Ecotyre Technologies Inc – ‘10KSB’ for 3/31/96

As of:  Monday, 7/1/96   ·   For:  3/31/96   ·   Accession #:  946670-96-5   ·   File #:  0-27240

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Annual Report — Small Business   —   Form 10-KSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB       Annual Report -- Small Business                       46    201K 
 2: EX-27       Financial Data Schedule (Pre-XBRL)                     1      7K 

10KSB   —   Annual Report — Small Business
Document Table of Contents

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SECURITIES AND EXCHANGE COMMISSION                
WASHINGTON, D.C. 20549                
---------------                 
Form 10-KSB                 
(Mark One)                                                                  
[X] Annual report  pursuant to Section 13 or 15(d) of the Securities        
Exchange Act of 1934 For the fiscal year ended March 31, 1996       
or                
[ ] 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 0-27240                                              

ECOTYRE TECHNOLOGIES, INC.                
(Name of Small Business Issuer in its Charter)                

Delaware                                   11-3234026                       
(State or other jurisdiction of     (IRS Employer Identification No.)           
incorporation or organization)                                                

895 Waverly Avenue, Holtsville, New York         11742                          
(Address of Principal Executive Offices)      (Zip Code)                        

Issuer's telephone number, including area code:     (516) 289-4545              

  Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 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 [   ]                                                            

  Check if there is no disclosure of delinquent  filers  pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB [x]                                               

Issuer's revenue for its most recent fiscal year: $314,024.                 

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant as of June 28, 1996 based on the average price on that date was  
$12,466,406. At June 28, 1996, the number of shares outstanding of the issuer's 
common stock was 3,115,000.                                                     

 DOCUMENTS INCORPORATED BY REFERENCE
None                                                                            
Transitional Small Business Disclosure Format     Yes [   ]   No [ x ]          

------------------------------------------------------------------------        

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PART I

ITEM 1.     DESCRIPTION OF BUSINESS                                             

General                                                                         

     EcoTyre Technologies Inc., (the "Company") has marketed since 1993 remolded
automobile  tires  manufactured  by third  parties for sale in the United States
replacement  automobile  passenger  tire market.  The Company  believes based on
published  industry  reports  that in  1994,  over  $7  billion  of  replacement
automobile  passenger  tires were sold in the United  States.  During 1995,  the
Company  curtailed  distribution   operations,   concentrating  its  efforts  on
commencing  manufacturing  operations for its own line of remolded tires,  which
limited manufacturing  operations commenced in December 1995. The remolded tires
manufactured  by the Company are created by  remanufacturing  a previously  used
high-quality  passenger  automobile  tire  casing of a name brand  manufacturer.
Through a process comparable to manufacturing a new tire, new rubber is attached
to the casing from sidewall to sidewall.                                        

     88% of the Company's  revenues for the fiscal year ended March 31, 1996 and
all of its  revenues  for fiscal  1995 were  derived  from the  distribution  of
remolded passenger automobile tires manufactured by third parties, thus allowing
the Company to evaluate the market  acceptance  of these  products in the United
States.  While remolded passenger automobile tires have for many years been used
in the United Kingdom and other parts of Europe,  their use in the United States
has been  primarily for  commercial  purposes  such as in the airline  industry.
Based upon its experience in distributing remolded passenger automobile tires in
the United  States,  and in order to  exercise  greater  control  over costs and
product quality,  the Company acquired equipment to manufacture its own remolded
tires and leased a 65,000 sq. ft. manufacturing facility. The Company also hired
executive,  management and engineering personnel with significant  experience in
the automobile passenger automobile tire industry,  including the manufacture of
remolded passenger automobile tires.                                            

     The Company was incorporated under the laws of the State of Delaware on May
20, 1994 as a successor to a predecessor  New York  corporation  formed in April
1993 from which it acquired the assets used in  connection  with its business in
June 1994. The Company's executive offices, manufacturing facility and warehouse
are located at 895 Waverly Avenue, Holtsville, New York 11742, and its telephone
number is (516) 289-4545.                                                       

The Replacement Passenger Tire Industry                                         

     According  to  published   industry  reports,   approximately  175  million
replacement  automobile  passenger  tires  were sold  during  1994 in the United
States for over $7 billion. This market has been increasing in size each year as
the number of older cars in use in the United States has increased. According to
published reports,  more than one in two automobiles in use in the United States
is six years old or  older.  On  average,  automobiles  currently  in use in the
United  States  are  approximately  8 years old and  require  replacement  tires
approximately  every  35,000  to  40,000  miles  or  three  to four  years.  The
replacement tire market includes new tires,  retreads (including remolded tires)
and used tires. Replacement tire products are sold primarily through independent
dealers and distributors,  which, based on published industry reports,  together
accounted  for  approximately  64% of all  replacement  tires sold in the United

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States in recent  years.  Replacement  tires are sold in a wide variety of sizes
and  types to match  the  varying  sizes and  styles  of  automobiles  and other
vehicles  on which  they are used.  The  Company  believes,  based on  published
industry data,  that there  currently are  approximately  80 different  sizes of
passenger  automobile  tires in use in the United  States,  of which the 10 most
popular sizes account for approximately 48% of the market.                      

     According to published reports, in 1994 retreaded tires (including remolded
tires) accounted for  approximately  29 million of the replacement  tires in the
U.S., of which  approximately  6 million  units were for passenger  automobiles.
Traditional  retreaded tires are made from used tire casings to which new rubber
is applied only to the outside tread of the tire. With the exception of this new
tread,  traditional  retreaded  tires  undergo no other  structural  or cosmetic
change.  The Company  believes  that its remolded  tires  differ in  significant
respects from traditional retreaded tires. See "Manufacturing  Operations".  The
Company believes that remolded tires, while popular in European  automobile tire
markets,  have not been utilized to a significant degree in the U.S.  automobile
tire market.                                                                    

Manufacturing Operations                                                        

     The Company commenced limited manufacturing  operations in December 1995 at
its  65,000  square  foot  leased   facility  in   Holtsville,   New  York.  See
"Properties".  The Company has purchased 28 mold presses,  molds, two extruders,
three sidewall  building  machines,  four buffing machines and related ancillary
equipment. The additional equipment purchased is intended to increase production
and limit down time due to equipment cleaning and repairs. Except for a recently
purchased buffing machine, the Company has no warranty or service contracts with
respect to such equipment, and bears the sole risk if equipment fails to operate
effectively.  No  assurance  can be given  that  this  equipment  will  function
properly during manufacturing operations.                                       

     The Company's  remolded tires are  manufactured  with  previously used high
quality tire casings of name brand  manufacturers.  Using automated buffers, the
Company  removes or "buffs" and smoothes  the old rubber from the entire  casing
down to the shell  casing.  Using a spray booth  cement  transfer  station,  the
Company  applies  adhesive and then applies new tread rubber onto the casing and
sidewall veneer to the casing. Vulcanizing presses then permanently bond the new
rubber to the casing  through a bonding  process  that covers the entire  casing
from  sidewall  to  sidewall  (or "bead to bead") in a unitary  melded  piece of
rubber.  This  vulcanizing  process utilizes a  high-temperature  mold press and
tread molds to create the new tread  design and a  steam-heated  curing  process
comparable to that used in new tire  production.  Finally,  the remolded tire is
inspected,  including pressure inflation testing.  The Company has also used the
services of an  independent  testing  facility to test the building  process for
proper building of the tires with favorable  results.  The Company  believes its
remolded  tires are  comparable  in quality and  appearance  to new  replacement
tires.  Its remolded tires contrast with traditional  retreaded tires,  which do
not have the appearance of a new tire,  since on traditional  retreads new tread
is placed over only the tread portion of a used casing and is affixed to the old
sidewalls.                                                                      

Marketing and Distribution                                                      

     The  Company  is  initially  producing  at its  manufacturing  facility  an
assortment  of popular  sizes (in three tread  patterns) of  replacement  tires,
primarily  for older small and  mid-size  vehicles.  Eight mold presses that the
Company  recently  purchased will be used to manufacture  larger passenger tires
used on  recreational,  sports utility,  high  performance and light  commercial
vehicles. Manufacturing of these type tires is scheduled to commence in or about
September  1996.  The Company  believes that budget minded  consumers  will find

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cosmetically  appealing,  low-priced remolded replacement automobile tires to be
an attractive alternative to more expensive,  new replacement tires. The Company
enhances   its   marketing   efforts   at  the  retail   level  by   offering  a
four-year/50,000  mile tread wear limited  warranty on its steel  belted  radial
passenger car tires  (excluding  high  performance  tires,  snow tires and light
truck tires),  thus  demonstrating to its customers and consumers the high level
of confidence which the Company has in the quality level of its products. At the
wholesale level, the Company intends to enhance marketing efforts through dealer
incentive  plans  such  as  price   incentives,   cooperative   advertising  and
point-of-sale material.                                                         

     The Company has entered into an agreement  dated April 1, 1994, as amended,
with  one  customer  for a  three-year  term,  renewable  by  either  party  for
successive  one-year terms upon 90 days notice.  Pursuant to this agreement,  in
the event the customer  purchases four cargo  containers of tires per month from
the  Company  during  the first 12 months of  operations  at the  Company's  new
manufacturing  facility,  the Company will be required to pay to this customer a
10% commission on all tires  purchased by them from the Company for that part of
such  period  during  which  the  Company  is in  full  production.  Under  this
agreement,  the Company  has granted to this  customer  the  exclusive  right to
distribute  the  Company's  products  in  Florida,  Alabama,   Louisiana,  North
Carolina, South Carolina and Georgia, which exclusivity can be terminated by the
Company if, with respect to Florida,  this  customer does not sell an average of
four containers per month,  and with respect to the other states,  an average of
two containers per month. The customer also has the non-exclusive  right to sell
the Company's tires in Central  America and the Caribbean  area,  subject to the
Company's prior written permission. Pursuant to this agreement, the customer has
agreed not to sell in the exclusive territories any other remolded tire products
aside from those sold by the  Company.  In June  1996,  this  customer  was also
granted  the  exclusive  right to  distribute  in  South  America  with  certain
conditions.                                                                     

     The Company  has entered  into an  agreement  dated  January 1, 1995 with a
second customer for a four-year  term,  renewable by either party for successive
one-year terms upon 90 days notice. Pursuant to this agreement,  the Company has
granted  to this  customer  the  exclusive  right  to  distribute  its  tires in
California,  Texas, Missouri, Kansas, New Mexico, Oklahoma and Nevada; provided,
that if this  customer  fails to commence  distribution  of and has no immediate
intention to distribute the Company's tires in any of these  territories by June
30,  1996,  then the Company  shall be free to offer  distributorships  to third
parties in such territories.  Pursuant to this agreement, this customer has also
agreed not to sell in the exclusive  territories  any other remolded tires other
than those sold by the Company. This agreement may be terminated by either party
without cause upon 90 days notice.                                              

     During fiscal 1995 and 1996,  minimum order  quantities  for sales of third
party  manufactured  tires  distributed by the Company were not met by either of
these  customers,  due in  large  part  to the  Company's  inability  to  obtain
sufficient  quantities of remolded  tires from its suppliers for resale to these
customers.  There can be no assurance  that these  customers  will  purchase any
remolded tires from the Company,  since their minimum purchase requirements only
affect the exclusivity of their distributorships.                               

     According to published reports,  approximately 65% of all replacement tires
are sold through independent dealers and distributors.  Accordingly, the Company
intends  to  target  this  market  in the sale of its  manufactured  tires.  Its
regional  sales  managers will be an integral  part of the  Company's  marketing
plans. The Company believes, based on industry reports, that there are more than
40,000  retail  outlets in the  United  States  which  serve an average of 4,500
vehicles  annually.  Approximately  1,500  of  these  outlets  are in New  York,

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approximately  4,000 are in California and  approximately  2,400 are in Florida.
The Company also intends to target other  significant  retail  sellers,  such as
mass merchandisers,  which, based on industry reports, account for approximately
9% of  all  retail  tire  sales  and  auto  supply  stores,  which  account  for
approximately 6% of such sales.                                                 

     The Company is also engaged in a marketing program, including attendance at
trade shows,  advertising in trade  publications and point of purchase displays.
This  program is designed  to educate the retail  sellers of its tires as to the
nature of the Company's products,  including their high quality and the economic
advantages to tire dealers of selling the Company's  products.  Customer service
is considered by the Company as a primary factor in its operations. Accordingly,
the  Company  intends to use its best  efforts to make  timely  delivery  of its
products and provide high-quality service and support to its customers.         

     With respect to large wholesale  customers,  the Company intends to deliver
its products in large shipping  containers  delivered by sea where  practicable.
For inland areas,  the Company intends to deliver its products by truck or rail.
For customers  within the New York  metropolitan  area,  the Company  intends to
maintain  several  small  trucks  which can  service a  network  of retail  tire
replacement centers from the Company's facility.                                

Raw Materials                                                                   

     The primary raw  materials  to be used by the Company in its  manufacturing
operations are used tire casings and rubber. The Company believes that rubber is
readily available from numerous sources, though its price may fluctuate based on
supply and demand in local and worldwide markets. The Company also believes that
suitable used tire casings of reusable quality are readily available from a wide
variety of sources, including retail replacement tire centers, used tire dealers
and  distributors  and other  sources.  Given the  nature of the market for tire
casings,  the Company  believes that it will be necessary to obtain casings from
many  sources  to meet  its  anticipated  needs.  While  the  Company  does  not
anticipate  any  difficulties  in  obtaining  raw  materials,  in the event that
sufficient  quantities  of suitable used tire casings or other raw materials are
not available,  or if the price thereof substantially  increases,  the Company's
business operations could be materially adversely affected.                     

Competition                                                                     

     The automobile  replacement tire industry is highly competitive.  There are
inherent  difficulties for any company seeking to commence operations and market
a new product, particularly in a very competitive mature market such as that for
replacement   automobile  tires.  The  Company   anticipates  that  its  primary
competition will be from lower-priced,  lesser-known  associated brands of major
manufacturers  and private label  manufacturers of new tires,  both imported and
domestic, such as Coronet (Armstrong Tire Company),  Summit (General Tire Inc.),
Hankock,   Hercules   (Cooper  Tire  &  Rubber  Co.),   Ohtsu  and  others  from
manufacturers  and sellers of  retreaded  tires such as Achievor and Les Schwab.
Many of these  competitors  have  been in  existence  for many  years,  maintain
extensive  manufacturing  budgets, and have established market shares, wide name
recognition,  existing  franchise,  dealer or other  distribution  networks  and
greater financial,  personnel and administrative  resources than the Company and
have the  capability  of value  pricing  their  products  to deter or  eliminate
competition.  Assuming the Company does gain a significant  market share,  there
also is no  assurance  that other United  States or foreign tire  manufacturers,
including those with experience in the foreign  remolded tire markets,  will not
enter the United  States  market in direct  competition  with the Company in the
United States.                                                                  

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     In  addition,  there are  several  retreading  processes  already in use by
potential  competitors  in addition to the  process  that the Company  utilizes.
These  alternative  processes  include  the  Bandag  retreading  system  precure
process, the Goodyear authorized mold cure, precure and unicircle processes, the
Hawkinsons System of tire retreading mold cure process,  the Hercules retreading
equipment  system precure process and the Long Mile licensed dealer program mold
cure and precure  processes.  The  Company  believes  that the primary  areas of
competition  are price,  warranty,  service  and  quality  and that it  competes
favorably in these regards.                                                     

     The Company believes that its primary competitive advantage with respect to
new  replacement  tires  is cost.  While  the  price  differential  between  the
Company's  products  and  those of lower  end and  certain  foreign-manufactured
replacement tires is expected to be smaller,  the Company expects that its price
advantage  will  still be  sufficient  to  attract  consumers  to its  products.
Further,  the Company  believes that it will enjoy a competitive  advantage with
respect to lower-priced imported new replacement tires, retreaded tires and used
tires as a result of its  four-year/50,000  mile tread wear limited  warranty on
its steel belted radial passenger car tires  (excluding high performance  tires,
snow tires and light truck  tires),  which the  Company  believes is superior to
warranties typically offered by manufacturers and sellers of such products.     

Government Regulation                                                           

     The United  States  Department of  Transportation,  as well as the National
Highway Traffic Safety Administration  ("NHTSA"),  under authority granted to it
by the National  Traffic and Motor Vehicle  Safety Act of 1966, as amended,  has
established various standards and regulations  relating to motor vehicle safety,
some of  which  apply  to tires  sold in the  United  States  for  highway  use.
Particularly,   certain  regulations  establish  minimum  requirements  for  the
remanufacturing   of  passenger  and  light  truck  tires,   including   casings
suitability,  performance and labeling standards. The NHTSA has the authority to
order the recall of automotive products,  including tires, having defects deemed
to present a  significant  safety  risk.  NHTSA has issued  "Tire  Registration"
regulations,  which  require  the  registration  of  tires  for the  purpose  of
identification  in the event of a product  recall and the  molding of  ten-digit
manufacturing  identification  codes containing  certain  qualities of the tires
into the  sidewall of each tire.  The Company  believes  that its  manufacturing
operations  comply with all applicable  governmental  laws and  regulations.  In
addition,  tires are required to meet certain  speed and  performance  standards
established by tire manufacturer trade associations for its members. The Company
is  currently a member of the  American  Retread  Association  and is  regularly
informed of any changes and standards in the area of tire manufacturing.        

     While  the  Company  believes  that its  manufacturing  operations  are not
environmentally sensitive and will comply with all applicable environmental laws
and  regulations,  no assurance can be given that compliance with  environmental
laws, regulations or other restrictions,  including any new laws or regulations,
will not impose additional costs on the Company which could adversely affect its
financial performance and results of operations.                                

Product Liability                                                               

  The Company's business exposes it to potential  liability which is inherent in
the production and distribution of automotive  equipment.  The Company currently
maintains $5,000,000 of product liability,  general and personal and advertising
injury  insurance  per  occurrence  and in the  aggregate,  subject  to a $5,000
deductible.                                                                     

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Employees                                                                       

     As of March  31,  1996,  the  Company's  staff  consisted  of 25  full-time
employees,   including  its  executive   officers,   four   salespersons,   four
administrative personnel and 13 manufacturing personnel. The Company's employees
are compensated on a salaried or hourly basis,  except that certain officers and
sales representatives receive commissions on sales they effectuate.  Each of the
Company's  employees is a member of the Financial  Consultants Guild of America,
and is not represented by any other labor organization. The Company is not aware
of  any  activity  seeking  such   organization.   The  Company   considers  its
relationships  with  its  employees  to be  satisfactory.  When the  Company  is
operating at full capacity,  the Company intends to have  approximately  50 full
time employees  including its executive officers,  salespersons,  administrative
employees and manufacturing personnel.                                          

Intellectual Property                                                           

     The  Company  intends to utilize  its newly  registered  trademarks  on the
products it manufactures at its new  manufacturing  facility,  which  trademarks
include  "TRAXX-PLUS",  and the  Company  may  elect  to use  additional  and/or
replacement  trademarks on its products.  The Company  currently owns no patents
and the  technology  used to develop the  Company's  products  generally  is not
proprietary.  There can be no assurance that the Company's  competitors will not
independently  utilize  existing  technologies  to  develop  products  that  are
substantially equivalent or superior to the Company's. The Company believes that
its products do not infringe on the  intellectual  property  rights of any third
party.                                                                          

ITEM 2.     DESCRIPTION OF PROPERTY                                             

     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,
maintenance and taxes,  subject to a 5% annual increase.  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  through  July 31,  2005.  If this option has not been  exercised  by
October 1, 1997, the purchase price will increase by 5% on that date and on each
anniversary  thereof  up to and  including  October  1,  2004.  The  Company  is
utilizing  this  facility  for  its  manufacturing  operations,  as  well as for
warehousing its inventory and as its corporate offices.                         

ITEM 3.     LEGAL PROCEEDINGS                                                   

     The  Company  is  unaware  of any  pending  or  threatened  material  legal
proceedings involving it or its property.                                       

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                 

     No matters were  submitted to a vote of security  holders during the fiscal
year ended March 31, 1996.                                                      

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 PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS            

     The Company's  Common Stock and Common Stock Purchase  Warrants were listed
and  commenced  trading on the NASDAQ  Small Cap market under the symbol ETTI on
February 7, 1996. Prior to February 7, 1996, there was no separate public market
for the Company's stock or warrants,  except for trades as a Unit (consisting of
one share of Common Stock and one Warrant) which  commenced  trading on December
13, 1995 and terminated  trading on February 6, 1996.  The following  table sets
forth,  for the quarters  indicated,  the quarterly high and low closing bid    
prices for the Common Stock and Common Stock Purchase Warrants, as reported by  
NASDAQ:                                                                         

                                                                [Download Table]


                                        Common Stock            Warrants      
                                      High Bid   Low Bid   High Bid    Low Bid
                                                                              

Fiscal 1996                                                                   
     First Quarter . . . . . . . . . .   *         *          *          *    
     Second Quarter. . . . . . . . . .   *         *          *          *    
     Third Quarter . . . . . . . . . .   *         *          *          *    
     Fourth Quarter. . . . . . . . . .  $6-3/4   $4-3/4      $3          $2   

Fiscal 1997                                                                   
     First Quarter(through                                                    
        June 26,1996). . . . . . . . .  $6       $4-3/4      $3          $2   
-------                                                                       
<FN>                                                                          

     *  Not Applicable.                                                       
</FN>                                                                         

     The bid prices set forth above reflect inter-dealer prices,  without retail
mark-up, mark-down, or commission, and may not represent actual transactions. As
of June 26, 1996,  there were  approximately  55  stockholders of record of the 
Common Stock.                                                                   

     The Company  has not paid any  dividends  on its Common  Stock and does not
presently  intend to do so.  Future  dividend  policy will be  determined by its
Board of Directors on the basis of the Company's earnings, capital requirements,
financial condition and other factors deemed relevant.                          

     The transfer agent and registrar of the Company's  Common Stock is American
Stock Transfer and Trust Co., 40 Wall Street, New York, New York 10005.         

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ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION             

     The Company has operated as a wholesale  distributor of remolded automobile
tires since its inception in April 1993. In accordance  with its business  plan,
the Company has substantially curtailed distribution  operations,  concentrating
its  efforts  on  commencing  manufacturing   operations.  In  its  distribution
operations, the Company resold its products primarily to retail tire replacement
centers and tire distributors.                                                  

     At March 31, 1996, the Company has recently  commenced  limited  production
for    its    domestic    manufacturing    and    distribution    of   its   own
remanufactured/remolded  tires.  During  fiscal  1996,  sales  to  one  customer
accounted for 12% of the Company's  net sales.  Two customers  accounted for 27%
and 18%,  respectively,  of the  Company's  net sales for the fiscal  year ended
March 31,  1995.  The Company  has  distribution  agreements  with each of these
customers  which provide these  customers with exclusive  territorial  rights to
sell the Company's  products in their  respective  territories  based on certain
minimum purchase  requirements and pursuant to which these customers have agreed
not to sell any  other  remolded  tires.  While the  Company  is  expanding  its
customer  based as a  manufacturer  or remolded  tires,  it  anticipates  that a
substantial  portion of the sale of its manufactured tires in the near term will
be to these two customers.                                                      

     The Company acquired 20 previously owned mold presses,  molds, an extruder,
a building machine,  a buffing machine and ancillary  equipment for an aggregate
price of approximately  $530,000. This equipment has been utilized in connection
with the recent commencement of limited manufacturing operations by the Company.
The Company believes based on its proposed manufacturing process,  including the
utilization  of  previously  used  tire  casings,  that it will  be  capable  of
producing  tires   comparable  in  quality  to  newly   manufactured   tires  at
significantly  lower cost. The Company  believes that by  manufacturing  its own
products it should be able to reduce its per tire costs, expand its product line
and improve the quality of its products.                                        

     In addition,  the Company has purchased an eight station used  Europress to
manufacture larger tires used on recreational,  sport utility,  high performance
cars and light commercial  vehicles.  Additional  ancillary equipment such as an
extruder,  buffers and a Hawkinson  electronic scanner have also been purchased.
These  recent  machinery  purchases  are in the  process  of  coming  on line to
increase  the  Company's  production  capacity  and to  limit  down  time due to
equipment cleaning and repairs.                                                 

Results of Operations                                                           

 Fiscal Year Ended March 31, 1996 Compared to Fiscal Year Ended March 31, 1995

     Net Sales.  The  Company's  net sales of $314,024 for the fiscal year ended
March 31, 1996 ("Fiscal 1996") represent a decrease of $967,199  compared to net
sales for the fiscal year ended March 31, 1995 ("Fiscal 1995"). The decrease was
due to curtailment of its  distribution  of tires  manufactured by third parties
and limited manufacturing of its own tires.                                     

     Cost of Sales.  The Company's cost of sales for Fiscal 1996 was $925,914 as
compared to $1,058,382,  representing a decrease of $132,468.  This decrease was
due  primarily to the decrease of purchases and  corresponding  freight and duty
paid as a result of the curtailment of the Company's distribution of third party
manufactured  tires.  Certain  fixed  overhead,  primarily  rent,  increased  by

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$169,081 due to the  Company's  relocation  to a  manufacturing  facility from a
sales  office  and  distribution  warehouse.  Certain  of the  Company's  direct
overhead  expenses  also  increased,   such  as  salaries  ($154,013)  insurance
($74,992)  and  depreciation  ($34,227) due to the initial  commencement  of the
manufacturing facility.                                                         

     Gross  Profit  (Loss).  The  Company  had a gross loss for  Fiscal  1996 of
($611,890) as compared to a gross profit of $222,841 for Fiscal 1995, a decrease
of  $834,731.  This  decrease  was  directly  caused by the  curtailment  of the
distribution of third party manufactured tires.                                 

     Operating and Other  Expenses.  The Company  incurred  selling and shipping
expenses of $336,956, general and administrative expenses of $916,988,  interest
expense of $364,892 and the write-off of original  issue discount of $389,216 in
Fiscal 1996 as compared to $219,998 of selling and shipping  expenses,  $657,649
of general and  administrative  expenses  and  $177,927  of interest  expense in
Fiscal 1995. The increase in selling and shipping  expenses  resulted  primarily
from an  increase  in  salaries  to full  time  salespersons.  The  general  and
administrative  expense  increase  was  attributable  primarily  to increases in
facility expenses including rent and electricity and consulting fees paid, which
arose from the relocation  from a  distribution  sales office and warehouse to a
manufacturing  facility. In addition,  bridge financing expenses of $54,171 were
incurred during Fiscal 1996. The increase in interest expense is attributable to
amortization of deferred  interest of $283,328 from the discounting of the notes
in the Company's  bridge  financing.  The remaining  original  issue discount of
$389,216  was written off during  Fiscal 1996 at the time of the initial  public
offering.                                                                       

     Net Loss. The Company  sustained a net loss of  ($2,637,313) in Fiscal 1996
as  compared  to a net loss of  ($833,925)  in the Fiscal  1995,  an increase of
($1,803,388).  The increase was primarily  attributable  to the diverting of its
resources  from  the  distribution  business  to  the  planned  commencement  of
manufacturing and the resultant  decrease in sales volume. The net loss was also
attributable  to fixed expenses such as rent incurred upon relocating to the new
manufacturing  facility and the amortization and write off of deferred  interest
in the discounting of the notes.                                                

Fiscal Year Ended March 31, 1995 Compared to Fiscal Year Ended March 31, 1994.

     Net Sales.  The  Company's  net sales of $1,281,223 in Fiscal 1995 exceeded
its net sales for the  fiscal  year  ended  March 31,  1994  ("Fiscal  1994") by
$721,122 or 128.7%.  This increase was due  primarily to a general  expansion of
the Company's  distribution  operations,  including commencement of sales to one
customer which totaled $224,006.                                                

     Cost of Sales. The Company's cost of sales in Fiscal 1995 was $1,058,382 as
compared  to $462,981 in Fiscal  1994,  representing  an increase of $595,401 or
128.6%.  This increase was due primarily to costs  associated with the Company's
increased  sales volumes such as freight and duty  (increase of $68,044 or 144%)
and tire purchases (increase of $424,832 or 81.3%).                             

     Gross Profit.  The Company's gross profit for Fiscal 1995 was $222,841,  as
compared to $97,120 in Fiscal  1994,  an  increase  of $125,721 or 129.5%.  This
increase was due primarily to the Company's  increased  sales levels.  The gross
profit margins, as a percentage of sales,  remained relatively constant for both
periods, respectively.                                                          

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     Operating and Other Expenses. The Company had selling and shipping expenses
of  $219,998,  general and  administrative  expenses of  $657,649,  and interest
expense of  $177,927  in Fiscal  1995 as  compared  to  $112,030  of selling and
shipping expenses,  $169,882 of general and administrative expenses, and $38,520
of  interest  expense in Fiscal  1994.  The  increase  in selling  and  shipping
expenses  resulted  from  increased  commissions  on sales of $35,550 or 134.4%,
travel and  entertainment  of $23,868  or 130.4%,  allocated  rent of $26,800 or
100%.  The  general  and  administrative  expense  increases  were  attributable
primarily to increases in salaries of $145,328 or 176.8%,  professional  fees of
$80,457 or 353.7%, finders fees of $38,297 or 100% and operating expenses due in
part to the  expansion of the Company  such as rent of $77,510 and  insurance of
$53,652.  The increase in interest  expense is  attributable  to the increase of
$87,140  related to the  increase  in  long-term  debt and the  amortization  of
deferred interest of $54,585 from discounting of the notes.                     

     Net Loss.  The  Company  had a net loss of  ($833,925)  in  Fiscal  1995 as
compared to a net loss of  ($223,889) in Fiscal 1994, an increase of $610,036 or
272.5%.  This  increase  was  attributable  primarily  to the  higher  operating
expenses relating to the Company's expanding  distribution  operations and costs
incurred in connection with the Company's planned  commencement of manufacturing
operations.                                                                     

Liquidity and Capital Resources                                                 

     The Company  believes that it has or will have  sufficient  funds available
from its  operations,  together  with the net  proceeds  of the  initial  public
offering,  to support its manufacturing  operations for at least the next twelve
months. The Company will be using approximately  $200,000 of its available funds
to purchase the balance of equipment necessary to become fully operational.     

     The Company used cash in operating  activities  in the amount of $1,709,359
for the year ended March 31,  1996,  and  $646,808  for the year ended March 31,
1995  which was  primarily  related  to the loss from  operations.  Cash used in
investing  activities  in the amount of $712,049 and $199,521 for the year ended
March 31, 1996 and 1995, was principally  for the purchase of related  machinery
and equipment to commence  operations of its manufacturing  facility.  Financing
used to fund operating and investing  activities in the amount of $5,154,974 and
$844,957 for the year ended March 31, 1996 and 1995 was derived principally from
its initial public offering (in December 1995), working capital loans, notes and
debentures.  In addition, during fiscal 1996, financing was obtained from Bridge
Loans and long-term  notes in the amount of $1,075,000  which were repaid at the
initial public offering.                                                        

     In June 1995, the holders of $1,092,929  principal  amount of loans,  notes
and  debentures,  together  with  subsequent  purchasers  of  similar  notes and
debentures,  exchanged them,  together with accrued and unpaid interest thereon,
for an aggregate of 1,202,775 shares of Class A Redeemable Convertible Preferred
Stock of the Company. The Company can 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.         

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     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 then proposed 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 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  collateralizing  such loan. The
Company has not incurred any material  additional  indebtedness  or  capitalized
lease  obligations  in connection  with the  commencement  of its  manufacturing
operations  except  for  $225,000  of  unsecured  notes,  and  $200,000  from an
established bank line of credit.                                                

     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,
maintenance and taxes, subject to 5% annual increases. As long as the Company is
in substantial compliance with its obligations under this lease, the Company has
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% on 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.  This option may be exercised at any time up to July 31, 2005.  The Company
is utilizing  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 its planned expansion.                                               

     The Company does not anticipate  requiring  additional financing to operate
its existing  facility,  but may need financing to redeem its Class A Redeemable
Convertible Preferred Stock and to expand to additional facilities, if required.

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.                                      

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ITEM 7.  FINANCIAL STATEMENTS                                                   

     The  following  selected  financial  data has been derived from the audited
financial  statements  of  EcoTyre  Technologies,  Inc.  and  should  be read in
conjunction with, the financial statements and related notes appearing elsewhere
in this Form 10-KSB.                                                            

                                                        [Enlarge/Download Table]


Statement of Operations Data:                                                        
                                                  Fiscal Year Ended March 31,        
                                               1994          1995          1996      
                                               ----          ----          ----      
                                                                                     

Net sales                                    $ 560,101    $1,281,223    $ 314,024    
Net loss from operations                      (223,889)     (833,925)  (2,637,313)   
Primary loss per common share                     (.16)         (.60)       (1.46)(2)
Weighted average number of common                                                    
    shares outstanding (1)                   1,390,000     1,390,000    1,905,369    

Balance Sheet Data:                                                                  
                                                       March 31, 1996                
                                                       --------------                
                                                                                     

Working capital                                        $2,391,664                    
Total assets                                            4,704,860                    
Total long term debt, net of                                                         
  current portion (3)                                     221,782                    
Class A Redeemable  Convertible Preferred Stock         1,125,182                    
Stockholders' equity                                    2,128,019                    
--------                                                                             
<FN>                                                                                 

     (1)  Adjusted  to give  effect to (a) a  .23453-for-1  reverse  stock split     
effected in May 1994,  and (b) the issuance of 50,000 Bridge Shares in June 1995     
in connection with the Company's  offering of five Bridge Units and the issuance     
of  165,000  Bridge  Shares in  August  1995 in  connection  with the sale of an     
additional  16.5  Bridge  Units (the  "Bridge  Units"),  at a purchase  price of     
$50,000 per Bridge Unit  consisting of one Bridge Note and 10,000 Bridge Shares.     
Does not give effect to (a) the exercise of  outstanding  options and  warrants,     
(b) the conversion of Class A Redeemable  Convertible Preferred Stock or (c) the     
exercise of the Class B Warrants  issuable  upon the  conversion  of the Class A     
Redeemable  Convertible Preferred Stock.                                             

(2) For purposes of calculating primary loss per  common  share for the year         
ended  March  31,  1996,  preferred  stock dividends of $149,070 have increased      
the net loss from  operations to arrive at net loss  attributable to common          
shareholders  of  ($2,786,383).                                                      

(3) Includes long-term portion of term notes,equipment loan, machinery loan          
and capital lease obligations.                                                       
</FN>                                                                                

     The  financial  statements  listed in Item 7 are  included  in this  Report
beginning on Page F-1.                                                          

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ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON                    
ACCOUNTING AND FINANCIAL DISCLOSURES                    

None                                                              

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PART III

ITEM 9.     DIRECTORS AND EXECUTIVE OFFICERS, COMPLIANCE WITH SECTION 16(a)     
OF THE EXCHANGE ACT                                     

       The Company's  directors and executive  officers as of June 30, 1996 were
as follows:                                                                     

Name                   Age              Position              
----                   ---              --------              

Marc de Logeres (2)         69         Co-Chairman of the Board       

Maxwell G. Parsons  (3)     66         Co-Chairman of the Board       

Vito F. Alongi (1)          41         President, Principal Executive,
                                         Financial and Accounting Officer,
                              Treasurer and Director

   Robert E. Munyer, Jr. (2)   53         Vice President - Manufacturing and
                                            Distribution, Secretary and Director

John  W. King (1)           62         Vice President and Director    

   Patrick A. Tracey           57         Vice President-Sales and Marketing

Theresa Mari, Esq (3).      32         Director                       

Arthur Rosenberg, Esq. (3)  58         Director                       

---------                                                                       
(1) Member of Class I, to serve until the 1996 Annual  Meeting of  Stockholders.
(2) Member of Class II, to serve until the 1997 Annual Meeting of  Stockholders.
(3) Member of Class III, to serve until the 1998 Annual Meeting of Stockholders.

     Marc de  Logeres  has been  Co-Chairman  of the Board of  Directors  of the
Company  since  November  1995 and a consultant  to the Company since June 1995.
From 1970  through  1995,  Mr. de Logeres was  Chairman of the Board of Michelin
Tyres plc, the United Kingdom subsidiary of the Michelin Group, and from 1962 to
1992 was chief executive officer,  president and later chairman of Michelin Tire
Company in the United States and Michelin  Tire Company Ltd., in Canada.  Mr. de
Logeres is a director of Cobra  Industries,  Inc.,  a director of France  Growth
Fund,  a  $100,000,000  closed-end  mutual  fund and is also a director  of Nova
Scotia Power, Inc., a $650,000,000 per year electricity supplier.               

     Maxwell G. Parsons was  Chairman of the Board of the Company from  February
1995 until November 1995 and has been  Co-Chairman of the Board since that time.
From  1986  to  the  present,  Mr.  Parsons  has  been  the  president  of  M.G.
Enterprises,  Inc., a consulting  firm.  From 1982 through 1986, Mr. Parsons was

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president  of K-Mart  Enterprises,  Inc.  and was  responsible  for managing the
automotive and sporting  goods  departments  of K-Mart stores  nationwide,  with
approximately  $1 billion of  automotive  sales  annually,  including  over $100
million of  automobile  tires.  From 1975  through  1980,  Mr.  Parsons  was the
consulting  managing director of K-Mart  Australia,  Inc. and a director of G.J.
Coles, a part owner of K-Mart Australia, Inc.                                   

     Vito F.  Alongi has been  President,  Principal  Executive,  Financial  and
Accounting Officer, Treasurer and a director of the Company since its inception.
Since September 1991, he has been engaged on a substantially  full time basis in
the Company's business.  From 1989 until August 1993, Mr. Alongi was a principal
of Nestegg  Associates,  Inc., a financial  planning  firm and from 1989 through
1993 was a broker/dealer agent for Nathan & Lewis Securities, Inc.              

     Robert E. Munyer,  Jr. has been Secretary and Vice  President-Manufacturing
and Distribution of the Company and its predecessor  since April 1993. From 1986
until  1992,   Mr.   Munyer  was  employed  by  Raytheon   Corporation   in  its
Electromagnetic  Systems  Division  holding the  positions of Plant  Manager and
Director of Material Procurement.  From 1975 to 1986, he was employed in various
management positions by Fairchild Republic Company.                             

     John W. King has been Vice  President-Sales  for the Company since November
1994,  acted as a consultant to the Company's  business since September 1991 and
has been a director of the Company since May 1995.  From 1990 through 1991,  Mr.
King was the managing director of B.T.S.  Monarch Tires,  plc., a leading United
Kingdom-based  manufacturer and distributor of remolded automobile tire products
which was placed in  receivership  in 1991. From 1978 through 1995, Mr. King has
been President of W. B. McVicker Company, a specialty chemical company. For more
than 18 years prior thereto, he was employed by Goodyear International,  holding
several senior management positions including Director of Marketing for Europe. 

     Patrick  A.  Tracey has been Vice  President-Sales  and  Marketing  for the
Company and its predecessor since August 1993. From 1974 to 1991, Mr. Tracey was
President of Patrick A. Tracey,  Inc., a real estate  investment firm. From 1965
until 1974, Mr. Tracey was employed by Goodyear  International,  holding several
senior management positions including manager of worldwide product marketing.   

     Theresa Mari,  Esq. has been a director of the Company since May 1994.  Ms.
Mari  is an  attorney  admitted  to  practice  in the  States  of New  York  and
Connecticut and has been a practicing  attorney with the firm of Jaeger,  Mari &
Block since 1992 and as a solo practitioner from 1989 through 1992.             

     Arthur Rosenberg, Esq. has been a director of the Company since March 1996.
Mr.  Rosenberg has been the Vice  President of  Acquisitions  for The Associated
Companies, a real estate developer,  in Bethesda,  Maryland since June 1987. Mr.
Rosenberg  is an attorney  admitted to practice in the State of New York and has
practiced law for over 30 years.                                                

     In addition to the foregoing executive officers and directors,  the Company
has also retained the services of several employees and independent  contractors
who are expected to make significant  contributions  to its business,  including
the following persons:                                                          

     Louis  Crispino  has been Sales  Manager of the Company or its  predecessor
since April  1993.  From 1983 to 1992,  Mr.  Crispino  was  employed by Raytheon
Corporation in its  Electromagnetic  Systems Division,  holding the positions of
Financial Manager of Quality Assurance and Financial Control Manager.  From 1987
to 1991, Mr. Crispino also owned and operated two retail automobile tire outlets
on Long Island.                                                                 

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     Ian Sayers serves as the Company's plant manager and chief  engineer.  From
1988 through 1991, Mr. Sayers was engineering  manager for B.T.S.  Monarch Tyres
plc, a remolded  tire  manufacturer  located  in the United  Kingdom,  which was
placed in receivorship in 1991. From 1986 through 1988, Mr. Sayers was a machine
tool technician with Cloos International (U.K.) Ltd., a manufacturer of welding,
robotics and orbital  manipulators.  From 1973 through  1982,  Mr.  Sayers was a
mechanical fitter for Goodyear Tire & Rubber Co.                                

     Walter Carlile is the Company's production manager. From 1989 through 1993,
Mr. Carlile was sales manager for British Vita and Ondura Rubber,  manufacturers
of tire  rubber  compounds.  From 1987  through  1988,  Mr.  Carlile was quality
manager was B.T.S Monarch Tires plc, which was placed in  receivership  in 1991.
From 1982  through  1987,  Mr.  Carlile  was factory or  production  manager for
Michelin Tyres U.K. and Watts Tyre & Rubber Ltd.                                

      Directors,   with  the  exception  of  Mr.  Rosenberg,   receive  no  cash
compensation for their services to the Company as directors,  but are reimbursed
for expenses  actually  incurred in connection  with  attending  meetings of the
Board of Directors.  Each director  attended or  participated in at least 75% of
the meetings of the Board of Directors in fiscal 1995.                          

Compliance with Section 16(a) of the Securities Exchange Act                    

     Section  16(a)  of  the  Exchange  Act  requires  the  Company's  executive
officers,  directors  and persons who own more than ten percent of a  registered
class of the Company's equity securities  ("Reporting  Persons") to file reports
of ownership  and changes in ownership on Forms 3, 4, and 5 with the  Securities
and Exchange  Commission (the "SEC") and the National  Association of Securities
Dealers (the "NASD").  These Reporting Persons are required by SEC regulation to
furnish the  Company  with copies of all Forms 3, 4 and 5 they file with the SEC
and NASD. Based solely on the Company's review of the copies of the forms it has
received,  the Company believes that all Reporting  Persons complied on a timely
basis  with  all  filing  requirements   applicable  to  them  with  respect  to
transactions  during fiscal year 1995,  except that Maxwell G. Parsons filed one
report on Form 4 relating  to a purchase  of the  Company's  securities  several
weeks late.                                                                     

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ITEM 10.  EXECUTIVE COMPENSATION                                                

     The  following  table  sets forth the cash and other  compensation  paid in
fiscal 1996, 1995 and 1994 to the Company's executive officers.                 

                                                        [Enlarge/Download Table]

                                                                               Long-Term                   
                                                                               Compensation                
                                      Annual Compensation                      Securities                  
     Name and                                             Other Annual           Underlying      All Other 
  Principal Position           Year     Salary     Bonus   Compensation(1)     Options(6)    Compensation  
  -------------------          ----     ------     -----   ---------------     ------------  ------------  
                                                                                                           

  Vito Alongi                  1996    $100,103      -           -                  -               -      
  President                    1995      69,252      -           -               50,000             -      
  (Chief Executive Officer)    1994      11,496      -           -                  -               -      

  Robert E. Munyer, Jr.        1996     $80,807      -           -                  -               -      
  Vice President               1995      36,058      -       $12,702 (4)            -           $11,750 (3)
                               1994        -         -        22,738 (5)            -               -      

  John W. King                 1996     $70,920      -           -                  -               -      
  Vice President               1995        -         -        40,342 (2)         25,000             -      
                               1994        -         -        22,665 (2)            -               -      
<FN>                                                                                                       

(1) The value of all perquisites provided to the Company's officers did not exceed the                     
    lesser of $50,000 or 10% of the officer's salary and bonus.                                            
(2) Represents consulting fees.                                                                            
(3) Represents finders fee relating to working capital loans provided to the Company by third              
    parties.                                                                                               
(4) Represents commissions on sales of products.                                                           
(5) Represents commissions on sales of products of $11,684 and consulting fees of $11,054.                 
(6) Represents options granted under the Company's 1995 Long Term Incentive Plan which are                 
    exercisable at $5.00 per share commencing June 11, 1997.                                               

</FN>                                                                                                      

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Option/SAR Grants in Last Fiscal Year                                           

     The  following  table sets forth all stock option  grants to the  executive
officers named in the Executive Compensation table during the last fiscal year. 

                                                        [Enlarge/Download Table]

                                            Individual Grants                            
                        ------------------------------------------------------------     
       (a)                 (b)           (c)               (d)               (e)         
                        Number of     % of Total                                         
                        Securities    Options/SARS                                       
                        Underlying    Granted to                                         
                        Options/SARS  Employees in     Exercise or Base    Expiration    
Name                    Granted (#)   Fiscal Year      Price ($/Sh)            Date      
----                    ------------  -------------    -----------------   ----------    
                                                                                         

Vito F. Alongi             50,000       66-2/3%             $5.00          June, 2005 (1)
President                                                                                
(Chief Executive Officer)                                                                

Robert E. Munyer, Jr.         -            -                  -                -         
Vice President                                                                           

John W. King                25,000      33-1/3%             $5.00          June, 2005 (1)
Vice President                                                                           
-------                                                                                  
<FN>                                                                                     

(1) Represents ten year non-qualified options granted in June 1995,  exercisable         
June 11, 1997.                                                                           
</FN>                                                                                    

Employment Agreements                                                           

     The Company has entered into employment agreements with each of Vito Alongi
and John W.  King  pursuant  to which  Mr.  Alongi  has  agreed  to serve as the
President of the Company,  and Mr. King has agreed to serve as a Vice  President
of the  Company,  at  minimum  annual  base  salaries  of $95,000  and  $85,000,
respectively. These employment agreements are for an initial term of three years
commencing in December 1995.  The  agreements  with Mr. Alongi and Mr. King also
provide that they will each be paid 3% of the Company's  pre-tax earnings (up to
a maximum  payment of $125,000 with respect to the Company's  fiscal year ending
March 31, 1996 and up to $150,000 per year  thereafter)  during the term thereof
upon the Company achieving certain financial results. The employment  agreements
provide that if the employee is terminated after the initial term other than for
"cause" (as defined), or dies or becomes permanently disabled,  the Company will
pay to the employee certain severance.                                          

     Each  of  the  above-described  agreements  contains  restrictions  on  the
employee  engaging in competition  with the Company for the term thereof and for
one year thereafter and provisions  protecting the Company's  proprietary rights
and information. Each agreement also provides for the payment of three times the
employee's previous year's total compensation,  less $1.00, upon the termination
of his  employment  in the event of a change in  control  of the  Company  which
adversely  affects  his  working  conditions.  For those  purposes,  a change in
control is  defined  to mean (a) a person  (as such term is defined in  Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) other than a
current  director  or officer of the  Company  becoming  the  beneficial  owner,
directly or indirectly, of 30% of the voting power of the Company's outstanding 
securities or (b) the members of the Board of Directors at the beginning of     
any two-year  period  ceasing to constitute at least a majority of the Board of 
Directors  unless the  election of any new director  during such period has     
been  approved in advance by two-thirds of the directors in office at the       
beginning of such two-year period.                                              

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     The Company  also has entered  into an  employment  agreement  with Patrick
Tracey.  This agreement  provides that Mr. Tracey will serve as a Vice-President
of the Company, and will receive as compensation  therefor an annual base salary
of $40,000 per year, plus commissions equal to approximately 2% of the Company's
net sales to Martino which Mr. Tracey obtains for the Company. This agreement is
for an initial term of two years  commencing in December 1995, and provides that
if the employee is terminated  after the initial term other than for "cause" (as
defined), or dies or becomes permanently  disabled,  the Company will pay to the
employee  certain  severance.  This agreement also contains  restrictions on the
employee  engaging in competition  with the Company for the term thereof and for
one year thereafter and provisions  protecting the Company's  proprietary rights
and information.                                                                

Consulting Agreements                                                           

     The Company has entered into a consulting  agreement  with Marc de Logeres.
Under this agreement,  Mr. de Logeres has agreed to provide business  operations
and  management  consulting  services to the Company and to act as the Company's
Co-Chairman  of the Board.  Mr. de Logeres will receive an aggregate  consulting
fee of $84,000 per year. Mr. de Logeres is considered an independent contractor.
The Company may terminate  the services of Mr. de Logeres under this  consulting
agreement  if he cannot  adequately  perform  his duties  thereunder  because of
mental or  physical  disability,  death or for "Just  Cause" (as  defined).  The
above-described  agreement expires in July 1998 and contains restrictions on Mr.
de Logeres from  engaging in  competition  with the Company for the term thereof
and for one year  thereafter  and  provisions  protecting  the  Company's  trade
secrets and proprietary rights and information.                                 

     The Company has entered into a consulting  agreement with Maxwell  Parsons.
Under this agreement,  the Consultant has agreed to provide business  operations
and  management  consulting  services to the Company and to act as the Company's
Co-Chairman  of the Board,  and as  compensation  therefor will receive $3,500 a
month.  Additionally,  on June 13, 1997,  the Company will issue to Mr.  Parsons
25,000 shares of common stock of the Company at a price of $.001 (par value) per
share.  Mr. Parsons is considered an independent  contractor and not an employee
of the Company. The Company may terminate the services of Mr. Parsons under this
consulting  agreement  if he cannot  adequately  perform  his duties  thereunder
because  of  mental  or  physical  disability,  death or for  "Just  Cause"  (as
defined).  The  above-described  agreement  expires  in July  1998 and  contains
restrictions  on Mr. Parsons from engaging in  competition  with the Company for
the term  thereof and for one year  thereafter  and  provisions  protecting  the
Company's trade secrets and proprietary rights and information.                 

     The Company has entered into a consulting  agreement  with Saycar,  Ltd., a
partnership  organized  under the laws of the United Kingdom  ("Saycar").  Under
this agreement,  the Saycar has agreed to cause its  principals,  Walter Carlile
and Ian Sayers (the  "Principals"),  to provide engineering and plant management
advisory and consulting  services to the Company.  This consulting  agreement is
for an initial term of 3 years. Saycar will receive an aggregate  consulting fee
of $120,000  per year  deliverable  in equal  installments  over the term of the
agreement.  Saycar and its Principals are considered independent contractors and
not  employees of the Company.  The Company may terminate the services of either
Principal under this consulting  agreement if such Principal  cannot  adequately
perform his duties thereunder because of mental or physical disability, death or
for "Just Cause" (as defined).  The consulting agreement provides that if one of
the  Principals is terminated by the Company,  the consulting fee paid to Saycar
will be  reduced  by one  half  and if both  Principals  are  terminated  by the
Company,  no further  compensation will be paid to Saycar.  The  above-described
agreement  expires  in May 1998 and  contains  restrictions  on  Saycar  and its
Principals  from engaging in  competition  with the Company for the term thereof
and for one year  thereafter  and  provisions  protecting  the  Company's  trade
secrets and proprietary rights and information.                                 

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     The Company has entered into a  consulting  agreement  with Steven  Cantor.
Under this agreement,  the Consultant has agreed to provide business  operations
and management  consulting services to the Company.  Pursuant to this Agreement,
Mr. Cantor has received options to purchase 130,000 shares of Common Stock under
the Company's  1995 Long Term  Incentive  Plan. In addition,  Mr. Cantor will be
receiving  $4,166.67 per month together with an unallocated expense allowance of
up to $1,500 per month.  Also, on June 13, 1997,  the Company shall issue to Mr.
Cantor  20,000  shares of common  stock of the  Company at a price of $.001 (par
value) per share. Mr. Cantor is considered an independent  contractor and not an
employee of the Company.  The Company may  terminate  the services of Mr. Cantor
under this  consulting  agreement  if he cannot  adequately  perform  his duties
thereunder because of mental or physical  disability,  death or for "Just Cause"
(as defined).  The  above-described  agreement expires in July 1998 and contains
restrictions on Mr. Cantor from engaging in competition with the Company for the
term thereof and for one year thereafter and provisions protecting the Company's
trade secrets and proprietary rights and information.                           

1995 Long Term Incentive Plan                                                   

     In June 1995, the Company adopted The EcoTyre Technologies,  Inc. 1995 Long
Term Incentive Plan (the "1995 Incentive  Plan") in order to motivate  qualified
employees of the Company,  to assist the Company in attracting  employees and to
align the interests of such persons with those of the Company's stockholders.   

     The 1995 Incentive Plan provides for the grant of "incentive stock options"
within the  meaning of Section  422 of the  Internal  Revenue  Code of 1986,  as
amended, "non-qualified stock options," restricted stock, performance grants and
other types of awards to officers,  key employees,  consultants  and independent
contractors of the Company and its affiliates.                                  

     The 1995  Incentive  Plan,  which  will be  administered  by the Long  Term
Incentive Plan  Administrative  Committee of the Board of Directors,  authorizes
the issuance of a maximum of 350,000  shares of Common Stock which may be either
newly issued shares, treasury shares, reacquired shares, shares purchased in the
open market or any  combination  thereof.  If any award under the 1995 Incentive
Plan  terminates,  expires  unexercised,  or is cancelled,  the shares of Common
Stock that would otherwise have been issuable pursuant thereto will be available
for  issuance  pursuant  to the grant of new  awards.  To date,  the Company has
granted an aggregate of 340,000 options to purchase shares of Common Stock under
the 1995  Incentive  Plan, of which 130,000  options have been granted to Steven
Cantor,  50,000  options have been granted to each of Vito F. Alongi and Theresa
Mari, 25,000 options have been granted to John W. King, 25,000 options have been
granted to Marc de Logeres,  10,000  options have been granted to Ian Sayers and
10,000  options have been granted to Walter  Carlile.  Each of these  options is
exercisable  for ten years for a price of $5.00 per share,  commencing  June 11,
1997.                                                                           

Personal Liability and Indemnification of Directors                             

     The Company's  Certificate of Incorporation  and Bylaws contain  provisions
which reduce the potential  personal liability of directors for certain monetary
damages and provide for indemnity of directors and other persons. The Company is
unaware of any  pending or  threatened  litigation  against  the  Company or its
directors  that would result in any liability for which such director would seek
indemnification or similar protection.                                          

     Such  indemnification  provisions  are intended to increase the  protection
provided  directors  and,  thus,  increase the Company's  ability to attract and
retain qualified persons to serve as directors. The Company currently maintain a
liability insurance policy for the benefit of its directors.                    

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ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT        

     The following  table sets forth the  beneficial  ownership of the Company's
Common  Stock as of May 30,  1996 of (i) each  person  known by the  Company  to
beneficially own 5% or more of the shares of outstanding Common Stock, (ii) each
of  the  Company's  executive  officers  and  directors,  and  (iii)  all of the
Company's  executive  officers  and  directors  as a group.  Except as otherwise
indicated,  all shares are beneficially  owned, and investments and voting power
is held by the persons named as owners.                                         

                                                                [Download Table]


                              Amount and Nature                                
Name and Address of               of Shares             Percentage             
Beneficial Owner              Beneficially Owned        Ownership              
---------------------         -------------------       ----------             
                                                                               

Steven A. Cantor (1)                510,000(3)            16.4%                
Vito F. Alongi (1)                  140,000(4)             4.5%                
Annette Cantor (1)                  150,000                4.8%                
Cindy Bermingham (1)                135,000                4.3%                
John W. King (1)                     98,750(5)             3.2%                
Robert E. Munyer, Jr. (1)            70,000                2.2%                
Theresa Mari (1)                     45,000(4)             1.4%                
Patrick Tracey                       20,000                 .6%                
Maxwell G. Parsons (2)               15,000                 .5%                
All officers and directors                                                     
 as a group (8 persons)             388,750               12.5%                
-----------------                                                              
<FN>                                                                           
(1)  The  address  for  each  of  these  persons  is  895  Waverly  Avenue,    
     Holtsville,  New York 11742.                                              

(2) The address for this person is 3714  Woodlake  Drive,  Bonita  Springs,    
    Florida 33923.                                                             

(3)  Includes  an  aggregate  of 285,000  shares of Common  Stock  owned by    
     Annette Cantor,  Mr. Cantor's mother and Cindy Bermingham,  Mr. Cantor's  
     sister, as to which Mr. Cantor disclaims beneficial ownership.  Does not  
     include options to purchase  130,000  shares of Common  Stock at an       
     exercise  price of $5.00 per share which have been granted pursuant to the
     Company's 1995 Long Term Incentive Plan, which are not exercisable  within
     60 days.                                                                  

(4)  Does not include  options to purchase  50,000 shares of Common Stock at   
     an  exercise  price of $5.00 per share which have been  granted  pursuant 
     to the Company's 1995 Long Term Incentive  Plan,  which are not           
     exercisable  within 60 days.                                              

(5)  Does not include  options to purchase  25,000 shares of Common Stock at   
     an  exercise  price of $5.00 per share which have been  granted  pursuant 
     to the Company's 1995 Long Term Incentive  Plan, which are not exercisable
     within 60 days.                                                           
</FN>                                                                          

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ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                        

     On October 24, 1994,  Mr. Vito Alongi,  the Company's  President,  borrowed
$25,000 from the Company.  This loan is represented  by an unsecured  promissory
note due October  21,  1999  bearing  interest  at 7% per annum,  with  interest
payable annually. The note may be prepaid at any time without penalty.          

     In June 1995, Steven Cantor pledged 50,000 shares of Common Stock to secure
the obligations of the Company to ProTect Business  Management Corp. relating to
the  letter of credit  facility  to the  Company  by The Bank of New York.  This
pledge  replaced a pledge of the Common Stock by all of the  Company's  officers
and directors.  The letter of credit was to secure purchases by the Company from
a foreign  supplier of up to $150,000  and expired in September  1995,  at which
time the pledge  agreement was terminated and Mr. Cantor's shares were released.
In November 1995 Steven Cantor loaned $100,000 to the Company as part of interim
financing pending completion of the Company's initial public offering. The loan,
which  provides  for interest at the annual rate of 14% payable  quarterly,  was
paid in December 1995.                                                          

ITEM 13.  EXHIBITS, LIST AND REPORTS ON FORM 8-K                                

(a)(1)(2) Financial Statements and Schedules                                    

          See index to financial statements on page F-1 at beginning of attached
financial statements.                                                           

(a)       Exhibits                                                              

3.1   Amended and Restated  Certificate of  Incorporation of the Registrant.*   
3.2   Bylaws of the Registrant.*                                                
4.1   Specimen Common Stock  Certificate.*                                      
4.2   Form of Warrant Agreement (including Warrant Certificate).*               
4.3   Form of Underwriter's Purchase Option.*                                   
4.4   Form of Class A Redeemable  Preferred Stock  Certificate.*                
10.1  Lease  Agreement  dated February 1995 between the Registrant and Air      
Realty Associates.*                                                 
10.2  1995 Long Term  Incentive  Plan.*                                         
10.3  Employment  Agreement dated July 11, 1995 between the Registrant and      
Vito F. Alongi.*                                                    
10.4  Employment Agreement  dated July 11, 1995                                 
between the  Registrant  and John W. King.*                         
10.5  Employment  Agreement  dated June 30, 1995  between the  Registrant  and  
Patrick Tracey.*                                                    
10.6  Consulting  Agreement dated July 11, 1995 between the Registrant          
and Marc de Logeres.*                                               
10.7  Consulting  Agreement dated June 1, 1995 between the Registrant and       
Saycar Tire & Rubber.*                                              
10.8  Consulting  Agreement  dated July 7, 1995 between the Registrant and      
Maxwell G. Parsons.*                                                
10.9  Consulting  Agreement dated July 7, 1995 between the  Registrant  and     
Steven A. Cantor.*                                                  
10.10 Form of Consulting Agreement between the Registrant and LT Lawrence &     
Co., Inc.*                                                          
10.11 Form of Bridge Note.*                                                     
10.12 Form of Bridge Unit Subscription  Agreement.*                             
10.13 Exchange Offer dated June 23, 1995,including Form of Exchange Agreement.* 
10.14 Form of Indemnification Agreement between the Company and its             
officers and directors.*                                            
10.15 Agreement  dated April 1, 1994  between the  Registrant  and Martino Tire 
Company, as amended.*                                               

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10.16 Agreement dated January 1, 1995 between the Registrant and RPJ Tire       
Company.*                                                           
10.17 Loan and Security Agreement dated May 24, 1995 between the Registrant     
and GreyRock Capital Corporation.*                                  
23    Consent of BDO Seidman, LLP.*                                             
--------                                                                        
*   Incorporated by reference to Registration Statement on Form SB-2            
No. 33-96482.                                                           

(b)  Reports on Form 8-K.                                             
None                                                        

     The following undertakings are incorporated into the Company's Registration
Statement on Form S-8 (Registration No. 333-6365).                              

(a)  The undersigned registrant hereby undertakes:                    

          (1) To file,  during  any  period  in which  offers or sales are being
made, a post-effective amendment to this registration statement.                

             (i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;                                                         

            (ii) To reflect in the  prospectus  any fact or events arising after
the  effective  date  of  the   registration   statement  (or  the  most  recent
post-effective  amendment  thereof)  which,  individually  or in the  aggregate,
represent a fundamental  change in the information set forth in the registration
statement;                                                                      

            (iii) To include any material  information  with respect to the plan
of distribution not previously  disclosed in the  registration  statement or any
material change to such information in the registration statement.              

     Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the  registration  statement  is on Form S-3 or Form  S-8,  and the  information
required to be included in a  post-effective  amendment by those  paragraphs  is
contained in periodic reports filed by the registrant  pursuant to Section 13 or
Section 15(d) of the Securities  Exchange Act of 1934 that are  incorporated  by
reference in the registration statement.                                        

          (2) That,  for the  purpose of  determining  any  liability  under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering thereof.                                                               

          (3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.                                                                   

     (b) The  undersigned  registrant  hereby  undertakes  that, for purposes of
determining  any liability  under the Securities Act of 1933, each filing of the
registrant's  annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable,  each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the  registration  statement shall be
deemed to be a new  registration  statement  relating to the securities  offered
therein,  and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.                                         

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          (1)  Insofar as  indemnification  for  liabilities  arising  under the
Securities Act of 1933 may be permitted to directors,  officers and  controlling
persons of the registrant  pursuant to the foregoing  provisions,  or otherwise,
the  registrant  has been  advised  that in the  opinion of the  Securities  and
Exchange  Commission such  indemnification is against public policy as expressed
in the Act and is,  therefore,  unenforceable.  In the  event  that a claim  for
indemnification  against  such  liabilities  (other  than  the  payment  by  the
registrant of expenses  incurred or paid by a director,  officer or  controlling
person of the  registrant  in the  successful  defense  of any  action,  suit or
proceeding)  is  asserted by such  director,  officer or  controlling  person in
connection with the securities being registered,  the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit  to a  court  of  appropriate  jurisdiction  the  question  whether  such
indemnification  by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.                            

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SIGNATURES

     Pursuant to the  requirements  of the Section 13 or 15(d) of the Securities
Act of 1933,  the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 28th day of June, 1996.    

                          ECOTYRE TECHNOLOGIES, INC.

                  /s/ Vito F. Alongi

                          --------------------------
                Vito F. Alongi
                      President, Treasurer
                                 (Principal Executive, Financial
                         and Accounting Officer)

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been  signed on June 28, 1996 by the following persons in the        
capacities indicated:                                                           

Signature                                         Title     
----------                                        ------    

/s/ Marc de Logeres                               Co-Chairman of the Board      
--------------------------                                                      
Marc de Logeres                                                                 

/s/ Maxwell G. Parsons                                                          
--------------------------                        Co-Chairman of the Board      
Maxwell G. Parsons                                                              

/s/ Vito F. Alongi                                President, Treasurer and      
--------------------------                        Director (Principal Executive,
Vito F. Alongi                                    Financial and Accounting      
                            Officer)

/s/ Robert E. Munyer                              Director                      
--------------------------                                                      
Robert E. Munyer                                                                

/s/ John W. King                                  Director                      
--------------------------                                                      
John W. King                                                                    

/s/ Theresa Mari                                  Director                      
--------------------------                                                      
Theresa Mari                                                                    

/s/ Arthur Rosenberg                              Director                      
--------------------------                                                      
Arthur Rosenberg                                                                

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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 

EcoTyre Technologies, Inc.                                                      
Holtsville, New York                                                            

 We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 filed June 19, 1996 of our report dated May 24, 1996      
relating to the financial statements of EcoTyre Technologies, Inc. appearing    
in the Company's Annual Report on Form 10-KSB for the year ended March 31, 1996.

                              /s/ BDO Seidman, LLP

Mitchel Field, New York                                                         
June 28, 1996                                                                   

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ECOTYRE TECHNOLOGIES, INC.

FINANCIAL STATEMENTS
FORM 10-KSB ITEM 7

 YEARS ENDED MARCH 31, 1996 AND 1995

F-1 

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ECOTYRE TECHNOLOGIES, INC.

 INDEX

                                                            Page No.
                                                            --------

Report of independent certified public accountants                   F-3        

Financial Statements:                                                           

Balance sheets                                                     F-4      

Statements of operations                                           F-5      

Statements of stockholders' equity (capital                                 
deficit)                                                          F-6     

Statements of cash flows                                           F-7      

Notes to Financial Statements                                 F-8 - F-19        

F-2 

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Report of Independent Certified Public Accountants

To the Board of Directors and Stockholders                                      
EcoTyre Technologies, Inc.                                                  

     We have audited the  accompanying  balance sheets of EcoTyre  Technologies,
Inc. as of March 31, 1996 and 1995,  and the related  statements of  operations,
stockholders'  equity (capital deficit) and cash flows for the years then ended.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.                                                                  

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.          

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the financial position of EcoTyre Technologies,  Inc.
at March 31, 1996 and 1995, and the results of its operations and its cash flows
for the years  then  ended in  conformity  with  generally  accepted  accounting
principles.                                                                     

                BDO Seidman, LLP

Mitchel Field, New York                                                         
May 24, 1996                                                                    

F-3 

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ECOTYRE TECHNOLOGIES, INC.
BALANCE SHEETS

                                                                [Download Table]

                                                           March 31,          
                                                    1996              1995    
                                                    ----              ----    
                                                                              
ASSETS                                                                        
Current:                                                                      
  Cash and cash equivalents (Notes 1 and 4)     $ 2,782,952           $49,386 
  Accounts receivable, less allowance for                                     
   possible losses of $11,000 and $10,000                                     
   (Note 1)                                          65,174           232,901 
  Inventories (Notes 1 and 2)                       340,449           125,991 
  Other current assets                              160,806             8,236 
                                                -----------       ----------- 
   Total current assets                           3,349,381           416,514 

Property and equipment, less accumulated                                      
   depreciation                                                               
 (Notes 1, 3, 7 and 9)                            1,258,008            26,500 
Deposits on equipment (Note 9)                            -           230,000 
Other assets (Note 8)                                97,471           102,511 
                                                -----------       ----------- 
                                                $ 4,704,860          $775,525 
                                                ===========       =========== 

LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)                        
Current:                                                                      
  Notes payable - bank (Note 4)                $    200,000    $            - 
  Current maturities of long-term debt (Note 5)     150,000           195,000 
  Accounts payable                                  221,211           138,829 
  Accrued expenses (Note 6)                         279,735           258,594 
  Current maturities of equipment loan (Note 1)       1,697             1,675 
  Current maturities of capitalized leases                                    
    (Notes 1 and 7)                                   6,736              -    
  Current maturities of machinery loan                                        
    (Notes 1, 3 and 9)                               98,338              -    
                                                -----------       ----------- 
   Total current liabilities                        957,717           594,098 

Long-term debt (Notes 1, 5 and 8)                    75,000           903,862 
Equipment loan, less current maturities (Note 1)          -             1,697 
Capitalized leases, less current maturities                                   
    (Notes 1 and 7)                                  24,562              -    
Machinery loan, less current maturities                                       
    (Notes 1, 3 and 9)                              122,220              -    
Deferred rent credits (Note 11)                     272,160            82,710 
                                                -----------       ----------- 
   Total liabilities                              1,451,659         1,582,367 
                                                -----------       ----------- 
Class A Redeemable Convertible Preferred Stock,                               
   2,000,000 shares authorized; issued and                                    
   outstanding - 1,202,775 (redemption amount                                 
   of $1,202,775) (Notes 1 and 5)                 1,125,182              -    
                                                -----------       ----------- 
Commitments (Notes 9 and 11)                                                  
Stockholders' equity (capital deficit)                                        
   (Notes 1, 5, and 12):                                                      
   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                                         
   and 1,175,000                                      3,115             1,175 
  Paid-in capital                                 5,820,031           249,797 
  Deficit                                        (3,695,127)       (1,057,814)
                                                -----------       ----------- 

  Total stockholders' equity (capital deficit)    2,128,019          (806,842)
                                                -----------       ----------- 
                                               $  4,704,860         $ 775,525 
                                                ===========       =========== 
<FN>                                                                          
                See accompanying notes to financial statements.               
</FN>                                                                         

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ECOTYRE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS

                                                                [Download Table]


                                                          Year ended March 31,  
                                                          1996          1995    
                                                          ----          ----    
                                                                                

Net sales (Notes 1 and 10)                            $    314,024   $1,281,223 

Cost of sales                                              925,914    1,058,382 
                                                       -----------  ----------- 
  Gross profit (loss)                                     (611,890)     222,841 
                                                       -----------  ----------- 
Operating and other expenses:                                                   
  Selling and shipping                                     336,956      219,998 
  General and administrative                               916,988      657,649 
  Interest (including amortization of original                                  
    issue discount of $283,328 and $54,585 and                                  
    net of interest income of $29,503 and $325)                                 
    (Note 5)                                               364,892      177,927 
  Write-off of original issue discount (Note 5)            389,216         -    
                                                       -----------  ----------- 

   Total operating and other expenses                    2,008,052    1,055,574 
                                                       -----------  ----------- 
   Loss before taxes                                    (2,619,942)    (832,733)

Provision for taxes (Notes 1 and 13)                        17,371        1,192 
                                                       -----------  ----------- 
Net loss                                               $(2,637,313) $  (833,925)
                                                       ===========  =========== 

Preferred stock dividends (Note 5)                     $   149,070  $    -      
                                                       ===========  =========== 
Net loss attributable to common                                                 
 stockholders                                          $(2,786,383) $  (833,925)
                                                       ===========  =========== 
Net loss per share (Note 1)                            $     (1.46) $      (.60)
                                                       ===========  =========== 
Weighted average number of shares of common stock                               
 outstanding                                             1,905,369    1,390,000 
                                                       ===========  =========== 
<FN>                                                                            

                 See accompanying notes to financial statements.                
</FN>                                                                           

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ECOTYRE TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)

                                                        [Enlarge/Download Table]

                                Common Stock                                            
                               $.001 par value                                          
                               ---------------                                          
                                Number               Paid-in                            
                              of shares    Amount    capital     Deficit       Total    
                              ---------    ------    -------     -------       -----    
                                                                                        

Balance, March 31, 1994        1,175,000   $1,175    $ 26,945  $ (223,889)  $  (195,769)

Issuance of warrants with debt                                                          
 (Note 5)                          -         -        222,852        -          222,852 

Net loss                           -         -            -      (833,925)     (833,925)
                               ---------   ------    --------  -----------   -----------
Balance, March 31, 1995        1,175,000    1,175     249,797  (1,057,814)     (806,842)

Issuance of promissory notes                                                            
  and shares (Note 5)             50,000       50     149,950          -        150,000 

Issuance of promissory notes                                                            
  and shares (Note 5)            165,000      165     494,835          -        495,000 

Adjustment to reflect deferred                                                          
 placement costs of promissory                                                          
 notes (Note 5)                        -        -    (192,060)         -       (192,060)

Issuance of common stock in                                                             
 connection with initial                                                                
 public offering               1,725,000    1,725   5,266,579          -      5,268,304 

Preferred stock dividends                                                               
 (Note 5)                             -        -     (149,070)         -       (149,070)

Net loss                              -        -         -     (2,637,313)   (2,637,313)
                               ---------   ------  ----------  -----------   -----------
Balance, March 31, 1996        3,115,000   $3,115  $5,820,031 $(3,695,127)   $2,128,019 
                               =========   ======  ==========  ===========   ===========
<FN>                                                                                    
                 See accompanying notes to financial statements.                        
</FN>                                                                                   

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ECOTYRE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(NOTES 1 and 14)

                                                                [Download Table]


                                                     Year ended March 31,    
                                                     -------------------     
                                                       1996         1995     
                                                       ----         ----     
                                                                             
Cash flows from operating activities:                                        
  Net loss                                          $(2,637,313)   $(833,925)
  Adjustments to reconcile net                                               
   loss to net cash used in                                                  
   operating activities:                                                     
     Depreciation and amortization                       46,852        4,027 
     Deferred rent                                      189,450       82,710 
     Amortization and write-off  of original issue                           
        discount                                        672,544       54,585 
     Provision for possible losses on accounts                               
        receivable                                       11,000       10,000 
     Decrease (increase) in:                                                 
       Accounts receivable                              156,727     (138,776)
       Inventories                                     (214,458)      (5,364)
       Other assets                                    (147,530)     (64,057)
     Increase (decrease) in:                                                 
       Accounts payable                                  82,382       21,820 
       Accrued expenses                                 130,987      222,172 
                                                     -----------  ---------- 

Net cash used in operating activities                (1,709,359)    (646,808)
                                                     -----------  ---------- 

Cash flows from investing activities:                                        
  Capital expenditures - net                           (712,049)     (16,578)
  Deposits on equipment                                       -     (180,000)
  Loans to officer                                            -       (2,943)
                                                     -----------  -----------
Net cash used in investing activities                  (712,049)    (199,521)
                                                     -----------  -----------

Cash flows from financing activities:                                        
  Proceeds from working capital loans                   100,000      255,000 
  Repayment of working capital loans                   (225,000)     (25,000)
  Repayment of convertible debentures                         -       (4,500)
  Proceeds from bank note payable                       200,000            - 
  Proceeds from long term notes and warrants            225,000      620,966 
  Net proceeds from bridge financing                    807,940            - 
  Repayment of bridge financing                      (1,075,000)           - 
  Repayment of machinery loan                           (79,442)           - 
  Repayment of equipment loan                            (1,675)      (1,509)
  Repayment of capitalized lease obligations             (5,013)           - 
  Issuance of common stock                            5,268,304            - 
  Dividends paid on preferred stock                     (60,140)           - 
                                                     -----------  ---------- 
Net cash provided by financing activities             5,154,974      844,957 
                                                     -----------  ---------- 
Net increase (decrease) in cash and cash equivalents  2,733,566       (1,372)

Cash and cash equivalents, beginning of year             49,386       50,758 
                                                     -----------  ---------- 
Cash and cash equivalents, end of year              $ 2,782,952   $   49,386 
                                                     ===========  ========== 
<FN>                                                                         
                 See accompanying notes to financial statements.             
</FN>                                                                        

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ECOTYRE TECHNOLOGIES, INC.
 NOTES TO FINANCIAL STATEMENTS

Note 1.  Summary of Accounting Policies                                         

(a)     Business and recapitalization                                 

     EcoTyre Technologies,  Inc. (the "Company") was engaged in the importation,
marketing and wholesale distribution of remanufactured/remolded automobile tires
for sale in the United States passenger tire replacement market. During the 1996
fiscal  year,  the Company  began  preparing  its  operations  for the  domestic
manufacturing and distribution of its remanufactured/remolded  automobile tires.
Its  customers  are  primarily  independent  tire  distributors  and retail tire
replacement centers.                                                            

     The  Company  was  organized  in  Delaware  in May 1994 as  successor  to a
previous New York corporation having the same name (the "Predecessor  Company").
In June 1994, the Company acquired the assets and assumed the liabilities of the
Predecessor  Company and, in August 1994, the Company  acquired the stock of the
Predecessor  Company. The sale of the assets and acquisition of the stock had no
impact on the historical financial statements other than as described below.    

     The equity accounts of the Company reflect (a) a May 1994  recapitalization
which (i)  effected a reverse  stock split of 1 share of $.001 par value  Common
Stock for every  4.2553  shares of $.001 par value Common Stock and (ii) created
two new classes of preferred  stock,  Class A Redeemable  Convertible  Preferred
Stock  (see also Note 5) and $.001 par value  Serial  Preferred  Stock and (b) a
June and August 1995 sale of twenty-one and one-half bridge units,  each unit of
which  consists of, in part,  50,000 shares of $.001 par value Common Stock (see
also Note 5). Both preferred classes have 2,000,000 authorized shares. Following
the reverse split and sale of the bridge units, 1,390,000 shares of Common Stock
were  outstanding  and  this  amount  has been  used for the net loss per  share
calculation for the 1995 fiscal year.                                           

(b)     Use of estimates                                              

     In preparing  financial  statements in conformity  with generally  accepted
accounting principles,  management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent  assets and  liabilities at the date of the financial  statements and
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.                                                           

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(c) Concentrations of credit risk                                     

     Financial   instruments   which   potentially   subject   the   Company  to
concentrations  of credit risk consist  principally of cash and cash equivalents
and accounts receivable.                                                        

     The  Company  maintains  its  cash  and cash  equivalents  in bank  deposit
accounts and short-term bank certificates of deposit which, at times, may exceed
federally  insured  limits.  The Company has not  experienced any losses in such
accounts.  The Company believes it is not exposed to any significant credit risk
on cash and cash equivalents.                                                   

     The  Company  attempts to  minimize  credit  risk with  respect to accounts
receivable by reviewing  customers' credit history before extending credit,  and
by monitoring  customers' credit exposure regularly.  The Company establishes an
allowance  for  possible  losses  on  accounts  receivable  based  upon  factors
surrounding the credit risk of specific  customers,  historical trends and other
information.                                                                    

(d)  Inventories                                                      

     Inventories,  which  consist  of raw  materials,  remanufactured  tires and
purchased  remanufactured tires, are valued at the lower of cost or market. Cost
is determined using the first-in, first-out method.                             

(e) Property, equipment and depreciation                              

     Property and equipment are stated at cost.  Depreciation  is computed using
the  straight-line  method over the estimated useful lives of the related assets
as follows:                                                                     

Furniture                  5 - 7 years                          
Machinery and equipment    7 - 10 years                         
Motor vehicles             5 years                              
      Leasehold improvements     Lesser of 10 years  or remaining lease term

(f) Fair value of financial instruments                               

     The  carrying  value of  long-term  debt,  loans  and  capitalized  leases,
including  the current  portion,  approximates  fair value as of March 31, 1996,
based upon the borrowing rates currently available to the Company for loans with
similar terms and average maturities.                                           

(g) Revenue recognition                                               

     Sales are  recognized  upon shipment of products.  A provision for warranty
costs,  net of anticipated  recovery from  suppliers,  is accrued at the time of
sale.                                                                           
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(h) Income taxes                                                      

     The Company follows the liability method of accounting for income taxes, as
prescribed by Statement No. 109 of the Financial Accounting Standards Board (FAS
109).                                                                           

     Under FAS 109,  deferred income taxes are recorded to reflect the temporary
differences  between the tax bases of assets and  liabilities and their reported
amounts in the financial statements.                                            

(i) Net loss per share                                                

     Net loss per  share is based on the  weighted  average  number of shares of
Common Stock during each period.  Common Stock equivalents and other potentially
dilutive securities are anti-dilutive.  Net loss has been adjusted for accretion
of and preferred dividends.                                                     

(j) Cash flows                                                        

     For purposes of the  statements  of cash flows,  the Company  considers all
highly  liquid  instruments  with a maturity of three  months or less to be cash
equivalents.                                                                    

(k) Prospective accounting changes                                    

     In March 1995, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 121 ("SFAS No. 121"),  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of".
SFAS No. 121 is effective for fiscal years  beginning  after  December 15, 1995.
SFAS  No.  121  requires  that  long-lived   assets  and  certain   identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be  recoverable.  The impact of adopting SFAS No. 121 is not expected to
be material.                                                                    

     In October 1995, the Financial  Accounting Standards Board issued Statement
of Financial  Accounting  Standards  No. 123 ("SFAS No. 123"),  "Accounting  for
Stock-Based  Compensation".  SFAS No.  123  encourages  companies  to  recognize
expense for stock  options and other  stock-based  employee  compensation  plans
based on their fair value at the date of grant.  As  permitted  by SFAS No. 123,
the Company plans to continue to apply its current  accounting  policy under APB
Opinion No. 25,  "Accounting for Stock Issued to Employees",  in fiscal 1997 and
future years, and will provide  disclosure of the pro forma impact on net income
and earnings per share as if the fair value-based method had been applied.      

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Note 2. Inventories                                                             

 Inventories at March 31, 1996 and 1995 are summarized as follows:

                                                                [Download Table]

                             1996               1995 
                             ----               ---- 
                                                     

Raw materials              $207,280          $    -  
Work in process               4,052                  
Finished goods              129,117           125,991
                           --------          --------
                           $340,449          $125,991
                           ========          ========

Note 3. Property and Equipment                                                  

Property and equipment consist of the following:                

                                                                [Download Table]

                                             March 31,          
                                    ----------------------------
                                     1996               1995    
                                     ----               ----    
                                                                

Furniture and equipment            $ 88,158           $ 13,948  
Machinery and equipment           1,158,877                -    
Motor vehicles                       20,096              6,758  
Leasehold improvement                43,182                -    
Construction in progress               -                11,247  
                                 ----------         ----------  
                                  1,310,313             31,953  

Less accumulated depreciation       (52,305)            (5,453) 
                                 ----------         ----------  
                                 $1,258,008           $ 26,500  
                                 ==========         ==========  

     Included in  machinery  and  equipment  at March 31, 1996 is  manufacturing
equipment with a net book value of approximately  $511,000,  which is collateral
for a financing loan in the original amount of $300,000 (see Note 9).           

Note 4. Notes Payable - Bank                                                    

     The Company has a secured line of credit with a bank which  expires in July
1996.  The interest  rate on borrowings is 1-1/2% over the bank's prime rate and
is secured by a $400,000 certificate of deposit.                                

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Note 5. Long-Term Debt                                                          

Long term debt consists of the following:                       

                                                                [Download Table]

                                                   March 31,         
                                         ----------------------------
                                          1996               1995    
                                          ----               ----    
                                                                     

Term notes                                                           

(a)  Unsecured borrowings which                                      
     bear interest at 12% per annum                                  
     and are payable in June 1997.       $ 75,000           $ -      

(b)  Unsecured borrowing which bears                                 
     interest at 14% per annum and                                   
     is payable in February 1997.         150,000              -     

(c)  Convertible debentures - the                                    
     debentures were converted                                       
     to preferred stock (see below).          -             115,500  

Working capital loans                                                
Unsecured borrowings from individuals                                
which bear interest at 10% per annum.         -             230,000  

Notes with warrants                                                  
Converted to preferred stock                                         
    (see below).                                                     

Principal sum                                 -             947,429  
Less: original issue discount                 -            (194,067) 
                                        -----------      ----------- 
                                              -             753,362  
                                        -----------      ----------- 
                                           225,000        1,098,862  
Less: current portion of                                             
long-term debt                             150,000          195,000  
                                        -----------      ----------- 
                                        $   75,000       $  903,862  
                                        ===========      =========== 


     The interest rates on the various notes with warrants were  recalculated by
applying  interest rates more  commensurate  with the discount rates  associated
with the value of the detachable  warrants.  The differences between these rates
and the stated rates of the notes were  classified as original  issue  discount.
These amounts originally totaled $222,852 and were credited to paid-in capital. 

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     On June 23, 1995, the Company commenced an exchange offer to the holders of
convertible  debentures,  notes with  warrants  and  $30,000 of the  outstanding
working  capital  loans  whereby  the  principal  and unpaid  interest  thereon,
totaling  approximately  $1,185,000  at  March  31,  1995,  $1,202,775  at  the 
conversion  date (before  unamortized  original issue discount of  approximately
$194,000), was converted into 1,202,775  shares of newly issued $.001 par value 
Class A redeemable convertible preferred stock (liquidation and redemption value
of $1 per share).  The preferred  stock was recorded at its estimated fair value
and the discount  from its  redemption  value will be  amortized  as  additional
dividends on a ratable basis up to the mandatory  redemption  date. There was no
material gain or loss on the  extinguishment  of the convertible  debentures and
notes with warrants.                                                            

     Such shares will pay a cumulative  dividend of 10% and are  convertible  to
one share of voting Common  Stock at the rate of five shares of  preferred  (or 
$5.00 per share) commencing in January 1997 and one warrant which is exercisable
for two years after the  conversion at $7.50 per common share for the first year
and  $10.00  per  common  share  for the  second  year.  If the  shares  are not
converted,  the  preferred  shareholders  can cause the  Company to redeem  such
shares in two years,  and in any event,  the Company is  obligated to redeem the
shares three years from December 1995 at $1 per share.                          

     In June 1995, the Company offered and sold five bridge units  consisting of
an  aggregate  of  $250,000  principal  amount of  Promissory  Notes.  Each unit
consisted of $50,000 principal amount of a 12% Promissory Note and 10,000 shares
of Common Stock. 25% of the  subscription  price of each Unit was applied to the
Note component thereof and 75% is applied to the Common Stock component thereof.
Original issue discount,  amounting to $150,000,  was amortized over the life of
the debt.  These notes were paid off at the initial public  offering in December
1995.                                                                           

     In August 1995,  the Company  offered and sold sixteen and one-half  bridge
units  consisting  of an aggregate of $825,000  principal  amount of  Promissory
Notes.  Each unit consisted of $50,000 principal amount of a 12% Promissory Note
and 10,000 shares of Common Stock.  25% of the  subscription  price of each unit
was  applied to the Note  component  thereof  and 75% was  applied to the Common
Stock component  thereof.  Original issue discount,  amounting to $495,000,  was
amortized  over the life of the  debt.  Costs  related  directly  to the  bridge
financing in the amount of $256,079 have been distributed as follows: 75% of the
expenses  relating to the sale of these bridge units were charged to  additional
paid-in  capital (or $192,060)  and 25% was amortized  over the life of the debt
(or  $64,019).  These  notes were paid off at the  initial  public  offering  in
December 1995.                                                                  

     Amortization of original issue discount relating to the notes with warrants
prior to conversion  to preferred  stock and the bridge notes prior to repayment
totalled  $283,328  and  $54,585  for the years  ended  March 31, 1996 and 1995,
respectively.  At the December 1995 repayment date of the bridge unit notes, the
Company wrote off the remaining  unamortized original issue discount relating to
such notes, totaling $389,216.                                                  
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Note 6. Accrued Expenses                                                        

Accrued expenses consist of the following:                      

                                                                [Download Table]

                                           March 31,       
                                      -------------------- 
                                       1996          1995  
                                       ----          ----  
                                                           

Interest                           $   4,750       $108,470
Printing expenses                     84,237              -
Professional fees                     95,300         82,628
Payroll and related expenses          30,625         46,230
Other                                 64,823         21,266
                                   ---------      ---------
                                    $279,735       $258,594
                                   =========      =========

Note 7. Capital Leases                                                          

     In fiscal 1996,  the Company  entered into two capital leases for telephone
equipment  and a copy  machine.  The  telephone  lease  is  payable  in  monthly
installments  of  $325  through  May  2000  including  interest.  The  lease  is
collateralized by the telephone equipment with a net book value of approximately
$11,900  as of March 31,  1996.  The copy  machine  lease is  payable in monthly
installments  of $380  through  March  2000  including  interest.  The  lease is
collateralized  by the  copy  machine  with a net book  value  of  approximately
$16,500 as of March 31, 1996.                                                   

Note 8. Related Party Transactions                                              

     The  Company's  receivable  from its  president,  included in other assets,
consists of an unsecured promissory note due in October 1999 totaling $25,000 at
March 31, 1996 and 1995. Interest at 7% is payable annually.                    

     The Company  obtained  some of its  unsecured  borrowings  in the amount of
approximately   $488,000  for  the  year  ended  March  31,  1995  from  various
individuals  related to members of the Company's  management or to  stockholders
(see Note 5). In  connection  with  obtaining  the  unsecured  borrowings,  fees
amounting  to  $30,796  were  paid  to  the   stockholders  who  arranged  these
borrowings.                                                                     

     In addition,  expenses relating to services rendered,  primarily consisting
of consulting  fees,  commissions  on sales and legal expenses that were paid or
accrued to stockholders or parties related to stockholders,  amounted to $68,632
and $115,176 for the years ended March 31, 1996 and 1995, respectively.         

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Note 9. Machinery Loan                                                          

     During  fiscal  1996,  the Company  entered  into an  agreement to purchase
manufacturing  equipment through a financing  corporation.  Under the agreement,
the Company paid $230,000 of the $530,000  total purchase price and financed the
$300,000 balance.  The balance is payable in 36 monthly  installments of $10,144
including  interest at 13-1/4% per annum,  beginning in May 1995.  The lender   
has a security interest in the equipment.                                       

Maturities of the machinery loan are as follows:                        

                                                                [Download Table]

Year ending March 31,             
                                  

        1997              $ 98,338
        1998               112,187
        1999                10,033
                          --------
                          $220,558
                          ========

Note 10. Customer Concentration                                                 

     At March  31,  1996,  the  Company  was in the  process  of  preparing  its
operations  for  its  domestic   manufacturing   and  distribution  of  its  own
remanufactured/remolded automobile tires, thereby curtailing its distribution of
third party  remanufactured/remolded  tires.  During  fiscal 1996,  sales to one
customer  accounted  for 12% of net sales.  As of March 31, 1996,  two customers
accounted for 22% and 14% of the accounts receivable.                           

     During fiscal 1995, sales to two customers accounted for 27% and 18% of net
sales, respectively. As of March 31, 1995 these customers together accounted for
approximately 54% of the accounts receivable (see Note 11(d)).                  

Note 11. Commitments                                                            

(a) Lease                                                     

     Minimum annual rental  commitments  under a noncancellable  operating lease
for the Company's manufacturing and warehousing facility are as follows:        

                                                                [Download Table]

Year ending March 31,                    
                                         

     1997                      $  289,819
     1998                         304,310
     1999                         319,525
     2000                         335,501
     2001                         352,277
      Thereafter                1,813,592
                              -----------
                               $3,415,024
                              ===========

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     The initial  lease term,  which began in January 1995, is for ten years and
nine  months  and has  one  five-year  renewal  option.  The  lease  contains  a
$2,500,000  purchase option  commencing  October 1, 1995 with increases of 5% of
the  purchase  price on each  anniversary  beginning  October  1,  1997  through
October,  2004.  The Company  records a liability for deferred rent costs to the
extent  that  the  amortized  rent  commitment  exceeds  actual  lease  payments
(including nine free months of rent at the inception of the lease term).        

     Rental expense under operating  leases amounted to  approximately  $338,000
and $112,000 for the years ended March 31, 1996 and 1995, respectively.         

(b)  Sales and territory agreements                                   

     During fiscal 1995,  the Company  entered into separate three and four year
agreements  with its two  principal  customers  at that  time  (see  Note 10) to
supply, subject to certain limitations,  the Company's  remanufactured tires for
distribution  within exclusive  territories.  Included in the conditions for the
territory  rights  are  commissions  to be paid to  these  customers  based on a
percentage of gross profit if the Company  distributes  through  national retail
stores located within the respective territories. The territories cover thirteen
states,  seven in the west and six in the  south.  In  addition,  the  contracts
require a percentage of the  purchases to be reimbursed if annual  minimum order
quantities  are  met.  One  of the  contracts  also  includes  a  provision  for
reimbursement  of direct  advertising  expenses.  During  fiscal  1996 and 1995,
minimum order  quantities were not met by either  customer,  no commissions were
earned and no direct reimbursable advertising expenses were incurred.           

(c) Consulting agreements                                               

     In July 1995,  the Company  entered into a three year agreement with a U.K.
Company to provide the  services of two  consultants  beginning  August 1, 1995,
whereby the U.K.  Company will be paid $120,000 per annum for their  services in
connection  with the  development  and operation of the Company's  manufacturing
facility.                                                                       

     The Company also entered into three year agreements starting August 1, 1995
with  two  individuals  and  one  of  the  stockholders  to  provide  management
consulting  services.  One  individual  will be paid  $84,000  per annum for his
services and the stockholder has been granted options to purchase 130,000 shares
of  Common  Stock of the  Company  at an  exercise  price of  $5.00  per  share,
exercisable  in June 1997.  In addition,  the  stockholder  will receive  20,000
shares  of  Common  Stock in June  1997 and will be paid a fee of $4,167 a month
plus expenses  starting in May 1996.  The agreement  with the second  individual
provides  for  compensation  to be paid at a rate of $3,500 a month  starting in
April 1996,  plus  commissions  on Company  sales to customers  obtained by this
individual.  In addition,  this  individual will receive 25,000 shares of Common
Stock in June 1997.                                                             
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(d) Employment agreements                                             

     During 1995, the Company entered into three year employment agreements with
its president and one of its vice presidents whereby each officer will be paid a
minimum  annual  salary of $95,000  and  $85,000,  respectively,  commencing  in
December  1995. In addition,  a two year  employment  agreement  with one of the
Company's vice  presidents was entered into during 1995 whereby the officer will
be paid $40,000 per annum and 2% of the net sales to one of its major  customers
at that time (see Note 10), also  commencing in December  1995.  The  agreements
with the president and vice  president  also contain buyout clauses in the event
of  a  change  of  control  in  the  Company  which  adversely  affects  working
conditions.                                                                     

Note 12. Stockholders' Equity                                                   

(a) 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 price for
the Company's  Common Stock has equaled or exceeded  $6.50 per share for each of
twenty consecutive trading days.                                                

(b) Underwriters' purchase option                                     

     In conjunction with the offering,  the underwriters also obtained an option
to  purchase  150,000  units at a price of $6.00 per unit.  This  option will be
exercisable for a period of four years,  commencing on the first  anniversary of
the  effective  date of the  offering.  The units  underlying  the  underwriters
purchase  option are identical in all respects to the units issued to the public
(except  that the  Class A  Warrants  included  in the units  issuable  upon the
exercise of the purchase  option are not  redeemable  and the exercise  price of
such Class A Warrants is $7.50).  The  purchase  option  cannot be  transferred,
assigned or hypothecated for one year from the date of its issuance, except that
they may be assigned, in whole or in part, to any successor,  officer or partner
of the underwriter or to other underwriters or members of the selling group. The
purchase  option  contains  anti-dilution  provisions  providing for appropriate
adjustment of the exercise  price and number of shares of Common Stock and Class
A Warrants  which may be purchased  upon exercise upon the occurrence of certain
events.                                                                         

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(c) Long-term incentive plan                                          

     In June 1995,  the Company  adopted a long-term  incentive plan in order to
motivate qualified  employees of the Company to assist the Company in attracting
employees  and to align the interest of such persons with those of the Company's
stockholders.  The plan  provides  for the grant of, among other  things,  stock
options and restricted stock, up to a maximum of 350,000 shares of Common Stock.
As of March 31, 1996,  the Company has granted an aggregate of 340,000  options.
Each of these  options  is  exercisable  for ten  years for a price of $5.00 per
share, commencing in June 1997.                                                 

(d) Common stock shares reserved                                      

     At March 31, 1996,  shares of the Company's  authorized and unissued Common
Stock were reserved for issuance as follows:                                    

                                                                [Download Table]
                                               

Long-term incentive plan                350,000
Outstanding  warrants                 1,725,000
Conversion of Class A Redeemable               
  Convertible  Preferred Stock                 
  (including related warrants)          481,110
Issuable to  consultants                 45,000
Underwriters' purchase option units     300,000
                                      ---------
                                      2,901,110
                                      =========

Note 13.  Income Taxes                                                          

     The  provision  for income  taxes is comprised of state taxes for the years
ended March 31, 1996 and 1995.  The Company has fully  reserved the tax benefits
arising  from  March  31,  1996 and 1995 net  operating  loss  carryforwards  of
approximately $3,000,000 and $560,000,  respectively.  Such losses, which can be
utilized  against future profits until 2011, may be subject to Internal  Revenue
Code  Section  382  limitations  which  limit  the  use  of net  operating  loss
carryforwards when significant ownership changes occur. As a result of the asset
sale  described in Note 1(a),  approximately  $400,000 of the net operating loss
was applied and replaced by intangible  assets for tax reporting  purposes.  The
write-off of such intangibles would result in a future tax benefit,  but because
of the uncertainty as to the future realization of such benefits,  this deferred
tax asset has also been fully reserved.                                         

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The Company's net deferred tax asset consists of the following: 

                                                                [Download Table]


                                                     March 31,      
                                                -----------------   
                                                1996         1995   
                                                ----         ----   
                                                                    

Benefit of net operating loss                                       
  carryforwards                              $1,200,000    $224,000 
Tax temporary differences relating to:                              
  Intangible assets                             160,000     160,000 
  Deferred rent costs                           110,000      33,000 
  Inventory capitalization, allowance                               
    for possible losses and other                 5,000      10,000 
                                             ----------  ---------- 
                                              1,475,000     427,000 
  Less: valuation allowance                  (1,475,000)   (427,000)
                                             ----------  ---------- 
                                             $    -      $    -     
                                             ==========  ========== 

Note 14. Supplemental Cash Flow Information                                     

Income taxes and interest paid were as follows:               

                                                                [Download Table]

                                             March 31,     
                                        -----------------  
                                        1996         1995  
                                        ----         ----  
                                                           

Income taxes                          $ 17,371      $ 1,192
Interest expense                      $124,488      $10,506


Non-cash investing and financing activities during the period were as 
follows:                                                                        

                                                                [Download Table]

                                                March 31,      
                                           -----------------   
                                           1996         1995   
                                           ----         ----   
                                                               

Exchange of $200,000 working capital                           
loan and $43,463 accrued interest                              
for a two year note with warrants                              
(see Note 5)                              $   -        $243,463

Assets acquired under machinery loan       300,000        -    

Assets acquired under capitalized leases    36,311        -    

Conversion of long-term debt and                               
$109,846 accrued interest for                                  
redeemable convertible preferred stock   1,202,775        -    

Deferred placement costs of promissory                         
notes (see Note 5)                         192,060        -    

Accretion of preferred dividends            88,930        -    

                                 F-19                          

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10KSB’ Filing		Date		First		Last			Other Filings
		7/31/05		7		12
		10/1/04		7		12
		10/21/99		23
		12/12/98		44
		12/18/97		11
		10/1/97		7		43
		6/13/97		20		21
		6/11/97		18		21
Filed on:		7/1/96
		6/30/96		4		15			10QSB
		6/28/96		1		27
		6/26/96		8
		6/19/96		27
		5/30/96		22
		5/24/96		27		30
For Period End:		3/31/96		1		45
		2/7/96		8
		2/6/96		8
		12/15/95		37
		12/13/95		8
		10/1/95		7		43
		8/1/95		43
		7/11/95		23
		7/7/95		23
		6/30/95		23
		6/23/95		23		40
		6/1/95		23
		5/24/95		24
		3/31/95		9		45
		1/1/95		4		24
		10/24/94		23
		5/20/94		2
		4/1/94		4		23
		3/31/94		10
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