UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D. C. 20549
FORM
10-QSB
|
(x)
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2007
Commission
File Number 0-29057
|
(
)
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
transition period from __________________TO
__________________
AMERICAN
RACING CAPITAL, INC.
(Exact
name of registrant as specified in charter)
|
NEVADA
|
87-0631750
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer I.D. No.)
|
| |
|
|
P.O.
Box 22002
|
|
|
San
Diego, California
|
92192
|
|
(Address
of principal executive offices)
|
(Zip)
|
| |
|
|
Issuer’s
telephone number, including area code
|
(800)
914-3177
|
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15 (d) of the Securities Exchange Act of 1934 during the past twelve 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
o
No
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check
whether the registrant filed all documents and reports required to be filed
by
Sections 12, 13 or 15(d)of the Exchange Act subsequent to the distribution
of
securities under a plan confirmed by a court. o
Yes
o
No
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: AS
OF MAY 10, 2007 - 31,165,398 SHARES
OF THE ISSUER’S COMMON STOCK, $0.001 PAR VALUE PER SHARE WERE ISSUED AND
OUTSTANDING.
________________
Transitional
Small Business Disclosure Format: Yes
o
No
x
PART
I
FINANCIAL
INFORMATION
INTRODUCTORY
NOTE
FORWARD-LOOKING
STATEMENTS
This
Form
10-QSB contains “forward-looking statements” relating to American Racing
Capital, Inc. (“ARC”),
which
represent ARC’s current expectations or beliefs including, but not limited to,
statements concerning ARC’s operations, performance, financial condition and
growth. For this purpose, any statements contained in this Form 10-QSB that
are
not statements of historical fact are forward-looking statements. Without
limiting the generality of the foregoing, words such as “may”, “anticipation”,
“intend”, “could”, “estimate”, or “continue” or the negative or other comparable
terminology are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, such
as
losses, dependence on management, variability of quarterly results, and the
ability of ARC to continue its growth strategy, certain of which are beyond
ARC’s control. Should one or more of these risks or uncertainties materialize or
should the underlying assumptions prove incorrect, actual outcomes and results
could differ materially from those indicated in the forward-looking
statements.
Any
forward-looking statement speaks only as of the date on which such statement
is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of
each
such factor on the business or the extent to which any factor, or combination
of
factors, may cause actual results to differ materially from those contained
in
any forward-looking statements.
ITEM
1. FINANCIAL STATEMENTS
AMERICAN
RACING CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
MARCH
31, 2007
(Unaudited)
|
ASSETS
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
Cash
|
|
$
|
1,635
|
|
|
Total
Current Assets
|
|
|
1,635
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
Equity
investment
|
|
|
442,612
|
|
|
TOTAL
ASSETS
|
|
$
|
444,247
|
|
| |
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
| |
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
303,192
|
|
|
Convertible
debt payable, net
|
|
|
236,111
|
|
|
Interest
payable on convertible debt
|
|
|
42,500
|
|
|
Total
Current Liabilities
|
|
|
581,803
|
|
| |
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
581,803
|
|
| |
|
|
|
|
|
STOCKHOLDERS’
EQUITY (DEFICIT)
|
|
|
|
|
|
Preferred
stock 10,000,000 shares authorized at $0.001 par value;
1,000,000
shares issued and outstanding
|
|
|
1,000
|
|
|
Common
stock 500,000,000 shares authorized at $0.001 par value;
27,791,398
shares
issued and outstanding
|
|
|
27,991
|
|
|
Additional
paid in capital
|
|
|
5,744,021
|
|
|
Accumulated
deficit
|
|
|
(5,910,568
|
)
|
| |
|
|
|
|
|
Total
Stockholders’ Equity (Deficit)
|
|
|
(137,556
|
)
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
$
|
444,247
|
|
| |
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
AMERICAN
RACING CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(Unaudited)
| |
|
March
31,
|
|
March
31,
|
|
| |
|
2007
|
|
2006
|
|
| |
|
|
|
|
|
|
SALES
|
|
$
|
-
|
|
$
|
-
|
|
| |
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
-
|
|
|
-
|
|
|
Gross
Profit
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Consulting
and professional fees
|
|
|
378,636
|
|
|
-
|
|
|
Administrative
|
|
|
70,689
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
TOTAL
EXPENSES
|
|
|
449,325
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(449,325
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(98,333
|
)
|
|
-
|
|
|
Equity
loss
|
|
|
(913
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
TOTAL
OTHER (EXPENSE)
|
|
|
(99,246
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Loss
- before discontinued operations
|
|
|
(548,571
|
)
|
|
-
|
|
|
Discontinued
operations
|
|
|
-
|
|
|
(25,120
|
)
|
|
Net
loss
|
|
$
|
(548,571
|
)
|
$
|
(25,120
|
)
|
| |
|
|
|
|
|
|
|
|
NET
LOSS PER COMMON SHARE
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
| |
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE OUTSTANDING SHARES
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
26,444,731
|
|
|
4,991,398
|
|
| |
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
AMERICAN
RACING CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(Unaudited)
| |
|
March
31,
|
|
March
31,
|
|
| |
|
2007
|
|
2006
|
|
| |
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(548,571
|
)
|
$
|
(25,120
|
)
|
|
Adjustments
to reconcile net loss to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
-
|
|
|
758
|
|
|
Amortization
of discount on convertible debt
|
|
|
83,333
|
|
|
-
|
|
|
Common
stock and warrants issued for services
|
|
|
366,000
|
|
|
-
|
|
|
Equity
loss
|
|
|
913
|
|
|
-
|
|
|
Changes
in operating assets and liabilities
|
|
|
-
|
|
|
-
|
|
|
Prepaid
expenses
|
|
|
755
|
|
|
-
|
|
|
Accounts
payable
|
|
|
75,842
|
|
|
22,500
|
|
| |
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(21,728
|
)
|
|
(1,862
|
)
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
on notes payable
|
|
|
-
|
|
|
-
|
|
|
Proceeds
from notes payable-related parties
|
|
|
-
|
|
|
750
|
|
|
Proceeds
from notes payable
|
|
|
-
|
|
|
1,000
|
|
|
Payments
on notes payable
|
|
|
-
|
|
|
-
|
|
|
Net
cash provided by financing activities
|
|
|
-
|
|
|
1,750
|
|
| |
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash
|
|
|
(21,728
|
)
|
|
(112
|
)
|
|
Cash
at Beginning of Period
|
|
|
23,363
|
|
|
379
|
|
|
Cash
at End of Period
|
|
$
|
1,635
|
|
$
|
267
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
|
$
|
366,000
|
|
$
|
-
|
|
|
Cash
paid for interest
|
|
$
|
-
|
|
$
|
-
|
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
| |
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
AMERICAN
RACING CAPITAL, INC. AND SUBSIDIARY
NOTES
TO FINANCIAL STATEMENTS
MARCH
31, 2007
(Unaudited)
1. BASIS
OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with Securities and Exchange Commission requirements
for
interim financial statements. Therefore, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. The financial statements
should be read in conjunction with the Form 10-KSB for the year ended December
31, 2006 of American Racing Capital, Inc. and subsidiaries (the “Company”
or
“ARC”).
The
interim financial statements present the condensed balance sheet, statements
of
operations and cash flows of the Company. The financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States.
The
interim financial information is unaudited. In the opinion of management, all
adjustments necessary to present fairly the financial position of the Company
as
of March 31, 2007 and the results of operations and cash flows presented herein
have been included in the financial statements. Interim results are not
necessarily indicative of results of operations for the full year.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2.
GOING
CONCERN
The
Company’s financial statements are prepared using generally accepted accounting
principles applicable to a going concern which contemplates the realization
of
assets and liquidation of liabilities in the normal course of business. The
Company has generated significant losses from operations.
In
order
to continue as a going concern and achieve a profitable level of operations,
the
Company will need, among other things, to raise additional capital resources
and
to develop a consistent source of revenues. Management’s plans include raising
additional operating funds from private placements of shares of its common
stock.
The
ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plan described in the preceding paragraph
and eventually attain profitable operations. The accompanying financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
3. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Employee
stock based compensation - In December 2004, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (“SFAS” No. 153”),
“Accounting for Stock-Based Compensation”. SFAS No. 153 amends the transition
and disclosure provisions of SFAS No. 123. This statement supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and its related implementation
guidance. This statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods
or
services. This statement requires a public entity to measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award (with limited exceptions). That cost
will be recognized over the period during which an employee is required to
provide service in exchange for the award—the requisite service period (usually
the vesting period). For stock options and warrants issued to non-employees,
the
Company applies SFAS No. 153, which requires the recognition of compensation
cost based upon the fair value of stock options at the grant date using the
Black-Scholes Option Pricing Model.
The
Company issued no stock and granted no warrants or options to employees for
compensation for the three month period ended March 31, 2007.
4. SIGNIFICANT
EVENTS
On
July
25, 2006, the Company entered into a Securities Purchase Agreement (the
“Securities Purchase Agreement”) with New Millennium Capital Partners II,
LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC
(collectively, the “Investors”).
Under
the terms of the Securities Purchase Agreement, the Investors purchased an
aggregate of (i) $2,000,000 in callable convertible secured notes (the
“Notes”)
and
(ii) seven year warrants to purchase 10,000,000 shares of the company’s common
stock at an exercise price of $0.30 (the “Warrants”).
The
Notes carry an interest rate of 6% per annum and a maturity date of July 25,
2009. Pursuant to the Securities Purchase Agreement, the Company must file
a
registration statement with the U.S. Securities and Exchange Commission within
forty-five (45) days of the execution of the Securities Purchase Agreement.
The notes are convertible into the Company’s common stock at the Applicable
Percentage of the average of the lowest three (3) trading prices for the
Company’s shares of Common Stock during the twenty (20) trading day period
prior to conversion. The “Applicable
Percentage”
means
50%; provided, however, that the Applicable Percentage shall be increased to
(i)
55% in the event that a registration statement is filed within thirty days
of
the closing and (ii) 60% in the event that the registration statement becomes
effective within one hundred and twenty days from the Closing. In addition,
the
Company has granted the investors a security interest in substantially all
of
its assets, as well as intellectual property and registration rights. The
Company recorded an expense of $72,571 for the issuance of the warrants. The
beneficial conversion feature attached to the convertible debt results in a
discount of $1,000,000 which is being amortized over the 36 month term of the
debt. The Company recorded amortization expense of $83,333 during the three
months ended March 31, 2007. A summary of the convertible debt as of March
31,
2007 is as follows:
Convertible
Debt Payable
$ 1,000,000
Discount
(763,889)
Net $
236,111
On
November 21, 2006, the Company entered into a Shareholders’ Agreement whereby it
acquired 51% of the outstanding shares of Motorsports & Entertainment of
Tennessee, Inc., a Nevada corporation (“MET”). MET holds a 40% interest in
LJ&J Enterprises of Tennessee, Inc., a Tennessee corporation (“LJ&J”).
The Company has the right to acquire up to 80% of LJJ upon payment of $700,000
of which $450,000 has been paid as of March 31, 2007. The investment is recorded
using the equity method of accounting. The Company recorded a loss of $913
for
the three months ended March 31, 2007 for the investment.
Item
2.
Management’s Discussion and Analysis Or Plan Of Operation
Forward-Looking
Statements and Associated Risks. This
Report contains forward-looking statements. Such forward-looking statements
include statements regarding, among other things, (a)) our growth strategies,
(b) anticipated trends in our industry, (c) our future financing plans, (d)
our anticipated needs for working capital, (e) our lack of operational
experience, and (f) the benefits related to ownership of our common stock.
Forward-looking statements, which involve assumptions and describe our future
plans, strategies, and expectations, are generally identifiable by use of the
words “may,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,”
or “project” or the negative of these words or other variations on these words
or comparable terminology. These forward-looking statements are based largely
on
the Company’s expectations and are subject to a number of risks and
uncertainties, including those described in “Business Risk Factors” of the
Company’s Form 10-KSB for the year ended December 31, 2006. Actual results
could differ materially from these forward-looking statements as a result of
changes in trends in the economy and the industry, demand for the Company’s
services,, competition, reductions in the availability of financing and
availability of raw materials, and other factors. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this Report will in fact occur as projected. Any
forward-looking statement speaks only as of the date on which such statement
is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of
each
such factor on the business or the extent to which any factor, or combination
of
factors, may cause actual results to differ materially from those contained
in
any forward-looking statements.
Overview
American
Racing Capital, Inc. (the “Company”)
was
incorporated under the laws of the State of Nevada on September 8, 1998 as
Mega
Health Corporation. On June 23, 1999, the name of the Company was changed to
Altrimega Health Corporation. On July 25, 2002, the Company entered into a
non-binding letter of intent with Creative Holdings, Inc., a South Carolina
corporation (“Creative Holdings”). Pursuant to that Letter of Intent and upon
the consummation of a definitive agreement, the Company was to acquire Creative
Holdings. A Merger Agreement was executed on August 15, 2002, between the
Company, Altrimega Acquisition Company, a Nevada corporation, Creative Holdings,
and the shareholders of Creative Holdings. On September 2, 2002, the Company,
Creative Holdings and the shareholders of Creative Holdings amended the Merger
Agreement and restructured the merger into a stock exchange transaction, whereby
Creative Holdings would become a wholly-owned subsidiary of the Company. The
share exchange was completed on October 17, 2002, at which time, Creative
Holdings became a wholly owned subsidiary of the Company.
Pursuant
to the Share Exchange Agreement (effective retroactively as of August 15, 2002),
by and among the Company, Creative Holdings and the shareholders of Creative
Holdings, the shareholders exchanged with and delivered to the Company 100%
of
the issued and outstanding capital stock of Creative Holdings in exchange for
20,000,000 shares of common stock of the Company and 1,000,000 shares of Series
A Convertible Preferred Stock of the Company. Each share of Series A Convertible
Preferred Stock was convertible into 300 shares of common stock of the Company.
Between December 21, 2004 and January 5, 2005, the Company entered into releases
with each holder of the Company’s 1,000,000 shares of Series A Preferred Stock,
which resulted in the cancellation of all of the Company’s outstanding shares of
Series A Preferred Stock.
On
October 17, 2005, the Company entered into a Share Exchange Agreement, by and
among the Company, American Racing Capital, Inc., a Nevada company
(“ARCI”)
and
the shareholders of ARCI, pursuant to which, the shareholders of ARCI exchanged
with, and delivered to the Company all of the issued and outstanding common
stock of ARCI in exchange for 150,000,000 shares of the Company’s common stock
and 1,000,000 shares of Series A Preferred Stock, which can be converted at
any
time into three hundred (300) fully paid, nonassessable shares of the Company’s
common stock. As a result of the Share Exchange Agreement, on October 19, 2005,
ARCI became a wholly-owned subsidiary of the Company and the shareholders of
Fast One Inc., Davy Jones Motorsports, Inc. and ARCI became the controlling
shareholders of the Company.
On
October 18, 2005, the Company entered into a Share Exchange Agreement, by and
among the Company, ARC Development Corporation, a Nevada corporation
(“ARCD”)
and
the shareholders of ARCD. Pursuant to the Share Exchange Agreement, the
shareholders of ARCD exchanged with, and delivered to, ARC all of the issued
and
outstanding common stock of ARCD in exchange for 235,000,000 shares of the
Company’s Common Stock, and 1,000,000 shares of Series A Preferred Stock, which
can be converted at any time into three hundred (300) fully paid, nonassessable
shares of the Company’s Common Stock. As a result of the Share Exchange
Agreement, on October 19, 2005, ARCD became a wholly-owned subsidiary of the
Company.
As
a
result of the share exchange transactions, in October 2005, the Company adopted
a new strategy which seeks to integrate race track design and development
operations with a professional racing team and a national driving school network
to leverage the popularity and growth of the motor sports industry.
On
March
20, 2006, the Board of Directors of the Company, in lieu of a special meeting
and pursuant to unanimous written consent, approved a one for one hundred
(1-for-100) reverse stock split (the “Reverse
Stock Split”)
of the
Company’s issued and outstanding, which became effective on March 30, 2006 (the
“Effective
Date”).
On
the Effective Date, the Company’s issued and outstanding common stock was
reduced based on the 1-for-100 ratio and the new trading symbol for the Company
was changed to ‘ANRC’.
On
October 27, 2006, the Company entered in a Settlement Agreement and General
Release with D. Davy Jones whereby it returned the shares of FastOne, Inc.
and
Davy Jones Motorsports, Inc. to Mr. Jones for 1,500,000 shares of its common
stock and 1,000,000 shares of its preferred stock. As additional consideration
for termination of his employment contract, the Company agreed to pay Mr. Jones
$240,000 over 24 months.
Critical
Accounting Policies And Estimates
Management’s
discussion and analysis of the Company’s financial condition and results of
operations are based upon the Company’s consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires that we make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses. At each balance sheet date,
management evaluates its estimates. The Company based its estimates on
historical experience and on various other assumptions that are believed to
be
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. The estimates and critical
accounting policies that are most important in fully understanding and
evaluating our financial condition and results of operations include those
listed below.
Revenue
Recognition
The
Company recognizes revenue when services have been provided and collection
is
reasonably assured.
Principles
Of Consolidation
On
October 17, 2005, the Company entered into a Share Exchange Agreement, by and
among the Company, ARCI and the shareholders of ARCI, pursuant to which, the
shareholders of ARCI exchanged with, and delivered to the Company all of the
issued and outstanding common stock of ARCI in exchange for 150,000,000 shares
of the Company’s common stock and 1,000,000 shares of Series A Preferred Stock,
which can be converted at any time into three hundred (300) fully paid,
nonassessable shares of the Company’s common stock. As a result of the Share
Exchange Agreement, on October 19, 2005, ARCI became a wholly-owned subsidiary
of the Company. The shareholders of Fast One, Inc., DJ Motorsports, Inc. and
ARCI became the controlling shareholders of the Company. Accordingly, the
financial statements of Fast One, Inc., DJ Motorsports, Inc. and ARCI are
presented as the historical financial statements of the Company. The
consolidated financial statements shown in this report include the historical
operating information of the Fast One, Inc., Davy Jones Motorsports, Inc. and
ARCI.
All
intercompany transactions have been eliminated.
Results
Of Operations
For
The Three Months Ended March 31, 2007 Compared To The Three Months Period Ended
March 31, 2006
Revenues
Revenue
from continuing operations for the three months ended March 31, 2007, was $-0-
compared to $-0- in revenue for the three month period ended March 31, 2006.
The
Company discontinued its operations on October 1, 2006 when it disposed of
its
ownership of Davy Jones Motorsports, Inc. The Company accounts for its
investment in LJ&J under the equity method of accounting accordingly no
revenues are recognized in the financial statements.
Operating
expenses. Operating
expenses from continuing operations for the three months ended March 31, 2007
were $449,325, as compared to $-0-, for the three months ended March 31, 2006,
because the Company disposed of its ownership of Davy Jones Motorsports, Inc.
Operating expenses in 2007 consisted of $378,626 in consulting and professional
fees paid in connection with acquisitions being considered and $70,689 in
general and administrative expenses.
Net
( loss). The
Company had a net loss of $548,571 for the three months ended March 31, 2007,
as
compared to a net loss of $25,120 for the three months ended March 31, 2006.
The
increased loss of $523,451 or 2,084% was mostly attributable to the value of
the
shares of common stock and warrants issued to consultants valued at $366,000.
Liquidity
And Capital Resources
Our
financial statements have been prepared on a going concern basis that
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. We have incurred losses since
inception. We incurred a net loss of $548,571 for the three months ended March
31, 2006, and have an accumulated deficit of $5,910,568 at March 31, 2007.
As of
March 31, 2007, we had current assets of $1,635 and current liabilities of
$581,803 resulting in a working capital deficit of $580,168. Through its
subsidiary MET, the Company holds a 40% interest in LJ&J and currently has a
commitment to acquire up to 80% of LJ&J upon final payment of $250,000.
For
the
three months ended March 31, 2007, the Company used net cash in its operations
of $21,728, no cash was used in investing activities and no cash was provided
by
financing activities.
Included
in our liabilities, is $1,000,000 in convertible debt net of the discount for
the beneficial conversion feature of $763,889. Notes payable to related parties
of $56,664 are also included in our liabilities. In the third quarter of 2006,
the Company secured funding through the issuance of notes and warrants. On
July 25, 2006, the Company entered into a Securities Purchase Agreement
(the “Securities Purchase Agreement”) with New Millennium Capital Partners II,
LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC
(collectively, the “Investors”).
Under
the terms of the Securities Purchase Agreement, the Investors purchased an
aggregate of (i) $2,000,000 in callable convertible secured notes (the
“Notes”)
and
(ii) seven year warrants to purchase 10,000,0000 shares of the Company’s common
stock at an exercise price of $0.30 (the “Warrants”).
The
Notes carry an interest rate of 6% per annum and a maturity date of July 25,
2009. The notes are convertible into the Company’s common shares at fifty
percent (50%) (the “Applicable
Percentage”)
of the
average of the lowest three (3) trading prices for our shares of common stock
during the twenty (20) trading day period prior to conversion. However, the
Applicable Percentage shall be increased to (i) 55% in the event that a
registration statement is filed within thirty days of the closing and (ii)
60%
in the event that the registration statement becomes effective within one
hundred and twenty days from the Closing. In addition, the Company has granted
the investors a security interest in substantially all of its assets and
intellectual property as well as registration rights.
Plan
Of Operation
The
Company’s plan of operations seeks to integrate race track design and
development operations with a professional racing team and a national driving
school network to leverage the popularity and growth of the motor sports
industry.
For
the
next 12 months, the Company anticipates that it will need $2,500,000 for general
working capital purposes, including funds for event and administrative
operations, in addition to funding necessary to acquire and develop race track
projects. The Company will seek debt financing to launch any new race track
projects and will seek equity funding or a combination of debt/equity financing
for operations.
RISK
FACTORS
Risks
Related To Our Business
We
are subject to various risks that may materially harm our business, financial
condition and results of operations. You should carefully consider the risks
and
uncertainties described below and the other information in this filing before
deciding to purchase our common stock. If any of these risks or uncertainties
actually occurs, our business, financial condition or operating results could
be
materially harmed. In that case, the trading price of our common stock could
decline.
We
Have Historically Lost Money And Losses May Continue In The Future, And This
May
Adversely Impact Our Business.
Since
our
inception, through March 31, 2006 we have not been profitable and have lost
money on both a cash and non-cash basis. For the three months ended March 31,
2007, we incurred a net loss of $548,571. As of March 31, 2007, our accumulated
deficit was $5,910,568. Future losses are likely to occur, as we are dependent
on spending money to evaluate and pursue motor sports development projects.
No
assurances can be given that we will be successful in maintaining operations
or
reaching profitable operations. Accordingly, we may continue to experience
liquidity and cash flow problems.
Our
Limited Operating History Makes It Difficult Or Impossible To Evaluate Our
Performance And Make Predictions About Our Future
Due
to
our limited operating history, it is difficult to make an evaluation of our
future performance can be made. You should be aware of the difficulties normally
encountered by motorsports companies similarly situated to us and the high
rate
of failure of such enterprises. If we do not successfully address the risks
facing us, then our future business prospects will be significantly limited
and,
as a result, the trading price of our common stock would likely decline
significantly. You should consider the likelihood of our future success in
view
of our limited operating history, as well as the complications frequently
encountered by other companies in the early stages of development. If we
encounter problems, additional costs, difficulties, complications or delays
in
connection with our motorsports activities, it will have a material adverse
effect on its business, results of operations and financial condition, and
as a
result, we could be forces to cease our business operations.
We
Will Need To Raise Additional Capital Or Debt Funding To Sustain Operations,
And
Our Inability To Obtain Adequate Financing May Result In Us Curtailing or
Ceasing Our Business Operations
Unless
we
can become profitable, we will require additional capital to commence and
sustain operations and will need access to additional capital or additional
debt
financing to grow. In addition, to the extent that we have a working capital
deficit and we will need to raise capital to repay the deficit and provide
more
working capital to permit growth in revenues. We cannot assure you that
financing whether from external sources or related parties will be available
if
needed or on favorable terms. Our inability to obtain adequate financing will
result in the need to reduce the pace of implementing our business objectives.
Any of these events could be materially harmful to our business, which would
force us to curtail or cease our business operations, thus resulting in a lower
stock price.
We
Have Been The Subject Of A Going Concern Opinion From December 31, 2006 and
2005. From Our Independent Auditors, Which Means That We May Not Be Able To
Continue Operations Unless We Can Become Profitable or Obtain Additional
Funding
Our
independent auditors had added an explanatory paragraph to their audit opinions
issued in connection with our financial statements for the year ended December
31, 2006, which stated that the financial statements raise substantial doubt
as
to our ability to continue as a going concern. Our ability to make operations
profitable or obtain additional funding will determine our ability to continue
as a going concern. Our financial statements do not include any adjustments
that
might result from the outcome of this uncertainty. We will have to raise
additional funds to meet our current obligations and to cover operating expenses
through the year ending December 31, 2007. If we are not successful in raising
additional capital we may not be able to continue as a going concern.
We
Are Subject To A Working Capital Deficit, Which Means That Our Current Assets
On
March 31, 2007 Were Not Sufficient To Satisfy Our Current
Liabilities
As
of
March 31, 2007, we had current assets of $1,635 and current liabilities of
$581,803 resulting in a working capital deficit of $580,168. Current assets
are
assets that are expected to be converted to cash within one year and, therefore,
may be used to pay current liabilities as they become due. Our working capital
deficit means that our current assets on March 31, 2006 were not sufficient
to
satisfy all of our current liabilities on that date. We will have to raise
capital or debt to fund the deficit or cease our business
operations.
Our
Common Stock May Be Affected By Limited Trading Volume And May Fluctuate
Significantly, And This May Adversely Affect Your
Investment
There
has
been a limited public market for our common stock and there can be no assurance
that a more active trading market for our common stock will develop. An absence
of an active trading market could adversely affect our shareholders’ ability to
sell our common stock in short time periods, or possibly at all. Our common
stock has experienced in the past, and is likely to experience in the future,
significant price and volume fluctuations, which could adversely affect the
market price of our common stock without regard to our operating performance.
In
addition, we believe that factors such as changes in the overall economy or
the
condition of the financial markets could cause the price of our common stock
to
fluctuate substantially. These fluctuations may also cause short sellers to
enter the market from time to time in the belief that we will have poor results
in the future. We cannot predict the actions of market participants and,
therefore, can offer no assurances that the market for our stock will be stable
or appreciate over time.
Our
Common Stock Is Deemed To Be “Penny Stock,” Which May Make It More Difficult For
Investors To Sell Their Shares Due To Suitability
Requirements
Our
common stock is deemed to be “penny stock” as that term is defined in
Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as
amended. These requirements may reduce the potential market for our common
stock
by reducing the number of potential investors. This may make it more difficult
for investors in our common stock to sell shares to third parties or to
otherwise dispose of them. This could cause our stock price to decline. Penny
stocks are stock:
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·
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With
a price of less than $5.00 per
share;
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·
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That
are not traded on a “recognized” national exchange;
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Whose
prices are not quoted on the NASDAQ automated quotation system (NASDAQ
listed stock must still have a price of not less than $5.00 per share);
or
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·
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In
issuers with net tangible assets less than $2.0 million (if the issuer
has
been in continuous operation for at least three years) or $10.0
million (if in continuous operation for less than three years), or
with
average revenues of less than $6.0 million for the last three
years.
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Broker/dealers
dealing in penny stocks are required to provide potential investors with a
document disclosing the risks of penny stocks. Moreover, broker/dealers are
required to determine whether an investment in a penny stock is a suitable
investment for a prospective investor.
Additional
Financing May Potentially Dilute The Value Of Our Stockholders’
Shares
We
will
need to raise additional capital to fund our anticipated future expansion and
implement our business plan. Any additional financing may also involve dilution
to our then-existing stockholders, which could result in a decrease in the
price
of our common stock.
We
Depend On Key Personnel And Our Failure To Attract Or Retain Key Personnel
Could
Harm Our Business
Our
success largely depends on the efforts and abilities of our key executive and
consultants, including A. Robert Koveleski, our President and Chief Executive
Officer, and consultant, Steve B. Pinson, consultant dba Pinson LLC. The loss
of
the services of Messrs. Pinson and Koveleski could materially harm our business
because of the cost and time necessary to replace and train a replacement.
Such
a loss would also divert management attention away from operational issues.
New
Business Ventures Or Acquisitions That We May Undertake Would Involve A Number
Of Inherent Risks, Any Of Which Could Cause Us Not To Realize The Benefits
Anticipated To Result.
We
continually seek to expand our operations through acquisitions of businesses
and
assets. These transactions involve various inherent risks, such as:
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·
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uncertainties
in assessing the value, strengths, weaknesses, contingent and other
liabilities and potential profitability of acquisition or other
transaction candidates;
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the
potential loss of key personnel of an acquired
business;
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the
ability to achieve identified operating and financial synergies
anticipated to result from an acquisition or other
transaction;
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problems
that could arise from the integration of the acquired or new
business;
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·
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unanticipated
changes in business, industry or general economic conditions that
affect
the assumptions underlying the acquisition or other transaction rationale;
and
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·
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unexpected
development costs that adversely affect our
profitability.
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Any
one
or more of these factors could cause us not to realize the benefits anticipated
to result from the acquisition of businesses or assets or the commencement
of a
new business venture.
We
Are Subject To New Corporate Governance And Internal Controls Reporting
Requirements, And Our Costs Related To Compliance With, Or Our Failure To Comply
With Existing And Future Requirements Could Adversely Affect Our
Business.
We
face
new corporate governance requirements under the Sarbanes-Oxley Act of 2002,
as
well as new rules and regulations subsequently adopted by the SEC. These laws,
rules and regulations continue to evolve and may become increasingly stringent
in the future. In particular, we will be required to include management and
auditor reports on internal controls as part of our annual report for the year
ended December 31, 2006 pursuant to Section 404 of the Sarbanes-Oxley Act.
We
cannot assure you that we will be able to fully comply with these laws, rules
and regulations that address corporate governance, internal control reporting
and similar matters. Failure to comply with these laws, rules and regulations
could materially adversely affect our reputation, financial condition and the
value of our securities.
Our
Success Will Depend Partly On Our Ability To Operate Without Infringing On
Or
Misappropriating The Proprietary Rights Of Others.
We
may be
sued for infringing on the intellectual property rights or misappropriating
the
proprietary rights of others. Intellectual property litigation is costly, and,
even if we prevail, the cost of such litigation could adversely affect our
business, financial condition and results of operations. In addition, litigation
is time consuming and could divert management attention and resources away
from
our business. If we do not prevail in any litigation, we could be required
to
stop the infringing activity and/or pay substantial damages. Under some
circumstances in the United States, these damages could be triple the actual
damages the patent holder incurs. If we have supplied infringing products to
third parties for marketing or licensed third parties to manufacture, use or
market infringing products, we may be obligated to indemnify these third parties
for any damages they may be required to pay to the patent holder and for any
losses the third parties may sustain themselves as the result of lost sales
or
damages paid to the patent holder.
If
a
third party holding intellectual property rights successfully asserts an
infringement claim with respect to any of our products, we may be prevented
from
manufacturing or marketing our infringing product in the country or countries
covered by the patent we infringe, unless we can obtain a license from the
patent holder. Any required license may not be available to us on acceptable
terms, or at all. Some licenses may be non-exclusive, and therefore, our
competitors may have access to the same technology licensed to us. If we fail
to
obtain a required license or are unable to design around a patent, we may be
unable to market some of our anticipated products, which could have a material
adverse effect on our business, financial condition and results of
operations.
Shareholders
Must Rely On Management For The Operation Of The Company.
All
decisions with respect to the operation of ANRC and development, production
and
marketing of our products and services, will be made exclusively by management.
Our success will, to a large extent, depend on the quality of the management
of
the Company. In particular, we will depend on the services of our board members
and officers. Management believes that these individuals have the necessary
business experience to supervise the management of the company and production
and commercial exploitation of our products, however, there can be no assurance
that they will perform adequately or that our operations will be successful.
Shareholders will have no right or power to take part in the management of
the
company, for the most part, except to the extent of voting for the members
of
the Board of Directors each year. Accordingly, no person should purchase any
of
the stock offered hereby unless such prospective purchaser is willing to entrust
all aspects of the management of the company to management and has evaluated
management’s capabilities to perform such functions.
We
May Issue Additional Preferred Stock In The Future, And The Terms Of The
Preferred Stock May Reduce The Value Of Your Common Stock.
We
are
authorized to issue up to 10,000,000 shares of preferred stock in one or more
series. Our Board of Directors will be able to determine the terms of preferred
stock without further action by our stockholders. We have designated 2,000,000
shares of preferred stock as Series A Convertible Preferred Stock which is
convertible into 300 shares of common stock, 1,000,000 of which were issued
to
management and are outstanding as of March 13, 2007. To the extent we issue
preferred stock, it could affect your rights or reduce the value of your common
stock. In particular, specific rights granted to future holders of preferred
stock could be used to restrict our ability to merge with or sell our assets
to
a third party. These terms may include voting rights, and may include
preferences as to dividends and liquidation, conversion and redemption rights,
and sinking fund provisions.
We
Have Not, And Currently Do Not Anticipate, Paying Dividends On Our Common Stock.
We
have
never paid any dividend on our common stock and do not plan to pay dividends
on
our common stock for the foreseeable future. We currently intend to retain
future earnings, if any, to finance operations, capital expenditures and to
expand our business.
There
Is A Limited Market For Our Common Stock Which Makes It Difficult For Investors
To Engage In Transactions In Our Securities.
Our
common stock is quoted on the Over the Counter Bulletin Board under the symbol
“ANRC.”
There
is
a limited trading market for our common stock. If public trading of our common
stock does not increase, a liquid market will not develop for our common stock.
The potential effects of this include difficulties for the holders of our common
shares to sell our common stock at prices they find attractive. If liquidity
in
the market for our common stock does not increase, investors in our company
may
never realize a profit on their investment.
Our
Stock Is Thinly Traded, Which Can Lead To Price Volatility And Difficulty
Liquidating Your Investment.
The
trading volume of our stock has been low, which can cause the trading price
of
our stock to change substantially in response to relatively small orders. In
addition, during the last two fiscal years and interim quarters, our common
stock has traded pre-split as low as $0.11 and as high as $12.00, and post-split
as low as $0.18 and as high as $0.60. Both volume and price could also be
subject to wide fluctuations in response to various factors, many of which
are
beyond our control, including actual or anticipated variations in quarterly
and
annual operating results and general market perception. An absence of an active
trading market could adversely affect our shareholders’ ability to sell our
common stock in short time periods, or possibly at all. In addition, we believe
that factors such as changes in the overall economy or the condition of the
financial markets could cause the price of our common stock to fluctuate
substantially. These fluctuations may also cause short sellers to enter the
market from time to time in the belief that we will have poor results in the
future. We cannot predict the actions of market participants and, therefore,
can
offer no assurances that the market for our stock will be stable or appreciate
over time.
A
Sale Of A Substantial Number Of Shares Of Our Common Stock May Cause The Price
Of Our Common Stock To Decline.
If
our
shareholders sell substantial amounts of our common stock in the public market,
including shares issued upon the exercise of outstanding options or warrants,
the market price of our common stock could fall. These sales also may make
it
more difficult for us to sell equity or equity-related securities in the future
at a time and price that we deem reasonable or appropriate.
Item
3. Controls
And Procedures
(A) Evaluation
Of Disclosure Controls And Procedures
As
of the
end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the Company’s Principal
Executive Officer, / Principal Accounting Officer of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures. The
Company’s disclosure controls and procedures are designed to provide a
reasonable level of assurance of achieving the Company’s disclosure control
objectives. The Company’s Principal Executive Officer / Principal Accounting
Officer has concluded that the Company’s disclosure controls and procedures are,
in fact, adequate and effective to ensure that material information relating
to
the Company that is required to be disclosed by the Company in reports that
it
files or submits under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified
in Commission rules and accumulated and communicated to the Company’s
management, including its Principal Executive Officer / Principal Accounting
Officer, to allow timely decisions regarding required disclosure
(B) Changes
In Internal Controls Over Financial Reporting
In
connection with the evaluation of the Company’s internal controls during the
Company’s fiscal quarter ended March 31, 2007, the Company’s Principal
Executive Officer and Interim Principal Accounting Officer have determined
that
there are no changes to the Company’s internal controls over financial reporting
that has materially affected, or is reasonably likely to materially effect,
the
Company’s internal controls over financial reporting.
PART
II
OTHER
INFORMATION
Item
1. Legal
Proceedings
On
March
29, 2007, D.Davy Jones ("Jones") filed a complaint against the Company in the
Ninth Judicial District of the State of Nevada in Douglas County (the
"Complaint"). In the Complaint, Jones' alleges that the Company has failed
to fulfill its payment obligations under that certain Settlement Agreement
and
General Release, dated October 27, 2006, between Jones and the Company.
Jones' claims for relief include breach of contract, breach of implied covenant
of good faith, quantum merit, and attorney's fees and Jones seeks damages in
excess of $10,000. To date, the Company has not filed a response. The
Company intends to pursue settlement discussions with Davy Jones.
Item
2. Changes
In Securities
None.
Item
3. Defaults
Upon Senior Securities
None.
Item
4. Submission
Of Matters To Be A Vote Of Security Holders
None.
Item
5. Other
Information
None.
Item
6. Exhibits
And Reports On Form 8-K
(a) Exhibits:
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Exhibit
Number
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Title
of Document
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Location
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3.2
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Certificate
of Designation of the Series A Convertible Preferred Stock of American
Racing Capital, Inc.
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Incorporated
by reference as Exhibit 3.2 to Form 8-K filed on December 5,
2005
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10.1
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Share
Exchange Agreement, dated October 17, 2005, by and among the Company,
American Racing Capital, Inc., and the shareholders of American Racing
Capital, Inc.
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Incorporated
by reference as Exhibit 99.1 to Form 8-K filed on October 17, 2005
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10.2
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Share
Exchange Agreement, dated October 18, 2005, by and among the Company,
ARC
Development Corporation, and the shareholders of ARC Development
Corporation
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Incorporated
by reference as Exhibit 99.1 to Form 8-K filed on October 19,
2005
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10.3
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Securities
Purchase Agreement dated July 25, 2006, by and among the Company
and New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW
Offshore, Ltd. and AJW Partners, LLC
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Incorporated
by reference as Exhibit 4.1 to Form 8-K filed on August 4,
2006
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10.4
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Form
of Callable Convertible Secured Note by and among New Millennium
Capital
Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd.
and AJW
Partners, LLC
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Incorporated
by reference as Exhibit 4.2 to Form 8-K filed on August 4,
2006
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10.5
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Form
of Stock Purchase Warrant issued to New Millennium Capital Partners
II,
LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners,
LLC
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Incorporated
by reference as Exhibit 4.3 to Form 8-K filed on August 4,
2006
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10.6
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Registration
Rights Agreement dated July 25, 2006 by and among New Millennium
Capital
Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd.
and AJW
Partners, LLC
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Incorporated
by reference as Exhibit 4.4 to Form 8-K filed on August 4,
2006
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10.7
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Security
Agreement dated July 25, 2006 by and among the Company and New Millennium
Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd.
and AJW Partners, LLC
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Incorporated
by reference as Exhibit 4.5 to Form 8-K filed on August 4,
2006
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10.8
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Intellectual
Property Security Agreement dated July 25, 2006 by and among the
Company
and New Millennium Capital Partners II, LLC, AJW Qualified Partners,
LLC,
AJW Offshore, Ltd. and AJW Partners, LLC
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Incorporated
by reference as Exhibit 4.6 to Form 8-K filed on August 4,
2006
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31.1
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Certification
by Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as
adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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Provided
herewith
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31.2
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Certification
by Interim Principal Accounting Officer pursuant to 15 U.S.C. Section
7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of
2002
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Provided
herewith
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32.1
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Certification
by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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Provided
herewith
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32.2
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Certification
by Interim Principal Accounting Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of
2002
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Provided
herewith
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(b) Reports
on Form 8-K:
None.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by
the
undersigned, thereunto duly authorized.
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AMERICAN
RACING CAPITAL, INC.
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| Date: May
___, 2007 |
By: |
/s/ A.
Robert Koveleski |
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A.
Robert Koveleski |
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President,
Chief Executive Officer, Principal
Accounting
Officer, Secretary, and Director
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