SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


   
                                   Form 10-KSB/A
    
                                   (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, 1997

                                       or

[ ]     Transition report pursuant to Section 13 of 15(d) of the Securities 
        Exchange Act of 1934 
 
                       For the transition period from to

                         Commission file number 0-27240

                           ECOTYRE TECHNOLOGIES, INC.
                 (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  be  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; $2,938,565.

  The aggregate market value of the voting stock held by  non-affiliates  of the
registrant  as of July 14 1997 based on the average  price on that date was 
$1,939,610.  At July 14, 1997, the number of shares outstanding of the issuer's 
common stock was 879,571.

                       DOCUMENTS INCORPORATED BY REFERENCE

None
Transitional Small Business Disclosure Format  Yes[ ]    No   [X]

<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

General

  EcoTyre  Technologies,  Inc. (the  "Company") is a manufacturer  in the United
States that recycles used tires by utilizing  European  remolding  technology to
manufacture and distribute a comprehensive line of replacement automobile tires.
This  differs  from the  traditional  retreading  process  in which new tread is
simply placed over the tread portion of a used casing.  The Company  applies new
sidewall and tread rubber to a completely  buffed casing and  permanently  bonds
the  rubber  to the  casing  from  sidewall  to  sidewall  in  high  temperature
vulcanizing  presses.  The result is a superior  quality tire which is virtually
"indistinguishable" from a new tire in appearance and performance, but sells for
substantially  less than leading brands.  The remolded tires manufactured by the
Company are created by manufacturing a previously used high-quality passenger or
light truck casing of a name brand manufacturer.

  The Company  commenced  limited  manufacturing  operations in December,  1995.
During the fiscal year ending March 31, 1997, the Company's  operations  reflect
the full transition from a distribution  company to a manufacturing  distributor
of  remanufactured  tires.  The operating  revenues and customer base  increased
substantially  throughout  this  first  year of  manufacturing  operations.  The
following  table  sets forth the growth  experienced  for the fiscal  year ended
March 31, 1997:

<TABLE>
<CAPTION>

                          Customer Base   Sales Dollars
<S>                             <C>       <C>         
       First Quarter            70        $    218,802
       Second Quarter           75             582,535
       Third Quarter            91             797,013
       Fourth Quarter          110           1,340,215
</TABLE>

  The  aforementioned  growth was accomplished  utilizing the Company's  initial
tire size mix which covers 26 of the approximately 140 tire sizes and variations
of the Company's target market group.

  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,  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 1996 in the United States for over
$7 billion.  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 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 are
approximately 140 different sizes or variations of tires in its target marketing
group  which  includes  passenger  automobiles  and light  trucks.  The  Company
currently  manufactures 26 sizes with its initial equipment mix. The Company has
invested in and is awaiting  delivery of additional  equipment which is intended
to expand its  production to over 100 sizes and  variations of sizes.  The added
equipment  should enable the Company to produce sizes for over 90% of its market
group.

<PAGE>

Manufacturing Operations

  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 its manufacturing operations. In its distribution operations, the
Company  resold its products  primarily to retail tire  replacement  centers and
tire distributors.

  The Company commenced limited manufacturing  operations in December 1995 at
its  65,000  square  foot  leased   facility  in   Holtsville,   New  York.  See
"Properties".  To commence  manufacturing,  the Company  had  purchased  20 mold
presses,  molds,  one  extruder,  one  buffing  machine  and  related  ancillary
equipment.  Additional equipment was purchased in 1996 to increase the Company's
production   capacity  and  limit  down  time  due  to  machinery  failures  and
maintenance.  The Company  ordered  new molds from Italy in November  1996 to be
utilized in its current  presses  which should allow the Company to increase its
production of popular high  performance and light truck tires with higher profit
margins, decreasing its production of smaller tire sizes which are sold at lower
margins. Some molds have already arrived at the Company's facility and new light
truck tire sizes are in  production.  The  remaining  molds should arrive in the
second calendar  quarter of 1997.  Also, in March 1997, the Company  finalized a
business  acquisition of certain of the assets of Butler Retreading,  Inc., (the
"Butler Acquisition") a private 18 year old high performance  retreading Company
based in Marietta,  Georgia.  Butler' s equipment  is expected to  substantially
increase  the  Company's  present  press  capacity  and  position the Company to
increase  sales,  with intended  higher gross profit margins from the new mix of
tires it will produce. The business acquisition,  which includes Butler's client
base,  machinery,  equipment  and  inventory,  was financed  principally  by the
proceeds of a $1,000,000 loan from PhoenixCor. Inc., a wholly owned subsidiary
of Sumitoma Bank.

Sales and Marketing

  The Company sells its products  utilizing a direct sales staff and independent
distributors.  The Company maintains a direct sales staff at its headquarters in
Holtsville,  New  York  that  call on  smaller  accounts  within  the  Company's
geographical   vicinity.   The  Company  also   distributes  to  five  wholesale
distributors  located in  Florida,  Indiana,  Pennsylvania,  Missouri  and Ohio.
Additionally, the Company exports to Canada, Mexico, Argentina, Brazil, Jamaica,
Costa Rica and Guatemala through export companies located in the United States.

  The Company intends to continue marketing its products through  appearances at
domestic tire and  automobile  trade shows as well as major  international  tire
trade shows.  Additionally,  the Company is in the process of developing a print
and  internet  marketing  campaign  with its goal being to increase its customer
base from 110  outlets to 300 outlets  covering  the entire  continental  United
States and the  majority of Central and South  American  countries  by March 31,
1998.

  To this end,  the Company  further  intends to increase  its sales to the U.S.
Government  market.  The Company  announced  on April 29, 1997 that  following a
comprehensive   inspection   of  its   facilities,   the  U.S.   Department   of
Transportation  for District 11, with jurisdiction over the entire New York City
metropolitan area, approved the Company's load ratings on all tires manufactured
by the  Company,  which  allows the Company to produce and sell tires for public
passenger vehicles,  including mini-buses,  school buses, limousines,  taxi cabs
and ambulances.

  In addition,  on June 3, 1997, the Company  announced that it had successfully
completed  a test  program  with a New York  maintenance  facility of the United
States Postal Service  ("USPS").  The test provided for the USPS to deliver used
tire casings from local postal  vehicles to the Company for  recycling by way of
the Company's remolding technology. The Company, in turn, resells the tires back
to the USPS at retail prices.  The Company recently  completed a similar test in
the State of Florida and received  clearance to begin  marketing to post offices
in that state through an established distribution network.

<PAGE>

Raw Materials

  The primary raw materials 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  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
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  significant
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.

   
Customer Concentration

  During fiscal 1997, sales to one customer, South  Texas Tire Supply  generated
revenues of $506,219.16 accounting for 17.2% of net sales. As of March 31, 1997,
three customers accounted for 15%, 14% and 10% of the accounts receivable.

  During fiscal 1996, sales to one customer accounted for 12% of net  sales.  As
of  March 31, 1996, two customers accounted for approximately 22% and 14% of the
accounts receivable.
    

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 primary  competition is from  lower-priced,
lesser-known   associated  brands  of  major  manufacturing  and  private  label
manufacturer  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.  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 tire
markets,  will not enter the United States market in direct competition with the
Company in the United States.

  The Company  believes that its primary  competitive  advantage with respect to
new  replacement  tires is the cost.  While the price  differential  between the
Company's  products  and  those of lower  end and  certain  foreign-manufactured
replacement  tires was less for its last fiscal year than in prior periods,  the
Company  expects that its price  advantage is  sufficient to continue 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 and light truck  tires),  which the Company
believes  is superior  to  warranties  typically  offered by  manufacturers  and
sellers of such products and exhibits the Company's confidence in the quality of
its product.

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.

<PAGE>

  While  the  Company  believes  that  its  manufacturing   operations  are  not
environmentally  sensitive  and will  continue  to  comply  with all  applicable
environmental  laws and  regulations,  no assurance can be given that compliance
with the 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 $15,000,000 of product liability, general and personal and advertising
injury  insurance  per  occurrence  and in the  aggregate,  subject  to a $5,000
deductible.

Employees

  As of March 31, 1997, the Company's staff consisted of 67 full-time employees,
including  its  executive  officers,   six  salespersons,   four  administrative
personnel  and  52  manufacturing   personnel.   The  Company's   employees  are
compensated on a salaried or hourly basis,  except that certain 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.

Intellectual Property

  The Company utilizes its registered trademarks on the products it manufactures
at its 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  products.  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.  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  through July 31, 2005.
If this option has not been  exercised by October 2, 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, 1997.

<PAGE>

                                     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 set
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.
These prices have been retroactively  adjusted for a one-for-seven reverse stock
split effective June 2, 1997.

<TABLE>
<CAPTION>

                                Common Stock             Warrants
                            High Bid  Low Bid        High Bid  Low Bid
                            --------  -------        --------  -------
<S>                        <C>       <C>              <C>       <C> 
      
Fiscal 1996
  First Quarter            $    *    $    *           $    *    $    *
  Second Quarter                *         *                *         *
  Third Quarter                 *         *                *         *
  Fourth Quarter             47 1/4    33 1/4               21        14
 
Fiscal 1997
  First Quarter            $ 48 1/8   $32 3/8         $ 25 3/8  $     14
  Second Quarter             42 7/8    20 1/8           15 3/4     6 1/8
  Third Quarter                  28     4 3/8            4 3/8    1 5/16
  Fourth Quarter             5 1/32   2 27/32            1 3/4      7/16

Fiscal 1998
  First Quarter            $  3 1/8  $  1 5/8         $  21/32  $    1/4

_________

  *    Not applicable
</TABLE>

  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 July 14, 1997, there were approximately 90 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.

<PAGE>


ITEM 6.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS

Results of Operations

  Fiscal Year Ended March 31, 1997 Compared to Fiscal Year Ended March 31, 1996

  Net Sales.  The Company's  net sales of  $2,938,565  for the fiscal year ended
March 31, 1997 ("Fiscal 1997") represents an increase of $2,624,541  compared to
net sales for the fiscal year ended March 31, 1996 ("Fiscal 1996"). The increase
is  attributable to the Company  operating as a  manufacturing  facility for the
entire 1997 fiscal year.  Approximately  46% of the Company's  Fiscal 1997 sales
were  achieved in the last  quarter as the Company has  steadily  increased  its
manufacturing capacity.

  Cost of Sales.  The Company's  cost of sales for Fiscal 1997 was $4,335,447
as  compared  to $925,914  for the  comparable  prior  period,  representing  an
increase of  $3,409,533.  This  increase  was due  primarily  to the increase of
purchases  of raw  material  and labor  costs as a result of the  manufacturing.
Certain of the Company's direct labor and overhead expenses  increased,  such as
salaries ($867,577),  utilities ($134,240),  and depreciation  ($162,611) due to
the operation of the manufacturing  facility for a full year in Fiscal 1997, the
completion of the transition to a manufacturing  facility and the related hiring
of direct labor and personnel needed to run the facility at a higher  percentage
of capacity.

   Gross  Profit  (Loss).  The  Company  has a  gross  loss  for  Fiscal  1997
($1,396,882)  as  compared to a gross loss of  ($611,890)  for Fiscal  1996,  an
increased loss of ($784,992). This loss was directly caused by the incurrence of
additional  costs as a tire  manufacturer.  The first nine months of Fiscal 1997
was primarily  devoted to testing and training of  manufacturing  personnel with
the last  quarter  of the  fiscal  year  showing a gross  profit as the  Company
completed its  manufacturing  transition.  During the  manufacturing  transition
period,  the Company  incurred  direct labor and overhead  expenses  without the
corresponding   benefit  of  sales.  The  Company  is  currently   operating  at
approximately 40% of capacity.

  Operating and Other  Expenses.  The Company  incurred  selling and shipping
expenses of $745,529,  general and  administrative  expenses of  $1,242,416  and
interest  expense of $79,732 in Fiscal  1997 as  compared to $336,956 of selling
and  shipping  expenses,  $916,988 of general and  administrative  expenses  and
$394,395  of  interest  expense in Fiscal  1996.  The  increase  in selling  and
shipping expenses  resulted  primarily from an increase in salaries to full time
salespersons   and  an  increase   in   marketing   expense.   The  general  and
administrative  expense  increase is  attributable  primarily  to  increases  in
occupancy  costs,  consulting  fees  paid  and  salaries  of  full  time  office
personnel.  The decrease in interest  expense is attributable to amortization of
deferred  interest of $283,328 in Fiscal 1996 from the  discounting of the notes
in the  Company's  bridge  financing.  The Company also wrote off the  remaining
original  issue  discount  of  $389,216  during  Fiscal  1996 at the time of the
initial public offering.

  Net Loss. The Company  sustained a net loss of  ($3,411,743) in Fiscal 1997 as
compared to a net loss of  ($2,637,313)  in Fiscal 1996,  an  increased  loss of
($774,430). The increased loss relates primarily to the $784,992 increase in the
gross loss and the increase in selling,  general and administrative  expenses of
$734,001 offset by a decline in interest expense and write-off of original issue
discount of $703,879.

  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
$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.

<PAGE>

  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 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
notes.

Liquidity and Capital Resources

  As indicated in the Report of Independent  Certified Public  Accountants,  the
Company's financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1(b) of the Notes to Financial
Statements,  the Company has  sustained  losses  since  inception  and  requires
additional  working  capital.  These factors raise  substantial  doubt about the
Company's  ability to continue as a going concern.  The financial  statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.

   
  The Company used cash in operating activities of $3,864,581 for the year ended
March 31,  1997 and  $1,709,359  for the year  ended  March 31,  1996  which was
primarily related to  the  loss  from  operations.  The cost to the Company  for
machinery and equipment is approximately $1,969,483.00.  All equipment purchased
with the exception of any new  assets  purchased  were  owned  by the Sellers in
excess of two years.  The Company  used industry standards in determining a fair
price  for  all  of  the  equipment  purchased.  All purchases of equipment were
negotiated by the officers of the Company with  the help of industry experts and
approved by the  Company's Board  of Directors.  The  President and CEO, Vito F.
Alongi, is primarily responsible  for these  decisions. Cash  used in  investing
activities in  the amount  of $531,359 and $712,049 for the year ended March 31,
1997 and 1996, was principally for the  purchase of related machinery and equip-
ment to commence operations of its manufacturing facility.Financing used to fund
operating and investing  activities in the amount of $1,740,480  and  $5,154,974
for the year ended  March 31,  1997 and 1996 was  derived  principally  from the
Company's  private  placement  (in  October  1996) and from its  initial  public
offering (in December  1995),  and working  capital loans,  notes and debentures
during Fiscal 1996. 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  originally  could  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 could
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  could either  convert the Class A Redeemable  Convertible
Preferred  Stock or  receive  the  redemption  price for his Class A  Redeemable
Convertible  Preferred  Stock.  Subsequent  to March 31,  1997,  the  redemption
provision of the Preferred Stock was  eliminated.  These shares can be converted
to Common  Stock at a rate of one share of Common Stock for one share of Class A
Convertible Preferred Stock (See Financial Statement Footnote 16).

<PAGE>

  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  consummates  the purchase price
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.  As of March 31, 1997, the Company has no
significant commitments for additional capital expenditures.

   At March 31, 1997,  the Company had cash and cash  equivalents  of $127,392
compared to $2,782,952 at March 31, 1996. The Company's working capital at March
31, 1997 was $333,497  compared to $2,391,664  at March 31, 1996.  Subsequent to
March 31, 1997, the Company received approximately $400,000 from the issuance of
approximately  400,000  shares  of Class B  Preferred  Stock  and  approximately
$250,000  from the private  placement  of common  stock (see Note 16 of Notes to
Financial Statements). Although the Company has expanded its production capacity
in order to meet its increasing sales demand, no assurance can be given that the
Company  will be  successful  in  generating  sufficient  cash  flows  from  its
operations to meet its  obligations.  The Company is also attempting to generate
additional  working  capital  through sales of common  stock.  If the Company is
unsuccessful in achieving  positive cash flows from its operations or generating
additional working capital through sales of stock, the Company's business may be
materially and adversely affected.

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 mid
Western United States and other regions where all purpose  automobile  tires are
used year  round,  it does not  believe  that  seasonality  will have a material
adverse impact on its operations.
<PAGE>

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.

<TABLE>
<CAPTION>
                                     Fiscal Year Ended March 31,
                                         1996           1997
                                         ----           ----
Statement of Operations Data:

<S>                                  <C>             <C>         
Net sales                            $   314,024     $  2,938,565
Net loss                              (2,637,313)      (3,411,743)
Primary loss per common share             (10.24)(2)        (5.98)(2)
Weighted average number
    of common shares (1)                 272,196          602,367

</TABLE>

<TABLE>
<CAPTION>

Balance Sheet Data:

                                               March 31, 1997
                                               -------------- 
<S>                                             <C>        
Working capital                                 $   333,497
Total assets                                      4,815,744
Total long term debt, net of current portion (3)  1,016,700
Class A Redeemable Convertible Preferred Stock    1,193,090
Stockholders' equity                                746,445

<FN>
(1) Adjusted to give effect to a 1-for-7  reverse  stock split  effective on
June 2, 1997.  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,  1997 and 1996  preferred  stock  dividends  of  $188,185  and
$149,070, respectively, have increased the net loss from operations to arrive at
net loss  attributable to common  shareholders of ($3,599,928) and ($2,786,383).

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

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

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

       None

<PAGE>

                                    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, 1997 were as
follows:
<TABLE>
<CAPTION>

  Name                        Age       Position
  ----                        ---       --------
<S>                           <C>      <C> 

  Marc de Logeres (2)(4)      71        Co-Chairman of the Board

  Maxwell G. Parsons (3)(5)   67        Co-Chairman of the Board

  Vito F. Alongi (1)          42        President, Principal Executive 
                                        Financial and Accounting Officer, 
                                        Treasurer and Director

  Robert E. Munyer, Jr.(2)(5) 54        Vice President - Manufacturing, 
                                        Secretary and Director

  John W. King (1)            63        Vice President and Director

  Theresa Mari, Esq. (3)(4)   33        Director

  Arthur Rosenberg, Esq. (3)  58        Director

<FN>
(1) Member of Class I, to serve until the 1997 Annual Meeting of Stockholders.
(2) Member of Class II, to serve until the 1998 Annual Meeting of Stockholders.
(3) Member of Class III, to serve until the 1999 Annual Meeting of Stockholders.
(4) Member of Audit Committee
(5) Member of Compensation Committee
</FN>
</TABLE>

  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  retired  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
1996 to the present,  Mr.  Parsons has been the  president of M.G.  Enterprises,
Inc., a consulting  firm.  From 1982 through 1986,  Mr. Parsons was president of
K-Mart  Enterprises,  Inc. and was  responsible  for managing the automotive and
sporting goods  department 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.

<PAGE>

  Robert E. Munyer,  Jr. has been Vice President of Manufacturing  and Secretary
of the Company and its  predecessor  from 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.

  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 is currently a solo practicing attorney.  Prior thereto, Ms. 
Mari was an attorney with the firm of Jaeger, Mari & Block from 1992 through 
December 1995 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 Louis  Crispino  who is  expected  to make
significant  contributions to its business.  Mr. 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.

  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 1997.

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 the 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 transaction  during
fiscal 1995,  except that Maxwell G. Parsons filed one report on Form 4 relating
to a purchase of the Company's securities several weeks late. 

<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

  The following table sets forth the cash and other  compensation paid in fiscal
1997, 1996 and 1995 to the Company's executive officers.

<TABLE>
<CAPTION>
                                                                            Long Term
                                Annual Compensation                         Compensation
                                -------------------                         ------------    
                                                                       Securities
Name and                                             Other Annual      Underlying    All Other
Principal Position         Year    Salary    Bonus   Compensation (1)  Options       Compensations

<S>                        <C>    <C>          <C>        <C>            <C>             <C>
Vito Alongi                1997   $ 94,723      -          -             32,143           -
President                  1996   $100,103      -          -               -              -
(Chief Executive Officer)  1995   $ 69,252      -          -              7,143           -
_________
<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.
</FN>
</TABLE>

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.

<TABLE>
<CAPTION>

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

<S>                       <C>           <C>              <C>            <C> 
Vito F. Alongi          
President                 28,571        34-3/4%          $4.41          Feb. 2007
(Chief Executive Officer)  3,571         4-1/3%          $5.25          Feb. 2007

</TABLE>

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.

<PAGE>

  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 in  defined in Section
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.

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  therefore will receive $3,500 a
month.  Additionally,  on June 13, 1997, the Company issued to Mr. Parsons 3,571
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 of 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.

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,  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, acquired shares, shares purchased in the open market or
any combination  thereof. If any award under the 1995 Incentive Plan terminates,
expires  unexercised,  or is  canceled,  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 27,142  options to purchase  shares of Common Stock under the 1995
Incentive  Plan,  of which 7,143  options  have been  granted to each of Vito F.
Alongi and Theresa Mari,  3,571  options have been granted to John W. King,  and
3,571 options have been granted to Marc de Logeres.

<PAGE>

1997 Long Term Incentive Plan

  In February 1997, the Company adopted the EcoTyre Technologies, Inc. 1997 Long
Term Incentive Plan (the "1997 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 1997  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 1997 Incentive Plan, which is administered by the Compensation  Committee
of the Board of  Directors,  authorizes  the  issuance of a maximum of 1,700,000
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  1997  Incentive  Plan  terminates,  expires
unexercised,  or is canceled,  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 92,857
non-qualified  stock  options to purchase  shares of Common Stock under the 1997
Incentive  Plan, of which 28,571 options have been granted to Vito F. Alongi and
17,857  options have been granted to Theresa Mari at an exercise  price of $4.41
per share and 35,714  options  were granted to members of the Board of Directors
at an exercise price of $5.25 per share.

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 maintains
a liability insurance policy for the benefit of its directors.

ITEM 11.         SECURITY OWNERSHIP

  The following  table sets forth the  beneficial  ownership of shares of voting
stock of the Company,  as of June 15,1997  after giving  effect to the Company's
one-for-seven  reverse  stock split,  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 investment and voting power is
held by the persons named as owners.

<PAGE>

<TABLE>
<CAPTION>
                                     Amount and Nature
Name and Address of                  of Shares                  Percentage
Beneficial Owner                     Beneficially Owned         Ownership
- ---------------------                -------------------        ------------

<S>                                   <C>                           <C>  
Steven A. Cantor                      113,143 (3)                   13.0%
Vito F. Alongi (1)                     27,143 (4)                   3.1%
John W. King (1)                       17,679 (5)                   2.0%
Robert E. Munyer, Jr. (1)              10,000 (6)                   1.1%
Theresa Mari (1)                       14,207 (7)                   1.6%
Maxwell G. Parsons (2)                  5,714 (8)                    *
Arthur Rosenberg                            0 (9)                    *
Marc de Logeres                             0 (10)                   *
All officers and directors as
 a group (8 persons)                   77,600                       8.7%

<FN>

* Less than 1%
(1)  The address for each of these persons is 895 Waverly Avenue, Holtsville,
     New York  11742.
(2)  The address for this person is 5535 N.E. 4th Avenue, Ocala, Florida  34479.
(3)  Includes an aggregate of 40,714 shares of Common Stock owned by Annette
     Cantor, Mr. Cantor's mother, and Cindy Birmingham,  Mr. Cantor's sister, as
     to which Mr. Cantor disclaims beneficial ownership. 
(4)  Includes options to purchase  7,143  shares of Common  Stock at an 
     exercise  price of $8.75 per share granted  pursuant to the Company's  1995
     Long Term Incentive  Plan,  which are  exercisable  within 60 days of the 
     Record Date.  Does not include  options to purchase  3,571 shares of
     Common Stock at an exercise  price of $5.25  per share  which  have been  
     granted  pursuant to the Company's 1997 Long Term Incentive Plan and 
     options to purchase 28,571 shares of Common  Stock at an exercise  price 
     of $4.41 per share  granted  pursuant to the Company's 1997 Long Term 
     Incentive Plan which are not exercisable within 60 days of the Record Date
     and five year  warrants to purchase  71,429  shares of Common Stock at
     $7.00 per share which are not exercisable  within 60 days of the Record
     Date.  
(5)  Includes  options to  purchase  3,571  shares of Common  Stock at an
     exercise  price of $8.75 per share granted  pursuant to the Company's 1995
     Long Term Incentive Plan,  which are  exercisable  within 60 days of the 
     Record Date. Does not include options to purchase 3,571 shares of Common 
     Stock at an exercise price of $5.25 per share under the Company's 1997 
     Long Term Incentive Plan which are not exercisable  within 60 days of the 
     Record Date and five year warrants to purchase  14,286 shares of Common
     Stock at an exercise  price of $7.00 per share which  are not  exercisable
     within  60 days of the  Record  Date.  
(6)  Does not include an option to purchase  3,571 shares of Common Stock at 
     an exercise price of $5.25 per share granted  pursuant to the Company's 
     1997 Long Term  Incentive Plan which are not  exercisable  within 60 days
     of the Record Date and five year warrants to purchase  3,571  shares of 
     Common Stock at $7.00 per share which are not  exercisable  within 60 days
     of the Record  Date.  
(7)  Includes  options to purchase 7,143 shares of Common  Stock at an exercise
     price of $8.75 per share granted  pursuant to the  Company's  1995 Long 
     Term  Incentive  Plan,  which are exercisable  within 60 days of the
     Record  Date.  Includes  214 shares of Common Stock owned by Ms. Mari's 
     husband.  Does not include  options to purchase 3,571 shares of Common 
     Stock at an  exercise  price of $5.25 per share and options to purchase  
     17,857 shares of Common Stock at an exercise  price of $4.41 per share
     granted  pursuant to the Company's  1997 Long Term  Incentive Plan which 
     are not exercisable  within 60 days  after the  Record  Date and five year 
     warrants  to purchase  21,429  shares  of  Common  Stock at $7.00  per  
     share  which  are not exercisable  within 60 days of the Record Date. 
<PAGE>

(8)  Does not include  options to purchase  3,571 shares of Common  Stock at
     an exercise  price of $5.25 per share granted  pursuant to the Company's
     1997 Long Term  Incentive Plan which are not exercisable  within 60 days 
     of the Record Date. 
(9)  Does not include  options to purchase  10,714 shares of Common Stock at 
     an exercise  price of $5.25 per share granted  pursuant to the Company's 
     1997 Long Term  Incentive Plan which are not exercisable  within 60 days 
     of the Record Date. 
(10) Does not include options to purchase  7,143 shares of Common  Stock at an
     exercise  price of $5.25 per share granted  pursuant to the Company's 
     1997 Long Term  Incentive Plan which are not exercisable within 60 days 
     of the Record Date.
</FN>
</TABLE>


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 7,143 post-split 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  provided  for  interest  at the annual  rate of 14%
payable quarterly, was paid in December 1995.

   In March 1997, the Company issued to Steven Cantor 81,000 post-split shares
of Common Stock. The  consideration  for this issuance was the prepayment of the
remaining  consulting fees due under Mr. Cantor's four year Consulting Agreement
which commenced in July 1996. In conjunction with this transaction,  the Company
canceled 18,571 post-split options exercisable at $8.75 previously issued to Mr.
Cantor  under  the 1995  Long Term  Incentive  Plan as well as 2,857  post-split
shares of Common Stock which he owned.

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-2 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 of 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.* 


<PAGE>

 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.*  
 10.16  Acquisition Agreement dated March 21, 1997 with Butler Retreading, Inc.*
 10.17  PhoenixCor., Inc. Loan Agreement dated February 24, 1997.*
 10.18  Loan and Security Agreement dated May 24, 1995 between the Registrant
        and Greyrock Capital Corporation*
   
 10.19  Consent of BDO Seidman, LLP.(1)
    

*Incorporated by reference to Registration Statement on Form SB-2 No. 33-96482.
   
(1) previously filed
    

  (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).

       (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  Section 10(a)(3) of the 
Securities Act of 1933;

            (ii) To reflect in the  prospectus any facts or events arising after
the  effective  date  of  the   registration   statement  (or  for  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  offer
therein,  and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

<PAGE>

       (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.


<PAGE>


                                   SIGNATURES

   
     Pursuant to the  requirements  of the Section 13 of 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 31st day of March, 1998.
    

                                     ECOTYRE TECHNOLOGIES, INC.

                                     By:  /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 March 31, 1998 by the  following  persons  in the  
capacities indicated:
    

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


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

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

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

/s/ Robert E. Munyer, Jr.          
Robert E. Munyer, Jr.             Vice President, Secretary and Director

/s/ John W. King
John W. King                      Vice President and Director

/s Theresa Mari
Theresa Mari                      Director

/s/ Arthur Rosenberg
Arthur Rosenberg                  Director


<PAGE>




                           ECOTYRE TECHNOLOGIES, INC.

                              FINANCIAL STATEMENTS
                               FORM 10-KSB ITEM 7

                       YEARS ENDED MARCH 31, 1997 AND 1996






























                                       F-1

<PAGE>


                           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                             F-6

     Statements of cash flows                                       F-7

Notes to financial statements                                       F-8 - F-26


                                       F-2
<PAGE>

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,  1997  and  1996,  and  the  related  statements  of  operations,
stockholders'  equity 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, 1997 and 1996,  and the results of its  operations and its cash flows
for the years  then  ended in  conformity  with  generally  accepted  accounting
principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue as a going  concern.  As  discussed  in Note 1(b) to the
financial  statements,  the Company's  losses since inception  combined with the
need to obtain  additional  working  capital raise  substantial  doubt about its
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also  described  in Note 1(b).  These  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.

                                        /s/ BDO Seidman, LLP 
                                        BDO Seidman, LLP

Mitchel Field, New York

July 10, 1997

                                       F-3


<PAGE>


                           ECOTYRE TECHNOLOGIES, INC.
<TABLE>
<CAPTION>

BALANCE SHEETS
                                                                        March 31,
                                                                1997              1996
                                                                ----              ----
ASSETS
Current:
<S>                                                         <C>               <C> 
     Cash and cash equivalents (Note 1)                     $  127,392        $ 2,782,952
     Account receivable, less allowance for possible
          losses of $17,000 and $11,000 (Notes 1 and 11)       958,798             65,174
     Inventories (Notes 1, 3 and 10)                           431,561            340,449
     Prepaid expenses (Notes 9 and 12)                         241,087             57,870
     Other current assets                                      120,999            102,936
                                                               -------            -------
          Total current assets                               1,879,837          3,349,381

Property and equipment, less accumulated depreciation        2,295,089          1,258,008
     (Notes 1, 4, 8 and 10)
Security deposits                                              244,815             60,193
Other assets (Notes 1, 2, 9 and 12)                            396,003             37,278
                                                               -------             ------
                                                           $ 4,815,744        $ 4,704,860
                                                           ===========        ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
     Notes payable - bank (Note 5)                         $     -            $   200,000
     Current maturities of long-term debt (Note 6)             115,000            150,000
     Accounts payable                                        1,003,386            221,211
     Accrued expenses (Note 7)                                 149,687            279,735
     Preferred stock dividends payable                         120,277               -
     Current maturities of capitalized leases (Notes 1 and 8)    7,979              8,433
     Current maturities of machinery loan (Notes 1, 4 and 10)  150,011             98,338
                                                               -------             ------
          Total current liabilities                          1,546,340            957,717

Long-term debt, less current maturities (Notes 1 and 6)        150,000             75,000
Capitalized leases, less current maturities (Notes 1 and 8)     16,711             24,562
Machinery loan, less current maturities (Notes 1, 4 and 10)    849,989            122,220
Deferred rent credits (Note 12)                                313,169            272,160 
                                                               -------            ------- 
          Total liabilities                                  2,876,209          1,451,659
                                                             ---------          ---------

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, 6 and 16)      1,193,090          1,125,182
                                                             ---------          ---------
Commitments (Note 12)
Stockholders' equity (Notes 1, 6, 9, 13 and 16):
  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 - 908,143 
     and 445,000                                                  908                 445
     Paid-in capital                                        7,852,407           5,822,701
     Deficit                                               (7,106,870)         (3,695,127)
                                                           ----------          ---------- 
          Total stockholders' equity                          746,445           2,128,019
                                                              -------          ---------
                                                          $ 4,815,744         $ 4,704,860
                                                          ===========         ===========
                                                        
                 See accompanying notes to financial statements

</TABLE>

                                   F-4

<PAGE>




                           ECOTYRE TECHNOLOGIES, INC.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                         Year Ended
                                                          March 31,
                                                1997                1996
                                                ----                ----

<S>                                         <C>                 <C>
Net sales (Notes 1 and 11)                  $ 2,938,565         $  314,024

Cost of sales                                 4,335,447            925,914
                                              ---------            -------

     Gross loss                              (1,396,882)          (611,890)
                                             ----------           -------- 

Operating and other expenses:
     Selling and shipping                       745,529            336,956
     General and administrative               1,242,416            916,988
     Interest  (including amortization 
        of original issue discount of 
        $0 and $283,328 and net of 
        interest income of $57,652 and
        $29,503) (Note 6)                        22,080            364,892
                          
     Write-off of original issue discount 
        (Note 6)                                   -               389,216
                                               --------            -------


     Total operating and other expenses       2,010,025          2,008,052
                                              ---------          ---------

Loss before taxes                            (3,406,907)        (2,619,942)

Provision for taxes (Notes 1 and 14)              4,836             17,371
                                                  -----             ------

Net loss                                    $(3,411,743)       $(2,637,313)
                                            ===========        =========== 

Preferred stock dividends (Note 6)          $   188,185        $   149,070
                                            ===========        ===========

Net loss attributable to common 
  stockholders                              $(3,599,928)       $(2,786,383)
                                            ===========        =========== 

Net loss per share (Note 1)                 $     (5.98)       $    (10.24)
                         =                  ===========        =========== 

Weighted average number of shares of
    common stock outstanding                  602,367            272,196
                                              =======            =======

                       See accompanying notes to financial statements.
</TABLE>
                                       F-5

<PAGE>



                           ECOTYRE TECHNOLOGIES, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                    Common Stock
                                   $.001 par value
                                Number                   Paid-In
                                of shares     Amount     Capital      Deficit        Total
                                -----------   ------     ---------    ---------      -----   
<S>                              <C>         <C>        <C>         <C>           <C>    
Balance, March 31, 1995          167,857     $  168     $ 250,804   $(1,057,814)  $ (806,842)
Issuance of promissory
   notes and shares (Note 6)       7,143          7      149,993          -          150,000
Issuance of promissory
   notes and shares (Note 6)      23,571         24      494,976          -          495,000
Adjustment to reflect   
   deferred placement costs of
   promissory notes (Note 6)         -           -      (192,060)         -         (192,060)
Issuance of common stock in
    connection with initial
    public offering              246,429        246    5,268,058          -        5,268,304
Preferred stock dividends
      (Note 6)                       -           -     (149,070)          -         (149,070)
Net loss                             -           -         -         (2,637,313)  (2,637,313)
                                 ---------    ------   -----------   ----------   ---------- 

Balance, March 31, 1996          445,000        445   5,822,701      (3,695,127)   2,128,019
Issuance of common stock for
     professional and consulting
     fees (Note 9)               134,572        135     470,865           -          471,000
Issuance of common stock in
     connection with business
     acquisition (Note 2)         42,857         42     188,958           -          189,000
Issuance of common stock
    in connection with
    private placement
    (Note 13)                    285,714        286   1,558,068           -        1,558,354
Preferred stock dividends  
    (Note 6)                        -            -     (188,185)          -         (188,185)
Net loss                            -            -         -         (3,411,743)  (3,411,743)
                                 ---------    -------  -----------   -----------  ---------- 
                                   
Balance, March 31, 1997          908,143     $  908  $7,852,407     $(7,106,870)  $  746,445
                                 =======     ======  ==========      ==========   ==========

                 See accompanying notes to financial statements.
</TABLE>

                                   F-6


<PAGE>
                           ECOTYRE TECHNOLOGIES, INC.
                            STATEMENTS OF CASH FLOWS
                                (NOTES 1 and 15)
<TABLE>
<CAPTION>

                                                          Year ended March 31,
                                                           1997           1996
                                                           ----           ----
Cash flows from operating activities:
<S>                                                    <C>             <C>         
     Net loss                                          $(3,411,743)    $(2,637,313)
     Adjustments to reconcile net loss to net cash
            used in operating activities:
          Depreciation and amortization                    220,353          46,852
          Deferred rent                                     41,009         189,450
          Amortization and write-off of original issue
               discount                                        -           672,544
          Provision for possible losses on account
               receivable                                    6,000          11,000
          Non-cash professional and consulting fees        131,281            - 
          Changes in other assets and liabilities, net 
               of effects of acquisition of Butler 
               Retreading, Inc.:                        
               Accounts receivable                        (899,624)        156,727
               Inventories                                  59,388        (214,458)
               Other assets                               (226,408)       (147,530)
               Accounts payable                            782,175          82,382
               Accrued expenses                           (130,048)        130,987
                                                          --------         -------
Net cash used in operating activities                   (3,427,617)     (1,709,359)
                                                        ----------      ---------- 

Cash flows from investing activities:
     Capital expenditures - net                           (607,434)       (712,049)
     Payment for assets acquired from Butler
        Retreading, Inc. (Note 2)                         (750,000)           -
                                                          --------         --------
Net cash used in investing activities                   (1,357,434)       (712,049)

Cash flows from financing activities:
     Proceeds from working capital loans                      -            100,000
     Repayment of working capital loans                       -           (225,000)
     Proceeds from bank note payable                        196,333        200,000
     Repayment of bank note payable                        (396,333)          -
     Proceeds from long term notes and warrants               -            225,000
     Net proceeds from bridge financing                       -            807,940
     Repayment of bridge financing                            -         (1,075,000)
     Proceeds from machinery loan                         1,000,000           -
     Repayment of machinery loan                           (220,558)       (79,442)
     Repayment of capitalized lease obligations              (8,305)        (6,688)
     Issuance of common stock                              1,558,354     5,268,304
     Dividends paid on preferred stock                        -            (60,140)
                                                           ---------       ------- 
Net cash provided by financing activities                  2,129,491     5,154,974
                                                           ---------     ---------
Net increase (decrease) in cash and cash equivalents      (2,655,560)    2,733,566
Cash and cash equivalents, beginning of year               2,782,952        49,386
                                                           ---------        ------
Cash and cash equivalents, end of year                    $  127,392   $ 2,782,952
                                                          ==========   ===========

                 See accompanying notes to financial statements.
</TABLE>

                                     F-7

<PAGE>


                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 1.   Summary of Accounting Policies

     (a)  Business

     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. Domestic manufacturing of  remanufactured/remolded  tires
     commenced during Fiscal 1997. The Company's customers are primarily 
     independent tire distributors and retail tire replacement centers.

     (b)  Basis of presentation

     The accompanying  financial statements have been prepared assuming that the
     Company  will  continue as a going  concern.  The  Company's  losses  since
     inception  combined with the need to generate  additional  working  capital
     raise  substantial doubt about the Company's ability to continue as a going
     concern. The financial statements do not include any adjustments that might
     arise from the outcome of this uncertainty.

     During 1997, the Company commenced  manufacturing the tires it distributes.
     However, by the end of Fiscal 1997, such manufacturing  approximated 40% at
     capacity  which,  in turn,  limited the  Company's  ability to increase its
     sales levels. Accordingly,  the Company's profitability and cash flows have
     been  adversely  affected.  Management's  plans  for  Fiscal  1998  include
     expanding production,  in part, through the business acquired in March 1997
     (See Note 2) which will enable the Company to  increase  its sales  levels.
     Management's  plans also include raising additional working capital to fund
     the planned expansion of operations  through  additional sales of stock. As
     described in Note 16, the Company raised approximately $400,000 from the 
     sale of Class B Convertible  Preferred Stock and approximately $250,000
     from a private placement of stock in April 1997.  However,  the Company 
     requires additional  working capital and there are no  assurances  that
     the Company will be successful in generating  additional  working  capital
     through the sale  of  stock or  generating   positive  cash  flow  from  
     its  expanded operations.  If the  Company  is  unable  to  generate 
     additional  working capital, the Company's business could be materially
     and adversely affected.


                                     F-8
<PAGE>


                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

  (c)  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.

  (d)  Concentration of credit risk

     Financial   instruments   which   potentially   subject   the   Company  to
     concentration  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 (See Note 
     11). 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.

  (e)  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.

                                        F-9

<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)


  (f)  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
 
  (g)  Customer list

     Amortization  of the  customer  list is  computed  using the  straight-line
     method over the estimated useful life of seven years. (See Note 2).

  (h)  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,
     1997, based upon the borrowing rates currently available to the Company for
     loans with similar terms and average maturities.

  (i)  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.

  (j)  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.

                                      F-10

<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

  (k)  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.  All share and per share
     information has been restated to give effect to the  one-for-seven  reverse
     stock split effective June 2, 1997 (See Note 16).

  (l)  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.

  (m)  Accounting for stock-based compensation

     In Fiscal 1997, the Company adopted the Statement of Financial Accounting
     Standard No. 123, "Accounting for Stock-Based Compensation".  The Company
     has elected not to implement the fair value based accounting method for 
     employee stock options, but has elected to disclose the pro-forma
     net income and earnings per share, if material,  as if such method has 
     been used to account for stock-based compensation cost as described in the
     Statement.

  (n) Accounting for the impairment of long-lived assets

     In Fiscal 1997, the Company adopted the Statement of Financial Accounting 
     Standard No.  121,  "Accounting  for the  Impairment  of  Long-Lived  
     Assets and for Long-Lived  Assets to be Disposed Of". The effect of
     adopting this standard was insignificant.

     The Company reviews the carrying values of its long-lived and identifiable
     intangible assets for possible impairment whenever events or changes in 
     circumstances indicate that the carrying amount of the assets may not be 
     recoverable, based on a comparison to undiscounted future operating cash
     flows. 

  (o)  Prospective accounting changes

     On March 3,  1997,  the  FASB  issued  Statement  of  Financial  Accounting
     Standard No. 128, "Earnings Per Share". This pronouncement provides for the
     calculation of Basic and Diluted earnings per share which is different from
     the current  calculation of Primary and Fully Diluted earnings per share in
     accordance  with APB 15. The effect of  adopting  this new  standard is not
     expected to be material.

                                      F-11
<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)


  (p)  Reclassifications

     Certain  reclassifications have been made to conform prior years' financial
     statements to the fiscal 1997 presentation.

Note 2.     Acquisition

     On  March  21,  1997,  the  Company   acquired  certain  assets  of  Butler
     Retreading,  Inc. The aggregate  purchase price was approximately  $939,000
     consisting  of $750,000 in cash provided by long term  financing  (Note 10)
     and 42,857  newly-issued  shares of common  stock of the Company  valued at
     $189,000,  or $4.41 per share,  the quoted  market  price of the  Company's
     shares as of March 21, 1997. The  acquisition has been accounted for by the
     purchase method of accounting. The purchase price has been allocated to the
     assets  acquired  based  on the  estimated  fair  values  of each  asset as
     follows:

<TABLE>
       <S>                                         <C>         
       Inventory                                   $ 150,500
       Machinery and equipment                       650,000
       Customer list (included in other assets)      125,000
       Other                                          13,500
                                                   ---------
                                                   $ 939,000
                                                   =========
</TABLE>

   
     An unaudited  pro-forma  condensed  combined statement of operations giving
     effect to this acquisition as if it had occurred at the beginning of fiscal
     1996 has  not  been  presented  because the acquisition was not material to
     the  Company's  assets   or  historical  operations.    In  evaluating  the
     materiality  of  the  purchase  of some of the assets of Butler Retreading,
     Inc., EcoTyre applied the test set forth in 310(c) of Regulation S-B of the
     Securities  and  Exchange  Act  of  1934,  as amended, which consists of an
     income and asset test.  The test was applied as follows:

     Investment Test (c)(2)(i):   EcoTyre  has  made  no  investment  in  Butler
     Retreading, Inc., which is the Company from which the assets were acquired.

     "20% Test" (c)(z)(ii):  The  value  of  the  assets  acquired  from  Butler
     Retreading, Inc. ($939,000) did not exceed 20% of  EcoTyre's  total  assets
     ($4,815,714).

     Income Test (c)(2)(iii): EcoTyre has never generated  any income from which
     to apply the calculation required for this test.
    

                                  F-12

<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

Note 3.     Inventories

       Inventories at March 31, 1997 and 1996 are summarized as follows:

<TABLE>
<CAPTION>
                                     1997           1996
                                     ----           ----
       <S>                         <C>            <C>      
       Raw materials               $ 252,221      $ 207,280
       Work in process                 9,765          4,052
       Finished goods                169,575        129,117
                                   ---------      ---------
                                   $ 431,561      $ 340,449
                                   =========      =========
</TABLE>

Note 4.     Property and Equipment

       Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                  March 31,
                                          1997               1996
                                          ----               ----

       <S>                           <C>                 <C>        
       Furniture and equipment       $   104,114         $    88,158
       Machinery and equipment         2,328,554           1,158,877
       Motor vehicles                     30,735              20,096
       Leasehold improvements            104,345              43,182
                                         -------              ------
                                     $ 2,567,748           1,310,313

       Less accumulated depreciation    (272,659)            (52,305)
                                        --------             ------- 

                                     $ 2,295,089         $ 1,258,008
                                     ===========         ===========
</TABLE>

     At March 31,  1997,  all of the  Company's  equipment is  collateral  for a
     financing loan in the original amount of $1,000,000 (see Note 10).

     Note 5.     Notes Payable - Bank

     The  Company  had a secured  line of credit  with a bank  which  expired in
     January 1997.  The interest  rate on borrowings  was 1-1/2% over the bank's
     prime rate and was secured by a $400,000 certificate of deposit.

                                      F-13

<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)


Note 6.     Long-Term Debt

  Long-term debt consists of the following:

<TABLE>
<CAPTION>

                                                      March 31,
                                               1997               1996
                                               ----               ----
<S>                                         <C>                  <C> 
  Term notes
  (a)  Unsecured borrowings which bear
       interest at 12% per annum and are
       payable in June 1997.                $  75,000             $  75,000

  (b)  Unsecured borrowing which bears
       interest at 14% per annum and is
       payable in February 1999.              150,000               150,000

  Working capital loans

  Unsecured borrowings from a stockholder
  which bears interest at 8-1/4% per annum     40,000                 -
                                               ------              --------    

                                              265,000               225,000
            Less:  current portion of
            long-term debt                    115,000               150,000
                                              -------               -------
                                             $150,000              $ 75,000
                                             ========              ========
</TABLE>

     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  $1,202,775 at the conversion  date (before  unamortized  original
     issue  discount of  approximately  $167,000),  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 is being 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.
                                      F-14
<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

     Such shares pay a cumulative  dividend of 10% and were  convertible  to one
     share of voting  Common Stock at the rate of five shares of  preferred  (or
     $35.00 per share)  commencing  in January  1997 and one  warrant  which was
     exercisable  for two years after the  conversion at $52.50 per common share
     for the first year and $70.00 per common share for the second year.  The
     redemption feature associated with the preferred stock required it to be
     classified outside of stockholders' equity.

     Subsequent to March 31, 1997, the redemption provision was eliminated and 
     the Class A redeemable  convertible preferred stock was converted to Class
     A convertible preferred stock (See Note 16).

     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 1,429
     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 $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 1,429 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  ($192,060)  and 25% was
     amortized over the life of the debt ($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  totaled  $283,328  for the year  ended  March 31,  1996.  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.

                                      F-15
<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                                            (Continued)




Note 7.     Accrued Expenses

       Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                               March 31,
                                          1997           1996
                                          ----           ----

       <S>                               <C>            <C>      
       Interest                         $    -         $   4,750
       Printing expenses                     -            84,237
       Professional fees                  43,800          95,300
       Payroll and related expenses       55,887          30,625
       Other                              50,000          64,823
                                          ------          ------

                                        $149,687       $ 279,735
                                        ========       =========
</TABLE>

Note 8.     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
     collaterized  by  the  telephone   equipment  with  a  net  book  value  of
     approximately  $10,050  as of March 31,  1997.  The copy  machine  lease is
     payable in monthly  installments  of $380  through  March  2000,  including
     interest.  The lease is  collaterized  by the copy  machine with a net book
     value of approximately $12,800 as of March 31, 1997.

Note 9.     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, 1997 and 1996. Interest at 7% is payable annually.

                                      F-16
<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)


     The Company  obtained  some of its  unsecured  borrowings  in the amount of
     approximately  $40,000 for the year ended March 31, 1997 from a stockholder
     (see Note 6).

     In March 1997,  the Company  issued 81,000 shares of Common Stock to one of
     its  stockholders.  Consideration for this issuance was the prepayment of 
     the remaining consulting fees due under the stockholder's four year
     consulting agreement which commenced in July 1996.

     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,  in cash or
     stock,  amounted to $149,667 and $68,632 for the years ended March 31, 1997
     and 1996, respectively.

Note 10.    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 was payable in 36 monthly
     installments of $10,144 including interest at 13-1/4 % per annum, beginning
     in May 1995.

   
     During March 1997, the Company entered into a business acquisition (Note 2)
     which  included  the purchase of  additional  manufacturing  equipment.  In
     connection  with  the  acquisition,  the  Company  entered  into a new loan
     agreement with a new financing company. That company assumed the balance of
     the previous  loan in the amount of $139,589 and provided new  financing in
     the   amount  of  $860,411,  for  a  total  new  loan  of  $1,000,000  from
     PhoenixCor, Inc. a  wholly owned subsidiary of Sumitoma Bank.   The loan is
     payable in 3 monthly  installments  of $11,205 from April 1997 through June
     1997, 3 monthly  installments  of $19,609 from July 1997 through  September
     1997 and 42 monthly installments of $28,012 thereafter,  including interest
     at 11.4% per annum.  The new lender has a security  interest  in all of the
     Company's equipment and inventory.
    


                                      F-17
<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)


     Maturities of the machinery loan are as follows:
<TABLE>
<CAPTION>

       Year ending March 31,

            <S>            <C> 
            1998           $   150,011
            1999               252,156
            2000               282,446
            2001               315,387
                           -----------
                           $ 1,000,000
                           ===========
</TABLE>

Note 11.    Customer Concentration

   
     During  fiscal  1997,  sales  to  one  customer, South  Texas  Tire  Supply
     generated  revenues  of $506,219.16 accounting for 17.2% of  net sales.  As
     of March 31, 1997, three  customers  accounted for 15%, 14% and  10% of the
     accounts receivable.
    

     During fiscal 1996,  sales to one customer  accounted for 12% of net sales.
     As of March 31, 1996, two customers accounted for approximately 22% and 14%
     of the accounts receivable.

Note 12.    Commitments

  (a)  Lease

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

<TABLE>
<CAPTION>

       Year ending March 31,

            <S>            <C>        
            1998           $   304,310
            1999               319,525
            2000               335,501
            2001               352,277
            2002               370,000
            Thereafter       1,443,592
                           -----------
                           $ 3,125,205
                           ===========
</TABLE>

                                      F-18
<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)





     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  $332,000
     and $338,000 for the years ended March 31, 1997 and 1996, respectively.

       (b)  Sales and territory agreements

     The Company has entered into separate three and four year  agreements  with
     principal  customers  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. During fiscal 1997 and 1996,  minimum order  quantities
     were not met by either customer and no commissions were earned.

  (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  was paid  $120,000  per  annum for their
     services in connection  with the development and operation of the Company's
     manufacturing facility. During fiscal 1997 these consultants received their
     residency  status in the United  States and have since become  employees of
     the Company and the agreement was canceled.

                                      F-19
<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)



     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.   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 commission on Company sales to customers  obtained by this individual.
     In addition, this individual received 3,571 shares of Common Stock in March
     1997. The  stockholder  received 81,000 shares of Common Stock (see Note 9)
     as prepaid management consulting services.

  (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.  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 13.    Stockholders' Equity

  (a)  Initial public offering

     In December  1995,  the Company  completed  an initial  public  offering of
     246,429  units.  Each unit  consisted  of one share of Common Stock and one
     redeemable  Common Stock  purchase  warrant.  Following the initial  public
     offering  445,000  shares of Common Stock and warrants to purchase  246,429
     shares of Common Stock were  outstanding.  The warrants are  exercisable at
     $35.00 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 $.07 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 $45.50 per share for each of twenty consecutive trading days.

                                      F-20
<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)


  (b)  Underwriters' purchase option

     In conjunction with the offering,  the underwriters also obtained an option
     to purchase 21,429 units at a price of $42.00 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 $52.50).  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.

  (c)  Private placement

          In October 1996,  the Company  received gross proceeds of $2,000,000
     from the  private  sale of its common  stock.  285,714  shares were sold at
     $7.00 per share to an  aggregate  of 10 foreign  investors.  The sales were
     made pursuant to an exemption  from the  registration  requirements  of the
     Securities  Act  of  1933,  as  amended,  under  Regulation  S  promulgated
     thereunder. The net proceeds of approximately $1,558,000 received from this
     sale have been utilized for working capital.

  (d)  Long-term incentive plans

     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 interests 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,  1997,  the  Company has
     outstanding  an  aggregate  of 27,142  options.  Each of these  options  is
     exercisable  for ten years for a price of $8.75 per  share,  commencing  in
     December 1996.

                                      F-21
<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)


     In February  1997, the Company adopted a second  long-term  incentive plan
     similar to the 1995 plan.  The plan  provides for the grant of, among other
     things,  stock options and restricted  stock,  up to a maximum of 1,700,000
     shares of Common  Stock.  As of March 31,  1997,  the  Company  has granted
     92,852  options.  Each of these options is exercisable  for ten years for a
     price of either $4.41 or $5.25 per share, commencing in August 1997.

     Statement  of  Financial  Accounting  Standards  No. 123,  "Accounting  for
     Stock-Based  Compensation" (SFAS No. 123") requires the Company to provide,
     beginning  with fiscal 1996 grants,  pro forma  information  regarding  net
     loss and net loss per  common  share as if  compensation  costs for the
     Company's  stock option plans had been  determined in  accordance  with the
     fair  value  based  method  prescribed  in SFAS No.  123.  Such  pro  forma
     information has not been presented because management has determined that 
     the compensation  costs associated with options granted in Fiscal 1997 and
     1996 are not material to net loss or net loss per common share.

     Transactions involving options granted under the Plans are summarized 
     below:

<TABLE>
<CAPTION>
                                     March 31,
                ---------------------------------------------------
                            1997                               1996
                            ----                               ----
                            Weighted                          Weighted
                            Average                           Average
                            Exercise                          Exercise
                 Shares     Price              Shares         Price
                 ------     ----------         ---------      -----    
<S>              <C>         <C>               <C>         <C>   
Outstanding,
April 1          48,571      $ 8.75              -         $    -
Granted          92,852        4.83            48,571          8.75
Canceled         21,429        8.75              -              -
- --------------------------------------------------------------------
Outstanding, 
March 31        119,994      $ 5.72            48,571       $  8.75
- --------------------------------------------------------------------
Exercisable, 
March 31         27,142      $ 8.75              -          $   -
- --------------------------------------------------------------------
</TABLE>

                                      F-22

<PAGE>


                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)



     The following table summarizes  information about stock options outstanding
     under the Plans at March 31, 1997:
<TABLE>
<CAPTION>
                                                         Options
                      Options Outstanding                Exercisable
                      -------------------                -----------
                             Weighted-
                             Average     Weighted-                 Weighted-
Range of         Number      Remaining   Average                   Average
Exercise         Outstanding Contractual Exercise    Exercisable   Exercise
Price            at 3/31/97  Life        Price       at  3/31/97   Price
- -----------------------------------------------------------------------------

<C>              <C>         <C>         <C>           <C>          <C> 
$ 4.41 - 5.25    92,852      9.9 years   $ 4.83           -         $  -
  8.75           27,142      8.2           8.75         27,142        8.75
- -----------------------------------------------------------------------------
$ 4.41 - 8.75   119,994      9.6 years   $ 5.72         27,142      $ 8.75
- -----------------------------------------------------------------------------
</TABLE>

  (e)  Common stock shares reserved

     At March 31, 1997,  shares of the Company's  authorized and unissued Common
     Stock were reserved for issuance as follows:

<TABLE>

           <S>                                            <C>    
            Long-term incentive plans                   2,050,000
            Outstanding IPO warrants                      246,429
            Conversion of Class A Redeemable
                 Convertible Preferred Stock
                (including related warrants)               68,730
            Warrants issuable to consultants or
                key employees                             128,571
            Underwriters' IPO purchase option units        42,857
            Issuable to consultants and independent
                 contractors                               25,000
                                                        ---------
                                                        2,561,587
                                                        =========
</TABLE>
                                      F-23
<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)


Note 14.    Income Taxes

     The  provision  for income  taxes is comprised of state taxes for the years
     ended  March  31,  1997  and  1996.  The  Company  has net  operating  loss
     carryforwards  arising through March 31, 1997 of approximately  $5,750,000.
     Such losses can be  utilized  against  future  profits  until  2012,  and a
     portion of such losses are also  subject to Internal  Revenue  Code Section
     382  limitations   which  limit  the  annual  use  of  net  operating  loss
     carryforwards when significant  ownership changes occur. 

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

<TABLE>
<CAPTION>

                                                         March 31,
                                                    1997           1996
                                                    ----           ----   
<S>                                             <C>             <C>       
Benefit of net operating loss carryforwards     $ 2,300,000     $  960,000
Tax temporary differences relating to:
  Intangible assets                                 160,000        160,000
  Deferred rent costs                               125,000        110,000
  Inventory capitalization, allowance
       for possible losses and other                  5,000          5,000
                                                -----------    -----------
                                                  2,590,000      1,235,000
Less:  valuation allowance                       (2,590,000)    (1,235,000)
                                                -----------    -----------  

                                                $     -         $     -         
                                                ===========    ===========    
</TABLE>

     A 100% valuation allowance for the deferred tax assets was provided because
     of  uncertainty  as to future  realization  of the deferred tax assets as a
     result of the continuing  losses and the substantial doubt about
     the Company's ability to continue as a going concern.

                                      F-24
<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)


Note 15.    Supplemental Cash Flow Information

  Income taxes and interest paid were as follows:

<TABLE>
<CAPTION>
                                                    March 31,
                                             1997           1996
                                             ----           ----     

<S>                                     <C>               <C>      
  Income taxes                          $    9,841        $  17,371
  Interest expense                      $   64,733        $ 124,488
</TABLE>

Non-cash investing and financing activities during the period were as follows:
<TABLE>
<CAPTION>

                                                    March 31,
                                              1997           1996
                                              ----           ----

 <S>                                        <C>           <C>
  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 6)                        -            192,060

  Common stock issued in connection with
       business acquisition                     189,000          -

  Common stock issued for professional
       and consulting fees                      471,000          -   

  Accretion of preferred dividends               67,908        88,930

  Accrued dividends                             120,277          -

  Exchange of loan for vendor deposit            40,000          -
  

</TABLE>

                                      F-25
<PAGE>

                           ECOTYRE TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Continued)

Note 16.    Subsequent events

     Class A Redeemable Convertible Preferred Stock.

     Effective April 17, 1997, the Certificate of  Incorporation  of the Company
     was  amended  upon  approval  from  its  redeemable  Convertible  Preferred
     shareholders to modify their existing stock.  The redemption  provision has
     been  eliminated  and the  conversion  rate of Preferred  Stock into Common
     Stock has been  reduced.  The Class A  Convertible  Preferred  Stock is now
     convertible by multiplying  the number of shares to be converted by the sum
     of $1.00 plus all  accrued  and unpaid  dividends  divided by the lesser of
     $21.00 per share (after reverse stock split) or 75% of the closing bid 
     price for a five day trading period  immediately  prior to the  conversion
     date. Commencing  July 15,  1997,  each holder of Class A  Convertible  
     Preferred Stock shall be entitled to convert up to 25% of their shares per
     month.

     Private Placement

     In April 1997, the Company completed a private placement of its common
     stock which provided net proceeds of approximately $250,000.

     Series B Preferred Stock.

     Effective April 17, 1997, the Certificate of  Incorporation  of the Company
     was amended upon approval from its Board of Directors to authorize  675,000
     shares of Class B Convertible  Preferred  Stock,  with a par value of $.001
     per share (liquidation  preference $1.00 per share;  cumulative dividend of
     10%).

     In April 1997, a principal  stockholder  of the Company purchased 
     approximately 400,000 shares of Class B Convertible Preferred Stock for
     approximately $400,000.  Such preferred stock is convertible into common
     stock at a rate based on a specific conversion formula. This transaction,
     the elimination of the mandatory redemption feature of the Class A 
     Convertible Preferred Stock, and the private placement resulted in an 
     increase to stockholders' equity of approximately $1,800,000.

            Reverse Stock Split.

     On June 2,  1997,  the  Company,  with the  approval  of its  shareholders,
     commenced a one-for-seven reverse stock  split  to  comply  with  NASDAQ's
     requirements  as a condition  for  continued  listing  and to increase  the
     long-term  marketability  and  liquidity of the Common  Stock.  All share
     and per share information in the financial statements reflects the effects
     of the reverse stock split.

                                      F-26
<PAGE>

              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 May 8, 1997 of our report dated July 10, 1997
relating to the financial statements of EcoTyre Technologies, Inc. ("EcoTyre")
(which contains an explanatory paragraph regarding EcoTyre's ability to
continue as a going concern) appearing in the Company's Annual Report on Form
10-KSB for the year ended March 31, 1997.

                                        /s/ BDO Seidman, LLP

                                       BDO Seidman, LLP

Mitchel Field, New York
July 14, 1997