Registration No. 33-
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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EUROTECH, LTD.
(Exact name of registrant as specified in its charter)
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District of Columbia 873-8731 33-0662435
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1200 Prospect Street
Suite 425
LaJolla, California 92037
(619) 551-6844
(Address and telephone number
of principal executive offices)
Randolph A. Graves, Jr.
Chief Executive Officer
1200 Prospect Street
Suite 425
LaJolla, California 92037
(619) 551-6844
(Name, address, and telephone
number of agent for service)
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Copies to:
Vincent J. McGill, Esq.
Phillips Nizer Benjamin Krim & Ballon LLP
666 Fifth Avenue
New York, New York 10103-0084
(212) 977-9700
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Approximate dates of proposed sales to the public: From time to time after
this Registration Statement becomes effective.
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If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum
Title of Each Amount Offering Aggregate Amount of
Class of Securities To Be Price Per Offering Registration
to be Registered Registered Share(1) Price(1) Fee
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Common Stock, par
value $.00025 per
share 3,985,035 shares $5.125 $20,423,304 $6,188.88
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(1) The Shares are offered at prices not presently determinable. The offering
price is estimated pursuant to the provisions of Rule 457 solely for the
purpose of calculating the registration fee (based on the average bid and
ask price for the Company's Common Stock as reported by the National
Quotation Bureau on May 1, 1997.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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EUROTECH, LTD.
Cross reference sheet pursuant to Item 501(b) of Regulation S-K
Registration Statement Items and Headings Location in Prospectus
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1. Forepart of the Registration Statement and
Outside Front Cover of Prospectus.............. Facing page of registration
statement and outside front
cover page
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside front and outside
back cover page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges................... Prospectus Summary; Risk
Factors
4. Use of Proceeds................................ *
5. Determination of Offering Price................ *
6. Dilution....................................... *
7. Selling Security Holders....................... Prospectus Summary;
Principal Shareholders and
Selling Shareholders;
Shares Eligible for Future
Sale
8. Plan of Distribution........................... Plan of Distribution
9. Description of Securities to Be Registered..... Description of Securities
10. Interests of Named Experts and Counsel......... *
11. Information with Respect to the Registrant..... Cover Page; Prospectus
Summary; Summary Financial
Information; Risk Factors;
Dividends; Capitalization;
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations; Business;
Market Price of Common
Stock; Management; Certain
Transactions; Principal and
Selling Shareholders;
Shares Eligible for Future
Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Part II of the Registration
Statement
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* Not Applicable
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY __, 1997
3,985,035 SHARES OF COMMON STOCK
EUROTECH, LTD.
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This Prospectus relates to the resale 3,985,035 shares (the "Shares") of
the common stock, par value $.00025 per share, of Eurotech, Ltd., a District of
Columbia corporation (the "Company"), from time to time for the account of
certain existing shareholders (the "Selling Shareholders") of the Company. The
Company will not receive any proceeds from any sale of the Shares.
The distribution of the Shares by the Selling Shareholders or by their
respective pledgees, donees, transferees or other successors in interest may be
effected from time to time in one or more transactions for their own accounts
(which may include block transactions) on the Nasdaq Bulletin Board Market
("Bulletin Board"), or on any exchange on which the Shares may then be listed,
in negotiated transactions, through the writing of options on shares (whether
such options are listed on an options exchange or otherwise), through short
sales, sales against the box, puts and calls and other transactions in
securities of the Company or other derivatives thereof, or a combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, or at negotiated prices. The Selling
Shareholders may effect such transactions by selling Shares to or through
broker-dealers, including broker-dealers who may act as underwriters, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholders or the purchasers of Shares for whom
such broker-dealers may act as agent, or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Selling Shareholders may also sell Shares pursuant
to Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), or may pledge Shares as collateral for margin accounts and
such Shares could be resold pursuant to the terms of such accounts. The Selling
Shareholders and any other participating brokers and dealers may be deemed to be
"underwriters" as defined in Section 2(11) of the Securities Act. See "PRINCIPAL
AND SELLING SHAREHOLDERS" and "PLAN OF DISTRIBUTION."
The Common Stock of the Company is traded on the Nasdaq Bulletin Board
Market under the symbol "EURO." The last sale price for the Company's Common
Stock, as reported on the Bulletin Board on May __, 1997, was $______.
None of the proceeds from the sale of the Shares by the Selling
Shareholders will be received by the Company. The Company has agreed to bear all
expenses, other than selling commissions and fees, in connection with the
registration and sale of the Common Stock being offered by the Selling
Stockholders. See "PLAN OF DISTRIBUTION."
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THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE _____.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May __, 1997
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and must be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all share and per share information in this Prospectus gives effect
to the June 1, 1996, four-to-one forward split of the then outstanding shares of
the Company's Common Stock; and does not give effect to (i) the issuance of
530,000 shares of Common Stock issuable upon exercise of stock options and
warrants outstanding at the date of this Prospectus, which shares have been
registered under the Registration Statement of which this Prospectus is a part;
(ii) the issuance of up to 470,000 shares of Common Stock issuable upon exercise
of stock options and warrants outstanding as of the date of this Prospectus,
(iii) the issuance of up to 500,000 additional shares of Common Stock reserved
for issuance under the Company's 1995 Stock Option Plan, and (iv) any sale of
any of the Shares registered under the Registration Statement of which this
Prospectus is a part. As used herein, the term "Company" refers to Eurotech,
Ltd. and its subsidiaries. See "Management -- Stock Options" and "Principal and
Selling Shareholders."
The Company
Eurotech, Ltd. (the "Company"), which was incorporated in May, 1995, under
the laws of the District of Columbia, is a technology transfer, holding and
management company formed to commercialize new, existing but previously
unrecognized, and previously "classified" technologies, with a particular
emphasis on those developed by prominent research institutes and individual
researchers in the former Soviet Union, and to license those and other Western,
technologies for business and other commercial applications in Central Europe,
Eastern Europe, Ukraine, Russia, and North America. Since the Company's
formation its senior executives and consultants have been, through their
technology management expertise, active in identifying monitoring, reviewing and
assessing such technologies for their commercial applicability and potential.
Through this continuing process, the Company has acquired, and expects in the
future to acquire, rights to selected technologies by purchase, assignments, and
licensing arrangements. The Company operates its business by licensing its
technologies to end-users and through development and operating joint ventures
and strategic alliances.
The Company's plan of operation for the next twelve months will consist of
activities principally aimed at identifying, evaluating and acquiring rights to
technologies; funding development for the on-site testing of its silicon-organic
compound technology in the contemplated remediation of radioactive
contamination; introducing its waste-to-energy technology in Ukraine;
introducing its automated parking garage technology in Moscow, Russia; continued
funding of the development of silicon-carbide, computer chip "wafer" technology;
and seeking to establish further strategic partnerships and joint ventures for
the development, marketing, sales, licensing and manufacturing of the Company's
existing and proposed technologies.
The Company has identified a number of technology acquisition and
commercialization opportunities afforded by the break-up and subsequent
reconfiguration of the former Soviet Union. In particular, pursuant to an
agreement between "Ukrstroj" (the Ukrainian State Construction Company) and the
Chernobyl Nuclear Power Plant, the Company will provide financing for the
on-site demonstration testing of its proprietary silicon-organic (EKOR) compound
technology in remediating the severe radioactive contamination problems that
persist from the 1986 reactor explosion at Chernobyl, Ukraine. The Company
believes its silicon-organic (EKOR) compound technology is the most effective
existing technology and material for containing and facilitating the disposal of
radioactive dust and other radioactive waste materials. The Company also has
entered into a technology licensing agreement with Arbat American Autopark,
Ltd., a Delaware corporation which is a 50% equity-holder in "Cinema World on
Arbat," a Russian joint stock company organized to develop, own and operate one
or more high-tech, automated parking garages in Moscow that use the Company's
automated parking technology; and has entered into technology transfer and other
agreements with Eurowaste Management, Ltd., a Delaware corporation
("Eurowaste"), for the development, construction and operation of
technologically advanced waste-to-energy generation plants in Ukraine, utilizing
the only technology currently approved for that purpose by the Ukrainian
government. Eurowaste has together with "Cherkassystroi", a Ukrainian
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construction company, formed "Energy Ecology Construction Company," a Ukrainian
joint stock company, for the purpose of constructing and owning those plants.
In addition, the Company presently is participating in the development of
silicon carbide "wafer" technology, which is in the late research and
development stage, in conjunction with the I.V. Kurchatov Institute
("Kurchatov") in Moscow, Russia, and the Euro-Asian Physical Society ("EAPS").
To date, the Company has provided approximately U.S. $80,000 in financing to
Kurchatov in connection with this technology. Although no assurance can be
given, the Company presently expects that upon the successful completion of its
development, all intellectual property, marketing and sales rights in and to the
silicon carbide "wafer" technology will be assigned to the Company. While there
is no assurance that such technology will be successfully developed, based on
reports from Kurchatov, the Company believes the silicon carbide technology will
permit the production of defect-free, radiation-resistant "wafers" (from which
integrated circuit chips are fabricated) that will be approximately twice the
size of those currently available. The Company expects that integrated circuit
chips fabricated from its silicon carbide wafers will have particular
application in high temperature environments such as automobile and aircraft
engine control systems, high power environments such as power control
transistors, and environments subject to ionizing radiation such as spacecraft.
The Company has agreed in principle with the Technion Israel Institute of
Technology ("Technion") to participate in certain technology research and
development projects sponsored by the Technion Entrepreneurial Incubator, Ltd.
("TEI"), an Israeli corporation controlled by Technion, whereby the Company will
provide 15%-20% of the financing required for, and will receive a 20% equity
interest in, research and development projects selected by the Company. In
furtherance of this venture, the Company has opened an office at the premises of
TEI in Haifa, Israel, has identified three present and six potential technology
development projects for possible investment, and has agreed to invest in a
fourth such project, involving certain polyurethane technology with potential
use in paints and coatings. Pursuant to that agreement, the Company will invest
U.S. $60,000 in Chemonol, Ltd. ("Chemonol"), an Israeli corporation established
to own and develop that technology, in exchange for 20% of Chemonol's voting
equity. The Company has also entered into agreements with the holder of 50% of
Chemonol's outstanding voting equity (the "Principal Shareholder") granting to
the Company an option to acquire from the Principal Shareholder an additional
31% of Chemonol's voting equity for U.S. $93,000, and the present right to
direct the voting of the Principal Shareholder's voting equity. The Company
expects to provide approximately U.S. $310,000 in financing for all such
projects in fiscal year 1997. There can be no assurance that these or any other
development projects will result in useful technologies or that the same will be
commercially saleable or profitable.
Silicon-Organic Compound. The Company's silicon-organic (EKOR) compound
technology was jointly developed by scientists at the I.V. Kurchatov Institute
("Kurchatov") in Moscow and the EuroAsian Physical Society ("EAPS") for the
conservation and containment of ecologically hazardous radioactive materials.
The EKOR compound is based on radiation-resistant compounds produced from
silicon-organic elastomers. Kurchatov is a pre-eminent physics and scientific
research institute, which in the former Soviet Union enjoyed a position of
prestige, sophistication and importance roughly equivalent to that of the
Lawrence-Livermore National Laboratory in the United States. EAPS is a
professional society of over 5,000 scientists, physicists, and engineers in the
former Soviet Union. Until August 1, 2014, the Company is the exclusive licensee
of all right, title and interest (inclusive of all patent and other intellectual
property rights) in and to the EKOR technology in Canada, China, Japan, the
Republic of Korea, the United States of America, Ukraine, and all member
countries of the European Patent Agreement. See "Certain Relationships and
Related Transactions - Silicon-Organic (EKOR) Compound."
The Company expects that the first commercial use of its EKOR compound
technology will be to contain and stabilize the extensive radioactive debris and
dust that continues to accumulate and contaminate the environment at Reactor 4
of the Chernobyl Nuclear Power Plant in Ukraine, the site of a disastrous
explosion and near-reactor core meltdown in 1986, and to help structurally
support the concrete and steel "sarcophagus" that was built over Reactor 4 as an
interim containment measure. The rapid deterioration of the "sarcophagus,"
caused by the intense radiation persisting at Reactor 4, has occasioned
international concern that without the implementation of effective site
containment measures,
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a second nuclear disaster and possible melt-down is likely to occur. To this
end, the G-7 group of industrialized nations (the United States, United Kingdom,
Italy, France, Canada, Japan and Germany) has pledged up to U.S. $3.1 billion to
assist in a multi-step project of remediating and closing the plant, with
approximately U.S. $300 million budgeted for the project's first containment and
site stabilization phase. Pursuant to an agreement with Kurchatov Research
Holdings, Ltd. ("KRH") a Delaware corporation jointly owned by ERBC Holdings,
Ltd., a Delaware corporation, ("ERBC") and individual Russian scientists,
researchers and academics who are affiliated with Kurchatov and EAPS, 50% of the
net profits derived from the sale of the EKOR compound for the Chernobyl project
will be retained by the Company, and 50% will be remitted to KRH. Two employees
of ERBC are beneficial owners of shares of the Company's Common Stock, and the
chief Executive Officer of ERBC is the beneficial owner of 17.07% of the
Company's outstanding Common Stock. See "Principal and Selling Shareholders,"
and "Certain Relationships and Related Transactions."
In testing conducted at Kurchatov, the EKOR compound has been shown to be
highly resistant to radiation and structural degradation through exposure to
radiation, highly fire-resistant, water-proof, and capable of being formulated
in densities that display considerable structural strength and weight-bearing
properties (based on testing to date) of 100 lbs. per square inch. In
high-dosage radiation tests the EKOR compound has met or exceeded all
specifications for containment materials developed by the Chernobyl authorities.
The Company believes that the EKOR compound is the most technologically advanced
material for comprehensively containing radioactive materials, suppressing
radioactive dust and preventing such materials and dust from escaping into the
atmosphere and from leaching into and contaminating ground-water supplies.
Based on the properties demonstrated by the EKOR compound, which the Company
believes to be the only material presently being considered by the Chernobyl
authorities as a solution to the containment problems posed by the Reactor 4
disaster, the Chernobyl Nuclear Power Station (an industrial amalgamation of the
State Committee of Ukraine on Atomic Energy), hereinafter referred to as
"ChNPP"), Kurchatov, "Ukrstroj" (the Ukrainian State Construction Corporation)
and the Company have entered into a Memorandum of Intent (the "Chernobyl
Memorandum of Intent") which acknowledges the successful completion of the
laboratory development of EKOR compound applicable to the radioactive
contamination remediation of Chernobyl Reactor 4, and sets forth the intention
of ChNPP to enter into a "co-operation agreement" with the Company pursuant to
which the Company will provide the financing for the development of an on-site
demonstration of the EKOR compound, in conjunction with ChNPP, "Ukrstroj" and
Kurchatov, which will provide the test sites, compound application equipment and
technical support, respectively. In furtherance of the foregoing, "Ukrstroj" and
ChNPP have entered into an agreement (the "Ukrstroj"-ChNPP Agreement") to
conduct such on-site demonstration testing of the EKOR compound as is necessary
to ascertain the specification requirements for its application to the
containment of ChNPP Reactor 4. The "Ukrstroj"-ChNPP Agreement provides for the
Company's participation in and financing of the EKOR demonstration test, which
the Company has agreed to pursuant to the aforesaid Co-operation Agreement
entered into by the Company, "Ukrstroj," and EAPS. The Company estimates that
total financing costs for the demonstration test will not exceed U.S. $100,000.
Although no assurance can be given, based on the Chernobyl Memorandum of Intent,
the "Ukrstroj"-ChNPP Agreement, the Co-operation Agreement, and the Company's
ownership of all right, title and interest to the EKOR technology, the Company
believes that it will be appointed the contract vendor of the EKOR compound for
the ChNPP Reactor 4 remediation project. The on-site demonstration was conducted
in April, 1997.
In addition, further applications of the EKOR technology are being developed
and tested at three sites in Russia: Sverdlosk Chimmash (a major development,
production and testing facility for nuclear, chemical and related equipment),
Chelyabinsk Mayak (a plutonium production site) and Kola (a disposal site for
nuclear fuel from atomic-powered ships and submarines).
Waste-to-Energy Technology. The Company's waste-to-energy technology is a
combination of "low-tech" mechanical technologies, "high-tech" combustion
controls, modern emissions abatement technology and effective operation
procedures configured into modules that produce steam energy from ordinary
municipal waste. The basic configuration was pioneered in 1980 by the U.S.
National
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Aeronautics and Space Administration ("NASA") and the city of Hampton, Virginia,
to provide steam power for NASA's Langley Research Center and the Langley Air
Force Base.
Steam energy produced by the waste-to-energy technology is clean, efficient
and environmentally "friendly". A typical modular unit burns 120 tons of refuse
per day and produces 33,000 pounds of steam per hour at 400 psi. Pollutant
levels are below present U.S. Environmental Protection Agency minimums, and each
modular unit reduces the volume of raw waste to ash at a ratio of 10:1.
Through a consulting agreement with Hunter Taylor, the President of Power
Development Associates, Inc., the original designer of the NASA City of Hampton
facility, the Company has obtained the engineering and implementation know-how,
and has identified willing suppliers of component equipment for the
waste-to-energy technology, including Detroit Stoker, a leading manufacturer of
waste-to-energy stokers and a leading project management company for the
engineering and construction of waste-to-energy plants. Detroit Stoker has
informally agreed to act as the engineering project lead for the Company's
waste-to-energy projects, which the Company believes will enable it to
efficiently design and construct waste-to-energy plants customized to meet the
varying energy generation needs of disparate municipalities.
The Company intends to first introduce its waste-to-energy technology in the
city of Cherkassy, Ukraine, where the National Government has selected this
technology as the national standard for waste-to-energy facilities, and has
approved the construction of ten such facilities using the Company's
waste-to-energy technology. As part of that over-all approval, and pursuant to
the request of the Ukrainian government, a Ukrainian-American joint stock
company, "Energy Ecology Construction Company," ("Energy Ecology") has been
formed to construct, own and operate these energy generation plants. Energy
Ecology is equally owned by Eurowaste Management, Ltd., a Delaware corporation
8% of the equity of which is owned by the Company ("EuroWaste"), and, pursuant
to the request of the Ukrainian Cabinet of Ministers, "Cherkassystroi," the
largest privately-owned construction company in Ukraine. The Company has entered
into a technology transfer and consulting agreement with Eurowaste under which
Eurowaste will pay the Company a U.S. $2.45 million technology transfer fee
prior to the construction of the first waste-to-energy plant, and a design and
implementation consulting fee of U.S. $425,000 for each subsequent plant. A
shareholder and director of the Company is the chairman, Chief Executive Officer
and a shareholder of Eurowaste. See "Management," "Risk Factors - Conflicts of
Interest," and "Certain Relationships and Related Transactions."
The necessary Ukrainian governmental approvals for the Cherkassy
waste-to-energy facility have been obtained, including local site allocation and
construction approvals. A large fertilizer production enterprise, "AZOZ", in
Cherkassy has agreed to purchase the entire output of the Cherkassy
waste-to-energy facility at rates of U.S. $.04-$.06 per kilowatt hour.
The Company believes that the present and projected future waste management
and energy needs of Ukraine present a significant commercial opportunity.
Ukrainian governmental officials have acknowledged that municipalities have
become reluctant to locate waste dump sites within municipal boundaries, because
of potential ecological and public health risks, and have also acknowledged that
the relative lack of local fuel resources has impaired Ukraine's energy
production capabilities, generally. In the Company's view, the waste-to-energy
technology's efficiency and low pollution levels, combined with its use of an
abundant, inexpensive, but previously under-utilized fuel source, presents a
comprehensive solution to these problems. Based on discussions with local and
national Ukrainian governmental officials, and although no assurances can be
given, the Company estimates that the municipal energy requirements of Ukraine
will support up to 70 facilities based on the waste-to-energy technology.
Automated Parking Garages. The Company has identified vendors of, and has
adapted, automated parking garage technologies for the multiple applications
required for garage sites in Moscow, Russia.
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Automated parking technology consisting of computer-controlled, rotating
carousels which can be configured to contain varying numbers of automobile
parking spaces, substantially reduces the economically unproductive space
devoted to ramps and maneuvering areas in traditional, multi-story parking
garages, and through the use of elevators and multi-level "stacking" of the
carousels, permits the erection of high-capacity garages on parcels of land
otherwise too small for such use. The Company believes that its automated
parking technology is particularly useful in congested urban areas and in cities
where available land for parking is scarce.
The Company is introducing its automated parking technology in Moscow,
Russia, which, particularly since the collapse of the former Soviet Union and
the subsequently increased pace of political and economic reforms, has
experienced a substantial increase in automobile ownership and traffic
congestion. Additionally, there is a relative scarcity of existing parking
spaces and construction sites of a size suitable for traditionally designed
parking garage facilities in Moscow. The municipal government of Moscow has
allocated a suitable construction site for the Company's intended, initial
automated parking venture, located at Arbat 8-10. Arbat is one of the City of
Moscow's principal commercial districts.
The Moscow automated parking garage will be developed, owned and operated by
"Cinema World on Arbat," a Russian joint stock company, the equity of which is
owned 50% by Arbat American Autopark, Ltd., a Delaware corporation ("Arbat
American"), 45% by "Soyuz Agat Fil," a Russian company to which the Moscow
municipal government has allocated the construction site and which holds the
necessary construction approvals and permits, and 5% by a privately owned
Russian affiliate of "Mosinterstroi". "Mosinterstroi" is a quasi-governmental
entity of the City of Moscow. 40% of the equity of Arbat American is owned by
ERBC Holdings, Ltd., a Delaware corporation ("ERBC"). Two employees of ERBC are
beneficial owners of shares of the Company's Common Stock, and the chief
executive officer of ERBC is the beneficial owner of 17.07% of the Company's
outstanding Common Stock. One of the directors of Arbat American is a
shareholder of the Company's Common Stock, and another individual, who is a
director and the president of Arbat American, is a director and officer of the
Company and a shareholder of the Company's Common Stock. The Company has entered
into a technology license agreement with Arbat American pursuant to which the
Company will receive, prior to construction, a one-time royalty of U.S. $1,250
for each parking space to be contained in the automated parking facility and in
any garage facilities that in the future are developed, owned and/or operated by
Arbat American that use the Company's automated parking technology. The Company
presently estimates that, when completed, the Moscow automated parking garage
will contain 240 parking spaces. See "Risk Factors - Conflicts of Interest,"
"Management Principal and Selling Shareholders," and "Certain Relationships and
Related Transactions."
The Company is not a subsidiary of another corporation, entity or other
person. The Company does not have any subsidiaries.
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The Offering
Capital Stock Offered by
the Selling Shareholders. 3,985,035 shares of Common Stock, $.00025 par
value per share.
Capital Stock Outstanding
Before Offering.......... 17,254,836 shares of Common Stock, par value
$.00025 per share.
Capital Stock Outstanding
After Offering (1)....... 17,784,836 shares of Common Stock, par value
$.00025 per share.
Use of Proceeds............. The Company will not receive any proceeds from any
sale of the Shares.
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(1) Gives effect to the issuance of 530,000 shares of Common Stock issuable
upon exercise of stock options and warrants outstanding at of the date of
this Prospectus, which shares have been registered by the Company under
the Registration Statement of which this Prospectus is a part. Does not
give effect to (i) the issuance of up to 470,000 shares of Common Stock
issuable upon exercise of stock options and warrants outstanding at the
date of this Prospectus, and (ii) the issuance of up to 500,000 additional
shares of Common Stock reserved for issuance under the Company's 1995
Stock Option Plan. See "Management - 1995 Incentive Stock Option Plan".
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SUMMARY FINANCIAL DATA
The following selected financial data has been derived from, and is
qualified by reference to, the Financial Statements of the Company. The
Company's Financial Statements as of December 31, 1995 and 1996, and for the
period from inception (May 26, 1995) to December 31, 1995 and for the year ended
December 31, 1996, including the Notes thereto and the related auditors' report
(which contains an explanatory paragraph relating to the Company's ability to
continue as a going concern) of Tabb, Conigliaro & McGann, P.C., independent
auditors, are included elsewhere in this Prospectus. The following data should
be read in conjunction with such Financial Statements and Management's
Discussion and Analysis.
Statement of Operations Data: (1)
<TABLE>
<CAPTION>
For the Period For the Period
from Inception from Inception
(May 26, 1995) to For the Year Ended (May 26, 1995) to
December 31, 1995 December 31, 1996 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Research and development expenses $ 212,000 $ 1,171,000 $ 1,383,000
Consulting fees 267,000 1,487,000 1,754,000
Other general and administrative
expenses 34,000 547,000 581,000
Interest expense -- 43,000 43,000
Amortization of deferred and
unearned finance costs -- 229,000 229,000
----------- ------------ -----------
NET LOSS $ (513,000) $ (3,477,000) $(3,990,000)
=========== ============ ===========
NET LOSS PER SHARE $ (0.06) $ (0.23)
=========== ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 8,159,467 14,808,000
=========== ============
Balance Sheet Data:
Working capital (deficit) $ 42,000 $ (1,809,000)
Total assets $ 56,000 $ 617,000
Total liabilities $ 13,000 $ 2,292,000
Deficit accumulated during
the development stage $ (513,000) $ (3,990,000)
Total stockholders' equity
(deficiency) $ 43,000 $ (1,675,000)
</TABLE>
(1) Through December 31, 1996, and since that date, the Company has not
derived any sales revenues.
- --------------------------------------------------------------------------------
8
<PAGE>
RISK FACTORS
The Shares offered hereby involve a high degree of risk and should be made
only by those investors who can afford the loss of their entire investment.
Accordingly, prospective investors, before making an investment, should
carefully consider the following risk factors:
Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of The Private Securities Litigation Reform Act of 1995
The United States Private Securities Litigation Reform Act of 1995 provides
a new "safe harbor" for certain forward-looking statements. The following
factors set forth under "Risk Factors" among others, could cause actual results
to differ materially from those contained in forward-looking statements made in
this Registration Statement, future filings by the Company with the SEC, in the
Company's press releases and in oral statements made by authorized officers of
the Company. When used in this Registration Statement, the words "estimate,"
"project," "anticipate," "expect," "intend," "believe" and similar expressions
are intended to identify forward-looking statements.
Limited Operating History; Net Losses;
Future Losses; Initial Commercialization Stage
The Company's limited operations to date have consisted primarily of
activities related to identifying and financing the development of its products
and technologies, including conducting laboratory tests, and planning and
conducting on-site tests and demonstrations. The Company is subject to all of
the business risks associated with a new enterprise, including, but not limited
to, risks of unforeseen capital requirements, failure of market acceptance,
failure to establish business relationships, and competitive disadvantages as
against larger and more established companies. At December 31, 1996, the Company
had an accumulated stockholders' deficit of $1,674,824, a working capital
deficit of $1,809,237, and an accumulated deficit since inception of $3,990,209.
Additionally, at December 31, the Company had outstanding indebtedness in an
aggregate principal amount of $2,000,000 at an interest rate of 12% per annum.
The Company anticipates that it will continue to incur significant operating
losses through at least the third quarter of 1997, and may incur additional
losses thereafter, depending upon its ability to consummate collaborative
working arrangements or licenses with third parties and the operation and
financial success of any projects which the Company and its potential working
partners may be awarded. The Company has had no meaningful revenues to date, and
there can be no assurance as to when or whether it will be able to commercialize
its products and technologies. Its products and technologies have never been
utilized on a large-scale commercial basis. The Company's ability to operate its
business successfully will depend on a variety of factors, many of which are
outside the Company's control, including: competition, cost and availability of
raw material supplies, changes in governmental (including foreign governmental)
initiatives and requirements, changes in domestic and foreign regulatory
requirements, and the costs associated with equipment repair and maintenance.
The report of the Company's independent public accountants and the notes to
the Company's financial statements included elsewhere in this Prospectus state
that the continuation of the Company's business as a going concern depends,
among other things, on the obtaining of additional funds to continue its
research and development activities and to complete the commercialization of its
present technologies, the generation of significant future revenues and income,
and market acceptance of its technologies, none of which can be assured. See
"Financial Statements - Independent Auditor's Report, - Note 1" and "Risk
Factors -- Need for Additional Financing."
9
<PAGE>
Need for Additional Financing
The Company's future capital requirements could vary significantly and will
depend on certain factors, many of which are not within the Company's control.
These include the existence and terms of any collaborative arrangements; the
ongoing development and testing of its products; the nature and timing of
remediation and clean-up projects; and the availability of financing. The
Company`s lack of operational experience and limited capital resources could
make it difficult to successfully bid on major remediation or clean-up projects.
In such event, the Company's business development could be limited to smaller
projects with significantly lower potential for profit.
In addition, the expansion of the Company's business will require the
commitment of significant capital resources for technical and operational
support personnel and research and development activities. There can be no
assurance that such financing will be available or, if available, that it will
be on favorable terms. If adequate financing is not available, the Company may
be required to delay, scale back or eliminate certain of its research and
development programs, forego technology acquisition opportunities, or license
third parties to commercialize technologies that the Company would otherwise
seek to develop itself. To the extent the Company raises additional capital by
issuing equity securities, holders of its equity securities will be diluted. See
"Use of Proceeds" and "Management's Discussion and Analysis of Results of
Operations -- Liquidity and Capital Resources."
While no assurance can be given, management believes the Company can raise
adequate capital to keep the Company functioning during 1997. No assurance can
be given that the Company can successfully obtain any working capital or
complete any proposed offerings or, if obtained or completed, that such funding
will be sufficient or that it will not cause substantial dilution to
shareholders of the Company. Further, no assurance can be given as to the
completion of research and development activities and the successful marketing
of the Company's technologies. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operation-Liquidity and Capital Resources."
Uncertainty of Technology Transfer Fee, Consulting Fee and Royalty Payments
The Company's near-term revenues are expected substantially to derive from
technology transfer and consulting fees in respect of Ukrainian waste-to-energy
facilities, and royalties in respect of automated parking garages. In the case
of Ukrainian waste-to-energy facilities, such fees are to be paid to the Company
by Eurowaste Management, Ltd. ("Eurowaste"), a newly formed corporation without
significant operating history and which presently is generating only
insignificant revenues. The Company's revenues with respect to its automated
parking garage technology presently are entirely dependent on royalty payments
from Arbat American, Autopark, Ltd. ("Arbat American"), which holds 50% of the
equity in "Cinema World on Arbat", the Russian Joint Stock Company that will
develop, own and operate the first parking facility to use such technology.
Arbat American was formed in May, 1995, and is not generating significant
revenues. The Company believes that Eurowaste will raise sufficient capital to
pay such technology transfer and consulting fees when due. It is the Company's
understanding that Arbat American will raise sufficient funds for the planned,
Moscow automated parking garage venture, inclusive of funds sufficient to cover
the Company's royalties, in either a private or public offering of its
securities. No assurance can be given that either or both Eurowaste or Arbat
American will be successful in raising capital, or that if successful, such
capital will be in a sufficient amount or amounts.
Risks Relating to the Russian Federation and Ukraine
Political and Social Risks. In recent years, Russia and Ukraine each have been
undergoing a substantial political and social transformation from centralized
communism to the early stages of pluralist democracy. As part of this process,
the former centrally controlled, command economies of Russia and Ukraine have
been subject to various reforms intended to lead to generally capitalist,
market-oriented economies.
10
<PAGE>
There can be no assurance that the political and economic reforms necessary to
complete these transformations will continue, or if they continue, will be
successful. In their present stages of relative infancy, the Russian and
Ukrainian political and economic systems are characterized by a proliferation of
political parties, none of which hold a legislative majority. The Russian and
Ukrainian political and economic systems are also vulnerable to their respective
populations' dissatisfaction with reform, economic dislocations, social and
ethnic unrest, and changes in governmental policies and decisions. Any of these
factors could have a material adverse effect on the private or governmental
availability of hard currency, currency exchange rates, the private ownership of
businesses and other enterprises, the social distribution of wealth, the private
ownership and alienality of tangible and intellectual property, and the
availability of construction materials and equipment. Any of such adverse
effects could have a materially adverse effect on the Company.
As part of the reforms being instituted in Russia and Ukraine, both
countries have enacted legislation to protect private property against
expropriation and nationalization. However, due to the lack of experience in
enforcing these provisions in the short time they have been in effect, and due
to the potential political changes that could occur in the future, no assurance
can be given that these protections will be enforced in the event of an
attempted expropriation or nationalization. The Company does not anticipate the
occurrence of such developments in respect of its presently contemplated
ventures involving Ukraine and Russia, because (i) in the case of the
application of the Company's EKOR compound technology to the remediation of
radioactive contamination at the Chernobyl Nuclear Power Plant Reactor 4, the
increasing probability of a second, disastrous nuclear accident has made the
rapid containment of radioactive debris a matter of high Ukrainian and
international concern and, to the Company's knowledge, the EKOR compound is the
only material presently being considered by the Chernobyl authorities for such
purpose; (ii) the Company's waste-to-energy technology has been selected by the
Ukrainian government as the national standard for the production of energy from
municipal waste products; and (iii) the Company's high-tech, automated parking
garage technology can assist in relieving the City of Moscow's acute shortage of
automotive parking spaces and has received preferential site allocation
treatment from Moscow's municipal government, nevertheless, expropriation or
nationalization of the EKOR foam intellectual property rights, the
waste-to-energy technology, the presently selected, Moscow parking garage site,
or the parking garage technology, would have a material adverse effect on the
Company. In particular, the EKOR compound technology was developed by the I.V.
Kurchatov Institute, a Russian, state-controlled scientific research and
development institute and the Euro-Asian Physical Society, a professional
society in Russia, which through a series of assignments have, ultimately,
assigned the EKOR compound intellectual property rights to the Company. All site
allocation and construction approvals for Ukrainian waste-to-energy facilities
are at the discretion of the respective Ukrainian municipal governments, whose
political autonomy from the national government (which has selected the
Company's waste-to-energy technology at the Ukrainian national standard for such
facilities) is in an unsettled state. Since the waste-to-energy technology is a
combination of existing, public domain technologies, it is uncertain whether the
waste-to-energy technology is patentable. Accordingly, such technology could be
subject to appropriation and use by any individual or entity that is so
inclined, for which the Company might not have legal recourse under any national
or international patent law. The allocation of the Moscow site for the automated
parking garage is controlled by "Mosinterstroi," a local, quasi-governmental
agency. No assurance can be given that any of these governmental, governmentally
controlled, or governmentally affiliated entities would legally resist an
attempted expropriation or nationalization, either or which, if successful,
would have a materially adverse impact on the Company.
In both Russia and Ukraine governmental institutions and the relations
between them, as well as governmental policies and the political leaders who
formulate and implement them, are subject to rapid and potentially violent
change. The Constitution of the Russian Federation gives the President of the
Russian Federation substantial authority, and any major changes in, or rejection
of, current policies favoring political and economic reform by the President may
have a material adverse effect on the Company. The Constitution of Ukraine has
been only recently adopted, and contrary to President Leonid Kuchma's prior
expectation, substantially shares governmental power between the President and
Parliament. The relations between the Ukrainian President and Parliament often
have been characterized
11
<PAGE>
by factional infighting in which communist-oriented members of Parliament have
mounted vigorous campaigns against President Kuchma's economic reform policies
and programs to stimulate economic growth, curb inflation, and stabilize foreign
exchange rates. In the summer of 1996, President Kuchma caused a widely reported
"shake-up" of his cabinet, in which a relatively aggressive reform-oriented
Minister of Finance was replaced by one who advocates a more gradualist
approach. This relative political instability could result in major changes in
the Ukrainian government, present reform policies or rejection of the same, any
of which may have a material adverse effect on the Company. No assurance can be
given that such developments will not occur either in Russia or Ukraine.
The Russian Federation is a federation of republics, territories, regions
(one of which is an autonomous region), cities of federal importance and
autonomous areas, all of which are equal members of the Russian Federation.
Ukraine is composed of twenty-four regions ("Oblasts"), an autonomous republic
and two municipalities, Cherkas'ka and Chernihiv'ka. The delineation of
authority in both Russia and Ukraine between these political subdivisions and
the national government is, in many instances, uncertain, and in some cases in
Russia, contested, most notably in Chechnya which has experienced protracted
military confrontation with the Russian federal government. This lack of
consensus in Russia and Ukraine between local and regional authorities and the
national governments may result in political instability and negative economic
effects which could be materially adverse to the Company.
The political and economic changes that have occurred in Russia and Ukraine
in recent years have resulted in significant dislocations of political and
governmental authority caused by the collapse of their, respective, previous
governmental structures and political systems. New political and governmental
systems are only beginning to take form in Ukraine and Russia. Furthermore,
significant unemployment in Russia and Ukraine, the influx of unemployed persons
into major Russian cities, significant wage arrearages in Ukraine and Russia,
and the existence of poorly paid police forces in both countries have led to
significant increases in crime in Russia and Ukraine. Significant levels of
organized criminal activity exist in large metropolitan areas of both countries.
While President Yeltsin of Russia and President Kuchma of Ukraine have
instituted anti-crime and anti-corruption programs, such measures are of recent
origin and have achieved minimal and uncertain results. No assurance can be
given that the levels of crime and corruption in Russia and Ukraine will be
curbed or otherwise brought under control, and no assurance can be given that
the social and economic dislocations caused by high rates of organized and other
crime and of official corruption will not in the future have a material adverse
impact on the Company.
In both Ukraine and Russia state-controlled and, more recently,
privately-owned enterprises have often failed to pay full salaries to their
employees, and in some instances have not paid salaries at all for extended
periods of time. This, in conjunction with historically high rates of inflation
and escalating costs of living in both countries, could lead in the future to
labor and social unrest. Such unrest could have political, social and economic
consequences such as increased support for a return to centralized governments,
a climate hostile to foreign investment and increasing levels of violence, any
of which could have a material adverse impact on the Company.
Economic Risks
Along with the institution of political reforms, the Ukrainian and Russian
governments have been attempting to create and implement policies of economic
reform and economic stabilization, and to create legal structures intended to
promote private, market-based activities, foreign trade and foreign investment.
Although these policies have met with some success in both countries, no
assurance can be given that they, or similar policies will continue to be
supported and pursued, or that if supported and pursued, will be successful.
12
<PAGE>
Despite the implementation of economic reform policies, the Russian economy
and the Ukrainian economy are characterized by declining gross domestic
production, significant inflation, increasing rates of unemployment and
underemployment, unstable currencies, and high levels of governmental debt as
compared to gross domestic production. The prospect of wide-spread insolvencies
and the collapse of various economic sectors exists in both countries.
Additionally, in both Russia and Ukraine there is a general lack of consensus as
to the rate, extent and substantive content of economic reform. No assurance can
be given that either Russia or Ukraine in the future will remain receptive to
foreign investment or market-oriented economies. Moreover, no assurance can be
given that the economy of either country will improve.
Ukraine and Russia presently receive substantial financial assistance from
several foreign governments and from international organizations. The
restriction or elimination of any or all such financial assistance could have
severe negative impacts on those countries' respective economies, and could
significantly decrease the availability of hard currency, the payment of which
in technology transfer and consulting fees the Company depends upon. In
particular, the Ukrainian government's planned remediation of radioactive
contamination at the Chernobyl Nuclear Power Plant substantially depends on
financial assistance from the G-7 nations, and the reduction or elimination of
such assistance could impair or prevent the Company's use of its EKOR technology
in that remediation, thereby reducing or eliminating a substantial amount of the
Company's presently expected revenues. No assurance can be given that any or all
such events will not occur.
Ukrainian and Russian businesses have limited experience operating in free
market conditions, and compared with Western businesses have limited experience
with entering into contracts and performing contractual obligations.
Additionally, Ukrainian and Russian governmental agencies, as well as Ukrainian
and Russian business enterprises, have limited experience with the substantive
content and detail typical of Anglo-American and other Western contracts.
Accordingly, the detailed agreement to perform specified contractual obligations
in many instances may be contained in a series of written approvals, consents
and the like from various governmental and quasi-governmental bodies, as well as
from business companies, that accompany a formal contract. Legal reforms have
only been recently instituted in Russia and Ukraine to interpret and enforce
contractual obligations on principles similar to those of the legal systems of
Western countries. The Company's expected near-term revenues substantially
depend upon technology transfer and consulting fees memorialized in written
contracts with Ukrainian and Russian entities. No assurance can be given that
such fees will be paid in the manner called for in such contracts or that
enforcement of such payment obligations, if not performed fully or at all, will
be successful in Russian or Ukrainian courts.
No Assurance of Collaborative Agreements, Licenses or Project Contracts
The Company's business strategy is based upon entering into collaborative
joint working arrangements with foreign governmental and quasi-governmental
entities. To date, neither the Company nor any of its prospective collaborative
ventures have been awarded any definitive project contracts. There can be no
assurance that the Company or any of its collaborative ventures will enter into
definitive project or collaborative venture agreements with such entities or
others, or that such agreements, if entered into, will be similar in form to
Western agreements covering like activities, or will be on terms and conditions
that are sufficiently advantageous to the Company to enable it to generate
profits.
There can be no assurance that the Company will be awarded contracts to
perform decontamination, remediation or waste disposal projects. Even if such
contracts are awarded, there can be no assurance that these contracts will be
profitable to the Company. In addition, any project contract which may be
awarded to the Company and/or any of its working partners may be curtailed,
delayed, redirected or eliminated at any time. Problems experienced on any
specific project, or delays in the implementation and funding of projects, could
materially adversely affect the Company's business and financial condition.
13
<PAGE>
Uncertainty of Market Acceptance
Many prospective users of the Company's EKOR foam and waste-to-energy
technologies have already committed substantial resources to other forms of
radioactive contaminant remediation, municipal waste management and
environmentally clean energy production. The Company's growth and future
financial performance will depend on demonstrating to prospective collaborative
partners and users the advantages of these and others of its products and
technologies over alternative products and technologies. There can be no
assurance that the Company will be successful in this effort. See
"Business--SiliconOrganic Foam; - Waste-to-Energy Technology.
Risk of Environmental Liability
The Company's radioactive contaminant technology is subject to numerous
national and local laws and regulations relating to the storage, handling,
emission, transportation and discharge of such materials, and the use of
specialized technical equipment in the processing of such materials. There is
always the risk that such materials might be mishandled, or that there might be
equipment or technology failures, which could result in significant claims for
personal injury, property damage, and clean-up or remediation. Any such claims
against the Company could have a material adverse effect on the Company. The
Company may be required to obtain environmental liability insurance in the
future in amounts that are not presently predictable. There can be no assurance
that such insurance will provide coverage against all claims, and claims may be
made against the Company (even if covered by insurance policies) for amounts
substantially in excess of applicable policy limits. Any such event could have a
material adverse effect on the Company.
Competition and Technological Alternatives
The near-term, primary market for the Company's products and technologies is
radioactive contamination containment and remediation, the production of steam
energy from municipal waste and automated parking garages. Mid-term markets are
expected to continue in these technologies and also include silicon carbide
"wafer" technology. The Company has limited experience in marketing its products
and technologies and relies on management and consultants for its sales and
marketing efforts, whereas other private and public sector companies and
organizations have substantially greater financial and other resources and
experience than the Company. Any one or more of the Company's competitors or
other enterprises not presently known to the Company may develop technologies
which are superior to the Company's products or other technologies utilized by
the Company. To the extent that the Company's competitors are able to offer
cost-effective alternatives, the Company's ability to compete could be
materially and adversely affected. See "Business."
Unpredictability of Patent Protection and Proprietary Technology
Of its present technologies the Company has sought patent protection only
for the EKOR foam material. To date, patent pending numbers have been issued in
Russia and International U.S. and German patent applications have been filed.
The Company's success depends, in part, on its ability to obtain and protect
patents covering, and maintain trade secrecy protection of its EKOR foam
technology and future technologies, and to operate without infringing on the
proprietary rights of third parties. There can be no assurance that any of the
Company's pending or future patent applications will be approved, that the
Company will develop additional proprietary technology that is patentable, that
any patents issued to the Company will provide the Company with competitive
advantages or will not be challenged by third parties or that the patents of
others will not have an adverse effect on the Company's ability to conduct its
business. Furthermore, there can be no assurance that others will not
independently develop similar or superior technologies, duplicate any of the
Company's processes, or design around any technology that is patented by the
Company. It is possible that the Company may need to acquire licenses to, or to
contest the validity of, issued or pending patents of third parties relating to
its products. There can be no assurance that any license acquired under such
patents would be made available to the
14
<PAGE>
Company on acceptable terms, if at all, or that the Company would prevail in any
such contest. In addition, the Company could incur substantial costs in
defending itself in suits brought against the Company on its patents or in
bringing patent suits against other parties.
In addition to patent protection, the Company also relies on trade secrets,
proprietary know-how and technology which its seeks to protect, in part, by
confidentiality agreements with its prospective working partners and
collaborators, employees and consultants. There can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
for any breach, or that the Company's trade secrets and proprietary know-how
will not otherwise become known or be independently discovered by others.
Factors Affecting Market Price of Common Stock
Prices for the Company's Common Stock will be influenced by many factors,
including the depth and liquidity of the market for the Common Stock, investor
perception of the Company and its products, and general economic and market
conditions. The market price of the Company's Common Stock may also be
significantly influenced by factors such as the announcement of new projects by
the Company or its competitors, quarter-to-quarter variations in the Company's
results of operations and conditions in the industry.
Dependence on Certain Personnel
The Company's business is substantially dependent on the services and
business experience of Dr. Randolph Graves, Peter Gulko, Hans-Joachim Skrobanek
and of ERBC Holdings, Ltd. The loss of the services of any of these individuals
or of ERBC Holdings, Ltd., would have a material adverse effect upon the
Company. The Company has entered into an Employment Agreement with Dr. Graves
which expires on December 31, 1998, and is renewable for additional two-year
terms thereafter. The Employment Agreement provides that Dr. Graves may not
compete with the Company for a period of one year following the termination of
his employment with the Company. See "Management" and "Executive Compensation."
Conflicts of Interest
Certain shareholders, directors and officers of the Company are also
shareholders, directors, officers and/or employees of a number of companies with
which the Company has entered into contracts and expects to conduct business.
See "Certain Relationships and Related Transactions." Specifically, Kurt
Seifman, the beneficial owner of 2,336,300 shares of the Company's Common Stock,
is the chief executive officer of ERBC Holdings, Ltd. ("ERBC") which, in turn:
(i) has licensed the Silicon-Organic (EKOR) compound technology to the Company
(see "Business - Silicon-Organic Compound"); (ii) is a principal equity owner of
Kurchatov Research Holdings, Ltd. ("KRH"), to which the Company has agreed to
remit 50% of all net profits from sales of the EKOR compound (see "Business -
SiliconOrganic Compound"); and (iii) owns 40% of the outstanding common stock of
Arbat American Autopark, Ltd. ("Arbat American") the owner of 50% of the equity
in "Cinema World on Arbat," the Russian joint stock company that is expected to
develop a Moscow, Russia, parking garage utilizing the Company's automated
parking technology. See "Business - Automated Parking Garages." In addition,
Hans-Joachim Skrobanek, who is a Director and Secretary of the Company and the
beneficial owner of 145,000 shares of the Company's Common Stock, is an employee
of ERBC and the President and a shareholder of Arbat American. Peter Gulko, who
is a Director of the Company and the beneficial owner of 1,355,000 shares of the
Company's Common Stock, is an employee of ERBC. See "Certain Relationships and
Related Transactions" and "Management." Karl Krobath, a Director of the Company
and the beneficial owner of 25,000 shares of the Company's Common Stock, is the
chairman and chief executive officer of Eurowaste Management, Ltd.
("Eurowaste"). Eurowaste has agreed to pay technology license fees and
consulting fees to the Company with respect to the construction of waste-to-
energy plants. See "Business - Waste-to-Energy Technology," "Management," and
"Certain Relationships and Related Transactions."
15
<PAGE>
By virtue of its ownership interest in KRH, ERBC (and Messrs. Seifman,
Skrobanek and Gulko) will derivatively benefit from any sales of EKOR compound
by the Company, to a greater extent than they would by virtue of their ownership
of Common Stock, alone. Similarly, by virtue of its ownership interest in Arbat
American, ERBC (and Messrs. Seifman, Skrobanek and Gulko) will derivatively
benefit from the success, if any, of parking garages constructed by Arbat
American or its affiliates, which may be disproportionate to the income derived
by the Company from royalties paid by Arbat American.
Use of Proceeds not Available to Company
The Company will not receive any proceeds from the sale of the Shares
offered hereby.
Regulation
The Company is not aware of any U.S. or foreign laws or regulations that
govern the marketing, sale or use of any of its present technologies, other than
U.S. and various Western European environmental safety laws and regulations
pertaining to the containment and remediation of radioactive contamination (in
the case of the EKOR foam) and local, Russian and Ukrainian site approval and
construction permit, and construction code compliance requirements (in the cases
of the Company's Automated Parking and waste-to-energy technologies).
Shares Eligible for Future Sale
Of the 17,784,836 shares of the Company's Common Stock to be outstanding
after the Offering1, 3,985,035 shares are being registered by the Company under,
and will be eligible for sale upon the effectiveness of, the Registration
Statement of which this Prospectus is a part. 6,998,000 shares of the Company's
currently outstanding Common Stock were issued without registration pursuant to
Rule 504 of Regulation D under the Securities Act, and are free-trading.
6,801,801 shares of the currently outstanding Common Stock are "restricted
securities" as that term is defined in Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"), and pursuant to that Rule, under
certain circumstances may be sold without registration. All the currently
outstanding "restricted" shares of Common Stock will become eligible for sale at
various times after the applicable holding period has expired, without
registration. Included in the 6,801,801 "restricted" shares are 3,991,036 shares
of the Company's Common Stock issued to certain employees of and consultants to
the Company pursuant to Rule 701 under the Securities Act (the "701 Shares").
Pursuant to Rule 701, holders of the 701 Shares who are not "affiliates" of the
Company within the meaning of Rule 144 may sell such shares without registration
ninety days after the effectiveness of the Form 10 Registration Statement filed
by the Company on February 12, 1997, pursuant to the Securities Exchange Act of
1934. See "Shares Eligible for Future Sale."
1,500,000 of the Shares offered hereby carry mandatory and demand
registration rights pursuant to a Bridge Financing completed by the Company in
December, 1996. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition - Liquidity and Capital Resources." The
holders of such 1,500,000 shares of Common Stock have exercised their mandatory
registration rights, Those shares have been registered in this Offering, and are
free-trading.
- ----------
(1) Gives effect to the issuance of 530,000 shares of Common Stock issuable upon
exercise of stock options and warranties outstanding at the date of this
Prospectus. Does not give effect to the issuance of (i) up to 470,000 shares of
Common Stock issuable upon exercise of stock options and warrants outstanding at
the date of the Prospectus, and (ii) the issuance of up to 500,000 shares of
Common Stock reserved for issuance under the Company's 1995 Stock Option Plan.
See "Management - 1995 Stock Option Plan."
16
<PAGE>
1,000,000 shares of Common Stock are issuable upon the exercise of
outstanding options and warrants. 530,000 of those shares have been registered
in the Registration Statement of which this Prospectus is a part and will be
free-trading at the time of issuance.
The availability for sale, as well as actual sales, of currently outstanding
shares of Common Stock, and up to 1,000,000 shares of Common Stock issuable upon
the exercise of outstanding options and warrants, may depress the prevailing
market price for the Common Stock and could adversely affect the terms upon
which the Company would be able to obtain additional equity financing.
USE OF PROCEEDS
The Shares are being offered by the Selling Shareholders for their own
accounts. The Company will not receive any proceeds from the sale of the Shares.
DIVIDENDS
To date the Company has not declared or paid any dividends on its Common
Stock and does not anticipate doing so in the foreseeable future.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
December 31, 1996 and (ii) as adjusted to reflect the issuance of 530,000 shares
of Common Stock upon the exercise of outstanding stock options and warrants
registered under the Registration Statement of which this Prospectus is a part.
This table should be read in conjunction with the Financial Statements and Notes
thereto included elsewhere in this Registration Statement.
<TABLE>
<CAPTION>
December 31, 1996
-------------------------
Actual As Adjusted
----------- -----------
<S> <C> <C>
BRIDGE NOTES $ 2,000,000 $ 2,000,000
=========== ===========
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock -- $.01 par value; 1,000,000 shares
authorized, -0- shares issued or outstanding -- --
Common stock -- $0.00025 par value; 50,000,000 shares
authorized, 17,223,836 shares issued and outstanding
actual, and 17,753,836 outstanding as adjusted 4,000 4,000
Additional paid-in capital 4,804,000 5,534,000
Unearned financing costs (2,493,000) (2,493,000)
Deficit accumulated during the development stage (3,990,000) (3,990,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (1,675,000) (945,000)
----------- -----------
TOTAL CAPITALIZATION $ 325,000 $ 1,055,000
=========== ===========
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the selected
financial data and the financial statements and notes thereto appearing
elsewhere herein.
The following discussion contains certain forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein.
Plan of Operation
Eurotech, Ltd. (the "Company") is a technology transfer, holding and
management company formed to commercialize new, existing but previously
unrecognized, and previously "classified" technologies, with a particular
emphasis on those developed by prominent research institutes and individual
researchers in the former Soviet Union, and to license those and other Western
technologies for business and other commercial applications in Central Europe,
Eastern Europe, Ukraine, Russia and North America. Through the technology
management expertise of its senior executives, the Company identifies, monitors,
reviews and assesses technologies for their commercial applicability and
potential, and acquires selected technologies by purchase, assignments, and
licensing arrangements. The Company operates its business by licensing its
technologies to end-users and through development and operating joint ventures
and strategic alliances.
The Company was organized and commenced operation in May of 1995. The
Company is in the development stage and its efforts have been principally
devoted to research and development activities and organizational efforts,
including the identification, review and acquisition of various technologies,
recruiting its scientific and management personnel and alliances and raising
capital.
The Company has not been profitable since inception and expects to incur
substantial operating losses over the next twelve months. For the period from
inception to December 31, 1996, the Company incurred a cumulative net loss of
approximately $3,990,000. The Company expects that it will generate losses until
at least such time as it can commercialize its technologies, if ever. No
assurances can be given that the Company can complete development of any
technology or that, if any technology is fully developed, it can be manufactured
on a large scale basis or at a feasible cost. Further, no assurance can be given
that any technology will receive market acceptance. Being a start-up stage
entity, the Company is subject to all the risks inherent in the establishment of
a new enterprise and the marketing and manufacturing of a new product, many of
which risks are beyond the control of the Company.
The Company's plan of operation for the next twelve months will consist of
activities aimed at:
Identification, evaluation and acquisition of technologies which were
developed by a prominent research institute and individual researchers in the
former Soviet Union and other developed in Germany, Israel and the United
States.
Funding on-site demonstration testing of its proprietary siliconorganic
(EKOR) compound technology for possibly remediating the severe radioactive
contamination problems that persist in Chernobyl, Ukraine and three sites in
Russia. "Business - Silicon Organic Compound".
Introduction of its waste-to-energy technology in the city of Cherkassy,
Ukraine. See "Business - Waste-to-Energy Technology".
Introduction of its automated parking technology in Moscow, Russia. See
"Business - Automated Parking Garages".
19
<PAGE>
Continued funding of the development of silicon carbide "wafer" technology
in conjunction with I.V. Kurchatov Institute in Moscow and Euro-Asian Physical
Society. See "Business - General".
Seeking to establish further strategic partnerships and joint ventures for
the development, marketing, sales, license and manufacturing of the Company's
existing and proposed technologies.
Results of Operation
For the Year Ended December 31, 1996 Vs. the Period
from Inception (May 26 1995) to December 31, 1995:
The Company commenced operations on May 26, 1995. The Company has no
revenues to date. Consulting and other general and administrative expenses
increased from $301,000 for the period ended December 31, 1995 to $2,034,000 for
the year ended December 31, 1996 as a result of an increase in employees and
consulting expenses. During 1996, the Company satisfied obligations under
consulting arrangements aggregating $1,210,000 by the issuance of 4,345,036
shares of Common Stock.
The Company is focusing on the commercialization of its technologies.
Research and development expenses increased in the year ended December 31, 1996
to $1,171,000 from $212,000 for the period ended December 31, 1995 as the
Company funded the development of additional technologies.
For the year ended December 31, 1996 and the period from inception (May 26,
1995) through December 31, 1995, the Company incurred operating losses of
$3,205,000 and $513,000, respectively. The losses are principally due to
expenses incurred in the development of the technologies, including
administrative expenses and consulting expenses.
Interest expense and amortization of deferred and unearned finance costs
increased from $-0- in 1995 to $272,000 in the year ended December 31, 1996.
This increase was attributable to financing costs related to promissory notes of
$341,000 and a bridge loan of $2,000,000. See Note 6 to the accompanying
financial statements.
The Company does not expect to have any revenues through the first half of
1997. The Company will record a charge against income of approximately
$2,800,000 during fiscal 1997 related to shares of common stock issued in
connection with the bridge financing completed in December of 1996. The Company
intends to invest significantly in research and development of its technologies.
As a result, it is likely that the Company will not be profitable on a quarterly
or annual basis.
Liquidity and Capital Resources
The Company's principal sources of working capital have been net proceeds of
approximately $842,000 from the offering of common stock under Rule 504 of
Regulation D, shareholder advances aggregating $341,000 and from the bridge
financing discussed below, completed in December of 1996 of $2,000,000. Of the
shareholder advances, promissory notes evidencing approximately $200,000 of
shareholder indebtedness were exchanged for units in the bridge financing and
$141,000 was repaid from the proceeds of the bridge financing. The net proceeds
of the bridge financing reflect the cancellation of the notes referred to above
and are being used for repayment of accrued liabilities and funding the
development of certain technologies and for other working capital purposes.
In December 1996, the Company entered into a purchase agreement for an
offering of up to an aggregate of 40 units to certain accredited investors as
defined pursuant to Rule 501 of the Securities Act of 1933 (as amended) (the
"Act") pursuant to Rule 506 of Regulation D under the Act (the "Bridge
Financing"). Each unit consists of one promissory note issued by the Company in
the principal amount of $50,000 bearing interest at the rate of 12% per annum
and 25,000 shares of the Company's Common Stock. Under the agreement, the notes
are due one year from the issuance date. Gross proceeds received
20
<PAGE>
under this offering were $2,000,000. Holders of the shares of common stock
issued pursuant to this agreement have, among other things, demand and mandatory
registration rights, including penalties, which could require the Company to
issue to the unit holders up to 1,000,000 additional shares of common stock if
shares are not registered within the specified time frame. As of December 31,
1996, the Company has recorded an additional 500,000 shares of Common Stock to
be issued under the offering based on the Company's belief that it would not
meet one of the filing deadlines. See Note 6 to accompanying financial
statements.
The Company had a working capital deficiency and stockholders' deficiency of
$1,809,000 and $1,675,000, respectively, as of December 31, 1996.
The report of the Company's independent certified public accountants
contains an explanatory paragraph relating to the Company's ability to continue
as a going concern.
The Company has agreed to fund the commercialization of certain technologies
developed in the former Soviet Union by scientists and researchers at the I.V.
Kurchatov Institute ("Kurchatov"), other institutes associated therewith, and
the Euro-Asian Physical Society ("EAPS"), collectively the "Scientists".
Kurchatov will provide the materials, facilities and personnel to complete the
necessary work to commercialize such technologies. In addition, the Company
expects to fund during 1997 development and commercialization expenses related
to other technologies developed by scientists and researchers in Germany,
Russia, Israel and the United States. Total planned expenditures under these
programs, including related general and administrative expenses, are expected to
approximate $1,500,000 during 1997. The Company's principal sources of funding
these expenditures include remaining cash from the bridge financing ($380,000),
anticipated proceeds of $450,000 from the exercise of warrants and loans from
shareholders. As the development of each technology is completed and the
technology's commercial applications are identified, the Company will seek joint
venture partners to fund any further capital expenditures, including the project
financing.
As discussed above, the Company will require additional financing to
continue to fund research and development efforts, operating costs and complete
necessary work to commercialize its technologies. No assurance can be given that
additional financing can be obtained, or if obtainable, that the terms will be
satisfactory to the Company.
The Company is exploring additional sources of working capital including
private sales of securities, joint ventures and licensing of technologies and a
public offering of preferred stock. In September 1996, the Company received a
letter of intent from an underwriter pursuant to which the firm has agreed in
principle to underwrite, on a firm commitment basis, 5,000,000 shares of
cumulative convertible preferred stock (not including an underwriter's
over-allotment option equal to up to 75,000 shares) at an initial public
offering price of $10.00 per share. In connection therewith, the Company has
incurred offering costs aggregating $75,000, which if the offering is not
consummated, will be charged to expense. The Company is considering alternative
financing arrangements, and there is no assurance that the Company will complete
that or any other offering.
While no assurance can be given, management believes the Company can raise
adequate capital to keep the Company functioning during 1997. No assurance can
be given that the Company can successfully obtain any working capital or
complete any proposed offerings or, if obtained, that such funding will not
cause dilution to shareholders of the Company. Further, no assurance can be
given as to the completion of research and development and the successful
marketing of the technologies. See "Risk Factors - Need for Additional
Financing; - No Assurance of Collaborative Agreements, Licenses or Project
Contracts; - Uncertainty of Market Acceptance".
21
<PAGE>
BUSINESS
GENERAL
The Company, which was incorporated in May, 1995, under the laws of the
District of Columbia, is a technology transfer, holding and management company
formed to commercialize new, existing but previously unrecognized, and
previously "classified" technologies, with a particular emphasis on those
developed by prominent research institutes and individual researchers in the
former Soviet Union, and to license those and other Western, technologies for
business and other commercial applications in Central Europe, Eastern Europe,
Ukraine, Russia, and North America. Since the Company's formation its senior
executives and consultants have been, through their technology management
expertise, active in identifying monitoring, reviewing and assessing such
technologies for their commercial applicability and potential. Through this
continuing process, the Company has acquired, and expects in the future to
acquire, rights to selected technologies by purchase, assignments, and licensing
arrangements. The Company operates its business by licensing its technologies to
end-users and through development and operating joint ventures and strategic
alliances.
The Company's plan of operation for the next twelve months will consist of
activities principally aimed at identifying, evaluating and acquiring rights to
technologies; funding development for the on-site testing of its silicon-organic
compound technology in the contemplated remediation of radioactive
contamination; introducing its waste-to-energy technology in Ukraine;
introducing its automated parking garage technology in Moscow, Russia; continued
funding of the development of silicon-carbide, computer chip "wafer" technology;
and seeking to establish further strategic partnerships and joint ventures for
the development, marketing, sales, licensing and manufacturing of the Company's
existing and proposed technologies.
The Company has identified a number of technology acquisition and
commercialization opportunities afforded by the break-up and subsequent
reconfiguration of the former Soviet Union. In particular, pursuant to an
agreement between "Ukrstroj" (the Ukrainian State Construction Company) and the
Chernobyl Nuclear Power Plant, the Company will provide financing for the
on-site demonstration testing of its proprietary silicon-organic (EKOR) compound
technology in remediating the severe radioactive contamination problems that
persist from the 1986 reactor explosion at Chernobyl, Ukraine. The Company
believes its silicon-organic (EKOR) compound technology is the most effective
existing technology and material for containing and facilitating the disposal of
radioactive dust and other radioactive waste materials. The Company also has
entered into a technology licensing agreement with Arbat American Autopark,
Ltd., a Delaware corporation which is a 50% equity-holder in "Cinema World on
Arbat," a Russian joint stock company organized to develop, own and operate one
or more high-tech, automated parking garages in Moscow that use the Company's
automated parking technology; and has entered into technology transfer and other
agreements with Eurowaste Management, Ltd., a Delaware corporation
("Eurowaste"), for the development, construction and operation of
technologically advanced waste-to-energy generation plants in Ukraine, utilizing
the only technology currently approved for that purpose by the Ukrainian
government. Eurowaste has together with "Cherkassystroi", a Ukrainian
construction company, formed "Energy Ecology Construction Company," a Ukrainian
joint stock company, for the purpose of constructing and owning those plants.
In addition, the Company presently is participating in the development of
silicon carbide "wafer" technology, which is in the late research and
development stage, in conjunction with the I.V. Kurchatov Institute
("Kurchatov") in Moscow, Russia, and the Euro-Asian Physical Society ("EAPS").
To date, the Company has provided approximately U.S. $80,000 in financing to
Kurchatov in connection with this technology. Although no assurance can be
given, the Company presently expects that upon the successful completion of its
development, all intellectual property, marketing and sales rights in and to the
silicon carbide "wafer" technology will be assigned to the Company. While there
is no assurance that such technology will be successfully developed, based on
reports from Kurchatov, the Company believes the
22
<PAGE>
silicon carbide technology will permit the production of defect-free,
radiation-resistant "wafers" (from which integrated circuit chips are
fabricated) that will be approximately twice the size of those currently
available. The Company expects that integrated circuit chips fabricated from its
silicon carbide wafers will have particular application in high temperature
environments such as automobile and aircraft engine control systems, high power
environments such as power control transistors, and environments subject to
ionizing radiation such as spacecraft.
The Company also is negotiating an agreement with the Technion Israel
Institute of Technology ("Technion") and the government of Israel for the
establishment of a technology incubator (the "Technion Incubator") to be
operated in cooperation with Technion Entrepreneurial Incubator, Ltd. ("TEI"),
an Israeli corporation controlled by Technion. It is expected that pursuant to
such agreement the Israeli government will provide 80% and the Company will
provide 20% of the financing required for research and development projects
selected by the Company, and that the Company will be granted a 20% equity
interest in, and exclusive, world-wide marketing rights for all resulting
technologies. In furtherance of this venture, the Company has opened an office
at the premises of TEI in Haifa, Israel, and has identified four present and six
potential technology development projects for inclusion in the Technion
Incubator. The Company expects to provide approximately U.S. $310,000 in
financing for the same in fiscal year 1997. There can be no assurance that these
or any other development projects will result in useful technologies or that the
same will be commercially saleable or profitable.
Silicon-Organic Compound. The Company's silicon-organic (EKOR) compound
technology was jointly developed by scientists at the I.V. Kurchatov Institute
("Kurchatov") in Moscow and the EuroAsian Physical Society ("EAPS") for the
conservation and containment of ecologically hazardous radioactive materials.
The EKOR compound is based on radiation-resistant compounds produced from
silicon-organic elastomers. Kurchatov is a pre-eminent physics and scientific
research institute, which in the former Soviet Union enjoyed a position of
prestige, sophistication and importance roughly equivalent to that of the
Lawrence-Livermore National Laboratory in the United States. EAPS is a
professional society of over 5,000 scientists, physicists, and engineers in the
former Soviet Union. Until August 1, 2014, the Company is the exclusive licensee
of all right, title and interest (inclusive of all patent and other intellectual
property rights) in and to the EKOR technology in Canada, China, Japan, the
Republic of Korea, the United States of America, Ukraine, and all member
countries of the European Patent Agreement. See "Certain Relationships and
Related Transactions - Silicon-Organic (EKOR) Compound."
The Company expects that the first commercial use of its EKOR compound
technology will be to contain and stabilize the extensive radioactive debris and
dust that continues to accumulate and contaminate the environment at Reactor 4
of the Chernobyl Nuclear Power Plant in Ukraine, the site of a disastrous
explosion and near-reactor core meltdown in 1986, and to help structurally
support the concrete and steel "sarcophagus" that was built over Reactor 4 as an
interim containment measure. The rapid deterioration of the "sarcophagus,"
caused by the intense radiation persisting at Reactor 4, has occasioned
international concern that without the implementation of effective site
containment measures, a second nuclear disaster and possible melt-down is likely
to occur. To this end, the G-7 group of industrialized nations (the United
States, United Kingdom, Italy, France, Canada, Japan and Germany) has pledged up
to U.S. $3.1 billion to assist in a multi-step project of remediating and
closing the plant, with approximately U.S. $300 million budgeted for the
project's first containment and site stabilization phase. Pursuant to an
agreement with Kurchatov Research Holdings, Ltd. ("KRH") a Delaware corporation
jointly owned by ERBC Holdings, Ltd., a Delaware corporation, ("ERBC") and
individual Russian scientists, researchers and academics who are affiliated with
Kurchatov and EAPS, 50% of the net profits derived from the sale of the EKOR
compound for the Chernobyl project will be retained by the Company, and 50% will
be remitted to KRH. Two employees of ERBC are beneficial owners of shares of the
Company's Common Stock, and the chief Executive Officer of ERBC is the
beneficial owner of 17.07% of the Company's outstanding Common Stock. See
"Principal and Selling Shareholders" and "Certain Relationships and Related
Transactions."
23
<PAGE>
In testing conducted at Kurchatov, the EKOR compound has been shown to be
highly resistant to radiation and structural degradation through exposure to
radiation, highly fire-resistant, water-proof, and capable of being formulated
in densities that display considerable structural strength and weight-bearing
properties (based on testing to date) of 100 lbs. per square inch. In
high-dosage radiation tests the EKOR compound has met or exceeded all
specifications for containment materials developed by the Chernobyl authorities.
The Company believes that the EKOR compound is the most technologically advanced
material for comprehensively containing radioactive materials, suppressing
radioactive dust and preventing such materials and dust from escaping into the
atmosphere and from leaching into and contaminating ground-water supplies.
Based on the properties demonstrated by the EKOR compound, which the Company
believes to be the only material presently being considered by the Chernobyl
authorities as a solution to the containment problems posed by the Reactor 4
disaster, the Chernobyl Nuclear Power Station (an industrial amalgamation of the
State Committee of Ukraine on Atomic Energy), hereinafter referred to as
"ChNPP"), Kurchatov, "Ukrstroj" (the Ukrainian State Construction Corporation)
and the Company have entered into a Memorandum of Intent (the "Chernobyl
Memorandum of Intent") which acknowledges the successful completion of the
laboratory development of EKOR compound applicable to the radioactive
contamination remediation of Chernobyl Reactor 4, and sets forth the intention
of ChNPP to enter into a "co-operation agreement" with the Company pursuant to
which the Company will provide the financing for the development of an on-site
demonstration of the EKOR compound, in conjunction with ChNPP, "Ukrstroj" and
Kurchatov, which will provide the test sites, compound application equipment and
technical support, respectively. In furtherance of the foregoing, "Ukrstroj" and
ChNPP have entered into an agreement (the "Ukrstroj"-ChNPP Agreement") to
conduct such on-site demonstration testing of the EKOR compound as is necessary
to ascertain the specification requirements for its application to the
containment of ChNPP Reactor 4. The "Ukrstroj"-ChNPP Agreement provides for the
Company's participation in and financing of the EKOR demonstration test, which
the Company has agreed to pursuant to the aforesaid Co-operation Agreement
entered into by the Company, "Ukrstroj," and EAPS. The Company estimates that
total financing costs for the demonstration test will not exceed U.S. $100,000.
Although no assurance can be given, based on the Chernobyl Memorandum of Intent,
the "Ukrstroj"-ChNPP Agreement, the Co-operation Agreement, and the Company's
ownership of all right, title and interest to the EKOR technology, the Company
believes that it will be appointed the contract vendor of the EKOR compound for
the ChNPP Reactor 4 remediation project. The on-site demonstration was conducted
in April, 1997.
In addition, further applications of the EKOR technology are being developed
and tested at three sites in Russia: Sverdlosk Chimmash (a major development,
production and testing facility for nuclear, chemical and related equipment),
Chelyabinsk Mayak (a plutonium production site) and Kola (a disposal site for
nuclear fuel from atomic-powered ships and submarines).
Waste-to-Energy Technology. The Company's waste-to-energy technology is a
combination of "lowtech" mechanical technologies, "high-tech" combustion
controls, modern emissions abatement technology and effective operation
procedures configured into modules that produce steam energy from ordinary
municipal waste. The basic configuration was pioneered in 1980 by the U.S.
National Aeronautics and Space Administration ("NASA") and the city of Hampton,
Virginia, to provide steam power for NASA's Langley Research Center and the
Langley Air Force Base.
Steam energy produced by the waste-to-energy technology is clean, efficient
and environmentally "friendly". A typical modular unit burns 120 tons of refuse
per day and produces 33,000 pounds of steam per hour at 400 psi. Pollutant
levels are below present U.S. Environmental Protection Agency minimums, and each
modular unit reduces the volume of raw waste to ash at a ratio of 10:1.
Through a consulting agreement with Hunter Taylor, the President of Power
Development Associates, Inc., the original designer of the NASA City of Hampton
facility, the Company has obtained the engineering and implementation know-how,
and has identified willing suppliers of component
24
<PAGE>
equipment for the waste-to-energy technology, including Detroit Stoker, a
leading manufacturer of waste-to-energy stokers and a leading project management
company for the engineering and construction of waste-to-energy plants. Detroit
Stoker has informally agreed to act as the engineering project lead for the
Company's waste-to-energy projects, which the Company believes will enable it to
efficiently design and construct waste-to-energy plants customized to meet the
varying energy generation needs of disparate municipalities.
The Company intends to first introduce its waste-to-energy technology in the
city of Cherkassy, Ukraine, where the National Government has selected this
technology as the national standard for waste-to-energy facilities, and has
approved the construction of ten such facilities using the Company's
waste-to-energy technology. As part of that over-all approval, and pursuant to
the request of the Ukrainian government, a Ukrainian-American joint stock
company, "Energy Ecology Construction Company," ("Energy Ecology") has been
formed to construct, own and operate these energy generation plants. Energy
Ecology is equally owned by Eurowaste Management, Ltd., a Delaware corporation
8% of the equity of which is owned by the Company ("EuroWaste") and, pursuant to
the request of the Ukrainian Cabinet of Ministers, "Cherkassystroi," the largest
privately-owned construction company in Ukraine. The Company has entered into a
technology transfer and consulting agreement with Eurowaste under which
Eurowaste will pay the Company a U.S. $2.4 million technology transfer fee prior
to the construction of the first waste-to-energy plant, and a design and
implementation consulting fee of U.S. $425,000 for each subsequent plant. A
shareholder and director of the Company is the chairman, Chief Executive Officer
and a shareholder of Eurowaste. See "Principal and Selling Shareholders" and
"Certain Relationships and Related Transactions."
The necessary Ukrainian governmental approvals for the Cherkassy
waste-to-energy facility have been obtained, including local site allocation and
construction approvals. A large fertilizer production enterprise, "AZOZ", in
Cherkassy has agreed to purchase the entire output of the Cherkassy
waste-to-energy facility at rates of U.S. $.04-$.06 per kilowatt hour.
The Company believes that the present and projected future waste management
and energy needs of Ukraine present a significant commercial opportunity.
Ukrainian governmental officials have acknowledged that municipalities have
become reluctant to locate waste dump sites within municipal boundaries, because
of potential ecological and public health risks, and have also acknowledged that
the relative lack of local fuel resources has impaired Ukraine's energy
production capabilities, generally. In the Company's view, the waste-to-energy
technology's efficiency and low pollution levels, combined with its use of an
abundant, inexpensive, but previously under-utilized fuel source, presents a
comprehensive solution to these problems. Based on discussions with local and
national Ukrainian governmental officials, and although no assurances can be
given, the Company estimates that the municipal energy requirements of Ukraine
will support up to 70 facilities based on the waste-to-energy technology.
Automated Parking Garages. The Company has identified vendors of, and has
adapted, automated parking garage technologies for the multiple applications
required for garage sites in Moscow, Russia.
Automated parking technology consisting of computer-controlled, rotating
carousels which can be configured to contain varying numbers of automobile
parking spaces, substantially reduces the economically unproductive space
devoted to ramps and maneuvering areas in traditional, multi-story parking
garages, and through the use of elevators and multi-level "stacking" of the
carousels, permits the erection of high-capacity garages on parcels of land
otherwise too small for such use. The Company believes that its automated
parking technology is particularly useful in congested urban areas and in cities
where available land for parking is scarce.
The Company is introducing its automated parking technology in Moscow,
Russia, which, particularly since the collapse of the former Soviet Union and
the subsequently increased pace of political and economic reforms, has
experienced a substantial increase in automobile ownership and traffic
25
<PAGE>
congestion. Additionally, there is a relative scarcity of existing parking
spaces and construction sites of a size suitable for traditionally designed
parking garage facilities in Moscow. The municipal government of Moscow has
allocated a suitable construction site for the Company's intended, initial
automated parking venture, located at Arbat 8-10. Arbat is one of the City of
Moscow's principal commercial districts.
The Moscow automated parking garage will be developed, owned and operated by
"Cinema World on Arbat," a Russian joint stock company, the equity of which is
owned 50% by Arbat American Autopark, Ltd., a Delaware corporation ("Arbat
American"), 45% by "Soyuz Agat Fil," a Russian company to which the Moscow
municipal government has allocated the construction site and which holds the
necessary construction approvals and permits, and 5% by a privately owned
Russian affiliate of "Mosinterstroi". "Mosinterstroi" is a quasi-governmental
entity of the City of Moscow. 40% of the equity of Arbat American is owned by
ERBC Holdings, Ltd., a Delaware corporation ("ERBC"). Two employees of ERBC are
beneficial owners of shares of the Company's Common Stock, and the chief
executive officer of ERBC is the beneficial owner of 17.07% of the Company's
outstanding Common Stock. One of the directors of Arbat American is a
shareholder of the company's Common Stock, and another individual, who is a
director and the president of Arbat American, is a director and officer of the
Company and a shareholder of the Company's Common Stock. The Company has entered
into a technology license agreement with Arbat American pursuant to which the
Company will receive, prior to construction, a one-time royalty of U.S. $1,250
for each parking space to be contained in the automated parking facility and in
any garage facilities that in the future are developed, owned and/or operated by
Arbat American that use the Company's automated parking technology. The Company
presently estimates that, when completed, the Moscow automated parking garage
will contain 240 parking spaces. See "Risk Factors - Conflicts of Interest,"
"Principal and Selling Shareholders", "Management," and "Certain Relationships
and Related Transactions."
EMPLOYEES
The Company has three full-time employees and one part-time employee, of
whom two are involved in executive management, one is involved in sales and
marketing, acquisition and distribution, and one is involved in clerical and
administrative activities.
None of the Company's employees is covered by a collective bargaining
agreement. The Company considers its employee relations to be satisfactory and
has not experienced any material labor problems.
EXECUTIVE OFFICE
The Company's headquarters are located at 1200 Prospect Street, Suite 425,
LaJolla, California 92037 pursuant to a lease commencing August 30, 1996, and
ending October 30, 1997, for which the Company pays an annual rent of $30,600.
The Company believes that it will be able to renew its lease and that its
current facilities are sufficient to meet the requirements of the Company's
planned growth for approximately the next year.
LITIGATION
The Company is not involved in any litigation.
26
<PAGE>
MARKET PRICE OF COMMON STOCK
Trading Market
The Company's Common Stock trades on the NASDAQ Electronic Bulletin Board
market.
Principal Market-Makers
Following are the principal market-makers in the Company's Common Stock:
Cantor Fitzerald Securities, Grady & Hatch, Olson & Company, Sherwood
Securities, Fahnstock & Co., Paragon Capital Corporation, and Nash Weiss & Co.
Number of Shareholders of Record
The following table sets forth the approximate number of holders of record
of the Company's Common Stock at the end (December 31) of fiscal year 1996. The
Common Stock is the only class of the Company's equity securities share of which
are outstanding.
- ---------------------------------------------------------
Title of Class Number of Record Holders
at end (Dec. 31) of Fiscal Year 1996
- ---------------------------------------------------------
Common Stock 59
Market Price
The following table set forth the quarterly high and low closing bid and
closing asked prices for the Company's Common Stock, since July 25, 1995:
CLOSING BID CLOSING ASKED
1995 HIGH LOW HIGH LOW
---- -------------------- ---------------------
JULY 25
(First Available)
THRU 2.875 2.125 3.125 2.375
SEPT. 29
OCT. 2
THRU 4 2.25 4.50 3
DEC. 29
CLOSING BID CLOSING ASKED
1996 HIGH LOW HIGH LOW
---- ---------------------- ----------------------
JAN. 2
THRU
MAR. 29 5.375 4 5.875 4.50
(Excluding Jan. 8)
APR. 1
THRU 9.25 2.50 9.625 3
JUNE 21
JUNE 24
THRU 2.625 2 2.875 2.375
JUNE 28
27
<PAGE>
JULY 1
THRU 2.50 1.325 2.625 1.40625
SEPT. 30
OCT. 1
THRU 10 1.9375 10.25 2.0625
DEC. 31
CLOSING BID CLOSING ASKED
1997 HIGH LOW HIGH LOW
---- ---------------------- ----------------------
JAN. 2
THRU
MAR. 31 12.25 5.625 12.50 6
APR. 1
THRU 6.50 5 7 5.25
MAY 5
The foregoing data represents prices between dealers and does not include
retail mark-ups, mark-downs or commissions, nor does such data represent actual
transactions or adjustments for stock-splits or dividends.
Source: National Quotation Bureau, Inc.
28
<PAGE>
MANAGEMENT
Executive Officers and Directors
Name Age Position with the Company
---- --- -------------------------
Randolph A. Graves, Jr. 57 Director, Chairman and Chief Executive
Officer, President
Karl J. Krobath 62 Director
Hans-Joachim Skrobanek 46 Director, Secretary
Peter Gulko 48 Director
Dr. Randolph A. Graves, Jr. has served as a Director, Chairman and Chief
Executive Officer of the Company since its incorporation in May, 1995. From
November, 1992, until January, 1995, Dr. Graves was the President and Chief
Executive Officer of Mosaic Multisoft Corp., a computer software company. From
February, 1991, until November, 1992, Dr. Graves was President of Graves
Technology, Inc., a technology consulting company. From September, 1989, until
January, 1991, Dr. Graves was the Vice President Applications, of Super
Computing Solutions, Inc., a computer and software development company. From
June, 1963, until September, 1989, Dr. Graves was the Research and Development
Division Director of the National Aeronautics and Space Administration in
Washington, D.C. Dr. Graves received his Doctor of Science degree in 1978 from
the George Washington University, and a Masters degree in Business from Stanford
University in 1983.
Karl J. Krobath has served as a Director of the Company since its
incorporation in May, 1995. In addition to his duties as a Director of the
Company, since 1995 Mr. Krobath has been Chairman and Chief Executive Officer of
Eurowaste Management, Ltd. which is involved in the development, ownership and
operation of waste-to-energy plants utilizing the Company's waste-to-energy
technology (see "Risk Factors Conflicts of Interest," and "Certain Relationships
and Related Transactions"); and since 1994 Mr. Krobath has served as a business
advisor to Nordex, GmbH, a trading company in Vienna, Austria. From 1993 until
1994, Mr. Krobath was the President of Eisenbeiss-Sohne, an Austrian gear
manufacturing company. From 1991 through 1992, he was engaged as an East-West
trading consultant in the trading business maintained by Dr. Karl Pisec in
Vienna, Austria. In 1962 Mr. Krobath received a Masters Degree in Science from
Montanuniversitat (University for Mining and Metallurgy) in Austria.
Hans-Joachim Skrobanek has served as a Director and the Secretary of the
Company since its incorporation in May, 1995. In addition to his duties as a
Director and Secretary of the Company, since 1995 Mr. Skrobanek has been
employed as a managing director of ERBC Holdings, Ltd., a project development
and finance company in Rockville, Maryland, where he has coordinated that
company's Western European activities; and since 1995 has been the President of
Arbat American Autopark, Ltd., which is involved in the development, ownership
and operation of parking garages utilizing the Company's automated parking
technology. See "Risk Factors - Conflicts of Interest," and "Certain
Relationships and Related Transactions." From 1989 through 1994 Mr. Skrobanek
was a managing director of FBT, a finance company in Berlin, Germany, where he
was involved in that company's East-West financing transactions. In 1976 Mr.
Skrobanek received a Diploma in Economics from the Johann Wolfgang Goethe
Universitat in Frankfurt, Germany.
Peter Gulko has been a Director of the Company since its incorporation in
May, 1995. From May, 1994, Mr. Gulko has also been employed as a managing
director of ERBC Holdings, Ltd., where he is involved in that company's
activities in the former Soviet Union. See "Risk Factors - Conflicts of
Interest," and "Certain Relationships and Related Transactions." From 1995 Mr.
Gulko has also been the President of CIS Development, Inc., a consulting company
of which he is the sole owner. From 1991 until 1994 Mr. Gulko was the director
of the Moscow, Russia, office of TMR, International, a technology transfer
company that specialized in oil refining. Mr. Gulko is a 1973 recipient of a
Masters Degree in Civil Engineering from Novocherkassk University in Russia.
29
<PAGE>
Executive Compensation
The following table sets forth the compensation paid by the Company for
services rendered in all capacities during the calendar years 1996 and 1995 to
Randolph A. Graves, Jr., its chief executive officer during 1996. No other
executive officer or key employee was compensated in excess of $100,000.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------
Annual Compensation
- ------------------------------------------------------------------------------------------------------------------
Other Annual
Salary Bonus Compensation
Name and Principal Position Year ($) ($) ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Randolph A. Graves, Jr, President & Chief 1996 $7,375 $20,000 $243,109
Executive Officer................................. 1995 0 0 $10,500
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Employment Agreement
The Company has entered into an Employment Agreement with Dr. Randolph
Graves, Jr., as President of the Company. The term of that agreement expires on
December 31, 1998, and is subject to renewal for additional two-year periods
thereafter, and is also subject to earlier termination upon the occurrence of
certain specified events. Pursuant to the Employment Agreement, Dr. Graves will
be entitled to receive: (i) a base salary of $77,374 per year, subject to
modification upon each renewal; (ii) an additional 255,000 shares of the
Company's Common Stock (which shares were issued to Dr. Graves in fiscal year
1996) and such bonus and other additional compensation as the Board of Directors
may authorize.
The Employment Agreement also contains covenants prohibiting the employee,
during the term of the Agreement and the one year period commencing upon
termination of the Agreement, from directly or indirectly competing with the
Company, and prohibiting the employee, during the term of the Agreement and the
three-year period following its termination, from disclosing any of the
Company's proprietary information and/or trade secrets.
Board of Directors
All Directors hold office until the next annual meeting of shareholders of
the Company or until their successors have been elected. All officers are
appointed annually by the Board of Directors and, subject to existing employment
agreements, serve at the discretion of the Board. Directors who are employees of
the Company receive no compensation for serving on the Board of Directors. It is
expected that Directors who are not employees of the Company will receive
compensation for their services in an amount to be determined. All Directors are
reimbursed by the Company for any expenses incurred in attending Director's
meetings. The Company may attempt to obtain Officers and Directors liability
insurance.
Audit Committee of the Board of Directors
The Board of Directors has established an Audit Committee, the current
members of which are Messrs. Graves and Krobath. The functions of the Audit
Committee are to recommend annually to the Board of Directors the appointment of
the independent auditors of the Company, discuss and review in advance the scope
and the fees of the annual audit and review the results thereof with the
independent auditors, review and approve non-audit services of the independent
auditors, review compliance with existing major accounting and financial
reporting policies of the Company, review the adequacy of the financial
organization of the Company and review management's procedures and policies
relating to the adequacy of the Company's internal accounting controls and
compliance with applicable laws relating to accounting practices.
30
<PAGE>
1995 Incentive Stock Option Plan
The Company has adopted its 1995 Incentive Stock Option Plan ("Plan"). The
Board believes that the Plan is desirable to attract and retain executives and
other key employees of outstanding ability. Under the Plan, options to purchase
an aggregate of not more than 500,000 shares of Common Stock may be granted from
time to time to key employees, officers, directors, advisors and consultants to
the Company or to any of its subsidiaries.
The Plan is currently administered by the Board of Directors which may
empower a committee to administer the Plan. The Board is generally empowered to
interpret the Plan, prescribe rules and regulations relating thereto, determine
the terms of the option agreements, amend them with the consent of the optionee,
determine the individuals to whom options are to be granted, and determine the
number of shares subject to each option and the exercise price thereof. The per
share exercise price for options granted under the Plan are determined by the
Board of Directors provided that the exercise price of incentive stock options
("ISOs") will not be less than 100% of the fair market value of a share of the
Common Stock on the date the option is granted (110% of fair market value on the
date of grant of an ISO if the optionee owns more than 10% of the Common Stock
of the Company). Upon exercise of an option, the optionee may pay the purchase
price with previously acquired securities of the Company, or at the discretion
of the Board, the Company may loan some or all of the purchase price to the
optionee.
Options will be exercisable for a term determined by the Board, which will
not be greater than ten years from the date of grant (five years in the case of
ISO's). Options may be exercised only while the original grantee has a
relationship with the Company which confers eligibility to be granted options or
within three months after termination of such relationship with the Company, or
up to one year after death or total and permanent disability. In the event of
the termination of such relationship between the original grantee and the
Company for cause (as defined in the Plan), all options granted to that original
optionee terminate immediately. In the event of certain basic changes in the
Company, including a reorganization, merger or consolidation of the Company, or
the purchase of shares pursuant to a tender offer for shares of Common Stock of
the Company, in the discretion of the Committee, each option may become fully
and immediately exercisable. ISOs are not transferable other than by will or the
laws of descent and distribution. Non-qualified stock options may be transferred
to the optionee's spouse or lineal descendants, subject to certain restrictions.
Options may be exercised during the holder's lifetime only by the holder, his or
her guardian or legal representative.
Options granted pursuant to the Plan may be designated as ISOs, with the
attendant tax benefits provided under Section 421 and 422 of the Internal
Revenue Code of 1986. Accordingly, the Plan provides that the aggregate fair
market value (determined at the time an ISO is granted) of the Common Stock
subject to ISOs exercisable for the first time by an employee during any
calendar year (under all plans of the Company and its subsidiaries) may not
exceed $100,000. The Board may modify, suspend or terminate the Plan; provided,
that certain material modifications affecting the Plan must be approved by the
stockholders, and any change in the Plan that may adversely affect an optionee's
rights under an option previously granted under the Plan requires the consent of
the optionee.
To date, no options have been granted pursuant to the Plan.
Compensation of Directors
The Company's directors do not receive any compensation for their service
as directors or on any committee of the Board.
Limitation on Officers' and Directors' Liability
The Company's Certificate of Incorporation provides that the Company
shall, to the full extent permitted by Section 29-304 of the District of
Columbia Business Corporation Act, as from time to time amended and in effect
(the "BCA"), indemnify any and all persons it has the power to indemnify under
said section. Section
31
<PAGE>
29-304 of the BCA grants to the Company the power to indemnify any and all of
its directors or officers or former directors of officers or any person who may
have served at its request as a director or officer of another corporation in
which it owns shares of capital stock or of which it is a creditor against
expenses actually and necessarily incurred by them in connection with the
defense of any action, suit or proceeding in which they, or any of them, are
made parties or a party, by reason of being or having been directors or officers
or a director or officer of the Company, or of such other corporation, except in
relation to matters as to which any such director or officer or former director
or officer or person is adjudged in such action, suit or proceeding to be liable
for negligence or misconduct in the performance of duty. Such indemnification is
not deemed to be exclusive of any other rights to which those indemnified may be
entitled, under any bylaw, agreement, vote of stockholders or otherwise. The
foregoing provisions of the Company's Certificate of Incorporation may reduce
the likelihood of derivative litigation against the Company's directors and
officers for breach of their fiduciary duties, even though such action, if
successful, might otherwise benefit the Company and its stockholders.
Additionally, the Company's By-Laws provide for the indemnification of
directors and officers. The specific provisions of the By-Laws related to such
indemnification are as follows:
ARTICLE VI
INDEMNIFICATION
No director shall be liable to the corporation or any of
its stockholders for monetary damages for breach of fiduciary
duty as a director, except with respect to (1) a breach of the
director's duty of loyalty to the corporation or its
stockholders, (2) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law,
(3) liability which may be specifically defined by law or (4) a
transaction from which the director derived an improper personal
benefit, it being the intention of the foregoing provision to
eliminate the liability of the corporation's directors of the
corporation's directors to the corporation or its stockholders
to the fullest extent permitted by law. The corporation shall
indemnify to the fullest extent permitted by law each person
that such law grants the corporation the power to indemnify.
32
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock at the date of this
Prospectus by (i) each person known by the Company to own beneficially more than
5% of the Company's Common Stock, (ii) each of the Company's directors, (iii)
each of the Company's executive officers, (iv) all officers and directors of the
Company as a group, and (v) each of the beneficial owners of the 3,985,035
shares of Common Stock registered in the Registration Statement covering the
Shares offered hereby (the "Selling Shareholders"). The Shares offered hereby
will be sold, if at all, solely by and at the discretion of the Selling
Shareholders, and the Company will not receive any proceeds from any such sales.
See "Plan of Distribution". Except as otherwise indicated, the Company believes
that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, have sole investment and voting power with
respect to such shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially(1)
Owned Prior to Offering Registered Owned After Offering
----------------------- ---------- --------------------
Name and Address of
Beneficial Owner Number Percent Number Number Percent
-------------------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Kurt Seifman
150 East 58th Street
New York, NY 10155 2,071,300 12.0 370,000 1,701,300 9.6
Peter Gulko(2)
976 Rock Haven Drive
Rockville, Maryland 20852 1,355,000 7.9 -- 1,355,000 7.6
Randolph A. Graves, Jr.(2)(3)
3299 Villanova Avenue
San Diego, California 92122 615,000 3.6 -- 615,000 3.5
Hans Joachim Skrobanek(2)
Wiesbadener Strasse 17A
D-12309 Berlin
Germany 145,000 .84 -- 145,000 .8
Karl J. Krobath(2)(3)
Turmgasse 3B
A-8700 Leoben
Austria 25,000 .14 -- 25,000 .14
Mr. John A. Kinard
919 Kay Street
Murfreesboro, TN 37130 177,500 1.0 177,500 -- -- (1)
Ms. D.K. Rogers
20 West 86th Street Apt 5A
New York, NY 10024 327,500 1.9 457,500 -- -- (1)
Mr. Chad Nellis
3812 Pacific Avenue, #3
Marina del Rey, Ca. 90292 250,000 1.4 250,000 -- -- (1)
Mr. Simon Nemzov
30 Blackstone Blvd
Providence, RI 02906 56,250 .3 56,250 -- -- (1)
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially(1)
Owned Prior to Offering Registered Owned After Offering
----------------------- ---------- --------------------
Name and Address of
Beneficial Owner Number Percent Number Number Percent
-------------------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Ms. Elizabeth T. Martin
1264 Calais Court
Knoxville, TN 37919 56,250 .3 56,250 -- -- (1)
Mr. Miguel N. Alexiades
375-21C South End Avenue
New York, NY 10280 9,375 -- 9,375 -- -- (1)
Mr. James C. Buckner
402 Harbor Drive North
Indian Rocks Beach, Fla. 33785 9,375 -- 9,375 -- -- (1)
CBB Office Furnishings
Defined Benefit Plan
34 Lincoln Drive
Sausalito, Ca 94965-1641 28,125 .16 28,125 -- -- (1)
Mr. Charles D. Smith
4661 Cedar Grove Road
Murfreesboro, TN 37127 75,000 .4 75,000 -- -- (1)
Mr. Colin Cody
1059 Ocotillo Drive
Sun City, AZ 85373 93,750 .5 93,750 -- -- (1)
Mr. Monni Weisberger
1016 East 18th Street
Brooklyn, New York 11230 37,500 .2 37,500 -- -- (1)
Mr. David Weisberger
1016 East 18th Street
Brooklyn, NY 11230 37,500 .2 37,500 -- -- (1)
Mr. Richard D. Willey &
Linda Willey JTWRS
926 Keowee Avenue
Knoxville, TN 37919 18,750 .1 18,750 -- -- (1)
Mr. John C. Trotter
4309 Topside Road
Knoxville, TN 37920 18,750 .1 18,750 -- -- (1)
Mr. Patrick S. Martin
8916 Strawflower Drive
Knoxville, TN 37920 46,875 .3 46,875 -- -- (1)
Chad A. Verdi
100 Pheasant Drive
E. Greenwich, RI 02818 37,500 .2 37,500 -- -- (1)
Ms. Pamela Kaweske
P.O. Box 31457 SMB
Grand Cayman
Cayman Islands 46,875 .3 46,875 -- -- (1)
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially(1)
Owned Prior to Offering Registered Owned After Offering
----------------------- ---------- --------------------
Name and Address of
Beneficial Owner Number Percent Number Number Percent
-------------------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Mr. Wesley Burdette
2733 Jersey Avenue, B-300
Knoxville, TN 37919 37,500 .2 37,500 -- -- (1)
Mr. William T. Thompson
31 Ridge Road
Ridgewood, New Jersey 07450 75,000 .4 75,000 -- -- (1)
Sherwood Securities
Attn: Michael Caedinale
10 Exchange Place Centre
Jersey City, N.J. 07302 75,000 .4 75,000 -- -- (1)
David Wilkes
15 Sommerset Dr., South
Great Neck, NY 11020 37,500 .2 37,500 -- -- (1)
B.V.H. Holdings
2125 Center Avenue, Suite 508
Fort Lee, New Jersey 07024 75,000 .4 75,000 -- -- (1)
Michael Krasnoff
PDK Labs, Inc.
750 Lexington Avenue, #2750
New York, NY 10022 37,500 .2 37,500 -- -- (1)
Jeffrey Markowitz
7 Kensington Road
Scarsdale, NY 10583 75,000 .4 225,000 -- -- (1)
Richard Friedman
49 Fort Royal Isle
Fort Lauderdale, Fla. 33308 150,000 .86 300,000 -- -- (1)
Chana Sasha Foundation
1 State Street Plaza, 29th Floor
New York, NY 10004
(Morris Wolfson, President) 37,500 .2 37,500 -- -- (1)
Mr. Frank T. Rogers
20 West 86th Street Apt 5A
New York, NY 10024 14,062 .08 14,062 -- -- (1)
Mr. Craig S. Rogers
20 West 86th Street Apt 5A
New York, NY 10024 14,062 .08 14,062 -- -- (1)
Credit Suisse
c/o Nesbit Burns
Triftstrasse 4
80538 Munich
Germany
Attn: Rolf 35,000 .2 35,000 -- -- (1)
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially(1)
Owned Prior to Offering Registered Owned After Offering
----------------------- ---------- --------------------
Name and Address of
Beneficial Owner Number Percent Number Number Percent
-------------------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Rene Carrel
c/o Nesbit Burns
Triftstrasse 4
80538 Munich
Germany
Attn: Rolf 5,000 -- 5,000 -- -- (1)
NFC Services/ABW Trading
Eichelbrelte 1
82335 Berg II
Germany 285,000 1.6 285,000 -- -- (1)
Dionne Fedderson
7878 East Gainey Branch Road
#23
Scottsdale, Arizona 10,000 -- 10,000 -- -- (1)
Yvonne Fedderson
6135 East McDonald Drive
Paradise Valley, Arizona 85253-
5222 200,000 1.2 200,000 -- -- (1)
Sara O'Meara
6135 East McDonald Drive
Paradise Valley, Arizona 85253-
5222 5,000 -- 5,000 -- -- (1)
James D. Watkins
2021 Indian Circle
Saint Leonard, MD 20685 41,000 .2 25,000 16,000 .09(1)
AIM Corporate Relations Inc.
5540 14B Avenue
Tsawwassen, British Columbia
V4M 2G6 Canada 5,036 -- 105,036 -- -- (1)
Dawn Van Zant
5540 14B Avenue
Tsawwassen, British Columbia
V4M 2G6
Canada 15,000 -- 15,000 -- -- (1)
Heidi Hirst
259 67A Street
Boundry Bay
Delta, British Columbia V4L
1L2 15,000 -- 15,000 -- -- (1)
ERBC Holdings, Ltd.
Weisbadner Strasse 1/A
D-12309 Berlin
Germany 255,000 1.5 255,000 -- -- (1)
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially(1)
Owned Prior to Offering Registered Owned After Offering
----------------------- ---------- --------------------
Name and Address of
Beneficial Owner Number Percent Number Number Percent
-------------------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Kenmar International
Management Limited
Graham, Thompson & Co.
Sassoon House, Shirley Street
P.O. Box N-272, Nassau,
Bahamas 100,000 .6 100,000 -- -- (1)
ABW Trading/NFC (Service) Ltd.
POB12 Budleigh Salterton
Devon FX96TA
England 100,000 .6 100,000 -- -- (1)
Wolfgang Jastram
Apartado 6512
Comunicaciones SA
Avenida Francisco
de Maranda
Edificio Mene Grande
6 Piso
Caracas, Venezuela 44,500 .25 44,500 -- -- (1)
Harald Block
POB 310
CH 8123 Ebmatengen
Zurich, Switzerland 30,500 .18 30,500 -- -- (1)
Directors and Officers
As a Group
(4 Persons) 2,140,000 12.4 -- 2,140,000 12.0
</TABLE>
- ----------
(1) Gives effect to: (i) the issuance of 530,000 shares of Common Stock
issuable upon the exercise of stock options and warrants outstanding at
the date of this Prospectus (which shares have been registered under the
Registration Statement of which this Prospectus is a part; and (ii) the
sale by the Selling Shareholders of all of the Shares registered under the
Registration Statement of which this Prospectus is a part.
(2) Member of the Company's Board of Directors.
(3) Executive Officer of the Company.
37
<PAGE>
CERTAIN TRANSACTIONS
Shareholder and Other Loans.
On June 30, 1996, Richard A. Wall Associates, Inc. a company controlled by
Richard A. Wall (who has acted as a consultant to and a promotor of the Company)
loaned $128,300 to the Company, payable with accrued interest at the rate of 10%
per anum, on December 31, 1996.
On August 31, 1996, Richard A. Wall Associates, Inc., Chad Nellis (a
shareholder and the son of Mr. Wall) and D.K. Rogers (a shareholder and
consultant to the Company) loaned to the Company $13,000, $100,000, and
$100,000, respectively, each such loan being payable, with accrued interest at
the rate of 10% per annum, on December 31, 1996.
The loans made by Richard A. Wall Associates, Inc., were repaid in full in
fiscal year 1996. The loans made by Mr. Nellis and Ms. Rogers were fully
converted into four Units in the Company's third unregistered offering of Common
Stock pursuant to Rule 506 of Regulation D under the Securities Act.
Issuance of Common Stock to Consultants and Advisors.
On October 10, 1995, the Company granted options to Richard A. Wall, Kelly
Capital Corporation and Ruffa & Ruffa, to acquire 200,000 shares, each, of the
Company's Common Stock in exchange for past financial public relations,
investment banking and legal services, respectively. The shares issuable upon
exercise of those options were part of the Company's first unregistered offering
of Common Stock pursuant to Rule 504 of Regulation D under the Securities Act of
1933. All such options were exercised on January 18, 1996.
The services of Mr. Wall, Kelly Capital Corporation and Ruffa & Ruffa were
each valued by the Company at $25,000, which valuation the Company believes to
be fair and reasonable.
Common Directors and Shareholders
ERBC Holdings, Ltd. ERBC Holdings, Ltd., a Delaware corporation ("ERBC"),
is the beneficial owner of 255,000 shares of the Company's Common Stock. Two
employees of ERBC, Hans-Joachim Skrobanek and Peter Gulko, are shareholders and
directors of the Company, and Mr. Skrobanek is the Secretary of the Company. Mr.
Skrobanek is the beneficial owner of 145,000 shares, and Mr. Gulko is the
beneficial owner of 1,355,000 shares, of the Company's Common Stock. The chief
executive officer of ERBC, Kurt Seifman, is the beneficial owner of 2,071,300
shares of the Company Common Stock. See "Risk Factors - Conflicts of Interest."
Eurowaste Management, Ltd. The chairman and chief executive officer of
Eurowaste Management, Ltd., a Delaware corporation ("Eurowaste"), Karl Krobath,
is a shareholder and director of the Company. Mr. Krobath is the beneficial
owner of 25,000 shares of the Company's Common Stock. See "Risk Factors -
Conflicts of Interest."
Arbat American Autopark, Ltd. Hans-Joachim Skrobanek, a shareholder,
director and the Secretary of the Company, is a shareholder and president of
Arbat American Autopark, Ltd., a Delaware corporation ("Arbat American"). ERCB
is the beneficial owner of 40% of the outstanding common stock of Arbat
American. See "Risk Factors - Conflicts of Interest."
Transactions Involving ERBC, Eurowaste and Arbat American.
Silicon-Organic (EKOR) Compound. Pursuant to the License Agreement among
the Euro-Asian Physical Society ("EAPS"), a professional society of scientists,
physicists and engineers in the former Soviet Union (as Licensor), and ERBC (as
Licensee) dated September 6, 1996 (the "EAPS-ERBC License") ERBC became the
exclusive licensee of all right, title and interest in and to the EKOR
technology in Canada, China, Japan, the
38
<PAGE>
Republic of Korea, the United States of America, Ukraine and all countries that
are members of the European Patent Agreement (the "Territory") for a term
expiring on August 1, 2014. The EAPS-ERBC License, among other things, grants
ERBC the right to sub-license its rights and interest thereunder. Pursuant to
the License Agreement among ERBC and the Company dated September 16, 1996 (the
"ERBC-Eurotech License"), ERBC exclusively sub-licensed all of its right, title
and interest in and to the EKOR technology to the Company for a term co-terminus
with the term of the EAPS-ERBC License. Pursuant to an agreement among Kurchatov
Research Holdings, Ltd., a Delaware corporation ("KRH") and the Company dated
January 28, 1997, 50% of the net profits the Company derives from the
commercialization, sale or licensing of any technology developed by the I.V.
Kurchatov Institute ("Kurchatov") and EAPS will be remitted to KRH. 50% of the
KRH's outstanding capital stock is owned by ERBC, and 50% is owned by individual
Russian scientists, researchers and academics affiliated with either or both
Kurchatov and EAPS. See "Risk Factors - Conflicts of Interest."
Waste-to-Energy Technology. Pursuant to a letter agreement among the
Company and Eurowaste Management, Ltd., a Delaware corporation ("Eurowaste")
dated September 18, 1996, Eurowaste has agreed to pay to the Company $2,450,000
upon the initiation of construction of the first waste-to-energy plant in which
Eurowaste is involved, and to pay to the Company $425,000 upon the initiation of
construction of each additional waste-to-energy plan in which Eurowaste is
involved. The Company believes that the terms of this agreement are fair and
commercially reasonable. See "Risk Factors - Conflicts of Interest."
Automated Parking Garages. Pursuant to a letter agreement among the
Company and Arbat American Autopark, Ltd., a Delaware corporation ("Arbat
American") dated January 28, 1997, Arbat American has agreed to pay to the
Company $1,250 per parking space in each parking garage erected by Arbat
American or any affiliate of Arbat American the design of which substantially
conforms to the technology, designs, renderings, blueprints and plans previously
furnished by the Company to Arbat American. The Company believes that the terms
of such agreement are fair and commercially reasonable. See "Risk Factors -
Conflicts of Interest."
39
<PAGE>
DESCRIPTION OF SECURITIES
General
The Company's authorized capital consists of 50,000,000 shares of Common
Stock, par value $.00025 per share, and 1,000,000 shares of "blank check"
Preferred Stock (the "Blank Check Preferred Stock"). As of the date of this
Prospectus, there are outstanding 17,254,836 shares of Common Stock, and no
shares of Blank Check Preferred Stock. See "Principal and Selling Shareholders."
Set forth below is a summary description of certain provisions relating to the
Company's capital stock contained in its Certificate of Incorporation and
By-laws and under the District of Columbia Business Corporation Act. Such
summary is qualified in its entirety by reference to the Company's Certificate
of Incorporation and By-laws and the District of Columbia Business Corporation
Act.
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock. All
the issued and outstanding shares of Common Stock are validly issued, fully paid
and non-assessable. Each outstanding share of Common Stock has one vote on all
matters requiring a vote of the stockholders. There is no right to cumulative
voting; thus, the holders of fifty percent or more of the shares outstanding
can, if they choose to do so, elect all of the directors of the Company. In the
event of a voluntary or involuntary liquidation of the Company, all stockholders
are entitled to a pro rata distribution after payment of liabilities and after
provision has been made for each class of stock, if any, having preference over
the Common Stock. The holders of the Common Stock have no preemptive rights with
respect to the Company's offerings of shares of its Common Stock. Holders of
Common Stock are entitled to dividends if, as and when declared by the Board of
Directors out of the funds legally available therefor. It is the present
intention of the Company to retain earnings, if any, for use in its business.
Dividends are, therefore, unlikely in the foreseeable future. See "Dividend
Policy."
Blank Check Preferred Stock
Pursuant to its Certificate of Incorporation, the Company's Board of
Directors is authorized to issue, without any action on the part of its
stockholders, an aggregate of 1,000,000 shares of "blank check" preferred stock.
The Board of Directors has authority to divide the Blank Check Preferred Stock
into one or more series and has broad authority to fix and determine the
relative rights and preferences, including the voting rights of the shares of
each series. Such Blank Check Preferred Stock could be used as a method of
discouraging, delaying, or preventing a change in control of the Company or be
used to resist takeover offers opposed by management. Under certain
circumstances, the Board of Directors could create impediments to or frustrate
persons seeking to effect a takeover or otherwise gain control of the Company by
causing shares of Blank Check Preferred Stock with voting or conversion rights
to be issued to a holder or holders who might side with the Board of Directors
in opposing a takeover bid that the Board of Directors determines not to be in
the best interest of the Company and its stockholders. In addition, the
Company's ability to issue such shares of Blank Check Preferred Stock with
voting or conversion rights could dilute the stock ownership of such person or
entity. No shares of Blank Check Preferred Stock are currently issued and
outstanding and the Company has no plans to issues any shares of Blank Check
Preferred Stock at this time.
Transfer Agent
The Transfer Agent for the Common Stock of the Company is Interwest
Transfer Co., Inc., 1981 East Murray Holladay Road, Suite 100, Salt Lake City,
Utah 84117.
40
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Of the 17,784,836 shares of the Company's Common Stock to be outstanding
after the Offering1, 3,985,035 shares are being registered by the Company under,
and will be eligible for sale upon the effectiveness of, the Registration
Statement of which this Prospectus is a part. 6,998,000 shares of the Company's
currently outstanding Common Stock were issued without registration pursuant to
Rule 504 of Regulation D under the Securities Act, and are free-trading.
6,801,801 shares of the currently outstanding Common Stock are "restricted
securities" as that term is defined in Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"), and pursuant to that Rule, under
certain circumstances may be sold without registration. All the currently
outstanding "restricted" shares of Common Stock will become eligible for sale at
various times after the applicable holding period has expired, without
registration. Included in the 6,801,801 "restricted" shares are 3,991,036 shares
of the Company's Common Stock issued to certain employees of and consultants to
the Company pursuant to Rule 701 under the Securities Act (the "701 Shares").
Pursuant to Rule 701, holders of the 701 Shares who are not "affiliates" of the
Company within the meaning of Rule 144 may sell such shares without registration
ninety days after the effectiveness of the Form 10 Registration Statement filed
by the Company on February 12, 1997, pursuant to the Securities Exchange Act of
1934.
1,500,000 of the Shares offered hereby carry mandatory and demand
registration rights pursuant to a Bridge Financing completed by the Company in
December, 1996. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition - Liquidity and Capital Resources." The
holders of such 1,500,000 shares of Common Stock have exercised their mandatory
registration rights, Those shares have been registered in this Offering, and are
free-trading.
The availability for sale, as well as actual sales, of currently
outstanding shares of Common Stock, and shares of Common Stock issuable upon the
exercise of outstanding options and warrants, securities, may depress the
prevailing market price for the Common Stock, and could adversely affect the
terms upon which the Company would be able to obtain additional financing.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year (including the holding period of any prior owner other than an affiliate)
is entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the effectiveness of the Form 10
Registration Statement filed by the Company on February 12, 1997 pursuant to the
Securities Exchange Act of 1934, a number of shares that does not exceed the
greater of (i) one percent of the number of shares of Common Stock then
outstanding or (ii) generally, the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the required filing of a Form 144
with respect to such sale. Sales under Rule 144 are generally subject to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, is entitled to sell such shares
without compliance with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
- ----------
(1) Gives effect to the issuance of 530,000 shares of Common Stock issuable upon
exercise of stock options and warranties outstanding at the date of this
Prospectus. Does not give effect to the issuance of (i) up to 470,000 shares of
Common Stock issuable upon exercise of stock options and warrants outstanding at
the date of the Prospectus, and (ii) the issuance of up to 500,000 shares of
Common Stock reserved for issuance under the Company's 1995 Stock Option Plan.
See "Management - 1995 Stock Option Plan."
41
<PAGE>
Registration Rights
In connection with the Bridge Financing completed in December, 1996, the
Company granted to the holders of an aggregate of 1,500,000 shares of the
Company's Common Stock mandatory and demand registration rights as to their
shares, which have been exercised. Pursuant to such shareholders' (hereinbefore
referred to as the "Selling Shareholders") exercise of such mandatory
registration rights, the Company has registered those 1,500,000 shares of Common
Stock in the Registration Statement of which this Prospectus is a part. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition Liquidity and Capital Resources".
PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Shareholders or by their
respective pledgees, donees, transferees or other successors in interest may be
effected from time to time in one or more transactions for their own accounts
(which may include block transactions) on the Nasdaq Bulletin Board or any
exchange on which the Shares may then be listed, in negotiated transactions,
through the writing of options on shares (whether such options are listed on an
options exchange or otherwise), through short sales, sales against the box, puts
and calls and other transactions in securities of the Company or other
derivatives thereof, or a combination of such methods of sale, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling shares of Shares to or through broker-dealers, including
broker-dealers who may act as underwriters, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders and/or the purchasers of shares of Shares for whom such
broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Selling Shareholders may also sell Shares pursuant
to Rule 144 promulgated under the Securities Act or pledge Shares as collateral
for margin accounts, and such shares of Shares could be resold pursuant to the
terms of such accounts. The Selling Shareholders and any participating brokers
and dealers may be deemed to be "underwriters" as defined in Section 2(11) of
the Securities Act.
In order to comply with certain state securities laws, if applicable, the
Shares will not be sold in a particular state unless such securities have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and complied with.
The Company has agreed to bear all expenses, other than selling
commissions and fees, in connection with the registration and sale of the Shares
being offered by the Selling Shareholders.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for
the Company by Phillips Nizer Benjamin Krim & Ballon LLP, New York, New York.
EXPERTS
The financial statements of the Company as of December 31, 1996 and for
each of the years then ended, have been included in this Prospectus in reliance
upon the report of Tabb, Conigliaro & McGann, P.C., New York, New York,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
42
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549; and 5757 Wilshire Boulevard, Los
Angeles, California 90036; at the New York Regional Office of the Commission, 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act of 1993, as amended
(the "Securities Act"), with respect to the registration of the Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto, which are
incorporated therein by reference, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus or in any document incorporated by reference as to
the contents of any contract or other document referred to herein or therein are
not necessarily complete and, in each instance, reference is made to the copy of
such documents filed as an exhibit to the Registration Statement for such other
documents, which may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission. Each
such statement is qualified in its entirety by such reference.
The Company's Registration Statement on Form S-1, as well as any reports,
proxy statements and other information filed under the Exchange Act, can also be
obtained electronically after the Company has filed such documents with the
Commission through a variety of databases, including among others, the
Commission's Electronic Data Gathering, Analysis and Retrieval ("EDGAR")
program, Knight-Ridder Information, Inc., Federal Filings/Dow Jones and
Lexis/Nexis. Additionally, the Commission maintains a Website (at
http://www.sec.gov) that contains such information regarding the Company.
Any statement contained herein, or any document, all or a portion of which
is incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this Prospectus to the extent that a statement contained herein, or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute part of the Registration Statement or Prospectus. All information
appearing in this Prospectus is qualified in its entirety by the information and
financial statements (including notes thereof) appearing in the documents
incorporated herein by reference. This Prospectus incorporates documents by
reference which are not presented herein or delivered herewith. These documents
(other than exhibits thereto) are available without charge, upon written or oral
request by any person to whom this Prospectus has been delivered, from
Secretary, Eurotech, Ltd., 1200 Prospect Street, Suite 425, LaJolla, California
92037 (telephone) (619) 551-6844).
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Eurotech, Ltd.
Index to Financial Statements.........................................F-1
Report of Independent Accountants.................................... F-2
Financial Statements................................................. F-3
Notes to Financial Statements........................................ F-7
44
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page Nos.
---------
INDEPENDENT AUDITORS' REPORT F-2
BALANCE SHEETS F-3
At December 31, 1995 and December 31, 1996
STATEMENTS OF OPERATIONS F-4
For the Period from Inception (May 26, 1995) to December 31, 1995,
For the Year Ended December 31, 1996 and
For the Period from Inception (May 26, 1995) to December 31, 1996
STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY F-5
For the Period from Inception (May 26, 1995) to December 31, 1995,
and for the Year Ended December 31, 1996
STATEMENTS OF CASH FLOWS F-6
For the Period from Inception (May 26, 1995) to December 31, 1995,
For the Year Ended December 31, 1996 and
For the Period from Inception (May 26, 1995) to December 31, 1996
NOTES TO FINANCIAL STATEMENTS F-7 - F-24
F-1
<PAGE>
Board of Directors and Stockholders
Eurotech, Ltd.
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Eurotech, Ltd. (a development
stage company) as of December 31, 1995 and 1996 and the related statements of
operations, stockholders' equity (deficiency), and cash flows for the period
from inception (May 26, 1995) to December 31, 1995, the year ended December 31,
1996 and the period from inception (May 26, 1995) to December 31, 1996. 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 audit.
We conducted our audit 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 audit provides 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 Eurotech, Ltd. (a development
stage company) at December 31, 1995 and 1996 and the results of its operations
and its cash flows for the period from inception (May 26, 1995) to December 31,
1995, the year ended December 31, 1996 and the period from inception (May 26,
1995) to December 31, 1996, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered a loss from
operations in each of its two years of operations and, as of December 31, 1996,
had a working capital deficiency of $1,809,237 and stockholders' deficiency of
$1,674,824. As discussed in Note 1 to the financial statements, these factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Tabb, Conigliaro & McGann, P.C.
TABB, CONIGLIARO & McGANN, P.C.
New York, New York
March 20, 1997
F-2
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
(Note 1)
At December 31,
-----------------------
1995 1996
--------- -----------
CURRENT ASSETS:
Cash (Note 10) $ 54,001 $ 380,183
Receivable from related parties (Note 5) -- 89,918
Prepaid expenses and other current assets 1,100 12,978
--------- -----------
TOTAL CURRENT ASSETS 55,101 483,079
PROPERTY AND EQUIPMENT - net of accumulated
depreciation (Notes 2 and 3) -- 10,556
OTHER ASSETS:
Organization and patent costs - net of accumulated
amortization (Note 4) 1,375 25,402
Deferred financing costs (Note 2) -- 20,304
Deferred offering costs (Notes 2 and 12) -- 75,000
Other assets -- 3,151
--------- -----------
TOTAL ASSETS $ 56,476 $ 617,492
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Notes payable (Note 7) $ -- $ 2,000,000
Accrued liabilities (Notes 9 and 11) 13,100 292,316
--------- -----------
TOTAL CURRENT LIABILITIES 13,100 2,292,316
--------- -----------
COMMITMENTS AND OTHER MATTERS (Notes 1, 7, 9, 10,
11, 12 and 14)
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock - $0.01 par value; 1,000,000 shares
authorized; -0- shares issued and outstanding -- --
Common stock - $0.00025 par value; 50,000,000
shares authorized; 9,500,800 and 17,223,836
shares issued and outstanding at December 31,
1995 and December 31, 1996, respectively (Note 7) 2,375 4,306
Additional paid-in capital 557,227 4,804,298
Due from stockholders (Note 7) (3,000) --
Unearned financing costs (Note 7) -- (2,493,219)
Deficit accumulated during the development stage (513,226) (3,990,209)
--------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 43,376 (1,674,824)
--------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY) $ 56,476 $ 617,492
========= ===========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period For the Period
from Inception from Inception
(May 26, 1995) to For the Year Ended (May 26, 1995) to
December 31, 1995 December 31, 1996 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES $ -- $ -- $ --
------------ ------------ ------------
OPERATING EXPENSES:
Research and development
(Note 8) 212,061 1,170,782 1,382,843
Consulting fees (Notes 7,
9 and 11) 266,900 1,486,830 1,753,730
Other general and
administrative expenses 34,265 547,447 581,712
------------ ------------ ------------
TOTAL OPERATING EXPENSES 513,226 3,205,059 3,718,285
------------ ------------ ------------
OPERATING LOSS (513,226) (3,205,059) (3,718,285)
------------ ------------ ------------
OTHER EXPENSES:
Interest expense -- 43,422 43,422
------------ ------------ ------------
Amortization of deferred
and unearned financing
costs (Notes 2 and 7) -- 228,502 228,502
------------ ------------ ------------
TOTAL OTHER EXPENSES -- 271,924 271,924
------------ ------------ ------------
NET LOSS $ (513,226) $ (3,476,983) $ (3,990,209)
============ ============ ============
NET LOSS PER COMMON SHARE $(0.06) $(0.23)
====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
STOCK EQUIVALENTS
OUTSTANDING 8,159,467 14,808,000
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM INCEPTION (MAY 26, 1995) TO DECEMBER 31, 1995
AND THE YEAR ENDED DECEMBER 31, 1996
(Notes 7, 8 and 11)
<TABLE>
<CAPTION>
Common Stock Additional
Date of ----------------------- Paid-in
Period Ended December 31, 1995: Transaction Shares Amount Capital
----------- ---------- -------- -----------
(1)
<S> <C> <C> <C> <C>
Founder shares issued ($0.00025 per share) 05/26/95 4,380,800 $1,095 $ (1,095)
Issuance of stock for offering consulting fees
($0.0625 per share) 08/31/95 440,000 110 27,390
Issuance of stock ($0.0625 and $0.25
per share) Various 4,080,000 1,020 523,980
Issuance of stock for license ($0.0625 per
share) 08/31/95 600,000 150 37,350
Issuance of stock options for offering legal
and consulting fees -- -- 75,000
Offering expenses -- -- (105,398)
Net loss -- -- --
---------- ------ -----------
Balance - December 31, 1995 9,500,800 2,375 557,227
Year Ended December 31, 1996:
Issuance of stock ($0.25 per share) Various 1,278,000 320 319,180
Exercise of stock options 01/18/96 600,000 150 --
Issuance of stock for consulting fees
($0.34375 per share) 03/22/96 160,000 40 54,960
Issuance of stock for consulting fees
($0.0625 per share) 05/15/96 2,628,000 657 163,593
Issuance of stock for consulting fees
($0.590625 per share) 06/19/96 1,500,000 375 885,563
Issuance of stock for consulting fees
($1.82 per share) 11/12/96 57,036 14 104,275
Issuance of stock pursuant to bridge financing
($1.81325 per share) 12/96 1,500,000 375 2,719,500
Amortization of unearned financing costs -- -- --
Repayment by stockholders -- -- --
Net loss -- -- --
---------- ------ -----------
Balance - December 31, 1996 17,223,836 $4,306 $ 4,804,298
========== ====== ===========
<CAPTION>
Deficit
Accumulated
Unearned During the
Due from Financing Development
Stockholders Costs Stage Total
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Founder shares issued ($0.00025 per share) $ -- $ -- $ -- $ --
Issuance of stock for offering consulting fees
($0.0625 per share) -- -- -- 27,500
Issuance of stock ($0.0625 and $0.25
per share) (3,000) -- -- 522,000
Issuance of stock for license ($0.0625 per
share) -- -- -- 37,500
Issuance of stock options for offering legal
and consulting fees -- -- -- 75,000
Offering expenses -- -- -- (105,398)
Net loss -- -- (513,226) (513,226)
------- ----------- ----------- -----------
Balance - December 31, 1995 (3,000) -- (513,226) 43,376
Year Ended December 31, 1996:
Issuance of stock ($0.25 per share) -- -- -- 319,500
Exercise of stock options -- -- -- 150
Issuance of stock for consulting fees
($0.34375 per share) -- -- -- 55,000
Issuance of stock for consulting fees
($0.0625 per share) -- -- -- 164,250
Issuance of stock for consulting fees
($0.590625 per share) 3,000 -- -- 885,938
Issuance of stock for consulting fees
($1.82 per share) -- -- -- 104,289
Issuance of stock pursuant to bridge financing
($1.81325 per share) -- (2,719,875) -- --
Amortization of unearned financing costs -- 226,656 -- 226,656
Repayment by stockholders 3,000 -- -- 3,000
Net loss -- -- (3,476,983) (3,476,983)
------- ----------- ----------- -----------
Balance - December 31, 1996 $ -- $(2,493,219) $(3,990,209) $(1,674,824)
======= =========== =========== ===========
</TABLE>
(1) Share amounts have been restated to reflect the 4 for 1 stock split on June
1, 1996.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period from For the Period from
Inception (May 26, 1995) Inception (May 26, 1995)
to For the Year Ended to
December 31, 1995 December 31, 1996 December 31, 1996
----------------------- ------------------ -----------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (513,226) $(3,476,983) $(3,990,209)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 182 1,009 1,191
Amortization of deferred and
unearned financing costs -- 228,502 228,502
Accrued interest -- 35,295 35,295
Stock issued for license 37,500 -- 37,500
Consulting fees satisfied by
stock issuances -- 1,209,477 1,209,477
----------- ----------- -----------
Sub-total (475,544) (2,002,700) (2,478,244)
Cash provided by (used in) the
change in assets and
liabilities:
Advances to related parties -- (89,918) (89,918)
(Increase) decrease in
prepaid expenses (1,100) (11,878) (12,978)
Increase in other assets -- (3,151) (3,151)
Increase in accrued
liabilities 13,100 243,921 257,021
----------- ----------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (463,544) (1,863,726) (2,327,270)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Organization and patent costs (1,557) (24,639) (26,196)
Capital expenditures -- (10,953) (10,953)
----------- ----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (1,557) (35,592) (37,149)
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from exercise of stock
options -- 150 150
Proceeds from issuance of common
stock 522,000 319,500 841,500
Offering costs (2,898) (75,000) (77,898)
Repayment by stockholders -- 3,000 3,000
Net proceeds from notes payable -- 2,000,000 2,000,000
Deferred financing costs -- (22,150) (22,150)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 519,102 2,225,500 2,744,602
----------- ----------- -----------
INCREASE (DECREASE) IN CASH 54,001 326,182 380,183
CASH - BEGINNING -- 54,001 --
----------- ----------- -----------
CASH - ENDING $ 54,001 $ 380,183 $ 380,183
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ -- $ 8,127 $ 8,127
=========== =========== ===========
Income taxes $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 1 - BUSINESS AND CONTINUED OPERATIONS
Eurotech, Ltd. (the "Company") was incorporated under the laws of
the District of Columbia on May 26, 1995. The Company is a
technology transfer, holding and management company, formed to
commercialize new, existing, but previously unrecognized and
previously "classified" technologies, with a particular emphasis on
those developed by prominent research institutes and individual
researchers in the former Soviet Union, and to license Western
technologies for business and other commercial applications in
Central Europe, Eastern Europe, Ukraine and Russia. The Company
acquires rights to selected technologies by purchase, assignments
and licensing arrangements. The Company operates its business by
licensing its technologies to end-users and through development and
operating joint ventures and strategic alliances.
The Company commenced operations in May 1995. The Company is in the
development stage and its efforts have been principally devoted to
the research and development activities and organizational efforts,
including the identification, review and acquisition of the rights
to various technologies, recruiting its scientific and management
personnel and alliances and raising capital.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern. However,
as shown in the accompanying financial statements, the Company has
incurred losses from operations from inception. As of December 31,
1996, the Company has a stockholders' deficiency of $1,674,824, a
working capital deficiency of $1,809,237 and has an accumulated
deficit since inception of $3,990,209. The Company requires
additional funds to continue research and development efforts and
complete the necessary work to commercialize its technologies. Until
completion of the development of a technology and the commencement
of sales, the Company will have no operating revenues, but will
continue to incur substantial expenses and operating losses. No
assurances can be given that the Company can complete development of
any technology or that, if any technology is fully developed, it can
be manufactured on a large scale basis or at a feasible cost.
Further, no assurance can be given that any technology will receive
market acceptance. Being a start-up stage entity, the Company is
subject to all the risks inherent in the establishment of a new
enterprise and the marketing and manufacturing of a new product,
many of which risks are beyond the control of the Company. These
factors raise substantial doubt about the Company's ability to
continue as a going concern.
F-7
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 1 - BUSINESS AND CONTINUED OPERATIONS (Continued)
Since inception, the Company has financed its operations through
sale of its securities, shareholder loans and a bridge financing
totalling $2,000,000. To support its operations during 1997, the
Company is exploring additional sources of working capital, which
include a proposed public offering of preferred stock (Note 12),
private borrowings and joint ventures.
While no assurance can be given, management believes the Company can
raise adequate capital to keep the Company functioning during 1997.
No assurance can be given that the Company can successfully obtain
any working capital or complete any proposed offerings or, if
obtained, that such funding will not cause substantial dilution to
shareholders of the Company. Further, no assurance can be given as
to the completion of research and development and the successful
marketing of the technologies.
These financial statements do not include any adjustments relating
to the recoverability of recorded asset amounts that might be
necessary as a result of the above uncertainty.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Accounting
The Company presents its financial statements on the accrual basis
of accounting in compliance with generally accepted accounting
principles.
b) Revenue Recognition
The Company will derive substantially all of its revenue from the
sale, licensing and sub-licensing of technology. Revenue from the
sale of technology will be recognized in the year of sale. Revenue
from licensing and sub-licensing will be recognized in the year
received.
c) Research and Development
Research and development costs are charged to expense as incurred.
d) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-8
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e) Fair Value of Financial Instruments
The financial statements include various estimated fair value
information at December 31, 1995 and at December 31, 1996, as
required by Statement of Financial Accounting Standards 107,
"Disclosures about Fair Value of Financial Instruments". Such
information, which pertains to the Company's financial instruments,
is based on the requirements set forth in that Statement and does
not purport to represent the aggregate net fair value to the
Company.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and Cash Equivalents: The carrying amount approximates fair
value because of the short-term maturity of those instruments.
Receivables and Payables: The carrying amounts approximate fair
value because of the short maturity of those instruments.
Notes Payable: The carrying amounts of notes payable approximate
fair value due to the length of the maturities, the interest rates
being tied to market indices and/or due to the interest rates not
being significantly different from the current market rates
available to the Company.
All of the Company's financial instruments are held for purposes
other than trading.
f) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturity dates of three months or less to be cash equivalents.
g) Property and Equipment
Property and equipment is stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful life of
five years.
h) Organization and Patent Costs
Organization costs are being amortized on a straight line basis over
5 years. Patent costs are being amortized on a straight-line basis
over 17 years.
F-9
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company continually reviews intangibles to assess recoverability
from future operations using undiscounted cash flows. Impairments
would be recognized in operating results if a permanent diminution
in value occurred.
i) Income Taxes
The Company provides for federal and state income taxes currently
payable and deferred income taxes under Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes"
(SFAS 109). SFAS 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of
events that have been recognized in the financial statements or tax
returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement
carrying amounts and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences
are expected to reverse.
j) Impairment of Assets
In March 1995, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of". SFAS 121 is effective for the
Company's fiscal year commencing January 1, 1996. The Company
believes adoption of SFAS 121 did not have a material impact on its
financial statements.
k) Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 requires compensation expense to be recorded (i)
using the new fair value method or (ii) using existing accounting
rules prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations with proforma disclosure of what net income and
earnings per share would have been had the Company adopted the new
fair value method. The Company intends to continue to account for
its stock based compensation plans in accordance with the provisions
of APB 25.
F-10
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
l) Stock Split
On June 1, 1996, the Board of Directors authorized four-for-one
stock split, thereby increasing the number of issued and outstanding
common shares to 14,166,800 and decreasing the par value of each
common share to $0.00025. All references in the accompanying
financial statements to the number of common shares and per share
amounts for 1995 and 1996 have been restated to reflect the stock
split.
m) Per Share Data
Net loss per common share and common equivalent share has been
computed based on the weighted average number of shares of common
stock and common stock equivalents outstanding during the periods
presented, which were retroactively adjusted to give recognition to
the stock split on June 1, 1996.
n) Deferred Financing and Offering Costs
As described in Note 7, the Company successfully completed a private
placement of one year promissory notes in December 1996. In
connection with the private placement, the Company incurred $22,150
of financing costs as of December 31, 1996. These costs are
amortized as financing costs over the life of the promissory notes.
The accumulated amortization at December 31, 1996 is $1,846.
At December 31, 1996, the Company has incurred costs aggregating
$75,000 in connection with the proposed public offering of the
Company's common stock as described in Note 12. The Company is
deferring these costs until the closing of the public offering, at
which time these costs will be charged against paid-in capital.
F-11
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 3 - MACHINERY AND EQUIPMENT
Machinery and equipment consisted of the following:
December 31, December 31,
1995 1996
------------ ------------
Cost $ - $ 10,953
Less: Accumulated depreciation - 397
-------- --------
$ - $ 10,556
======== ========
Depreciation expense for the period from inception (May 26, 1995) to
December 31, 1995 and for the year ended December 31, 1996 amounted
to $-0- and $397, respectively.
NOTE 4 - ORGANIZATION AND PATENT COSTS
Organization and patent costs consisted of the following:
December 31, December 31,
1995 1996
------------ ------------
Organization costs $ 1,557 $ 1,557
Costs of patents - 24,639
Less: Accumulated amortization (182) (794)
-------- --------
$ 1,375 $ 25,402
======== ========
Amortization expense for the period from inception (May 26, 1995) to
December 31, 1995 and for the year ended December 31, 1996 amounted
to $182 and $612, respectively.
NOTE 5 - NOTES PAYABLE TO/RECEIVABLES FROM RELATED PARTIES
During 1996, three shareholders of the Company loaned the Company
$341,300 under four separate promissory note. The notes bear
interest at the rate of 10% per annum and were due on December 31,
1996. In December of 1996, $141,300 of principal on such notes was
repaid by the Company. The balance of $200,000 was converted into
four units of the bridge financing discussed in Note 7. Interest
expense related to these loans for 1996 amounted to $15,948.
In December 1996, the Company advanced $84,000 to a consultant and
shareholder of the Company. The full amount, plus interest at 10%
per annum, was repaid during February 1997.
During 1996, the Company advanced $5,918 to Arbat Autopark, Ltd., a
company related by virtue of common shareholders.
F-12
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 6 - INCOME TAXES
For the period from inception (May 26, 1995) to December 31, 1995,
pursuant to Internal Revenue Service Code Section 195, the Company
elected to treat its expenditures as start-up costs. These costs
totalling approximately $510,000 were treated, for income tax
purposes, as deferred expenses to be amortized on a straight-line
basis over five years.
The Company did not require a tax provision for the period ended
December 31, 1995 and the year ended December 31, 1996 as a result
of operating losses during these periods.
The components of deferred tax assets and liabilities at December
31, 1995 and 1996 are as follows:
1995 1996
--------- -----------
Deferred Tax Assets:
Net operating loss carryforwards $ -- $ 769,221
Start-up costs 173,409 173,409
Temporary differences, principally
relates to tax effects of
compensatory element of stock
issuances -- 411,251
--------- -----------
Total Gross Deferred Tax Assets 173,409 1,353,881
Less: Valuation allowance (173,409) (1,353,881)
--------- -----------
Net Deferred Tax Assets $ -- $ --
========= ===========
The net change in the valuation allowance for deferred tax assets
was an increase of $1,180,472.
As of December 31, 1996, the Company had available approximately
$2,262,000 of net operating losses for income tax purposes that may
be carried forward to offset future taxable income, if any. These
carryforwards expire in the year 2011. Pursuant to Section 382 of
the Internal Revenue Code, substantial restrictions are imposed on
the utilization of net operating loss carryforwards in the event of
an ownership change.
F-13
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 6 - INCOME TAXES (Continued)
A reconciliation of income tax expense at the statutory rate to
income tax expense at the Company's effective rate is as follows:
1995 1996
--------- -----------
Computed tax at the statutory rate $(174,497) $(1,182,174)
Non-deductible expenses 1,088 1,702
Tax effects of temporary differences -- 411,251
Start-up costs 173,409 --
Unutilized net operating loss -- 769,221
State income taxes -- --
--------- -----------
Income Tax Expense $ -- $ --
========= ===========
NOTE 7 - COMMON STOCK
In May 1995, the Company issued 4,380,800 shares to its founder.
Since inception (May 26, 1995), the Company completed two offerings
of common stock under Rule 504 and one offering under 506 of the
Securities Act of 1933 (the "Act") as follows:
First Offering
Under the first offering, during the period from inception (May 26,
1995) to December 31, 1995, the Company sold 2,640,000 shares of
common stock at $0.0625 per share and derived aggregate proceeds of
$165,000, of which $1,000 and $3,000 were receivable from
stockholders at December 31, 1996 and December 31, 1995,
respectively.
During August 1995, the Company issued 440,000 shares of common
stock, valued at $27,500, to two individuals and a financial
institution as consideration for assistance in the above offerings.
During August 1995, the Company issued 600,000 shares of common
stock in connection with its purchase of a license valued at
$37,500. The shares were issued as part of the first offering.
On October 10, 1995, the Company issued 600,000 non-qualified stock
options to acquire shares of common stock to one individual and two
firms as consideration for financial public relations services,
investment banking services and legal services, valued at $75,000,
in connection with the above offerings. The options were issued
outside of the 1995 Stock Option Plan and had a term of one year
commencing January 1, 1996. All of the options were exercised on
January 18, 1996 and the related 600,000 shares were issued as part
of the first offering.
F-14
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 7 - COMMON STOCK (Continued)
Second Offering
Under the second offering, which commenced in October of 1995, the
Company sold 2,718,000 shares of common stock at $0.25 per share and
derived aggregate proceeds of $679,500. Of these 2,718,000 shares
sold, pursuant to the second offering, 1,440,000 shares were sold
during 1995 for aggregate proceeds of $360,000 and 1,278,000 shares
were sold during 1996 for aggregate proceeds of $319,500.
Third Offering/Bridge Financing
In December 1996, the Company completed a private placement of 40
Units, each consisting of the Company's one-year promissory note in
the principal amount of $50,000, bearing interest at the rate of 12%
per annum, and 25,000 shares of its common stock for an aggregate
offering price of $2,000,000. Of such Units sold, four Units were
issued to two shareholders in exchange for cancellation of
promissory notes amounting to $200,000 (see Note 5). The Units were
offered and sold in reliance on an exemption from registration
pursuant to Rule 506 of Regulation D under the Act, and only to
accredited investors within the meaning of Rule 501 of Regulation D
under the Act.
The proceeds of such offering were used to pay accrued liabilities,
repay shareholders promissory notes of $141,000 and fund research
and development costs through February 1997.
Holders of the shares of common stock issued pursuant to this
agreement and have, among other things, demand and mandatory
registration rights. Under the agreement, if a registration
statement, which includes the common shares issued pursuant to this
agreement, is not declared effective by the S.E.C. by April 1, 1997,
then an additional 12,500 shares are to be issued for each Unit, or
500,000 shares for all 40 Units. Further, if such registration
statement is not declared effective by the S.E.C. by July 1, 1997,
then an additional 12,500 shares are to be issued for each Unit, or
500,000 shares for all 40 Units.
Shares of common stock issued pursuant to this agreement aggregated
1,000,000 and may increase by 500,000 shares or 1,000,000 shares
based on the penalty provisions discussed above. As of December 31,
1996, the Company has recorded an additional 500,000 shares to be
issued under the offering based on the Company's belief that it
would not meet the April 1, 1997 filing deadline.
F-15
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 7 - COMMON STOCK (Continued)
The common shares are detachable shares and are accounted for
separately from the promissory notes as an addition to paid-in
capital for the value of the stock issued and as a reduction of
stockholders' equity for the unearned portion. The value assigned to
the 1,500,000 shares was based on fair values and amount to
$2,719,875. This amount is being amortized on the interest method
over a 12-month period and charged to financing costs. The aggregate
amount charged to financing costs for the period ended December 31,
1996 amounted to $226,656.
Costs associated with this offering allocated to the promissory
notes have been capitalized and are being amortized as financing
costs over the life of the notes (see Note 2).
Other Issuances
During 1996, the Company issued 4,345,036 shares of common stock as
consideration for consulting services performed by various employees
and consultants, including related parties, through December 31,
1996. Shares issued under these arrangements were valued at
$1,209,477, which was all charged to operations during 1996.
Shares of common stock and stock options issued for other than cash
have been assigned amounts equal to the fair value of the services
or assets received in exchange.
Warrants
At December 31, 1996, the Company had outstanding warrants to
purchase 900,000 shares of the Company's common stock. On October 1,
1996, 300,000 warrants, which carry certain anti-dilution
provisions, became exercisable for a period of five years at an
exercise price of $1.50 per share. On May 22, 1997, 600,000
warrants, which carry certain anti-dilution provisions, will become
exercisable for a term of four years at an exercise price of $1.00
per share. At December 31, 1996, 900,000 shares of common stock were
reserved for this purpose.
NOTE 8 - 1995 STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (the "Option Plan") was adopted
by the Board of Directors and stockholders of the Company on
November 12, 1995. Under the Option Plan, 500,000 shares of the
Company's common stock, subject to certain adjustments, are reserved
for issuance upon the exercise of options. Options granted under the
Option Plan may be either (i) options intended to constitute
incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended, or any corresponding provisions of
succeeding law (the "Code") or (ii) non-qualified stock options.
Incentive stock options
F-16
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 8 - 1995 STOCK OPTION PLAN (Continued)
may be granted under the Option Plan to employees (including
officers) of the Company or a subsidiary corporation (or any
director of, or consultant or advisor to, the Corporation, as may be
selected by the committee) thereof on the date of grant.
Non-qualified options may be granted to (i) non-employees of the
Company or a subsidiary thereof on the date of the grant, and (ii)
consultants of advisors who do not provide bonafide services, and
such services must not be in connection with the offer or sale of
securities in a capital raising transaction.
By its terms, the Option Plan is to be administered by a committee
(the "Committee") appointed by the Board of Directors which shall
consist of either the entire Board of Directors, or by a committee
of two or more persons (who may or may not be directors), and who
serve at the discretion of the Board of Directors. Subject to the
provisions of the Option Plan, the Committee has the authority to
determine the persons to whom options will be granted, the exercise
price, the term during which options may be exercised and such other
terms and conditions as it deems appropriate.
Any options granted under the Option Plan will be at the fair market
value of the common stock on the date of the grant (or 110% of the
fair market value in the case of employees holding ten percent or
more of the voting stock of the Company). Options granted under the
Option Plan will expire not more than ten years from the date of the
grant subject to earlier termination under the Option Plan. The term
of an incentive stock option granted to a 10% shareholder shall be
no more than 5 years from the date of the grant. The Option Plan
will terminate on November 12, 2005.
As of December 31, 1996, no options were granted under the Option
Plan.
NOTE 9 - RESEARCH, COLLABORATION, TECHNOLOGY TRANSFER AND LICENSING AGREEMENTS
a) Under an oral agreement, the Company has agreed to fund the
commercialization of certain technologies developed in the
former Soviet Union by scientists and researchers at the I.V.
Kurchatov Institute ("Kurchatov"), other institutes associated
therewith, and the Euro-Asian Physical Society ("EAPS"),
collectively the "Scientists". Kurchatov will provide the
materials, facilities and personnel to complete the necessary
work to commercialize such technologies. Disbursements made by
the Company related to the Kurchatov arrangement were charged
to research and development expenses and amounted to $174,561
and $1,109,550, respectively, during the period from inception
(May 26, 1995) to December 31, 1995 and for the year ended
December 31, 1996. Included in accrued expenses at December
31, 1996 is an additional $61,000 related to these services.
F-17
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 9 - RESEARCH, COLLABORATION, TECHNOLOGY TRANSFER AND LICENSING AGREEMENTS
(Continued)
In addition, pursuant to an agreement with the Kurchatov
Research Holdings, Ltd. ("KRH"), a Delaware corporation,
jointly owned by ERBC Holdings, Ltd. ("ERBC") and individual
Russian scientists, researchers and academics, who are
affiliated with Kurchatov and EAPS, the Company agreed to pay
KRH 50% of the net profits derived from the sale, license or
commercialization of any technologies or products based upon
technologies developed by the scientists and transferred to
the Company or supplied by the scientists to the Company. The
managing directors of ERBC are shareholders of the Company.
In connection with the collaboration agreement discussed
above, in September 1996, the Company entered into a licensing
agreement with ERBC, whereby ERBC sublicensed its license to
use and exploit certain technologies and inventions relating
to a silicon organic ("EKOR") compound technology in the
United States, Ukraine, Canada, China, Japan, Republic of
Korea and all European countries who are members of the
European Patent Agreement. The term of the license expires on
August 1, 2014. Under the agreement, the Company shall pay to
ERBC a royalty equal to 3% of the cost of contracts made by
the Company on which the Company would have any income. In
addition to the royalty payment, pursuant to the collaboration
agreement with KRH, the Company will be required to remit 50%
of the net profit derived from the EKOR compound technology to
KRH.
b) In September 1996, the Company entered into a technology
transfer and consulting agreement with Eurowaste, Ltd.
("Eurowaste"), under which Eurowaste will pay the Company
$2,450,000 upon the initiation of construction of the first
waste to energy plant, and a design and implementation
consulting fee of $425,000 for each subsequent plant. A
shareholder and director of the Company is the Chairman, Chief
Executive Officer and a shareholder of Eurowaste.
c) On May 1, 1995, the Company entered into a license agreement
which granted the Company an exclusive right to license
certain technologies for medical application systems in
Russian/European countries for the remaining life of the
patent for $37,500. In lieu of cash, the owner accepted
600,000 shares of the Company's common stock. The agreement
called for quarterly royalty payments equal to 5% of gross
revenues earned and received by the Company with a minimum
annual royalty of $100,000. No minimum royalty payment was to
accrue or be payable until December 1, 1995. The Company
terminated the agreement on
F-18
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 9 - RESEARCH, COLLABORATION AND LICENSING AGREEMENTS (Continued)
November 30, 1995 and expensed the cost of the license. No
products were developed or sold using the licensed technology
and no royalties were due the owner.
d) On May 29, 1995, the Company entered into a license agreement
which granted the Company, for the life of the patent,
territorially limited exclusive license to use technology
marketed under the name Coherent On Receive Only ("CORO") in
Europe and the Near East. In consideration for the grant of
the license and the use of the proprietary engineering, the
Company agreed to pay the developer $200,000 upon delivery of
the technology, along with an 8% royalty payable semi-annually
on equipment gross sales.
Management is currently evaluating the viability of this
technology and its potential uses in various markets.
NOTE 10 - CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash which is at
one bank. Future concentration of credit risk may arise from trade
accounts receivable. Ongoing credit evaluations of customers'
financial condition will be performed and, generally, no collateral
will be required.
NOTE 11 - COMMITMENTS AND OTHER MATTERS
Lease Obligations
In August 1996, the Company entered into a lease agreement to rent
office space for a period of fourteen months. Monthly rental under
the lease amounts to $2,500, subject to certain expense adjustments.
Rent expense was approximately $-0- and $10,461 for the period ended
December 31, 1995 and the year ended December 31, 1996,
respectively.
Employment Agreement
The Company has entered into an employment agreement with the
President of the Company. The term of that agreement expires on
December 31, 1996, and is subject to renewal for additional two-year
periods thereafter, and is also subject to earlier termination upon
the occurrence of certain specified events. Pursuant to the
employment agreement, the President will be entitled to receive: (i)
a base salary of $77,374 per year, subject to modification upon each
renewal; (ii) an additional 255,000 shares of the Company's common
F-19
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 11 - COMMITMENTS AND OTHER MATTERS (Continued)
stock (which shares were issued in fiscal year 1996) and such bonus
and other additional compensation as the Board of Directors may
authorize.
Consulting Agreements
Commencing January 1, 1996, the Company agreed to pay a consultant
and advisor to the Company who is also a shareholder of the Company,
monthly consulting fees of $16,667. This agreement expires on
December 31, 1996.
The Company engages ERBC under an oral agreement to develop business
plans, develop business opportunities in the European Union, Russian
and Ukraine and for the evaluation of various technologies held by
former instrumentalities in the former Soviet Union. The Company
paid ERBC for consulting services $177,400 and $16,200,
respectively, during the period from inception (May 26, 1995) to
December 31, 1995 and for the year ended December 31, 1996.
The Company also utilizes the consulting services of two directors
of the Company, who are also managing directors of ERBC, to
establish manufacturing alliances and sub-licensing arrangements in
Germany and the former Soviet Union. The Company paid the directors
an aggregate of $79,500 and $-0-, respectively, during the period
from inception (May 26, 1995) to December 31, 1995 and for the year
ended December 31, 1996 for these services.
On April 15, 1996, the Company entered into a consulting agreement
for certain public relation services. The agreement calls for a
payment of $10,000 and issuance of 20,000 shares of common stock as
consideration for services performed through September 15, 1996.
Commencing October 15, 1996 through April 15, 1998, the Company is
obligated to pay $2,000 and issue 4,000 shares of common stock on a
monthly basis as compensation for the consulting services through
the earlier of April 15, 1998 or the termination date. Included in
accrued expenses at December 31, 1996 is $7,000 related to such
services.
On July 1, 1996, the Company entered into a consulting agreement for
certain financial public relations services with a shareholder. The
agreement is for a period of one year, with an exclusive right to
the Company to terminate the agreement at the end of any calendar
quarter. The Company has agreed to issue 75,000 shares of common
stock in full consideration for the services to be rendered.
F-20
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 11 - COMMITMENTS AND OTHER MATTERS (Continued)
In October 1996, the Company entered into two-year consulting
agreements with two individuals for certain advisory services. As
full compensation for services to be rendered to the term of the
agreements, the Company issued warrants to purchase 150,000 shares
of common stock each exercisable for a period of five years
commencing October 1, 1996 at an exercise price of $1.50 per share.
As of December 31, 1996, no warrants have been exercised.
In July 1996, as amended, the Company entered into a consulting
agreement to provide financial public relations services for a term
of two years. The agreement can be terminated by the Company at the
end of any calendar quarter by providing one week's written notice
to the consultant. The consultant will receive $2,500, increased to
$5,000, effective November 1996 on a monthly basis as compensation.
Also, the consultant is granted an option to acquire up to 12,500
shares of common stock in each calendar quarter at an exercise price
equal to the ask price per share on July 1 of each year as reported
by National Quotation Bureau. During 1996, options to acquire up to
25,000 shares of common stock have vested under this agreement, but
have not been exercised by the consultant.
Each option shall has a term of one year.
In November 1996, the Company entered into a consulting agreement
for certain technology advisory services for a term of two years.
The Company is obligated to pay $4,000 and issue 20,000 shares of
common stock for services performed through November 15, 1996.
Commencing December 15, 1996, the consultant is obligated to receive
$4,000 and 4,000 shares of common stock on a monthly basis as
compensation during the term of the agreement. Included in accrued
expenses as of December 31, 1996 is $2,000 related to such services.
In November 1996, the Company entered into a six-month consulting
agreement for financial public relations services. The Company is
obligated to pay $2,500 per month under the agreement. Included in
accrued expenses as of December 31, 1996 is $2,500 related to such
services.
In December 1996, the Company entered into a consulting agreement
for certain advisory services for a term of two years. The advisor
is obligated to be paid $2,000 and issued 5,000 shares of common
stock for services performed through November 15, 1996. Included in
accrued expenses is $2,000 related to such services. In addition,
commencing January 1, 1997, on a monthly basis, the advisor will
receive as compensation $1,000 and 2,000 shares of common stock
during the term of the agreement.
F-21
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 11 - COMMITMENTS AND OTHER MATTERS (Continued)
In December 1996, the Company entered into two consulting agreements
for certain services for a period of two years. The Company is
obligated in January 1997 to pay $2,000 and issued 5,000 shares of
its common stock to each consultant for services rendered through
the date of the agreement. Included in accrued expenses as of
December 31, 1996, is $4,000 related to such services. In addition,
commencing January 1, 1997, each consultant will be paid $1,000 on a
monthly basis during the term of the agreement. Also, 1,000 and
2,000 shares of common stock, respectively, will be issued on a
monthly basis to these consultants.
In December 1996, the Company entered into a consulting agreement
with a shareholder of the Company for certain technology advisory
services for a term of two years. Under the agreement, on April 1,
1997, the Company will pay an introductory sum of $2,000 and issue
5,000 shares of common stock. Included in accrued expenses as of
December 31, 1996 is $400 related to such services. Commencing April
1, 1997, the shareholder will receive $1,000 on a monthly basis as
compensation during the term of the agreement.
International Operations
The Company has strategic alliances, collaboration agreements and
licensing agreements with entities which are based in Russia and
Ukraine. Both of these countries have experienced volatile and
frequently unfavorable economic, political and social conditions.
The Russian economy and the Ukraine economy are characterized by
declining gross domestic production, significant inflation,
increasing rates of unemployment and underemployment, unstable
currencies, and high levels of governmental debt as compared to
gross domestic production. The prospects of wide-spread insolvencies
and the collapse of various economic sectors exist in both
countries.
In view of the foregoing, the Company's business, earnings, asset
values and prospects may be materially and adversely affected by
developments with respect to inflation, interest rates, currency
fluctuations, government policies, price and wage controls, exchange
control regulations, taxation, expropriation, social instability,
and other political, economic or diplomatic developments in or
affecting Russia and Ukraine. The Company has no control over such
conditions and developments, and can provide no assurance that such
conditions and developments will not adversely affect the Company's
operations.
F-22
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 12 - PROPOSED INITIAL PUBLIC OFFERING
In December 1996, the Company received a letter of intent from an
underwriter pursuant to which the firm has agreed in principle to
underwrite, on a firm commitment basis, 5,000,000 shares of
cumulative convertible preferred stock (not including an
underwriter's over- allotment option equal to up to 75,000 shares)
at an initial public offering price of $10.00 per share. In
connection therewith, the Company has incurred costs aggregating
$75,000, which if the offering is not consummated, will be charged
to expense.
The Company is considering alternative financing arrangements and
there is no assurance that the Company will complete this or any
other offering.
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION
Non-Cash Transactions
During the period from inception (May 26, 1995) to December 31,
1995, the Company issued 440,000 shares of common stock to settle
liabilities of $27,500 associated with stock offerings and issued
600,000 shares of common stock for the purchase of a license valued
at $37,500.
During the period from inception (May 26, 1995) to December 31,
1995, the Company issued stock options for 600,000 shares of common
stock to settle legal and consulting fee liabilities of $75,000
associated with stock offerings.
During the year ended December 31, 1996, the Company issued
4,440,036 shares of common stock to settle liabilities of $1,381,736
associated with consulting services.
NOTE 14 - SUBSEQUENT EVENTS
Technology Transfer Agreement
On January 28, 1997, the Company entered into a technology transfer
consulting arrangement with American Autopark, Ltd. ("Arbat") to
license its technology, designs, renderings, blueprints and plans
for the construction and operation of vertical parking structures.
The Company is to receive a fee equal to $1,250 per parking space in
each garage erected by Arbat or any of its affiliates based upon the
technology transferred to Arbat by the Company. Certain shareholders
of the Company are shareholders of Arbat.
F-23
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (May 26, 1995) to
December 31, 1995 and the Year Ended December 31, 1996
NOTE 14 - SUBSEQUENT EVENTS (Continued)
Memorandum of Intent
The Chernobyl Nuclear Power Station (an industrial amalgamation of
the State Committee of Ukraine on Atomic Energy) ("ChNPP"),
Kurchatov, the Ukrainian State Construction Corporation ("Ukrstroj")
and the Company have entered into a Memorandum of Intent (the
"Chernobyl Memorandum of Intent") which sets forth the intention of
ChNPP to enter into a "co-operation agreement" with the Company
pursuant to which the Company will provide the financing for the
development of an on-site demonstration of the EKOR foam, in
conjunction with ChNPP, Ukrstroj and Kurchatov, which will provide
the test sites, foam application equipment and technical support,
respectively. In furtherance of the foregoing, Ukrstroj and ChNPP
have entered into an agreement (the "Ukrstroj"-ChNPP Agreement") to
conduct such on-site demonstration testing of the EKOR foam as in
necessary to ascertain the specification requirements for its
application to the containment of Chernobyl Reactor 4. The
Ukrstroj-ChNPP Agreement provides for the Company's participation in
and financing of the EKOR demonstration test. The Company estimates
that total financing costs for the demonstration test will not
exceed $100,000. The on-site demonstration is expected to be
conducted in April of 1997.
F-24
<PAGE>
================================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representation not contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or the Underwriters.
This Prospectus does not constitute an offer of any securities other than those
to which it relates or an offer to sell, or a solicitation of an offer to buy,
to any person in any jurisdiction where such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the information
contained herein is correct as of any time subsequent to the date hereof.
----------
TABLE OF CONTENTS
Page
----
Prospectus Summary
Risk Factors
Use of Proceeds
Dividends
Capitalization
Selected Consolidated Financial Data
Management's Discussion and Analysis
of Results of Operations and
Financial Condition
Business
Market Price of Common Stock
Management
Principal and Selling Shareholders
Certain Transactions
Description of Securities
Shares Eligible for Future Sale
Plan of Distribution
Legal Matters
Experts
Additional Information
Index to Financial Statements
----------
================================================================================
================================================================================
EUROTECH, LTD.
3,985,035 Shares of Common Stock
----------------------------------------
PROSPECTUS
----------------------------------------
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below are the expenses expected to be incurred in connection
with the issuance and distribution of the securities registered hereby. With the
exception of the Securities and Exchange Commission registration fee and the
NASD filing fee, the amounts set forth below are estimates.
Securities and Exchange Commission registration fee...................._________
Printing and engraving expenses ........................................ *
Legal fees and expenses ................................................ *
Accounting fees and expenses ........................................... *
Blue Sky fees and expenses ............................................. *
Transfer agent fees and expenses ....................................... *
Miscellaneous Expenses ................................................. *
Total .................................................$ *
=========
- ------------------------
* To be furnished by amendment.
Item 14. Indemnification of Directors and Officers
The Company's Certificate of Incorporation provides that the Company
shall, to the full extent permitted by Section 29-304 of the District of
Columbia Business Corporation Act, as from time to time amended and in effect
(the "BCA"), indemnify any and all persons it has the power to indemnify under
said section. Section 29-304 of the BCA grants to the Company the power to
indemnify any and all of its directors or officers or former directors of
officers or any person who may have served at its request as a director or
officer of another corporation in which it owns shares of capital stock or of
which it is a creditor against expenses actually and necessarily incurred by
them in connection with the defense of any action, suit or proceeding in which
they, or any of them, are made parties or a party, by reason of being or having
been directors or officers or a director or officer of the Company, or of such
other corporation, except in relation to matters as to which any such director
or officer or former director or officer or person is adjudged in such action,
suit or proceeding to be liable for negligence or misconduct in the performance
of duty. Such indemnification is not deemed to be exclusive of any other rights
to which those indemnified may be entitled, under any bylaw, agreement, vote of
stockholders or otherwise. The foregoing provisions of the Company's Certificate
of Incorporation may reduce the likelihood of derivative litigation against the
Company's directors and officers for breach of their fiduciary duties, even
though such action, if successful, might otherwise benefit the Company and its
stockholders.
Additionally, the Company's By-Laws provide for the indemnification of
directors and officers. The specific provisions of the By-Laws related to such
indemnification are as follows:
II-2
<PAGE>
ARTICLE VI
INDEMNIFICATION
No director shall be liable to the corporation
or any of its stockholders for monetary damages for
breach of fiduciary duty as a director, except with
respect to (1) a breach of the director's duty of
loyalty to the corporation or its stockholders, (2)
acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law,
(3) liability which may be specifically defined by law
or (4) a transaction from which the director derived
an improper personal benefit, it being the intention
of the foregoing provision to eliminate the liability
of the corporation's directors of the corporation's
directors to the corporation or its stockholders to
the fullest extent permitted by law. The corporation
shall indemnify to the fullest extent permitted by law
each person that such law grants the corporation the
power to indemnify.
Item 15. Recent Sales of Unregistered Securities
In December, 1995, the Company completed a private placement of 4,280,0001
shares of its Common Stock for an aggregate offering price of $305,000, of
which: (i) 440,000 shares were issued in exchange for services rendered in
connection with that offering, valued by the Company at $27,500; (ii) 600,000
shares were issued in exchange for certain legal, financial public relations and
investment banking services rendered to the Company and valued by the Company at
$75,000 in the aggregate; and (iii) 600,000 shares were issued in exchange for a
certain technology license, valued by the Company at $37,500. The shares were
offered and sold in reliance on an exemption from registration pursuant to Rule
504 of Regulation D under the Securities Act of 1933 (the "Act") and only to
accredited investors within the meaning of Rule 501 of the Regulation D under
the Act. The proceeds of such offering have been used as follows:
Purpose Amount
------- ------
Payment for services rendered $ 102,500
Acquisition of technology $ 37,500
license $ 165,000
Technology development
In June, 1996, the Company completed a private placement of 2,718,000(1)
shares of its Common Stock for an aggregate offering price of $679,500. The
shares were offered and sold in reliance on an exemption from registration
pursuant to Rule 504 of Regulation D under the Securities Act of 1933 (the
"Act") and only to accredited investors within the meaning of Rule 501 of the
Regulation D under the Act. The proceeds of such offering have been used as
follows:
- ----------
(1) On June 1, 1996, the Company's Board of Directors authorized a
four-for-one forward split of the then outstanding shares of the Company's
Common Stock. The number of shares issued in this offering have been re-stated
adjusted to reflect such stock split.
II-3
<PAGE>
Purpose Amount
------- ------
Bonuses $ 20,000
Accounting Fees 22,000
Technology Development 637,500
In December, 1996, the Company completed a private placement of 40 Units, each
consisting of the Company's one-year promissory note in the principal amount of
$50,000 and 25,000 shares of its Common Stock for an aggregate offering price of
$2,000,000. The Units were offered and sold in reliance on an exemption from
registration pursuant to Rule 506 of Regulation D under the Act, and only to
accredited investors within the meaning of Rule 501 of Regulation D under the
Act.
The proceeds of such offering have been used as follows:
Purpose Amount
------- ------
Legal fees $ 120,000
Accounting fees 5,000
Consulting fees 350,000
Repayment of loans 210,000
Salaries 100,000
Technology development 915,000
Reserved for working capital 300,000
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit
No. Description of Exhibit
- ------- ----------------------
3.1 Certificate of Incorporation of the Company(1)
3.2 By-Laws of the Company(1)
4.1 Form of Common Stock Certificate(1)
5.1 Opinion of Phillips Nizer Benjamin Krim & Ballon LLP
10.1 Material Contracts(1)
23.1 Consent of Tabb, Conigliaro & McGann
23.2 Consent of Phillips Nizer Benjamin Krim & Ballon LLP (included in
Exhibit 5.1)
24.1 Power of Attorney (included in Part II)
27 Financial Data Schedule
- ----------
(1) Incorporated by reference to the Company's Registration Statement on
Form 10 under the Securities Exchange Act of 1934, on file with the Commission.
II-4
<PAGE>
(b) Financial Statement Schedules
All other financial statement schedules are omitted because the
information is not required, is not material or is otherwise included in the
financial statements or related notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers or
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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be a part of this Registration Statement as of
the time it was declared effective.
(2) For the purposes of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the Offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned in the City of LaJolla, State of California, on May 5,
1997.
EUROTECH, LTD.
By:/s/ Randolph A. Graves, Jr.
--------------------------------
Randolph A. Graves, Jr.
POWER OF ATTORNEY
Each of the undersigned does hereby constitute and appoint Randolph A.
Graves, Jr., and each of them acting singly, his attorneys-in-fact and agents,
with full power of substitution, to execute for him in his name, and in any and
all of his capacities, any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform every act and thing required
or necessary to be done, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Titles Date
--------- ------ ----
/s/Randolph A. Graves, Jr. Director, Chairman, May 2, 1997
- --------------------------- Chief Executive Officer and
Chief Financial Officer
/s/Karl J. Krobath Director May 2, 1997
- ---------------------------
/s/Jans-Joachim Skrobanek Director, Secretary May 2, 1997
- ---------------------------
/s/Peter Gulko Director May 2, 1997
- ---------------------------
[Letterhead of Phillips Nizer Benjamin Krim & Ballon LLP]
May 5, 1997
Eurotech, Ltd.
1200 Prospect Street
Suite 425
LaJolla, California 92037
Re: Eurotech, Ltd.;
Registration Statement on Form S-1
Gentlemen:
We refer to the above-captioned registration statement on Form S-1 (the
"Registration Statement") filed under the Securities Act of 1933, as amended
(the "1933 Act"), by Eurotech, Ltd., a District of Columbia corporation (the
"Company"), with the Securities and Exchange Commission, relating to a proposed
offering by certain existing shareholders of the Company (the "Selling
Shareholders") of 3,985,035 shares of the Company's Common Stock (the "Shares").
Terms used herein that are defined in the Registration Statement and not
otherwise defined herein shall have the meanings ascribed to them in the
Registration Statement.
We have examined the originals or photocopies or certified copies of such
records of the Company, certificates of officers of the Company and public
officials, and other documents as we have deemed relevant and necessary as a
basis for the opinion hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures (except for those of representatives
of the Company), the authenticity of all documents submitted to us as originals,
the conformity to originals of all documents submitted to us as certified copies
or photocopies and the authenticity of the originals of such latter documents.
Based on our examination mentioned above, and such other investigation as
we have deemed necessary, and assuming effectiveness of the Registration
Statement and payment in full for those of the Shares to be issued upon exercise
of options and warrants as more fully described in the Registration Statement,
we are of the opinion that the Shares to be sold by the Selling Shareholders
pursuant to the Registration Statement, are duly authorized, legally and validly
issued, fully paid and nonassessable.
<PAGE>
Eurotech, Ltd.
May 5, 1997
Page 2
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the references to our firm under "Legal Matters"
in the related Prospectus. In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
1933 Act or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
PHILLIPS NIZER BENJAMIN
KRIM & BALLON LLP
By: /s/ Vincent J. McGill
-----------------------------
A Partner
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Eurotech, Ltd. on Form
S-1 of our report dated March 20, 1997 appearing in the Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Registration Statement.
/s/ TABB, CONIGLIARO & McGANN, P.C.
TABB, CONIGLIARO & McGANN, P.C.
New York, New York
May 6, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EUROTECH,
LTD. BALANCE SHEET AS OF DECEMBER 31, 1996 AND STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 380
<SECURITIES> 0
<RECEIVABLES> 90
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 483
<PP&E> 11
<DEPRECIATION> 0
<TOTAL-ASSETS> 617
<CURRENT-LIABILITIES> 2,292
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> (1,679)
<TOTAL-LIABILITY-AND-EQUITY> 617
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,171
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 272
<INCOME-PRETAX> (3,477)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,477)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,477)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
