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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10 - Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________________ to _____________________
Commission File Number 333-26673
---------------------------
EUROTECH, LTD.
(Exact name of small business issuer as specified in its charter)
District of Columbia 33-0662435
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1200 Prospect Street
Suite 425
LaJolla, California 92037
(address of principal executive offices)
(619) 551-6844
(Issuer's telephone number)
------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes |_| No |X|
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 17,826,836 shares of Common
Stock, $0.00025 par value, were outstanding as of August 21, 1997.
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
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<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
INDEX TO FORM 10Q
JUNE 30, 1997
Page Nos.
---------
PART I - FINANCIAL INFORMATION:
ITEM I - FINANCIAL STATEMENTS
BALANCE SHEETS F-1
At December 31, 1996 and June 30, 1997
STATEMENTS OF OPERATIONS F-2
For the Three Months Ended June 30, 1996
For the Three Months Ended June 30, 1997
For the Period from Inception (May 26, 1995) to
June 30, 1997
STATEMENTS OF OPERATIONS F-3
For the Six Months Ended June 30, 1996
For the Six Months Ended June 30, 1997
For the Period from Inception (May 26, 1995) to
June 30, 1997
STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY F-4 - F-5
For the Period from Inception (May 26, 1995) to
December 31, 1996
For the Six Months Ended June 30, 1997
STATEMENTS OF CASH FLOWS F-6
For the Six Months Ended June 30, 1996
For the Six Months Ended June 30, 1997
For the Period from Inception (May 26, 1995)
to June 30, 1997
NOTES TO FINANCIAL STATEMENTS F-7 - F-11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 12-15
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
(Note 2)
At At
December 31, June 30,
1996 1997
------------ -----------
(Unaudited)
CURRENT ASSETS:
Cash $ 380,183 $ 7,122
Receivable from related parties 89,918 5,917
Prepaid expenses and other current assets 12,978 22,552
----------- -----------
TOTAL CURRENT ASSETS 483,079 35,591
PROPERTY AND EQUIPMENT - net of accumulated
depreciation 10,556 12,534
INVESTMENT IN JOINT VENTURE (Note 6) -- 15,000
OTHER ASSETS:
Organization and patent costs - net of accumulated
amortization 25,402 24,522
Deferred financing costs 20,304 9,228
Deferred offering costs (Note 7) 75,000 --
Other assets 3,151 3,151
----------- -----------
TOTAL ASSETS $ 617,492 $ 100,026
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Notes payable (Note 8) $ 2,000,000 $ 2,000,000
Accrued liabilities 292,316 808,210
Notes payable - shareholder (Note 3) -- 241,500
----------- -----------
TOTAL CURRENT LIABILITIES 2,292,316 3,049,710
----------- -----------
COMMITMENTS AND OTHER MATTERS (Note 2, 7 and 8)
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; 17,223,036 and 17,826,836
shares issued and outstanding at December 31,
1996 and June 30, 1997, respectively 4,306 4,456
Additional paid-in capital 4,804,298 7,901,697
Unearned financing costs (2,493,219) (3,858,283)
Deficit accumulated during the development stage (3,990,209) (6,997,554)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (1,674,824) (2,949,684)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY) $ 617,492 $ 100,026
=========== ===========
See notes to financial statements.
F-1
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Period
For the Three Months Ended from Inception
June 30, (May 26, 1995)
---------------------------- to
1996 1997 June 30, 1997
------------ ------------ -------------
REVENUES $ -- $ -- $ --
------------ ------------ -----------
OPERATING EXPENSES:
Research and development 241,050 11,883 1,653,458
Consulting fees 697,040 326,968 2,406,614
Other general and
administrative expenses 132,013 273,433 1,173,167
------------ ------------ -----------
TOTAL OPERATING EXPENSES 1,070,103 612,284 5,233,239
------------ ------------ -----------
OPERATING LOSS (1,070,103) (612,284) (5,233,239)
------------ ------------ -----------
OTHER EXPENSES:
Interest expense -- 60,357 164,801
Amortization of deferred
and unearned financing
costs -- 685,506 1,599,514
------------ ------------ -----------
TOTAL OTHER EXPENSES -- 745,863 1,764,315
------------ ------------ -----------
NET LOSS $ (1,070,103) $ (1,358,147) $(6,997,554)
============ ============ ===========
NET LOSS PER COMMON SHARE $ (.17) $ (.08)
============ ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
STOCK EQUIVALENTS
OUTSTANDING 11,031,300 17,307,000
============ ===========
See notes to financial statements.
F-2
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Period
For the Six Months Ended from Inception
June 30, (May 26, 1995)
--------------------------- to
1996 1997 June 30, 1997
------------ ------------ ------------
REVENUES $ -- $ -- $ --
------------ ------------ -----------
OPERATING EXPENSES:
Research and development 436,550 270,615 1,653,458
Consulting fees 1,259,540 652,884 2,406,614
Other general and
administrative expenses 142,499 591,455 1,173,167
------------ ------------ -----------
TOTAL OPERATING EXPENSES 1,838,589 1,514,954 5,233,239
------------ ------------ -----------
OPERATING LOSS (1,838,589) (1,514,954) (5,233,239)
------------ ------------ -----------
OTHER EXPENSES:
Interest expense -- 121,379 164,801
Amortization of deferred
and unearned financing
costs -- 1,371,012 1,599,514
------------ ------------ -----------
TOTAL OTHER EXPENSES -- 1,492,391 1,764,315
------------ ------------ -----------
NET LOSS $ (1,838,589) $ (3,007,345) $(6,997,554)
============ ============ ===========
NET LOSS PER COMMON SHARE $ (.17) $ (.17)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
STOCK EQUIVALENTS
OUTSTANDING 11,031,300 17,275,000
============ ============
See notes to financial statements.
F-3
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
FOR THE PERIOD FROM INCEPTION (MAY 26, 1995) TO DECEMBER 31, 1996
AND THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Common Stock Additional Unearned
Date of ------------------- Paid-in Due from Financing
Period Ended December 31, 1995: Transaction Shares Amount Capital Stockholders Costs
- ------------------------------ ----------- ---------- -------- ------------ ------------ -----------
(1)
<S> <C> <C> <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 (3,000) --
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 (3,000) --
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 3,000 --
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 -- (2,719,875)
Amortization of unearned financing costs -- -- -- -- 226,656
Repayment by stockholders -- -- -- 3,000 --
Net loss -- -- -- -- --
----------- ------- ----------- ----------- -----------
Balance - December 31, 1996 17,223,836 $ 4,306 $ 4,804,298 $ -- $(2,493,219)
=========== ======= =========== =========== ===========
<CAPTION>
Deficit
Accumulated
During the
Development
Period Ended December 31, 1995: Stage Total
- ------------------------------ ------------ -----------
<S> <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) -- 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 (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) -- 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) -- --
Amortization of unearned financing costs -- 226,656
Repayment by stockholders -- 3,000
Net loss (3,476,983) (3,476,983)
----------- -----------
Balance - December 31, 1996 $(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.
See notes to financial statements.
F-4
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
FOR THE PERIOD FROM INCEPTION (MAY 26, 1995) TO DECEMBER 31, 1996
AND THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional Unearned During the
Date of ------------------ Paid-in Due from Financing Development
Period Ended June 30, 1997: Transaction Shares Amount Capital Stockholders Costs Stage Total
- -------------------------- ----------- ---------- -------- --------- ------------ ----------- ------------ ------------
(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 17,223,836 $4,306 $4,804,298 $ -- $(2,493,219) $(3,990,209) $(1,674,824)
Issuance of stock for consulting fees
($2.50 per share) 03/97 64,000 16 159,984 -- -- -- 160,000
Issuance of stock for consulting fees
($5.45 per share) 06/97 39,000 9 212,540 -- -- -- 212,549
Amortization of unearned financing costs -- -- -- -- 1,359,936 -- 1,359,936
Issuance of penalty stock
($5.45 per share) 06/97 500,000 125 2,724,875 -- (2,725,000) -- --
Net loss -- -- -- -- -- (3,007,345) (3,007,345)
---------- ------ ---------- --------- ----------- ----------- -----------
Balance - June 30, 1997 17,826,836 $4,456 $7,901,697 $ -- $ 3,858,283 $(6,997,554) $ 2,949,684
========== ====== ========== ========= =========== =========== ===========
</TABLE>
(1) Share amounts have been restated to reflect the 4 for 1 stock split on June
1, 1996.
See notes to financial statements.
F-5
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended For the Period
June 30, from Inception
------------------------- (May 26, 1995) to
1996 1997 June 30, 1997
----------- ----------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,838,589) $(3,007,345) $(6,997,554)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 185 2,293 3,484
Amortization of deferred and
unearned financing costs -- 1,371,012 1,599,514
Accrued interest -- 121,379 156,674
Stock issued for license -- -- 37,500
Consulting fees satisfied by
stock issuances 1,105,188 372,550 1,582,027
Write-off of deferred offering costs -- 75,000 75,000
Cash provided by (used in) the
change in assets and
liabilities:
Advances to related parties -- 84,000 (5,918)
(Increase) decrease in
prepaid expenses 900 (9,574) (22,552)
Increase in other assets -- -- (3,151)
Increase in accrued liabilities 331,024 394,515 651,536
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (401,292) (596,170) (2,923,440)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Organization and patent costs -- -- (26,196)
Investment in joint venture -- (15,000) (15,000)
Capital expenditures (1,778) (3,391) (14,344)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,778) (18,391) (55,540)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 150 -- 150
Proceeds from issuance of common stock 319,500 -- 841,500
Offering costs -- -- (77,898)
Repayment by stockholders 2,000 -- 3,000
Net proceeds from notes payable 128,300 241,500 2,241,500
Deferred financing costs -- -- (22,150)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 449,950 241,500 2,986,102
----------- ----------- -----------
INCREASE (DECREASE) IN CASH 46,880 (373,061) 7,122
CASH - BEGINNING 54,001 380,183 --
----------- ----------- -----------
CASH - ENDING $ 100,881 $ 7,122 $ 7,122
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ -- $ -- $ 8,127
=========== =========== ===========
Income taxes $ -- $ -- $ --
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements are unaudited. These
statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission ( the
"SEC"). Certain information and footnote disclosures normally
included in the financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations.
In the opinion of management, the financial statements reflect
all adjustments (which include only normal recurring
adjustments) necessary to state fairly the financial position
and results of operations as of and for the periods indicated.
These financial statements should be read in conjunction with
the Company's financial statements and notes thereto for year
ended December 31, 1996, included in the Company's Form S-1 as
filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with
general 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 statement
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
NOTE 2 - 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.
F-7
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 2 - BUSINESS AND CONTINUED OPERATIONS (Continued)
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 June 30, 1997, the Company has a
stockholders' deficiency of $2,950,000, a working capital
deficiency of $3,014,000 and has an accumulated deficit since
inception of $6,998,000. 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.
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 private offering of common
stock, 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 3 - BORROWINGS UNDER NOTES PAYABLE
During 1997, the Company has borrowed $241,500 from three
shareholders of the Company. The loans are due on demand and
provide for interest at the rate of 10% per annum.
F-8
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 4 - 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.
The Company intends to recognize revenue under this agreement
during the period under which each facility is constructed.
NOTE 5 - 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.
F-9
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 6 - TECHNION ISRAEL INSTITUTE OF TECHNOLOGY AGREEMENT
In April of 1997, 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 $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. As of June 30, 1997, the Company has made its
first payment of $15,000 to Chemonol. The last scheduled
payment of $15,000 is scheduled to be made no later than
November 1, 1998. 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 $93,000, and the present
right to direct the voting of the Principal Shareholder's
voting equity. The Company expects to provide approximately
$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.
Due to the Company's voting control over Chemonol, the Company
expects to consolidate the results of Chemonol with its
financial results commencing with the consummation of the
initial investment.
NOTE 7 - ABORTED PROPOSED PUBLIC OFFERING
On June 23, 1997, the Company decided not to proceed with a
proposed preferred stock offering. Accordingly, the deferred
offering costs of $75,000 has been charged to operations
during the second quarter of 1997.
The Company is considering alternative financing arrangements
and there is no assurance that the Company will complete any
offering.
F-10
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 8 - BRIDGE FINANCING PENALTY
In December 1996, the Company completed a private placement of
40 units, consisting of $2,000,000 in one year promissory
notes and 1,000,000 shares of common stock. Under this
agreement, if a registration statement, which includes the
common shares issued pursuant to this agreement is not
declared effective by the Securities and Exchange Commission
("SEC") by April 1, 1997, then an additional 500,000 shares
are to be issued to the holders of such shares, and if same is
not declared effective by the SEC by July 1, 1997, then an
additional 500,000 shares are to be issued to the holders of
such shares.
The Company has not met either filing deadline and
accordingly, the Company has issued the additional penalty
shares to such holders during May of 1997 and August of 1997.
During the second half of 1997, the Company will recognize as
a non-cash charge to financing costs $3.9 million related to
the common shares issued under this bridge financing.
F-11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
AND PLAN OF OPERATION
General
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 the
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 June 30, 1997, the Company incurred a cumulative net loss of
approximately $6,998,000. 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.
12
<PAGE>
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 development for on-site demonstration testing of its proprietary
silicon-organic (EKOR) compound technology for possibly remediating the
severe radioactive contamination problems that persist in Chernobyl,
Ukraine and three sites in Russia.
- - Introduction of its waste-to-energy technology in the city of Cherkassy,
Ukraine.
- - Introduction of its automated parking technology in Moscow, Russia.
- - Continued funding of the development of silicon carbide "wafer" technology
in conjunction with I.V. Kurchatov Institute in Moscow and Euro-Asian
Physical Society.
- - Funding of the Technion Israel Institute Technology Agreement for the
Chemonol Project.
- - 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 Six Months Ended June 30, 1997 Vs. the Six Months Ended June 30, 1996:
The Company commenced operations on May 26, 1995. The Company had no revenues
for the aforementioned periods. Consulting and other general and administrative
expenses decreased from $1,402,000 for the six months ended June 30, 1996 to
$1,244,000 for the six months ended June 30, 1997 as a result of a decrease in
compensatory stock issuances to consultants from $1,105,000 in 1996 to $373,000
in 1997.
Research and development expenses decreased in the six months ended June 30,
1997 to $271,000 from $437,000 for the six months ended June 30, 1996 as the
Company completed the research and development related to the EKOR Project and
advanced it to the commercialization stage.
For the six months ended June 30, 1997 and the six months ended June 30, 1996,
the Company incurred operating losses of $1,515,000 and $1,839,000,
respectively. The losses are principally due to expenses incurred in the
development of the technologies, including administrative expenses and
consulting expenses.
13
<PAGE>
Interest expense and amortization of deferred and unearned finance costs
increased from $-0- in 1996 to $1,492,000 for the six months ended June 30,
1997. This increase was attributable to financing costs related to promissory
notes of $341,000 and a bridge loan of $2,000,000.
The Company will record an additional charge against income of approximately
$3,900,000 during the second half of 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, there can be no assurance that the Company will
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 $583,000 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 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. To date, the Company has not met either filing deadline and,
accordingly, the Company has issued the additional penalty shares to such
holders during May of 1997 and August of 1997.
The Company had a working capital deficiency and stockholders' deficiency of
$3,014,000 and $2,950,000, respectively, as of June 30, 1997.
14
<PAGE>
The report of the Company's independent certified public accountants for the
year ended December 31, 1996 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 as of
December 31, 1996 ($380,000), anticipated proceeds of $450,000 from the exercise
of warrants and additional 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 an
offering of its common 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. On June 23, 1997, the Company decided not to proceed with
this offering and, accordingly, the deferred offering costs of $75,000 was
charged to operations during the second quarter of 1997. 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 a 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.
15
<PAGE>
PART II. OTHER INFORMATION
None.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EUROTECH, LTD.
/s/ Randolph A. Graves, Jr.
-------------------------------------
Dated: August 26, 1997 By: Randolph A. Graves, Jr.
Chairman, Chief Executive Officer
and Chief Financial Officer
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EUROTECH,
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MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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