. 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________.
Commission file number: 33-94318-C
AMERICAN TIRE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 87-0535207
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
705-B YUCCA STREET, BOULDER CITY, NEVADA 44266
- ----------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(702) 293-1930
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- ------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes [X] No [ ] and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, was 6,344,500 shares of common stock, par value $0.001, as of March 31,
1999.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB pursuant to the rules and
regulations of the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a complete presentation of
the financial position, results of operations, stockholders' equity and cash
flows in conformity with generally accepted accounting principles. In the
opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included and all such adjustments are of a normal recurring nature.
The unaudited consolidated balance sheet of the Company as of March 31,
1999, the related audited consolidated balance sheet of the Company as of June
30, 1998; the related unaudited consolidated statements of operations and cash
flows for the three and nine month periods ended March 31,1999 and 1998 and
from January 30, 1995 (inception) through March 31, 1999; and the unaudited
consolidated statement of stockholders' equity for the period from January 30,
1995 (inception) through March 31, 1999 are attached here to and incorporated
herein by this reference.
Operating results for the nine months periods ended March 31, 1999 is not
necessarily indicative of the results that can be expected for the Company's
fiscal year ending June 30, 1999.
3
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
------
March 31, June 30,
1999 1998
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 58,374 $ 278,822
Accounts receivable 222,483 89,463
Accounts receivable - related party - 3,971
Inventory 124,790 138,852
Prepaid expenses 26,795 173,052
------------ ------------
Total Current Assets 432,442 684,160
------------ ------------
PROPERTY AND EQUIPMENT
Land 59,000 59,000
Building and improvements 296,741 291,010
Equipment and vehicles 1,080,591 995,138
Furniture and fixtures 38,083 39,124
Less: accumulated depreciation (461,776) (301,686)
------------ ------------
Total Property and Equipment 1,012,639 1,082,586
------------ ------------
OTHER ASSETS:
Patents 59,582 55,542
Deposits 854 854
------------ ------------
Total Other Assets 60,436 56,396
------------ ------------
TOTAL ASSETS $ 1,505,517 $ 1,823,142
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
March 31, June 30,
1999 1998
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 593,250 $ 345,278
Accounts payable - related parties 89,600 5,600
Accrued expenses 42,916 17,072
Line of credit - 25,000
Notes Payable 26,000 1,122,500
------------ ------------
Total Current Liabilities 751,766 1,515,450
------------ ------------
TOTAL LIABILITIES 751,766 1,515,450
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.001,
5,000,000 shares authorized, 0 shares
issued and outstanding - -
Common stock, par value $0.001, 25,000,000
shares authorized, 6,344,500 and 4,619,250
shares issued and outstanding, respectively 6,345 4,619
Additional paid-in capital 9,317,814 7,798,789
Stock subscription receivable (400,000) (400,000)
Related party prepaid compensation contracts (330,000) (576,667)
Other comprehensive income 9,537 3,172
Deficit accumulated during the development stage (7,849,945) (6,522,221)
------------ ------------
Total Stockholders' Equity 753,751 307,692
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,505,517 $ 1,823,142
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
5
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From
For the For the For the For the Inception on
Three Months Three Months Nine Months Nine Months January 30,
Ended Ended Ended Ended 1995 Through
March 31, March 31, March 31, March 31, March 31,
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
NET SALES $ 34,548 $ 93,686 $ 281,846 $ 314,845 $ 724,611
COST OF SALES 21,552 59,552 188,230 221,754 502,986
------------ ------------ ------------ ------------ ------------
GROSS MARGIN 12,996 34,134 93,616 93,091 221,625
------------ ------------ ------------ ------------ ------------
EXPENSES
Consulting 46,667 19,980 96,667 88,020 730,312
Payroll and payroll taxes 160,110 201,877 585,976 563,793 2,590,215
Depreciation and amortization 54,040 131,422 161,882 384,076 544,104
Bad debt expense - - - - 34,833
Selling, general and administrative 96,906 186,233 405,740 482,387 1,826,994
------------ ------------ ------------ ------------ ------------
Total Expenses 357,723 539,512 1,250,265 1,518,276 5,726,458
------------ ------------ ------------ ------------ ------------
INCOME BEFORE OTHER INCOME (EXPENSE) (344,727) (505,378) (1,156,649) (1,425,185) (5,504,833)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Other income (496) - 17,114 442 73,210
Interest income 839 2,205 3,012 5,176 38,603
Interest expense (4,536) (161,267) (191,201) (217,362) (616,718)
Impairment loss - - - - (1,694,111)
Inventory impairment loss - - - - (140,712)
Loss on disposition of assets - - - (2,898) (5,384)
------------ ------------ ----------- ----------- -----------
Total Other Income (Expense) (4,193) (159,062) (171,075) (214,642) (2,345,112)
------------ ------------ ------------ ------------ ------------
NET LOSS $ (348,920) $ (664,440) $ (1,327,724) $ (1,639,827) $ (7,849,945)
------------ ------------ ------------ ------------ ------------
OTHER COMPREHENSIVE INCOME
Foreign currency adjustments 975 - 6,365 - 9,537
------------ ------------ ------------ ------------ ------------
NET COMPREHENSIVE LOSS $ (347,945) $ (664,440) $ (1,321,359) $ (1,639,827) $ (7,840,408)
============ ============ ============ ============ ============
NET LOSS PER SHARE $ (0.09) $ (0.20) $ (0.25) $ (0.43)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 3,995,556 3,394,415 5,369,433 3,798,326
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
6
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
Related Deficit
Party Accumulated
Additional Other Stock Prepaid During the
Common Stock Paid-in Comprehensive Subscription Compensation Development
Shares Amount Capital Income Receivable Contracts Stage
----------- ----------- ----------- ----------- ----------- ----------- -----------
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)
----------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
7
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
Related Deficit
Party Accumulated
Additional Other Stock Prepaid During the
Common Stock Paid-in Comprehensive Subscription Compensation Development
Shares Amount Capital Income Receivable Contracts Stage
----------- ----------- ----------- ----------- ----------- ----------- -----------
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 Urathon 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)
----------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
8
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
Related Deficit
Party Accumulated
Additional Other Stock Prepaid During the
Common Stock Paid-in Comprehensive Subscription Compensation Development
Shares Amount Capital Income Receivable Contracts Stage
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1997 4,561,748 $ 4,562 $ 5,582,811 $ 2,984 $ (50,000) $ $(2,254,392)
Exercise of options for
common stock at $2.50
per share 5,500 5 13,745 - - - -
Common stock repurchased
at $0.18 per share (1,270,000) (1,270) (228,730) - - - -
Common stock issued in lieu
of interest on promissory
notes at approximately
$3.24 per share 152,250 152 492,629 - - - -
Common stock issued in lieu
of notes payable at $1.00
per share 400,000 400 399,600 - - - -
Common stock issued as
prepaid salary under related
party compensation contracts
at $2.00 per share 305,000 305 609,695 - - (610,000) -
Common stock issued for
subscription receivable
at $2.00 per share 200,000 200 399,800 - (400,000) - -
Common stock issued for
services at $2.00 per
share 264,752 265 529,239 - - - -
Receipt of stock
subscriptions - - - - 50,000 - -
Currency translation
adjustment - - - 188 - - -
Amortization of prepaid
compensation contracts - - - - - 33,333 -
Net loss for the year
ending June 30, 1998 - - - - - - (4,267,829)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1998 4,619,250 $ 4,619 $ 7,798,789 $ 3,172 $ (400,000) $ (576,667)$(6,522,221)
=========== =========== =========== =========== ========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
9
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
Related Deficit
Party Accumulated
Additional Other Stock Prepaid During the
Common Stock Paid-in Comprehensive Subscription Compensation Development
Shares Amount Capital Income Receivable Contracts Stage
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1998 4,619,250 $ 4,619 $ 7,798,789 $ 3,172 $ (400,000) $ (576,667) $(6,522,221)
Common stock issued in lieu
of interest on promissory
notes at $3.00 per share
(Unaudited) 1,250 2 3,749 - - - -
Common stock issued in lieu
of notes payable at 1.00
per share
(unaudited) 1,135,000 1,135 1,133,865 - - - -
Common stock issued for cash
at $0.50 per share 529,000 529 351,471 - - - -
Common stock issued for
services at $0.50 per share 60,000 60 29,940 - - - -
Currency translation
adjustment (unaudited) - - - 6,365 - - -
Amortization of prepaid
compensation contracts
(unaudited) - - - - - 246,667 -
Net loss for the 9 months
ended March 31, 1999
(unaudited) - - - - - - (1,327,724)
----------- ----------- ----------- ----------- ---------- ---------- -----------
Balance at March 31,
1999 (unaudited) 6,344,500 $ 6,345 $ 9,317,814 $ 9,537 $ (400,000)$ (330,000) $(7,849,945)
----------- ----------- ----------- ---------- ---------- ---------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
10
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
From
For the For the For the For the Inception on
Three Months Three Months Nine Months Nine Months January 30,
Ended Ended Ended Ended 1995 Through
March 31, March 31, March 31, March 31, March 31,
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (348,920) $ (664,440) $ (1,327,724) $ (1,639,827) $ (7,849,945)
Adjustments to Reconcile Net Loss to
Net Cash (Used) by Operating
Activities:
Depreciation and amortization 54,040 131,422 161,882 384,076 544,104
Bad debt expense - - - - 34,833
Loss on disposition of assets - - - 2,898 5,384
Impairment loss - - - - 1,694,111
Inventory impairment loss - - - - 140,712
Common stock issued for services 30,000 - 30,000 13,750 900,259
Services provided in lieu of cash
payment on subscriptions
receivable - - - - 75,000
Common stock issued in lieu of
interest - 173,890 3,750 335,765 496,531
Changes in Assets and Liabilities:
(Increase) decrease in accounts
receivable and accounts
receivable- related (24,010) (9,837) (129,049) (25,924) (247,323)
(Increase) decrease in inventory 13,193 7,881 14,062 20,436 (265,502)
(Increase) decrease in prepaid
expenses 78,973 (9,527) 395,366 (72,849) 255,647
(Increase) decrease in other assets (4,040) - (4,040) (18,539) 62,493
Increase (decrease) in accounts
payable and accrued expenses (18,346) (89,960) 273,816 120,108 525,166
Increase (decrease in accounts
payable related parties 42,000 84,356 84,000 15,688 89,600
------------ ------------ ------------ ------------ ------------
Net Cash (Used) by Operating
Activities (177,110) (376,215) (497,937) (864,418) (3,538,930)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,987) (124,539) (88,011) (223,303) (1,437,064)
Purchase of subsidiary - - - - (400,000)
------------ ------------ ------------ ------------ ------------
Net Cash (Used) in Investing
Activities $ (1,987) $ (124,539) $ (88,011) $ (223,303) $ (1,837,064)
------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial
statements.
11
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
From
For the For the For the For the Inception on
Three Months Three Months Nine Months Nine Months January 30,
Ended Ended Ended Ended 1995 Through
March 31, March 31, March 31, March 31, March 31,
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipt of subscriptions receivable $ - $ - $ - $ 50,000 $ 50,000
Repurchase of common stock - - - (230,000) (439,862)
Payment of stock offering costs - - - - (160,401)
Proceeds from notes payable and line
of credit - 612,864 157,500 1,064,819 2,392,838
Payments made on notes payable and
line of credit (74,000) - (99,000) - (503,838)
Payments made to related parties - - - - (10,000)
Common stock issued for cash 307,000 - 307,000 - 4,105,631
------------ ------------ ------------ ------------ ------------
Net Cash Provided (Used) by
Financing Activities 233,000 612,864 365,500 884,819 5,434,368
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 53,903 112,110 (220,448) (202,902) 58,374
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,471 186,437 278,822 501,449 -
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 58,374 $ 298,547 $ 58,374 $ 298,547 $ 58,374
============ ============ ============ ============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW
ACTIVITIES
CASH PAID FOR:
Interest $ - $ 1,028 $ - $ 5,919 $ 56,449
Income taxes $ - $ - $ - $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for services
rendered $ 30,000 $ - $ - $ 13,750 $ 900,259
Common stock issued in lieu of debt
and interest $ 57,500 $ - $ - $ - $ 2,234,781
Common stock issued for acquisition
of subsidiary $ - $ - $ - $ - $ 1,550,000
Common stock issued as prepaid
salary $ - $ - $ - $ - $ 610,000
The accompanying notes are an integral part of these consolidated financial
statements.
12
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
Notes to the Unaudited Consolidated Financial Statements
March 31, 1999
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, Urathon Limited (UL)
(formerly UTI Chemicals (Europe) Limited). 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 was 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 is engaged in the manufacturing, marketing,
distribution, and sales of "flatfree" specialty tires from its manufacturing
facility located in Ravenna, Ohio.
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. The Company's cash account
at its bank is insured by the FDIC up to $100,000. The account balance was not
in excess of the insured limits at March 31, 1999.
d. Basic Loss Per Share
The computations of basic loss per share of common stock are based on the
weighted average number of shares outstanding during the period of the
consolidated financial statements. Common stock equivalents, consisting of
stock options, have not been included in the calculation as their effect is
antidilutive for the periods presented.
e. Principles of Consolidation
The March 31, 1999 consolidated financial statements include those of American
Tire Corporation and its wholly-owned subsidiary, Urathon Limited. All
significant intercompany accounts and transactions have been eliminated.
For the Company's foreign subsidiary (UL), the functional currency has been
determined to be the local currency. Accordingly, assets and liabilities are
translated at the period-end exchange rates, and operating statement items are
translated at average exchange rates prevailing during the period. 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
periods presented.
13
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
March 31, 1999
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)
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 balances on
the 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 March 31, 1999, the Company has net operating loss carry forwards of
approximately $7,600,000 that will expire in 2013. No tax benefit has been
reported in the consolidated financial statements because the potential tax
benefits of the net operating 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.
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 quarter ended March 31, 1999 and 1998 was
$54,040 and $131,422, respectively.
j. Revenue Recognition
Revenue is recognized upon shipment of goods to the customer.
14
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
March 31, 1999
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)
k. Concentrations of Risk
Foreign Currency Translation
- ----------------------------
Since UL is a foreign company whose financial statements must be translated
into U.S. Dollars to conform with the requirements of the Securities and
Exchange Commission, 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. Patents
Patents and related technology have been capitalized at March 31, 1999. The
patents are still pending and no amortization of the costs has been recorded
for the quarter ended March 31, 1999.
m. Change in Accounting Principle
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income" during the year ended June 30, 1998.
SFAS No. 130 established standards for reporting and display of comprehensive
income (loss) and its components (revenues, expenses, gains and losses) in a
full set of general purpose financial statements. This statement requires
that an enterprise classify items of other comprehensive income by their
nature in a financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a balance sheet. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. The Company has
retroactively applied the provisions of this new standard by showing the other
comprehensive income (loss) for all periods presented.
n. Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
15
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
March 31, 1999
NOTE 2 - STOCK SUBSCRIPTION RECEIVABLE
During the year ended June 30, 1998, an officer of the Company signed an
agreement and note to purchase 200,000 shares of the Company's common stock at
a price of $2.00 per share. At March 31, 1999, the $400,000 owed under a
note, has been presented as a reduction of stockholders' equity.
NOTE 3 - RELATED PARTY TRANSACTIONS
As of March 31, 1999, $89,600 was owed to certain related entities. These
amounts are unsecured and due on demand.
The Company entered into an Agreement of Settlement and Mutual Release on
August 19, 1997 with two former officers and another employee of the Company.
As part of the settlement agreements, the Company 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 was to be paid in twenty
equal consecutive monthly payments. At March 31, 1999, the $70,000 owed on
this account is included in the accounts payable.
As of June 30, 1998, salary and management fees in the amount of $576,667 had
been prepaid to officers and consultants of the Company through the issuance
of stock. The amount will be amortized as the salary and consulting expenses
are incurred for these individuals. The amount is broken out as follows:
1. 75,000 shares were issued to the Company's CEO in lieu of salary from
July 1, 1998 to October 1, 1999. These shares were recorded at the average
trading price of the stock of $2.00 on the date of issuance resulting in a
prepaid amount of $150,000. Amortization through March 31, 1999 was $90,000,
resulting in a prepaid amount of $60,000 as of March 31, 1999.
2. 50,000 shares were issued as a management fee for services to be
rendered from March 1, 1998 to February 28, 1999. These shares were recorded
at the average trading price of the stock of $2.00 on the date of issuance,
resulting in an initial prepaid expense of $100,000. Amortization through
March 31, 1999 was $100,000, resulting in a prepaid amount of $-0- as of March
31, 1999.
3. 180,000 shares were issued to the Company's president in lieu of
salary from July 1, 1998 to June 30, 2001. These shares were recorded at the
average trading price of the stock of $2.00 on the date of issuance resulting
in an initial prepaid expense of $360,000. Amortization through March 31,
1999 was $90,000, resulting in a prepaid amount of $270,000 as of March 31,
1999.
The total prepaid amount of $330,000 has been presented as a reduction of
stockholders' equity (related party prepaid compensation contracts) as of
March 31, 1999.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company maintains an executive office suite in Boulder City, Nevada which
is currently provided to the Company at a rent charge of $425 per month.
16
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
March 31, 1999
NOTE 5 - LINE OF CREDIT
The Company has a line of credit with a bank. 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 March 31, 1999 was $-0-.
NOTE 6 - NOTES PAYABLE
During the year ended June 30, 1998, the Company entered into various
promissory notes payable for a total of $1,122,500. As part of the original
note agreements, prepaid interest was to be paid on each note in the form of
shares of the Company's common stock. The shares were recorded at a total
value of $492,781 (effective interest rate of approximately 65%). During the
quarter ended September 30, 1998, the Company entered into a promissory note
payable for the amount of $12,500. As part of the original note agreement,
prepaid interest was to be paid on the note in the form of shares of the
Company's common stock. The shares were recorded at a value of $3,750
(effective interest rate of approximately 60.0%)
Amortization of the interest through March 31, 1999 was $155,622 resulting in
prepaid interest of $-0- as of March 31, 1999.
Notes having maturity dates ranging from January 1, 1999 to March 31, 1999
amounting to $12,500 were presented for payment. The Company elected, under
the terms of the note payable, to issue 12,500 shares of common stock at the
rate of one share for each $1.00 of note.
During the quarter ended September 30, 1998 the Company entered into a
promissory note with an unrelated third party. The note terms include an
additional payment of $12,500 due at the due date November 18, 1998(effective
interest rate of approximately 75%). Interest rate of 12% applies to all
principal if not paid at maturity.
The entire amount of these notes is considered to be a current liability as of
March 31, 1999.
NOTE 7 - STOCK OPTIONS OUTSTANDING
The Company's Board of Directors has authorized a Non-Qualified Stock Option
Plan that allows for the Company to issue options to purchase up to 35,000
shares of the Company's common stock that may be issued to consultants or
others that provide professional services to the Company. The stock options
have been valued at fair market value according to FAS 123, "Accounting for
Stock-Based Compensation." Stock option activity for the quarter ended March
31, 1999 consisted of the following:
Number
Of Shares
------------
Outstanding at December 31, 1998 14,500
Granted during the quarter -
Exercised during the quarter ( - )
------------
Outstanding at March 31, 1999 14,500
============
17
AMERICAN TIRE CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to the Unaudited Consolidated Financial Statements
March 31, 1999
NOTE 7 - STOCK OPTIONS OUTSTANDING (Continued)
The 14,500 stock options outstanding at March 31, 1999 are summarized as
follows:
Date Number of Exercise Expiration
Issued Options Price Date
------ --------- -------- ----------
May 31, 1997 14,500 $2.00 May 31, 1999
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-looking Statements
- ---------------------------------------------------------
This report may contain "forward-looking" statements. The Company is
including this cautionary statement for the express purpose of availing itself
of the protections of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to all such forward-looking
statements. Examples of forward-looking statements include, but are not
limited to: (a) projections of revenues, capital expenditures, growth,
prospects, dividends, capital structure and other financial matters; (b)
statements of plans and objectives of the Company or its management or Board
of Directors; (c) statements of future economic performance; (d) statements of
assumptions underlying other statements and statements about the Company and
its business relating to the future; and (e) any statements using the words
"anticipate," "expect," "may," "project," "intend" or similar expressions.
Year 2000 Disclosure
- --------------------
The Company is working to resolve the potential impact of the year 2000
on the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures. The Company utilizes a minimum
number of computer programs in its operations. The Company has not completed
its assessment, but currently believes that costs of addressing this issue
will not have a material adverse impact on the Company's financial position.
However, if the Company and third parties upon which it relies are unable to
address this issue in a timely manner, it could result in a material financial
risk to the Company. In order to assure that this does not occur, the Company
plans to devote all resources required to resolve any significant year 2000
issues in a timely manner.
Results of Operations
- ---------------------
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's revenues are generated primarily by its business operations
in the United States. However in February 1997, the Company acquired all of
the capital stock of its current subsidiary Urathon Limited. For the nine
month periods ended March 31, 1999 and 1998, the functional currency for the
Company's foreign subsidiary (Urathon Limited) has been determined to be the
British Pound Sterling. Assets and liabilities have been translated at period
end exchange rates and operating statement items are translated at average
exchange rates prevailing during the period. For the nine month periods ended
March 31, 1999 and 1998, the Company had a gain of $6,365 and $-0-,
respectively, as a result of foreign currency translation adjustments.
19
Nine Month Period ended March 31, 1999 compared to March 31, 1998
- ----------------------------------------------------------------------
Total revenues for the nine month period ended March 31, 1999 was
$281,846 compared to $314,845 for the same period in 1998. Costs of sales for
the nine month period ended March 31, 1998 were $188,230, or 66.8% of sales as
compared to $221,754, or 70.4% of sales for the same period in 1998. The
decrease in the cost of sales as a percent of sales for 1999 compared to 1998
is attributable to efficiencies developed in the Company's manufacturing
process during the period. The decrease in the Company's sales during the
nine month period in 1999 compared to 1998 can be attributed to the Company's
limited financial resources and lack of any working capital to enhance
promotion and sales of its products. Other the lack of working capital, the
Company knows of no predictable events or uncertainties that may be reasonably
expected to have a material impact on the net sales revenues or income from
operations.
Corporate Expense. For the nine month period ended March 31, 1999, total
operating expenses were $1,250,265, consisting of mainly of payroll and
payroll taxes of $585,976, depreciation and amortization of $161,882,
consulting of $99,667, and selling, general and administrative expenses of
$405,740, resulting in a loss from operations of $(1,156,649). Total
operating expenses for the same period ended March 31, 1998 were $1,518,276,
mainly consisting of payroll and payroll taxes of $563,793, consulting of
$88,020, depreciation and amortization of $384,076, and selling, general and
administrative expenses of $482,387, resulting in a loss from operations of
$(1,425,185). Corporate expenses during the nine month period ended March 31,
1999, were approximately $268,011 less than corporate expenses for the same
nine month period ending March 31, 1998. The most significant portion of the
reduction in corporate expenses was reflected in a decrease in depreciation
and amortization and selling, general, and administrative expenses over the
reporting period.
Interest Expense. Interest expense for the nine month period ended March
31, 1999 was $191,201 compared to $217,362 for the same period in 1998. The
slight decrease in interest expense for the period in 1999 is directly
attributed to a reduction in the issuance of convertible promissory notes and
other borrowing during the period.
The Company experienced a net comprehensive loss of $(1,312,359) for the
nine month period ended March 31, 1999 compared to a loss of $(1,639,827) for
the same period in 1998. The basic loss per share for the nine-month period
ending March 31, 1999 was $(0.25) and $(0.43) for the same period ended March
31, 1998, based on the weighted average number of shares outstanding of
5,369,433 and 3,798,326, respectively.
Liquidity and Capital Resources
- -------------------------------
During the nine month period ended March 31, 1999, the Company (a) issued
1,250 shares of its common stock to note holders in lieu of interest on
convertible promissory notes at approximately $3.00 per share for a value of
$3,751; (b) issued 1,135,000 shares of common stock to the holders of the
convertible promissory notes on conversion of $1,135,000 of such notes at a
conversion price of $1.00 per share; (c) sold 529,000 shares of its common
stock for cash of $352,000, at a price of $0.50 per share; and (d) issued
60,000 shares of common stock for consulting services valued at a price of
$0.50 per share.
20
At March 31, 1999, the Company had current assets of $432,442 and current
liabilities of $751,766, for a working capital deficit of $(319,324). At March
31, 1999, the Company had cash and cash equivalents of $58,374 and accounts
receivable of $222,483. Net cash used in operations from the nine months ended
March 31, 1999 was $497,937 compared to $864,418 for the same period in 1998.
Cash used in operations for the nine month period ending March 31, 1999 was
funded primarily by cash received from the sale of convertible promissory
notes and common stock for cash.
At March 31, 1999, the Company had net property and equipment of
$1,012,639, after deduction of $461,776 in accumulated depreciation. The
Company's property and equipment consists mainly of land ($59,000), building
and improvements ($296,741), and equipment ($1,080,723). At March 31, 1999,
the Company has an accumulated deficit during the development stage of
$(7,849,945), has a working capital deficit and limited internal financial
resources. The report of the Company's auditor for its fiscal year ended June
30, 1998, contains a going concern modification as to the ability of the
Company to continue. During the nine month period ending March 31, 1999, the
Company has implemented measures to reduce cash outflows and increase working
capital through the issuance of additional shares of common stock for cash,
services and the conversion of debt.
The Company is aware of its ongoing cash requirements and has implemented
a cash flow plan, including continued reduction in its general and
administrative expenses. Additionally, the Company has developed an overall
strategy and certain financing options to meet its ongoing needs through June
30, 1999. Due to the need for working capital for both the Company and its
subsidiary Urathon Limited, the Company intends to seek additional debt and/or
equity financing from existing shareholders and other investment capital
resources. The Company has no commitments for any additional debt or equity
financing at this time and no assurance can be given that the Company will be
able to obtain any such commitments. 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,
1999.
Impact of Inflation
- -------------------
The Company does not anticipate that inflation will have a material
impact on its current or proposed operations.
Principal Customers
- -------------------
During the quarter the Company had no individual customer that accounted
for more than 10% of the Company's revenues.
Seasonality
- -----------
Management of the Company knows of no seasonal aspects relating to the
nature of the Company business operations that had a material effect on the
financial condition or results of operation of the Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
21
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN TIRE CORPORATION
[Registrant]
Dated: June 7, 1999 /S/DAVID K. GRIFFITHS
-----------------------------------
Principal Accounting Officer