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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment No. 2
(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
--------------------------
(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
705-B Yucca Street, 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
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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 has licensed a "flat free" tire technology and a "Dynamic
Steerable Spring" (DSS) technology from Richard A. Steinke and Dennis S.
Chrobak, two of the Company's officers and directors, for the purpose of
utilizing the technologies to manufacture both light and medium duty "flat
free" tires and tire-wheel assemblies. The Company has completed the
fundamental development of the process to manufacture flat free bicycle and
lawn and garden tires. The Company believes that the flat free tire
technology allows it to produce and sell bicycle and lawn and garden 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. However, the chemical and structural make up of the flat-free tire is
dependent on the purpose for which the tires is to be utilized. As the duty
cycle for the flat-free tire increases, changes in the chemical and structural
design of the tire will be made.
With respect to the DSS technology, additional development is necessary
before tire-wheel assemblies can be produced utilizing the technology. As a
result, the Company has entered into an agreement with an unrelated third
party to further develop passenger car tire-wheel assemblies utilizing the DSS
technology. (See "Hayes Development and License Agreement.") Because of the
Company's limited financial resources, the Company does not anticipate
expending any substantial sums for new research and development programs
relating to high duty cycle product lines (i.e., medium, and heavy truck
tires) during the fiscal year ended June 30, 1998, and the Company won't make
any substantial expenditures toward such programs until the financial
resources are available to justify such expenditures.
The Company feels its strengths are in its licensed technology and its
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 tire concepts.
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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 may seek an industry partner to manufacture and
market tire products developed from technology either licensed by the Company
or developed by the Company. With respect to products developed through joint
ventures and license agreements, the Company expects to 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 for production a prototype tire-wheel assembly utilizing the DSS
Technology licensed by the Company from Dennis S. Chrobak and Richard A.
Steinke. The Hayes Development and License Agreement provides for Hayes to
provide the steel portion of the tire-wheel assembly, as well as any equipment
and tooling to produce the steel portion and the Company to provide the
remaining portion, including sidewalls, cap, cap stabilizer and bonding
materials, together with associated equipment and molds therefor 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 tire-wheel assembly contemplated under the Hayes
Development and License Agreement differs from conventional two-piece tire-
wheel assemblies in that the DSS Technology incorporates a one-piece steel
spring and hoop within a urethane overlaid cap, cap stabilizer, and sidewall
(i.e. unified construction). In its existing design, the Company does not
anticipate that the tire-wheel assembly to be developed under the Hayes
Development and License Agreement can be utilized for any purpose other than a
passenger vehicle tire. 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 received prototype wheels from Hayes, built the molds for
applying the sidewall, tread and stabilizing cap, and produced 10 tires that
have been delivered to an independent lab for testing. Initial test results
have provided varying results based on velocity, time, and the design of the
steel wheel, sidewall, tread, and stabilizing cap. To date, none of the
prototypes tested have complied with FMVSS 129.
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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. The Company's bicycle and lawn and garden tire products could be
considered "non-pneumatic" in that they do not require inflation, however,
they are multi-density in nature and consist of a series of layers of
specially formulated elastomers and a closed foam construction to simulate the
compliance of a pneumatic tire. The closed foam contains millions of closed
cells containing air. Therefore, the Company's tires are best identified as
"flat-free" in that they have no rubber inner tube 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 presently has completed its purchase and installation of the
specialized mixing and pouring machines required to produce the flat free
bicycle tires and now has a limited number of bicycle and lawn tires available
for shipment in quantities based on existing orders. At June 30, 1997, the
Company had the capacity to produce approximately 1,500,000 tires per year,
but has only sold approximately 10,000 flat free bicycle and lawn and garden
tires for total sales revenue of $69,518, at an average sales price of
approximately $7.00 per tire. The Company does not produce and distribute any
products other than its flat-free bicycle and lawn and garden tires.
At present, the Company's primary marketing strategy has been to
introduce the flat-free tires through sales to OEMs, tire distributors and
direct advertising to consumers through television commercials. Although the
Company is investigating other markets, the Company has targeted 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.
(3) 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
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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.
Acquisition of UTI-UK
- ---------------------
Effective February 28, 1997, the Company completed the acquisition of all
of the capital stock of UTI Chemicals (Europe) Ltd, a United Kingdom
corporation ("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.
Since 1990 UTI-UK has 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.
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.
Competition
- -----------
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 certain aspects of the flat-free tire technology [i.e., the method
(U.S. Patent No. 4,855,096) and an apparatus (U.S. Patent No. 4,943,223) for
making polyurethane products in a centrifugal molding machine].
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's flat free bicycle and lawn and garden tire technology
differs from other non-pneumatic bicycle and lawn and garden 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.
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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.
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 trains its
employees in the use of this specialized manufacturing equipment and process,
that is utilized for other types of specialty tires as well. The Company
utilizes 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 are 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.
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Patents
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Dynamic Steerable Spring
The Company is a party to an exclusive technology license agreement (the
"DSS License Agreement") with Dennis S. Chrobak and Richard A. Steinke, to
develop DSS Technology. Mr. Chrobak and Mr. Steinke are the inventors of the
DSS Technology for which an application for United States Letters Patent has
been filed and issuance of a patent is pending. 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. The term of the DSS License Agreement
will be for the life of the underlying U.S. patent when issued. If however,
the Company fails to market, promote, or otherwise exploit the DSS Technology
so that Mr. Chrobak has not received any royalty payment by August 19, 1999,
the DSS License Agreement will automatically terminate. Under the DSS
Technology License Agreement, the Company has the right to sublicense others
(i.e., third parties), to likewise market, promote or exploit the DSS
Technology. 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
"Further Research and Development" below and ITEM 12. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS.)
Non-Pneumatic Tire
The Company is a party to an exclusive 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.
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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. However, Mr. Chrobak and Mr. Steinke utilized intellectual property
counsel in preparing and filing the DSS Technology and Non-Pneumatic Tire
Technology patent applications and in that regard, the Company believes the
technologies are not the intellectual property rights of other or are already
in the public domain. With respect to the DSS Technology, the Company
believes the 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.
Further Research and Development
- --------------------------------
Because of the Company's limited financial resources, the Company does
not anticipate expending any substantial sums for new research and development
programs relating to high duty cycle product lines (i.e., medium, and heavy
truck tires) during the fiscal year ended June 30, 1998, and the Company won't
make any substantial expenditures toward such programs until the financial
resources are available to justify such expenditures.
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
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.
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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
- -------
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.
Beginning in June 1997, the Company maintains an executive office suite
consisting of approximately 1,100 square feet located at 1643 Nevada Highway,
Boulder City, Nevada, which is provided to the Company free of charge. The
Company occupied approximately one half of the executive office suite on or
about June 10, 1997. The fair market value for the use of the office space
has been estimated by the Company to be approximately $425 per month. The
facility is rented by American Environmental Corporation, a company controlled
by Richard A. Steinke, an affiliate of the Company, from Micro Instrument
Corp, a third-party non-affiliated entity. The Company has not accounted for
the free use of the office space for its fiscal year ended June 30, 1997,
because the value of the space was deemed to be immaterial. For subsequent
periods the Company will pay American Environmental Corporation to occupy the
office suite at $425 per month. 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.
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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
- ------------------------------------------------------------------
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
-------- -------
Fiscal Year Ended June 30, 1995
- -------------------------------
First, Second, Third and Fourth Quarters N/A N/A
Fiscal Year Ended June 30, 1996
- -------------------------------
First, Second, Third and Fourth Quarters N/A N/A
Fiscal Year Ending June 30, 1997
- --------------------------------
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.
<PAGE>
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation
- -----------------
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.
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.
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 bicycle and lawn and garden tires.
At June 30, 1997, the Company had commenced the sale of bicycle and lawn
and garden tires in minimal quantities and had sales revenues of $69,518. In
addition, $56,096 recognized by the Company as other income during the fiscal
year and was derived from technical consulting services provided by UTI-UK to
non-related third parties during the reporting period.
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.
Prior to June 30, 1997, the Company had recorded $24,822 in patent
application expenses paid by the Company for the benefit of Messrs. Chrobak
and Steinke as prepaid royalties against any royalties that might thereafter
accrue to them as a result of the Flat Free Tire and DSS Technology
Agreements. At June 30, 1997, those expenses were reclassified as patent
expenses in that they related to the Company's licensed technologies and no
royalties had yet accrued.
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.
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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-UK, from Coronel. The Agreement between the
Company, UTI-UK and Coronel, provided for Company 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.
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.
Since 1990, UTI-UK has 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
<PAGE> 14
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.
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.
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> 15
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> 16
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.
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.
<PAGE> 17
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 $90,000(1) -0- -0- -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-
Dennis S. Chrobak 1997 $90,000(2) -0- -0- -0- -0- -0- -0-
Pres. and Director 1996 -0- -0- -0- -0- -0- -0- -0-
1995 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
(1) Effective May 1, 1997, Mr. Steinke requested deferral of his monthly
employment compensation under his employment agreement. The amount set forth
includes $20,000 of accrued compensation during under the agreement.
(2) Effective October 1, 1996, Mr. Chrobak requested deferral of his monthly
employment compensation under his employment agreement. The amount set forth
includes $90,000 of accrued compensation during under the agreement.
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
<PAGE> 18
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.
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> 19
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of November 13, 1997, 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> 20
(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 Gaye 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.
Non-Pneumatic or "Flat-Free" Tire License Agreement
- ---------------------------------------------------
On August 19, 1997, the Company entered into a revised agreement amending
the terms of the October 27, 1995, flat-free tire License Agreement with AMS.
The Agreement was amended to provide that the license be directly between the
Company and Mr. Chrobak and Mr. Steinke. The Agreements grant the Company an
exclusive license to use, sell, license, or otherwise exploit the technology
worldwide in exchange for a royalty. The revision of 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 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
Agreement cannot be considered to have been negotiated at arm's length.
<PAGE> 21
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 23
Independent Auditors' Report of Saltz, Shamis & Goldfarb, Inc. 24
Report of Auditors to the Shareholders of UTI Chemicals (Europe) Limited 25
Consolidated Balance Sheet as of June 30, 1997 26
Consolidated Statements of Operations for the years ended June 30, 1997
and 1996 and from inception on January 30, 1995 through June 30, 1997 28
Consolidated Statements of Stockholders' Equity 29
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 31
Notes to Consolidated Financial Statements 33
(a)(2)FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules are included as part of this report: None.
<PAGE> 22
(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 Amendment No. 1
(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: May 26, 1999 By /S/Richard A. Steinke, C.E.O. and
Director (Principal Executive Officer)
Date: May 26, 1999 By /S/David K. Griffiths, Treasurer
(Principal Accounting Officer)
<PAGE>
<PAGE> 23
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
Salt Lake City, Utah
November 8, 1997
[Except for Note 10, which is dated May 26, 1999]
<PAGE>
<PAGE> 24
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> 25
UTI CHEMICALS (EUROPE) LIMITED
REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF
UTI CHEMICALS (EUROPE) LIMITED
We have audited-the financial statements on pages four to thirteen which have
been prepared under the historical cost convention and the accounting policies
set out on page nine.
Respective responsibilities of directors and auditors
- -----------------------------------------------------
As described on page two the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
Basis of opinion
- ----------------
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements
made by the directors in the preparation of the financial statements, and of
whether the accounting policies are appropriate to the company's
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
- -------
In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 30 June 1997 and of its loss for the period
then ended and have been properly prepared in accordance with the Companies
Act 1985.
/S/WISE & CO.
CHARTERED ACCOUNTANTS
REGISTERED AUDITORS
50 WEST STREET
FARNHAM
SURREY
GU9 7DX
Dated: 21st October 1997
<PAGE>
<PAGE> 26
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> 27
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> 28
<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> 29
<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> 30
<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> 31
<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> 32
<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> 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
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> 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)
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> 35
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 generally accepted
accounting principles following SFAS 52, paragraph 4, 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
undiscounted 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> 36
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> 37
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> 38 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.
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.
<PAGE>
<PAGE> 39 AMERICAN TIRE CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 1997
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.
NOTE 10 - CONSOLIDATED PROFORMA STATEMENT OF OPERATIONS
The historical information contained herein has been consolidated on a proforma
basis and is presented as unaudited. The purchase of assets and liabilities from
UTI on February 28, 1997 are described in Note 1. The purchase has been
presented in this footnote as though it was effective July 1, 1996 and July 1,
1995, respectively. All significant accounting policies for UTI are the same as
the Company's as defined in Note 1.
For the Year Ended June 30, 1997
----------------------------------------------
American
Tire UTI Proforma
Corporation Limited Eliminations Combined
---------- ---------- ---------- ----------
(Unaudited)
NET SALES $ 14,506 $ 242,184 $ - $ 256,690
COST OF SALES 11,421 153,921 - 165,342
---------- ---------- ---------- ----------
GROSS MARGIN 3,085 88,263 - 91,348
---------- ---------- ---------- ----------
EXPENSES
Consulting 292,414 - - 292,414
Payroll and payroll taxes 521,773 87,390 - 609,163
Depreciation and amortization 66,268 7,282 - 73,550
Amortization of goodwill 243,024 - - 243,024
Bad debt expense 21,112 23,434 - 44,546
Selling, general and
administrative 381,521 103,032 - 484,553
---------- ---------- ---------- ----------
Total Expenses 1,526,112 221,138 - 1,747,250
---------- ---------- ---------- ----------
LOSS BEFORE OTHER INCOME
(EXPENSE) (1,523,027) (132,875) - (1,655,902)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Other income 1,332 123,113 - 124,445
Interest income 17,649 35 - 17,684
Interest expense (19,090) (5,712) - (24,802)
Gain (loss) on disposition
of assets (3,662) - - (3,662)
---------- ---------- ---------- ----------
Total Other Income
(Expense) (3,771) 117,436 - 113,665
---------- ---------- ---------- ----------
NET LOSS $(1,526,798) $ (15,439) $ - $(1,542,237)
========== ========== ========== ==========
<PAGE> 40 AMERICAN TIRE CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 1997
NOTE 10 - CONSOLIDATED PROFORMA STATEMENT OF OPERATIONS (Continued)
For the Year Ended June 30, 1996
----------------------------------------------
American
Tire UTI Proforma
Corporation Limited Eliminations Combined
---------- ---------- ---------- ----------
(Unaudited)
NET SALES $ - $ 266,909 $ - $ 266,909
COST OF SALES - 174,117 - 174,117
---------- ---------- ---------- ----------
GROSS MARGIN - 92,792 - 92,792
---------- ---------- ---------- ----------
EXPENSES
Consulting 43,261 - - 43,261
Payroll and payroll taxes 222,757 94,857 - 317,614
Depreciation and amortization 37,994 8,406 - 46,400
Amortization of goodwill 234,024 - - 243,024
Selling, general and
administrative 246,418 101,283 - 347,701
---------- ---------- ---------- ----------
Total Expenses 793,454 204,546 - 998,000
---------- ---------- ---------- ----------
LOSS BEFORE OTHER INCOME
(EXPENSE) (793,454) (111,754) - (905,208)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Other income - 167,593 - 167,593
Interest income 8,161 70 - 8,231
Interest expense (53,821) (7,719) - (61,540)
Gain (loss) on disposition
of assets - 37 - 37
---------- ---------- ---------- ----------
Total Other Income
(Expense) (45,660) 159,981 - 114,321
---------- ---------- ---------- ----------
NET LOSS $ (839,114) $ 48,227 $ - $ (790,887)
========== ========== ========== ==========
