,000 shares of the Company's restricted common stock for
each $50,000 amount borrowed. The principal amount of the Note is payable on
the maturity date, subject to prepayment as set forth in the note. At the
election of the Company, it may satisfy the entire obligation for the payment
of the principal by issuance and delivery of one or more shares of Common
Stock of the Company at the rate of one share of Common Stock for every $1.00
of outstanding principal amount of the Note. The following data summarizes
amounts received.
Face Number of Value of
Date Amount Shares Issued Prepaid Maturity
Issued Of Notes For Interest Interest Date
- ------ -------- ------------- -------- --------
October 27, 1997 $150,000 15,000 $61,875 April 27, 1998
November 4, 1997 50,000 5,000 21,250 May 4, 1998
November 24, 1997 50,000 5,000 20,625 May 24, 1998
November 25, 1997 100,000 10,000 38,750 May 25, 1998
December 1, 1997 50,000 5,000 19,375 June 1, 1998
-------- ------ -------
Totals $400,000 40,000 $161,875
======== ====== ========
The $ 161,875 cost of this additional financing is being amortized over the
terms above. (See Note 5- SUBSEQUENT EVENTS.)
<PAGE> 15
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
December 31, 1997 and June 30, 1997
NOTE 4- 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 quarter ended
December 31, 1997 consisted of the following:
Number of Weighted Average
Shares Price per Share
--------- ----------------
Outstanding at September 30, 1997 14,500 $ 2.00
Granted during the quarter - -
Exercised during the quarter - -
--------- ----------------
Outstanding at December 31, 1997 14,500 $ 2.00
The 14,500 stock options outstanding at September 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
NOTE 5- SUBSEQUENT EVENTS
The Company has received additional funds for use in its operations upon
issuing promissory notes with a maturity date of six months. Interest is
prepaid by issuing 5,000 shares of the Company's restricted common stock for
each $50,000 amount borrowed. The principal amount of the Note is payable on
the maturity date, subject to prepayment as set forth in the note. At the
election of the Company, it may satisfy the entire obligation for the payment
of the principal by issuance and delivery of one or more shares of Common
Stock of the Company at the rate of one share of Common Stock for every $1.00
of outstanding principal amount of the Note. The following data summarizes
amounts received after December 31, 1997 (See Note 3- STOCK TRANSACTIONS):
Face Number of Value of
Date Amount Shares Issued Prepaid Maturity
Issued Of Notes For Interest Interest Date
- ------ -------- ------------- -------- --------
January 2, 1998 $125,000 12,500 $39,063 July 2, 1998
January 5, 1998 100,000 10,000 30,000 July 5, 1998
January 6, 1998 50,000 5,000 13,438 July 6, 1998
January 7, 1998 50,000 5,000 13,750 July 7, 1998
January 8, 1998 25,000 2,500 7,031 July 8, 1998
January 12, 1998 75,000 7,500 20,625 July 12, 1998
January 21, 1998 75,000 7,500 20,156 July 21, 1998
-------- ------ -------
Totals $500,000 50,000 $144,063
======== ====== ========
The $144,063 cost of this additional financing will be amortized over the terms
above.
<PAGE> 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is engaged in the development and manufacturing of
"flat-free" bicycle and other specialty tires which compete with the
traditional pneumatic tires (i.e., tires with an inner tube or tubeless tires
inflated with air).
For purposes of this report, a comparison of the Company's operations for
the interim period ended December 31, 1997 with the comparable interim period
in the preceding year would not be helpful to the reader's understanding of
the Company's operations in that the Company had nominal operations during the
three months following and prior to the completion of its initial public
offering in October 1996.
The Company is in the development stage and has had an operating loss
since inception of $(3,229,779). Substantial portions of the operating loss
incurred by the Company since inception can be attributed to consulting,
$552,832; payroll $1,136,263; and general and administrative expenses,
$1,068,912, associated development of the Company's technology and bringing
the "flat-free" tire concept to market. The Company has initiated commercial
production and sales of its products with net sales of $115,101 and $221,159
during the three and six month periods ended December 31, 1997, as opposed to
no sales during the corresponding periods during 1996. A majority of the
sales during this reporting period were attributed to the operations of
UTI-UK. UTI-UK is a wholly owned subsidiary of the Company and is a
distributor of low density foam bicycle, wheelchair and other specialty tires
in the United Kingdom and Europe. UTI-UK distributes flat-free 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.
During the three months ended December 31, 1997, the Company had a net
loss from operations of $(527,991) or approximately $(0.16) per share. The
Company is currently operating at a loss of approximately $(140,000) 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 its products.
At December 31, 1997, the Company had current assets of $724,474, consisting
mainly of cash $186,437; receivables $92,147; inventory $291,149, and prepaid
expenses $154,642, as opposed to current liabilities of $883,844, resulting
in a working capital deficit of $159,370. The Company has limited internal
financial resources and the report of the Company's auditor for the Company's
fiscal year end at June 30, 1997, contained a going concern modification as
to the ability of the Company to continue.
During October 1997, the Company borrowed $50,000 from a banking
institution for working capital and equipment purchases. The loan has terms
of interest at prime plus 3/4%. The Company's collateral gives the banking
institution is a first lien position in accounts receivable, inventory and
equipment, and a first mortgage on the Company's real estate.
During October 1997, the Company authorized the issuance of a series of
promissory notes for the purpose of raising up to $1,000,000 for use in its
operations (the "Notes"). The Notes have a maturity date of six months from
the date of issue and interest on the Notes is to be prepaid by the Company
issuing 5,000 shares of its restricted common stock for each $50,000 amount
borrowed. At December 31, 1997, the Company had issued $400,000 in such Notes
and has issued an additional $500,000 in such notes through January 31, 1998.
<PAGE> 17
The principal amount of the Notes is payable on the maturity date,
subject to prepayment as set forth in the Note. At the election of the
Company, it may satisfy the entire obligation for the payment of the principal
by issuance and delivery of one or more shares of Common Stock at the rate of
one share of Common Stock for every $1.00 of outstanding principal amount of
the Note. (See "ITEM 1. Notes to the Unaudited Consolidated Financial
Statements, Notes 3 and 5.") Until the Company begins to receive
substantial proceeds from the sale of its products to meet operational needs,
the Company will be relying on the proceeds from the issuance of the Notes or
other debt or equity financing that may be available to meet operating
requirements for the fiscal year ending June 30, 1998. There is no assurance
that the Company will be able to continue to issue any additional Notes under
this financing arrangement. The Company will continue to pursue alternative
debt and/or equity financing to meet its working capital requirements after
June 30, 1998, or until such time as working capital needs can be met through
the sale of the Company's products.
The Company's production equipment consists of several "centrifugal
molding machines" and other related specialized manufacturing equipment to
produce low density foam, flat-free tires. The Company has utilized
substantial portions of its working capital to purchase molding machines and
related production equipment and at December 31, 1997, the Company had
$921,829 in property and equipment (net of accumulated depreciation). The
Company is currently utilizing proceeds from the Notes to acquire additional
pouring equipment for producing shell elastomer flat-free tires and to
complete a sufficient quantity of production molds to produce those tires.
The Company is producting low density foam bicycle tires (26" x 1.95" and 26"
x 1.75") at its Ravenna, Ohio facility; and expects to be producing shell
elastomer bicycle tires (20" x 1.95") during February 1998. In addition, the
Company is producing a low density foam tire for the front deck of riding lawn
mowers and has developed for testing a shell elastomer rear tire which the
Company expects to be producing in commercial quantities during the Spring of
1998.
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 ending 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
<PAGE> 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN TIRE CORPORATION
[Registrant]
Dated: February 17, 1998 /S/DAVID K. GRIFFITHS
-----------------------------------
Principal Accounting Officer
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<NAME> AMERICAN TIRE CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 186,437
<SECURITIES> 0
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<COMMON> 5,552,612
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<SALES> 221,159
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