UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1995
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) for the transition period from
____________________ to _____________________
Commission file number: 0-19069
ATC II, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 75-2395356
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6701 Baum Drive, Suite 345, Knoxville, TN 37919
(Address of Principal Executive Offices) (Zip Code)
(423) 588-1018
(Issuer's Telephone Number, Including Area Code)
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.
Yes __ No XX
The number of shares outstanding of the issuer's common stock ($0.01 par
value), as of July 8, 1996 was 4,996,811.
Total of sequentially numbered pages: 7
Exhibit Index on Page [7]
TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS.................................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION............3
PART II
ITEM 1. LEGAL PROCEEDINGS....................................................4
ITEM 2. CHANGES IN SECURITIES................................................4
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................5
ITEM 5. OTHER INFORMATION....................................................5
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................5
SIGNATURES...........................................................6
INDEX TO EXHIBITS....................................................7
Total of sequentially numbered pages: 7
Exhibit Index on Page [7]
2
PART I
ITEM 1. FINANCIAL STATEMENTS
Unless otherwise indicated, the term "Company" refers to ATC II, Inc.
and its predecessors. Interim financial statements including a balance sheet for
the Company as of the fiscal quarter ended September 30, 1995 and income
statements and statements of cash flows for the interim period up to the date of
such balance sheet and the comparable period of the preceding fiscal year are
attached hereto on Pages F-1 through F-3 and incorporated herein by this
reference.
PART I
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS PAGE
Balance Sheets..............................................................F-1
Statements of Operations....................................................F-2
Statements of Stockholders' Deficit.........................................F-3
Statements of Cash Flows....................................................F-4
Notes to Financial Statements...............................................F-5
ATC II, INC.
BALANCE SHEET
SEPTEMBER 30, 1995 (UNAUDITED) AND JUNE 30, 1995
September 30, June 30,
ASSETS 1995 1995
------------ -------------
Film distribution rights (net amortization) ........... $ 299,488 $ 315,250
------------ ------------
Total Assets ............................................. $ 299,488 $ 315,250
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ...................................... $ 187,655 $ 187,260
Accrued expenses ...................................... 363,581 358,323
Notes payable-current ................................. 157,500 157,500
------------ ------------
Total Current Liabilities ................................ 708,736 703,083
------------ ------------
Redeemable Preferred Stock
Series B Redeemable, Convertible, (7%) Cumulative,
Preferred Stock; 900,000 shares authorized, 900,000
issued and outstanding; redeemable at $1.00 per share 900,000 900,000
Dividends in arrears .................................. 47,250 31,500
------------ ------------
Total Redeemable Preferred Stock ......................... 947,250 931,500
------------ ------------
Total Liabilities and Redeemable Preferred Stock ......... 1,655,986 1,634,583
------------ ------------
STOCKHOLDERS' DEFICIT
Common stock-$.01 par value;
20,000,000 shares authorized;
11,505,481 shares issued and outstanding ............ 115,055 115,055
Paid - in capital ..................................... 23,196,172 23,196,172
Accumulated deficit ................................... (24,667,725) (24,630,560)
------------ ------------
Total Stockholders' Deficit .............................. (1,356,498) (1,319,333)
------------ ------------
Total Stockholders' Deficit and Liabilities .............. $ 299,488 $ 315,250
============ ============
See Notes to Financial Statements
F-1
ATC II, INC.
STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
(Unaudited)
----------------------------
1995 1994
------------ ------------
Net revenue ................................ $ -- $ 9,300
Cost of revenue
------------ ------------
Gross Profit (Loss) .................... -- 9,300
Selling, general and administrative expenses 31,908 348,701
------------ ------------
Operating Profit (Loss) ................ (31,908) (339,401)
------------ ------------
Other income (expense):
Interest income (expense) ........... (5,257) (34,016)
Gain (loss) from investments ........ -- (164,063)
Gain (loss) from sale of assets ..... -- (62,500)
Other income (expense) .............. -- 7,000
------------ ------------
Total other income (expense) ........... (5,257) (253,579)
------------ ------------
Net (loss) before discontinued operations .. (37,165) (592,980)
Gain (loss) from discontinued operations ... -- 45,883
------------ ------------
Net loss ................................... $ (37,165) $ (547,097)
============ ============
Loss per share:
Loss from continuing operations ........ $ -- $ (0.68)
Gain from discontinued operations ...... -- 0.05
Loss per share ............................. $ -- $ (0.63)
============ ============
Weighted average shares outstanding ........ 11,505,481 863,702
============ ============
See Notes to Financial Statements
F-2
ATC II, INC
UNAUDITED STATEMENTS OF STOCKHOLDERS' DEFICIT
Three Months Ended September 30, 1995
Series B Series B Common Common Total
Preferred Preferred Stock Stock Paid In Accumulated Shareholders
Shares _Amount Shares Amount Capital Deficit Deficit
Balances, June 30, 1995 .... 900,000 $ 900,000 11,505,481 $ 115,055 $ 23,196,172 $(24,630,560) $ (1,319,333)
Net Loss, September 30, 1995 -- -- -- -- -- $ (37,165) $ (37,165)
======= ============ ========== ============ ============ ============ ============
Balances September 30,1995.. 900,000 $ 900,000 11,505,481 $ 115,055 $ 23,196,172 $(24,667,725) $ (1,356,498)
======= ============ ========== ============ ============ ============ ============
See Notes to Financial Statments
F-3
ATC II, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended
September 30,
(Unaudited)
------------------------
1995 1994
----------- -----------
Cash flow from operations:
Net loss .............................................. $ (37,165) $(547,097)
Adjustments to reconcile loss to net cash
provided by (used for) operations:
Depreciation and amortization .................. 15,762 8,909
Loss on investments ............................ -- 164,063
Stock issued for services ...................... -- 223,231
Change in assets and liabilities:
Accounts receivable ............................ -- 12,763
Notes receivable - short term .................. -- (208,432)
Other current assets ........................... -- (192,086)
Write down of good will ........................ -- --
Accounts payable and accrued expenses .......... 5,653 191,748
--------- ---------
Cash provided by (used for) operations ... (15,750) (346,901)
--------- ---------
Cash flow from investing activities:
Preferred Dividends ................................... 15,750 --
--------- ---------
Cash provided by (used for) investing activities 15,750 --
--------- ---------
Cash flow from financing activities:
Proceeds from issuance of stock ....................... -- 482,737
--------- ---------
Cash provided by (used for) financing activities -- 482,737
--------- ---------
Net increase (decrease) in cash .............................. -0- 135,836
Cash, beginning of year ...................................... -0- 2,249
--------- ---------
Cash, end of period ............................ $ -- $ 138,085
========= =========
See Notes to Financial Statements
F-4
ATC II, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
NOTE 1: Basis of Presentation
The accompanying unaudited financial statements have been prepared by management
in accordance with the instructions in Form 10-QSB and therefore, do not include
all information and footnotes required by generally accepted accounting
principles and should therefore, be read in conjunction with the Company's
Annual Report to Shareholders on Form 10-KSB for fiscal year ended June 30,
1995.
In management's opinion, the accompanying unaudited financial statements contain
all adjustments, consisting only of normal recurring adjustments necessary for a
fair statement of the results for the interim periods presented. The interim
operation results are not necessarily indicative of the results for the fiscal
year ending June 30, 1996.
NOTE 2: Additional footnotes included by reference
Except as indicated in the footnotes above there has been no other material
change in the information disclosed in the notes to the financial statements
included in the Company Annual Report on Form 10-KSB for the year ended June 30,
1995.
Therefore those footnotes are included herein be reference.
F-5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Plan of Operation
The Company has not had any revenue from operations in either of the
last two fiscal years. The following discussion should be read together with the
Company's consolidated financial statements and notes thereto included in this
Form 10-QSB.
From 1984 to 1993, the Company's business was in telecommunications and
producing and distributing feature length motion pictures. In June 1992, the
Company began to divest its interests in certain unprofitable subsidiaries.
Similar divestitures followed in fiscal 1993 and 1994. In fiscal 1994, the
Company focused its efforts on discontinuing or winding down unsuccessful
operations and resolving existing and potential liabilities. Since 1994, the
Company has been searching for an attractive merger or acquisition candidate and
potentially profitable business opportunities.
Effective June 30, 1995, the Company entered into a Purchase Agreement
with Turner, Turner & Associates, a Washington corporation ("TTA"). Pursuant to
the agreement, the Company was to acquire from TTA the exclusive right to
license products produced under U.S. Patents Numbers 5,296,216 and 5,306,509
(the "Patents"). The Patents relate to an oral lavage, the trademark of certain
products, and a protocol known as STOMASTAT(TM). In development since 1983,
STOMASTAT(TM) is a peroxide and bicarbonate-based solution that cleanses,
irrigates, and protects the oral cavity from stomatitis, a process which results
in mouth ulcers or canker sores. The Purchase Agreement was ultimately rescinded
in February 1996 because several conditions had not been met and both the
Company and TTA desired an alternative structure for the purchase. After several
months of unsuccessful negotiation with TTA, the Company decided not to further
pursue this acquisition.
Since the acquisition of TTA is no longer being considered, the Company
has resumed its search for an attractive merger or acquisition candidate. As of
the date of this filing, the Company has identified potential merger and
acquisition candidates, but no definitive agreements have been reached. The
Company hopes that it will successfully negotiate either a merger or acquisition
agreement that will enable it to generate sufficient cash flows to satisfy its
cash needs, although no such assurances can be given.
The Company has no full time employees. However, the Company has
continued its relationship with a financial consulting firm, Canton Financial
Services Corporation, a Nevada corporation ("CFS"), on a month to month basis.
CFS renders consulting, administrative and other services to the Company from
time to time as needed. The Company anticipates hiring additional personnel if
an acquisition or merger agreement is eventually reached.
3
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company knows of no material legal proceedings or material
developments in any legal proceedings involving the Company or its subsidiaries,
other than those discussed below. However, due to recent resignations of
officers and directors of the Company and the discontinuation of the businesses
of some of the Company's subsidiaries, there may be other material legal
proceedings pending or threatened against the Company, its subsidiaries or
former officers and directors of which the current management is not aware.
On July 11, 1995, the Company filed a complaint in the State of Utah,
Third Judicial District Court against Louis Metzer, an individual resident of a
foreign country, civil case number 950904843. On November 1, 1994, Louis Metzer
("Metzer") entered into a stock purchase agreement with the Company wherein
Metzer agreed to purchase 250,000 shares of the Company's common stock in
exchange for $187,500 U.S. Dollars. On the same date, Metzer entered into a
written promissory note promising to pay the Company $187,500 plus 6 percent per
annum on or before February 1, 1995. Metzer has defaulted the promissory note
and the Company is seeking recovery on said note. Efforts to serve Metzer have
been unsuccessful. The Company is currently working to locate Metzer to complete
service.
On July 11, 1995, the Company filed a complaint against Christopher
Wells, an individual resident of a foreign country, in the State of Utah, Third
Judicial District Court civil case number 950904842. On October 10, 1994,
Christopher Wells ("Wells"), entered into a stock purchase agreement with the
Company, in which Wells agreed to purchase 1,500,000 shares of the Company's
common stock. The transaction was secured by a promissory note, entered into
between the parties on October 10, 1994, whereby Wells agreed to pay the Company
$1,125,000 U.S. Dollars. Wells has defaulted on the promissory note and the
Company seeks to recover on said note. Efforts to serve Wells have been
unsuccessful. The Company is currently working to locate Wells to complete
service.
On March 8, 1995, Xeta Corporation, an Oklahoma corporation ("Xeta"),
filed suit against the Company in the United States District Court, in the
Central District of Utah, case number 95CV-218G. In this suit, Xeta seeks to
recover $116,500 which it contends was fraudulently conveyed by the Company in
order to avoid payment on a $119,379.42 judgment (exclusive of costs and
attorney fees) which the Company owes to Xeta. The Company brought suit against
The Canton Industrial Corporation ("CIC"), the alleged recipient of the
fraudulent conveyance, and Richard Surber and Gerald Curtis, both directors of
the Company at the time of the conveyance. On April 16, 1996, the Court
announced its decision to grant Xeta's Motion for Summary Judgment against CIC,
but denied the motion as it pertained to the Company's former directors. CIC has
appealed the grant of Summary Judgment, claiming that there is a genuine dispute
as to whether CIC performed bona fide services to the Company in consideration
for the money that was transferred. That appeal is currently pending. If Xeta
ultimately prevails in this litigation, CIC will likely seek indemnification
against the Company for the full $116,500.
ITEM 2. CHANGES IN SECURITIES.
There were no material changes in securities during the first quarter
of the fiscal year ended September 30, 1996.
On October 2, 1995, the Company paid $20,000 to Communications and
Entertainment Corporation, a Nevada corporation ("ComEnt"), and Robert Hesse in
exchange for the return of all of the Company's issued and outstanding Series B
Cumulative Convertible Preferred Stock (the "Preferred Stock") held by those
entities. Hence, after October 2, 1995, all shares of Preferred Stock had been
returned to the Company and canceled. ComEnt and Hesse also agreed to release
the Company from any and all actual or potential claims they may have had
against the Company stemming from their respective ownership of the Preferred
Stock, including accrued dividends.
ITEM 5. OTHER INFORMATION
On January 19, 1996, James L. Thompson resigned as president of the
Company. Mr. Thompson was initially appointed as president because he helped
introduce the Company to Turner, Turner & Associates ("TTA") and negotiated the
Purchase Agreement with TTA. As a finders fee, Mr. Thompson, along with Jack
Hartgrove, received a quantity of shares of the Company's common stock that
constitued a controlling interest in the Company. When the Purchase Agreement
was rescinded, all shares issued to Mr. Thompson and Mr. Hartgrove were canceled
by the Company. Mr. Thompson's resignation was a result of the rescission of the
Purchase Agreement, and did not reflect any disagreements with the Company. He
remained with the Company in the capacity of director.
Upon the resignation of Mr. Thompson, the Company appointed Richard H.
Turner as president and a director. Mr. Turner was the president of TTA and
helped develop the patents that the Company was attempting to acquire from TTA.
Mr. Turner was appointed to help facilitate negotiations between the Company and
TTA, and because of his familiarity with the patents that the Company was trying
to acquire. No agreement was ever reached between TTA and the Company, however,
and the parties have since terminated all negotiations in furtherance thereof.
Accordingly, Richard Turner resigned as the Company's president and director
effective May 6, 1996.
On July 11, 1996, Leslie Carter was appointed as the company's
president and director by resolution of the board of directors. The board of
directors appointed Ms. Carter because it believed Ms. Carter's experience and
contacts would assist the Company in its attempt to acquire a suitable operating
subsidiary.
In January 1996, the Company relocated its corporate headquarters from
6701 Baum Drive, Suite 345, Knoxville, Tennessee, 37919 to 1001 A South
Interstate 45, Post Office Box 729, Hutchins, Texas 75141-0729. In May 1996, the
Company moved its headquarters back to 6701 Baum Drive, Suite 345, Knoxville
Tennessee, 37919. Corporate offices were returned to Tennessee as a result of
the termination of negotiations between TTA and the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits. Exhibits required to be attached by Item 601 of
Regulation S-B are listed in the Index to Exhibits beginning on page 7
of this Form 10-QSB, which is herein incorporated by reference.
(b) Reports on Form 8-K. On September 26, 1995, the Company filed a Form
8-K to report its acquisition of patents from Turner, Turner &
Associates pursuant to a June 30, 1995 Purchase Agreement (the Purchase
Agreement was later rescinded). No financial statements were required
to be filed with that report since the Company acquired assets only and
not an ongoing business.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, this 15TH day of July 1996.
ATC II, INC.
/s/ Leslie Carter
Leslie Carter
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ Leslie Carter President and Director July 15, 1996
Leslie Carter
/s/ Jack Hartgrove Chief Financial Officer/Secretary July 15, 1996
Jack E. Hartgrove and Director
/s/ James Thompson Director July 15, 1996
James Thompson
6
INDEX TO EXHIBITS
EXHIBIT PAGE DESCRIPTION
NUMBER NUMBER
- ------- --------
3(a) * Articles of Incorporation of the Company, filed as
Exhibit 3(i) to Registrant's Registration Statement on
Form S-4 filed June 2, 1990, as amended.
3(b) * Bylaws of the Company, filed as Exhibit 3(ii) to
Registrant's Registration Statement on Form S-4 filed
June 2, 1990, as amended.
10(i)(a) ** Purchase Agreement between the Company and Turner,
Turner & Associates, Richard H. Turner, Robert E.
Turner and Sherry Ruxer effective June 30, 1995, filed
as Exhibit 10 to Registrant's Form 8-K Current Report
dated September 26, 1995.
10(i)(b) *** Rescission Agreement between the Company, Robert E.
Turner, Richard H. Turner, and Sherry L. Ruxer signed
February 21, 1996 attached hereto.
* Incorporated herein by reference from the Company's Form 10-KSB filed
with the Commission on August 23, 1994.
** Incorporated herein by reference from the Company's Form 8-K Current
Report dated September 26, 1995.
*** Incorporated herein by reference from the Company's Form 10-KSB for
period ended June 30, 1995, filed with the Commission on June 15, 1996.
7