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 June 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 August 13, 1996, 3,115,000 shares of .001 par value Common Stock of the
registrant were outstanding.
Index schedule found on Page No. 2
Page 1 of 15 pages
<PAGE>
ECOTYRE TECHNOLOGIES, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - June 30, 1996
and March 31, 1996 3
Condensed Statements of Operations -
Three Months Ended June 30, 1996 and 1995 4
Condensed Statements of Cash Flows -
Three Months Ended June 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 - 9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ECOTYRE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
As of As of
June 30, 1996 March 31, 1996
(Unaudited)
-------------- ---------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,440,568 $ 2,782,952
Accounts receivable, net of allowance
for doubtful accounts of $11,000 99,875 65,174
Inventories (Note 2) 419,606 340,449
Prepaid expenses and other current assets 161,610 160,806
----------- -----------
Total current assets 2,121,659 3,349,381
----------- -----------
Property, plant and equipment, less
accumulated depreciation 1,570,919 1,258,008
Other assets 103,415 97,471
----------- -----------
$ 3,795,993 $ 4,704,860
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Notes payable - bank $ 183,333 $ 200,000
Current maturities of long term debt 225,000 150,000
Accounts payable 198,103 221,211
Accrued expenses 361,009 279,735
Current maturity of capitalized leases
and equipment loans 109,878 106,771
----------- -----------
Total current liabilities 1,077,323 957,717
Long-term debt - 75,000
Capitalized leases and equipment loans,
less current maturities 118,255 146,782
Deferred rent credits 284,179 272,160
----------- -----------
Total liabilities 1,479,757 1,451,659
----------- -----------
ClassA Redeemable Convertible Preferred
Stock, 2,000,000 shares authorized;
issued and outstanding - 1,202,775
(redemption amount of $1,202,775) 1,157,058 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 5,726,416 5,820,031
Deficit (4,570,353) (3,695,127)
----------- -----------
Total stockholders' equity 1,159,178 2,128,019
----------- -----------
$ 3,795,993 $ 4,704,860
=========== ===========
<FN>
See accompanying notes to financial statements
</FN>
</TABLE>
<PAGE>
ECOTYRE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
----------------------------------
1996 1995
---- ----
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Net sales $ 218,802 $ 100,822
Cost of sales 640,653 116,911
----------- -----------
Gross profit (loss) (421,851) (16,089)
----------- -----------
Operating and other expenses:
Selling and shipping 168,310 42,836
General and administrative 283,069 243,339
Interest expense, net of interest income (1,753) 85,677
----------- -----------
Total operating and other expenses 449,626 371,852
----------- -----------
Loss before taxes (871,477) (387,941)
Provision for taxes (Note 5) 3,749 10,179
----------- -----------
Net loss $ (875,226) $ (398,120)
=========== ===========
Preferred stock dividends (Note 3) 92,014 -
Net loss attributable to common
shareholders $ (967,240) $ (398,120)
=========== ===========
Net loss per share (Note 3) $ (.31) $ (.32)
============ ===========
<FN>
See accompanying notes to financial statements
</FN>
</TABLE>
<PAGE>
ECOTYRE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------
1996 1995
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (875,226) $ (398,120)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 52,543 1,893
Deferred rent 12,019 82,710
Amortization of original issue discount - 41,967
Decrease (increase) in assets:
Accounts receivable (34,701) 126,674
Inventory (79,157) 22,335
Other assets (6,748) (98,554)
Increase (decrease) in liabilities:
Accounts payable (23,108) (94,785)
Accrued expenses 21,136 157,095
----------- -----------
Net cash used in operating activities: (933,242) (158,785)
----------- -----------
Cash flows from investing activities:
Capital expenditures - net (365,454) (142,460)
----------- -----------
Net cash used in investing activities (365,454) (142,460)
----------- -----------
Cash flow from financing activities:
Proceeds from bank loan 183,333 -
Repayment of bank loan (200,000) -
Proceeds from long term notes and
warrants - 75,000
Proceeds from bridge financing - 250,000
Repayment of capitalized lease obligations
and equipment loans (25,420) (14,212)
Repayment of IPO expense (1,601) -
----------- -----------
Net cash provided by (used in) financing
activities (43,688) 310,788
----------- -----------
Net increase (decrease) in cash (1,342,384) 9,543
Cash and cash equivalents, beginning of
period 2,782,952 49,386
----------- -----------
Cash and cash equivalents, end of period $1,440,568 $ 58,929
=========== ===========
<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 three months ended June 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 June 30, 1996 and March 31, 1996 consist of:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
-------- ---------
<S> <C> <C>
Raw materials $ 252,192 $ 207,280
Work in process 3,348 4,052
Finished goods 164,066 129,117
----------- -----------
$ 419,606 $ 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.
91.5% of the Company's revenues for the three months ended June 30, 1996
was derived from the Company's limited manufacturing operations. 100% of the
revenues for the three months ended June 30, 1995 was derived from the
distribution of remolded tires manufactured by third parties.
Results of Operations
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995.
Net Sales. The Company's net sales of $218,802 for the three months ended
June 30, 1996 represent an increase of $117,980 compared to net sales for the
three months ended June 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.
Cost of Sales. The Company's cost of sales for the three months ended June
30, 1996 was $640,653 as compared to $116,911, representing an increase of
$523,742. This increase was due primarily to the Company's limited commencement
of manufacturing its own tires as compared to the prior years distribution only
of third party manufactured tires. Certain overhead, which includes primarily
rent, salaries and depreciation increased due to the Company's relocation and
start-up of its manufacturing facility in Holtsville.
<PAGE>
Gross Profit (Loss). The Company's gross loss for the three months ended
June 30, 1996 was ($421,851) as compared to a gross loss of ($16,089) for the
three months ended June 30, 1995, an increased loss of $405,762. This increased
loss was directly caused by the curtailment of the distribution of third party
manufactured tires and the initial commencement of its own manufacturing of
remolded tires. The Company's direct overhead expenses increased due to the
initial start-up of its manufacturing operations.
Operating and Other Expenses. The Company incurred selling, shipping,
general and administrative expenses of $451,379, and interest expense of $17,628
in the three months ended June 30, 1996 as compared to $286,175 of selling,
shipping, general and administrative expenses and $85,677 of interest expense in
the three months ended June 30, 1995. The increases in selling, shipping,
general and administrative expenses were attributable primarily to salaries and
facility expenses including rent and electricity arising from the relocation of
its distribution sales office and warehouse to its manufacturing facility.
Marketing expenses also increased due to the commencement of sales in the period
ending June 30, 1996. The decrease in interest expense is primarily attributable
to interest on long term notes during the three months ended June 30, 1995 that
were paid by the end of fiscal 1996.
Net loss. The Company sustained a net loss of ($875,226) in the three
months ended June 30, 1996 as compared to a net loss of ($398,120) in the three
months ended June 30, 1995, an increased loss of $477,106. 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 payment of relocation expenses, increased rent expense at
the new manufacturing facility, manufacturing salaries, initial start-up and
marketing and sales expenses.
Liquidity and Capital Resources
The Company used cash in operating activities in the amount of $933,242 for
the three months ended June 30, 1996 and $158,785 for the three months ended
June 30, 1995 which was primarily related to the loss from operations. Cash used
in investing activities in the amounts of $365,454 and $142,460 for the three
months ended June 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 three months ended June 30, 1996 was provided by a bank line
of credit of $183,333. Financing used to fund operating and investing activities
for the three months ended June 30, 1995 was received from bridge financing and
long term debt in the amounts of $250,000 and $75,000, respectively.
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.
<PAGE>
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.
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: August 13, 1996 ECOTYRE TECHNOLOGIES, INC.
(Registrant)
By: /s/ Vito Alongi
Vito Alongi,
President, Treasurer and
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the three months ended June 30, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 1,440,568
<SECURITIES> 0
<RECEIVABLES> 110,875
<ALLOWANCES> 11,000
<INVENTORY> 419,606
<CURRENT-ASSETS> 2,121,659
<PP&E> 1,623,462
<DEPRECIATION> 52,543
<TOTAL-ASSETS> 3,795,993
<CURRENT-LIABILITIES> 1,077,323
<BONDS> 0
1,157,058
0
<COMMON> 3,115
<OTHER-SE> 1,156,063
<TOTAL-LIABILITY-AND-EQUITY> 3,795,993
<SALES> 218,802
<TOTAL-REVENUES> 218,802
<CGS> 640,653
<TOTAL-COSTS> 640,653
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,628
<INCOME-PRETAX> (871,477)
<INCOME-TAX> 3,749
<INCOME-CONTINUING> (875,226)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (875,226)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
