UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-27240
ECOTYRE TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-3234026
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
895 Waverly Avenue, Holtsville, New York 11742
(Address of principal executive offices)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 of 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 19, 1996, 5,115,000 shares of $.001 par value Common Stock of
the registrant were outstanding.
Index schedule found on Page No. 2
<PAGE>
ECOTYRE TECHNOLOGIES, INC.
INDEX
Page No.
-------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - September 30, 1996 and March 31, 1996 3
Condensed Statements of Operations - Six Months and Three Months
Ended September 30, 1996 and 1995 4
Condensed Statements of Cash Flows - Six Months Ended September
30, 1996 and 1995 5
Notes to Condensed Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 10
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ECOTYRE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
As of As of
September 30, 1996 March 31, 1996
------------------ ---------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 504,981 $ 2,782,952
Accounts receivable, net of allowance
for doubtful accounts of $11,000 197,799 65,174
Inventories (Note 2) 535,309 340,449
Prepaid expenses and other current assets 194,718 160,806
------------ ------------
Total current assets 1,432,807 3,349,381
------------ ------------
Property, plant and equipment, less
accumulated depreciation 1,699,333 1,258,008
Other assets 115,325 97,471
------------ ------------
$ 3,247,465 $ 4,704,860
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Notes payable - bank $ 396,333 $ 200,000
Current maturities of long term debt 225,000 150,000
Accounts payable and accrued expenses 728,214 500,946
Current maturity of capitalized leases
and equipment loans 113,651 106,771
------------ ------------
Total current liabilities 1,463,198 957,717
Long-term debt - 75,000
Capitalized leases and equipment
loans, less current maturities 88,591 146,782
Deferred rent credits 292,664 272,160
------------ ------------
Total liabilities 1,844,453 1,451,659
------------ ------------
Class A Redeemable Convertible Preferred
Stock, 2,000,000 shares authorized;
issued and outstanding - 1,202,775
(redemption amount of $1,202,775) 1,190,119 1,125,182
------------ ------------
Stockholder's Equity (Note 4)
Preferred Stock, $.001 par value
2,000,000 shares authorized;
none issued - -
Common Stock, $.001 par value 20,000,000
shares authorized, issued and
outstanding - 3,115,000 3,115 3,115
Paid in capital 5,693,356 5,820,031
Deficit (5,483,578) (3,695,127)
------------ ------------
Total stockholders' equity 212,893 2,128,019
------------ ------------
$ 3,247,465 $ 4,704,860
============ ============
<FN>
See accompanying notes to financial statements
</FN>
</TABLE>
<PAGE>
ECOTYRE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended For the Three Months Ended
September 30, September 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales $ 801,337 $ 160,181 $ 582,535 $ 59,359
Cost of sales 1,688,378 152,727 1,047,724 35,815
----------- ----------- ----------- -----------
Gross profit (loss) (887,041) 7,454 (465,189) 23,543
----------- ----------- ----------- -----------
Operating and other expenses:
Selling and shipping 312,251 76,974 142,559 34,138
General and administrative 570,987 595,037 287,918 351,698
Interest, net of interest
income 14,975 189,543 16,728 112,273
----------- ----------- ----------- -----------
Total operating and other
expenses 898,213 861,554 447,205 498,109
----------- ----------- ----------- -----------
Loss before taxes (1,758,254) (854,100) (912,394) (474,566)
Provision for taxes (Note 5) 3,197 10,179 (552) -
----------- ----------- ----------- -----------
Net loss $(1,788,451) (864,279) $(911,842) (474,566)
----------- ----------- ----------- -----------
Preferred stock dividends 125,076 67,043 33,062 58,637
(Note 3)
Net loss attributable to
common shareholders $ 1,913,527 (931,322) $(944,904) (533,203)
=========== =========== =========== ===========
Net loss per share (Note 3) $(.61) $(.67) $(.30) $(.38)
<FN>
See accompanying notes to financial statements
</FN>
</TABLE>
<PAGE>
ECOTYRE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1996 1995
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,788,451) $ (864,279)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 109,570 4,417
Deferred rent 20,504 165,420
Allowance for possible losses on
accounts receivable - 8,000
Amortization of original issue discount - 149,850
Decrease (increase) in assets:
Accounts receivable (132,625) 168,323
Inventory (194,860) 63,173
Other assets (51,766) (370,802)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 167,130 (19,737)
------------ ------------
Net cash used in operating activities: (1,870,498) (695,635)
------------ ------------
Cash flows from investing activities:
Capital expenditures - net (550,895) (286,512)
------------ ------------
Net cash used in investing activities (550,895) (286,512)
------------ ------------
Cash flow from financing activities:
Proceeds from bank loan 396,333 -
Repayment of bank loan (200,000) -
Proceeds from long term notes and
warrants - 75,000
Proceeds from bridge financing - 1,000,000
Repayment of capitalized lease obligations
and equipment loans (51,311) (38,048)
Repayment of IPO expense (1,600) -
------------ ------------
Net cash provided (used in) financing
activities 143,422 1,036,952
------------ ------------
Net increase (decrease) in cash (2,277,971) 54,805
Cash and cash equivalents, beginning
of period 2,782,952 49,386
------------ ------------
Cash and cash equivalents, end of period $ 504,981 $ 104,191
============ ============
<FN>
See accompanying notes to financial statements
</FN>
</TABLE>
<PAGE>
ECOTYRE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed financial statements included herein have
been prepared in accordance with generally accepted accounting principles for
interim period reporting in conjunction with the instructions to Form 10-QSB.
Accordingly, these statements do not include all of the information required by
generally accepted accounting principles for annual financial statements, and
are subject to year-end adjustments. In the opinion of management, all known
adjustments (consisting of normal accruals and reserves) necessary to present
fairly the interim financial results for the period have been included. It is
suggested that these interim statements be read in conjunction with the
financial statements and related notes included in the Company's 10-KSB for the
year ended March 31, 1996.
The operating results for the six and three months ended September 30, 1996
are not necessarily indicative of the results to be expected for the year ended
March 31, 1997.
Note 2. Inventories
Inventories have been valued at the lower of cost or market. The components
of inventory at September 30, 1996 and March 31, 1996 consist of:
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
------------- -------------
<S> <C> <C>
Raw materials $ 230,527 $ 207,280
Work in process 39,540 4,052
Finished goods 265,242 129,117
----------- -----------
$ 535,309 $ 340,449
=========== ===========
</TABLE>
Note 3. Net Loss Per Share
Net loss per share is based on the weighted average number of Common Stock
outstanding during each period. Common Stock equivalents and other potentially
dilutive securities are antidilutive. Net loss has been adjusted for accretion
of and preferred dividends.
<PAGE>
ECOTYRE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 4. Initial Public Offering
In December, 1995, the Company completed an initial public offering of
1,725,000 units. Each unit consisted of one share of Common Stock and one
redeemable Common Stock purchase warrant. Following the initial public offering,
3,115,000 shares of Common Stock and warrants to purchase 1,725,000 shares of
Common Stock were outstanding. The warrants are exercisable at $5.00 per share,
subject to adjustment, and expire on December 12, 1998. The Company has the
right to redeem any or all of the warrants at a price of $.01 per warrant, upon
giving 30 to 60 days' notice, after a period during which the closing bid price
for the Company's Common Stock for a period of twenty consecutive trading days
ending three days prior to the date of the notice of redemption has equaled or
exceeded $6.50 per share.
Note 5. Income Taxes
Income taxes are based on annualized statutory federal and state income tax
rates. The provision for income taxes exclude a benefit for net operating loss
carryforwards.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation
General
The Company had operated as a wholesale distributor of remolded automobile
tires since its inception in April, 1993 through December, 1995. In accordance
with its business plan, the Company substantially curtailed distribution
operations concentrating its efforts on commencing manufacturing operations. In
its distribution operations, the Company resold its product primarily to retail
tire replacement centers and tire distributors. In the Company's manufacturing
operations, remolded tires are created by remanufacturing a previously used
high-quality passenger automobile tire casing and attaching rubber from sidewall
to sidewall.
95.3% of the Company's revenues for the six months ended September 30, 1996
was derived from the Company's limited manufacturing operations. 100% of the
revenues for the six months ended September 30, 1995 was derived from the
distribution of remolded tires manufactured by third parties.
Results of Operations
Six Months Ended September 30, 1996 Compared to Six Months Ended
September 30, 1995
Net Sales. The Company's net sales of $801,337 for the six months ended
September 30, 1996 represent an increase of $641,156 compared to net sales for
the six months ended September 30, 1995. The increase resulted from the
limited commencement of manufacturing its own tires and curtailment of
its distribution of tires manufactured by third parties.
<PAGE>
Cost of Sales. The Company's cost of sales for the six months ended
September 30, 1996 was $1,688,378 as compared to $152,727, representing an
increase of $1,535,651. This increase was due primarily to substantial costs
incurred to operate the facility at maximum capacity, which costs become
disproportionate to net sales until such time as full capacity is achieved. For
the six month period, the Company operated at an average plant capacity of
approximately 20%, after taking into account limited production for the first
few months of this period. Such limited production resulted, in part, from
unanticipated repair and maintenance and a higher than anticipated turnover rate
for factory trained employees, which rate is now stabilizing. The Company
anticipates that certain fixed costs and expenses (approximating $400,000), such
as rent, utilities, insurance and depreciation, will substantially decrease on a
per unit basis as production increases as will the per unit cost of labor. The
increased cost of sales was also attributable to the incurrence of certain
non-recurring expenses necessary to commence manufacturing operations, including
personnel training (approx. $200,000), raw material product testing (approx.
$200,000), consulting expenses (approx. $60,000) and electrical repairs (approx.
$25,000).
Gross Profit (Loss). The Company's gross loss for the six months ended
September 30, 1996 was ($887,041) as compared to a gross profit of $7,454 for
the six months ended September 30, 1995, a decrease of $894,495. This decrease
was directly caused by the manufacturing and training costs associated with the
initial commencement of its own manufacturing of remolded tires as compared to
no manufacturing and training costs in the prior period. The Company's direct
overhead expenses also increased due to the initial start-up of its
manufacturing operations in 1996. The Company's gross loss also increased due to
substantially reduced selling prices to a large customer (accounting for
approximately $125,000 of Net Sales) to replace unacceptable third party
manufactured tires previously delivered to the customer by the Company when the
Company was solely a distributor. The Company anticipates an increase in profit
margins upon the sale of higher margin light truck tires.
Operating and Other Expenses. The Company incurred selling, shipping,
general and administrative expenses of $883,238, and interest expense of $14,975
in the six months ended September 30, 1996 as compared to $672,011 of selling,
shipping, general and administrative expenses and $189,543 of interest expense
in the six months ended September 30, 1995. The increases in selling, shipping,
general and administrative expenses were attributable primarily to increased
salaries ($144,696 or 82%) and consulting fees ($51,757 or 237%). The decrease
in interest expense is primarily attributable to interest on long term notes
during the six months ended September 30, 1995 that were paid by the end of
fiscal 1996.
Net loss. The Company sustained a net loss of ($1,788,451) in the six
months ended September 30, 1996 as compared to a net loss of ($924,172) in the
six months ended September 30, 1995, an increased loss of $924,172. The increase
was primarily attributable to the diverting of its resources from the
distribution business to the commencement of manufacturing. The net loss was
also attributable to the increased rent expense ($25,960 or 19%) at the new
manufacturing facility, consulting expenses ($111,025 or 100%), non-recurring
initial start-up expenses and marketing and sales expenses.
Three Months Ended September 30, 1996 Compared to Three Months Ended
September 30, 1995.
Net Sales. The Company's net sales of $582,535 for the three months ended
September 30, 1996 represent an increase of $523,176 compared to net sales for
the three months ended Sepember 30, 1995. The increase was due to the limited
commencement of manufacturing its own tires and curtailment of its distribution
of tires manufactured by third parties.
<PAGE>
Cost of Sales. The Company's cost of sales for the three months ended
September 30, 1996 was $1,047,724 as compared to $35,815, representing an
increase of $1,011,910. This increase was due primarily to substantial costs
incurred to prepare to operate the facility at maximum capacity, which costs
become disproportionate to net sales until such time as full capacity is
achieved. The Company anticipates that certain fixed costs and expenses, such as
rent, utilities, insurance and depreciation will substantially decrease on a per
unit basis as production increases as will the per unit cost of labor. The
increased cost of sales for the quarter ended September 30, 1996 was also
attributable to the incurrence of certain non-recurring expenses necessary to
commence manufacturing operations, including personnel training (approx.
$116,000), raw material product testing (approx. $100,000), consulting expenses
(approx. $25,000) and electrical repairs (approx. $15,000).
Gross Profit (Loss). The Company's gross loss for the three months ended
September 30, 1996 was ($465,189) as compared to a gross profit of $23,543 for
the three months ended September 30, 1995, a decrease of $488,732. This decrease
was directly caused by the manufacturing and training costs associated with the
initial commencement of its own manufacturing of remolded tires as compared to
no manufacturing costs in the prior period. The Company's direct overhead
expenses also increased due to the initial start-up of its manufacturing
operations. The Company's gross loss also increased due to substantially reduced
selling prices to a large customer to replace unacceptable third party
manufactured tires previously delivered to the customer by the Company when the
Company was solely a distributor. The Company anticipates an increase in profit
margins upon the sale of higher margin light truck tires.
Operating and Other Expenses. The Company incurred selling, shipping,
general and administrative expenses of $430,477, and interest expense of $16,728
in the three months ended September 30, 1996 as compared to $385,836 of selling,
shipping, general and administrative expenses and $112,273 of interest expense
in the three months ended September 30, 1995. The increases in selling,
shipping, general and administrative expenses were attributable primarily to
salaries ($57,119 or 56%) and professional fees ($21,159 or 60%). The decrease
in interest expense is primarily attributable to interest on long term notes
during the three months ended September 30, 1995 that were paid by the end of
fiscal 1996.
Net loss. The Company sustained a net loss of ($911,842) in the three
months ended September 30, 1996 as compared to a net loss of ($474,566) in the
three months ended September 30, 1995, an increased loss of $437,276. The
increase was primarily attributable to the diverting of its resources from the
distribution business to the commencement of manufacturing. The net loss was
also attributable to increased insurance expense ($30,845 or 61%) at the new
manufacturing facility, manufacturing salaries ($243,663 or 100%), increased
utilities ($89,795 or 789%), initial start-up and marketing and sales expenses.
Liquidity and Capital Resources
The Company used cash in operating activities in the amount of $1,870,498 for
the six months ended September 30, 1996 and $695,635 for the six months ended
September 30, 1995 which was primarily related to the loss from operations. Cash
used in investing activities in the amounts of $550,895 and $286,512 for the six
months ended September 30, 1996 and 1995, respectively, was principally for the
purchase of related machinery and equipment to commence operations of its
manufacturing facility. Financing provided to fund operating and investing
activities for the six months ended September 30, 1996 was provided by a bank
line of credit of $396,333. Financing used to fund operating and investing
activities for the three months ended September 30, 1995 was received from
bridge financing and long term debt in the amounts of $1,000,000 and $75,000,
respectively.
<PAGE>
In October, 1996, the Company received gross proceeds of $2,000,000 from
the private sale of its common stock. 2,000,000 shares were sold at $1.00 per
share to an aggregate of 10 foreign investors. The sales were made pursuant to
an exemption from the registration requirements of the Securities Act of 1933,
as amended, under Regulation S promulgated thereunder. The net proceeds of
approximately $1,559,951 received from this sale will be utilized for working
capital.
In June, 1995, the holder of $1,092,929 principal amount of loans, notes
and debentures, together with subsequent purchases of similar notes and
debentures, exchanged them, together with accrued and unpaid interest thereon,
for an aggregate of 1,202,755 shares of Class A Redeemable Convertible Preferred
Stock of the Company. The Company may redeem the Class A Redeemable Convertible
Preferred Stock at a redemption price of $1.00 per share on 60 days notice at
any time, provided, that prior to January, 1997, the Company may redeem the
Class A Redeemable Convertible Preferred Stock only if the Common Stock has
closed above $7.50 per share for 20 consecutive trading days, whereupon the
holder can either convert the Class A Redeemable Convertible Preferred Stock or
receive the redemption price for his Class A Redeemable Convertible Preferred
Stock. Pursuant to the terms thereof, the holders of these shares can require
the Company to redeem these shares on or after December 18, 1997 at a redemption
price of $1.00 per share and, in any event, these shares are redeemable on or
after December 18, 1997 at the same redemption price. Accordingly, the Company
could be required to pay up to $1,202,775 in cash upon such redemption.
The Company may need financing to redeem its Class A Redeemable Convertible
Preferred Stock and to expand its manufacturing operations, if required.
In May, 1995, the Company purchased 20 mold presses, molds, an extruder, a
building machine, a buffing machine and related ancillary equipment for use in
its new manufacturing facility for an aggregate purchase price of approximately
$530,000 from a financial institution which had foreclosed on such equipment.
After paying a portion of this purchase price, the Company has agreed with this
financial institution to pay the remaining $300,000 balance in equal monthly
installments of approximately $10,000 per month over a three-year period at an
interest rate of 13.25% per annum. This financial institution has a first
priority security interest in such equipment collaterizing this loan.
The Company has entered into a 10-year, 9-month lease with one five year
renewal option for approximately 65,000 square feet of manufacturing, warehouse
and office space in Holtsville, New York during fiscal 1995, which provides for
minimum annual rental obligations of approximately $282,750, plus utilities and
maintenance, subject to 5% annual increases. Commencing October 1, 1995, so long
as the Company is in substantial compliance with its obligations under this
Lease, the Company will have an option to purchase these premises for
$2,500,000. If this option has not been exercised by October 1, 1997, the
purchase price will increase by 5% of that date and on each anniversary thereof
up to and including October 1, 2004. If the Company elects to purchase these
premises, it will be required to tender a deposit equal to 10% of the purchase
price and consummate the purchase within sixty (60) days thereafter, whereupon
the balance of the purchase price will be due. The Company utilizes this
facility for its manufacturing operations, as well as for warehousing its
inventory and as its corporate offices. The Company's capital requirements may
change depending upon numerous factors and the Company may require additional
financing from time to time, particularly in order to effectuate expansion
activities.
<PAGE>
Seasonality
While there is a year-round demand for automobile tires, automobile tire sales
in the Northeastern United States are generally strongest during the second and
third calendar quarters of the year. Seasonality may have an impact on the
Company's operations including cash flow, insofar as the Company is required to
control inventory levels to reflect projected quarterly sales. However, since
the Company anticipates that approximately 50% of its sales will be in the
Western United States and other regions where all purpose automobile tires are
used year round, it does not believe that seasonality will have a material
adverse impact on its operations.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 19, 1996 ECOTYRE TECHNOLOGIES, INC.
(Registrant)
By: /s/ Vito Alongi
Vito Alongi,
President, Treasurer and Principal
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements for the six months ended September 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 504,981
<SECURITIES> 0
<RECEIVABLES> 208,799
<ALLOWANCES> 11,000
<INVENTORY> 535,309
<CURRENT-ASSETS> 1,432,807
<PP&E> 1,861,209
<DEPRECIATION> 109,570
<TOTAL-ASSETS> 3,247,465
<CURRENT-LIABILITIES> 1,463,198
<BONDS> 0
1,190,119
0
<COMMON> 3,115
<OTHER-SE> 209,778
<TOTAL-LIABILITY-AND-EQUITY> 3,247,465
<SALES> 801,337
<TOTAL-REVENUES> 801,337
<CGS> 1,688,378
<TOTAL-COSTS> 1,688,378
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,214
<INCOME-PRETAX> (1,785,254)
<INCOME-TAX> 3,197
<INCOME-CONTINUING> (1,788,451)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,788,451)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
</TABLE>
