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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 September 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: 17,887,836 shares of Common
Stock, $0.00025 par value, were outstanding as of November 14, 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 10-Q
SEPTEMBER 30, 1997
Page Nos.
---------
PART I - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS 1
At December 31, 1996 and September 30, 1997
STATEMENTS OF OPERATIONS 2
For the Nine Months Ended September 30, 1996
For the Nine Months Ended September 30, 1997
For the Period from Inception (May 26, 1995) to
September 30, 1997
STATEMENTS OF OPERATIONS 3
For the Three Months Ended September 30, 1996
For the Three Months Ended September 30, 1997
For the Period from Inception (May 26, 1995) to
September 30, 1997
STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY 4-5
For the Period from Inception (May 26, 1995) to
December 31, 1996
For the Nine Months Ended September 30, 1997
STATEMENTS OF CASH FLOWS 6
For the Nine Months Ended September 30, 1996
For the Nine Months Ended September 30, 1997
For the Period from Inception (May 26, 1995) to
September 30, 1997
NOTES TO FINANCIAL STATEMENTS 7-13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF 14-17
OPERATION
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Report on Form 8-K
<PAGE>
PART I - Financial Information
EUROTECH, LTD.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
(Note 2)
At At
December 31, September 30,
1996 1997
------------ -------------
(Unaudited)
CURRENT ASSETS:
Cash $ 380,183 $ -
Receivable from related parties 89,918 5,918
Prepaid expenses and other current assets 12,978 14,305
---------- ----------
TOTAL CURRENT ASSETS 483,079 20,223
PROPERTY AND EQUIPMENT - net of accumulated
depreciation 10,556 11,817
INVESTMENT IN JOINT VENTURE (Note 6) - 87,000
OTHER ASSETS:
Organization and patent costs - net of accumulated
amortization 25,402 29,168
Deferred financing costs 20,304 3,690
Deferred offering costs (Note 7) 75,000 -
Other assets 3,151 3,151
---------- ----------
TOTAL ASSETS $ 617,492 $ 155,049
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Bank overdraft $ - $ 4,014
Notes payable (Note 8) 2,000,000 2,000,000
Accrued liabilities 292,316 1,024,764
Deferred revenue (Note 4) - 225,000
Notes payable - shareholder (Note 3) - 193,140
---------- ----------
TOTAL CURRENT LIABILITIES 2,292,316 3,446,918
---------- ----------
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 17,887,836
shares issued and outstanding at December 31,
1996 and September 30, 1997, respectively 4,306 4,472
Additional paid-in capital 4,804,298 8,206,682
Unearned financing costs (2,493,219) (1,815,815)
Deficit accumulated during the development stage (3,990,209) (9,687,208)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (1,674,824) (3,291,869)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY) $ 617,492 $ 155,049
========== ==========
See notes to financial statements.
1
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Nine Months Ended For the Period
September 30, from Inception
--------------------------- (May 26, 1995) to
1996 1997 September 30, 1997
----------- ----------- ------------------
REVENUES $ - $ - $ -
----------- ----------- -----------
OPERATING EXPENSES:
Research and development 795,550 276,186 1,659,029
Consulting fees 1,350,641 1,085,705 2,839,435
Other general and
administrative expenses 312,827 730,615 1,312,327
----------- ----------- -----------
TOTAL OPERATING EXPENSES 2,459,018 2,092,506 5,810,791
----------- ----------- -----------
OPERATING LOSS (2,459,018) (2,092,506) (5,810,791)
----------- ----------- -----------
OTHER EXPENSES:
Interest expense 4,983 185,475 228,897
Amortization of deferred
and unearned financing
costs - 3,419,018 3,647,520
----------- ----------- -----------
TOTAL OTHER EXPENSES 4,983 3,604,493 3,876,417
----------- ----------- -----------
NET LOSS $(2,464,001) $(5,696,999) $(9,687,208)
=========== =========== ===========
NET LOSS PER COMMON SHARE $ (0.20) $(0.32)
======= ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
STOCK EQUIVALENTS
OUTSTANDING 12,576,467 17,553,000
========== ==========
See notes to financial statements.
2
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Period
September 30, from Inception
--------------------------- (May 26, 1995) to
1996 1997 September 30, 1997
----------- ----------- ------------------
REVENUES $ - $ - $ -
----------- ----------- -----------
OPERATING EXPENSES:
Research and development 359,000 5,571 1,659,029
Consulting fees 91,101 432,821 2,839,435
Other general and
administrative expenses 170,328 139,160 1,312,327
----------- ----------- -----------
TOTAL OPERATING EXPENSES 620,429 577,552 5,180,791
----------- ----------- -----------
OPERATING LOSS (620,429) (577,552) (5,810,791)
----------- ----------- -----------
OTHER EXPENSES:
Interest expense 4,983 64,096 228,897
Amortization of deferred
and unearned financing
costs - 2,048,006 3,647,520
----------- ----------- -----------
TOTAL OTHER EXPENSES 4,983 2,112,102 3,876,417
----------- ----------- -----------
NET LOSS $ (625,412) $(2,689,654) $(9,687,208)
=========== =========== ===========
NET LOSS PER COMMON SHARE $(0.05) $(0.15)
====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
STOCK EQUIVALENTS
OUTSTANDING 12,576,467 17,827,000
========== ==========
See notes to financial statements.
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 NINE MONTHS ENDED SEPTEMBER 30, 1997
<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
========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Unearned During the
Due from Financing Development
Period Ended December 31, 1995: 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.
See notes to financial statements.
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 NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Common Stock Additional
Date of ------------------ Paid-in
Period Ended September 30, 1997: Transaction Shares Amount Capital
- -------------------------------- ----------- -------- ------- ----------
(1)
<S> <C> <C> <C> <C>
Balance - December 31, 1996 17,223,836 $ 4,306 $4,804,298
Issuance of stock for consulting fees
($2.50 per share) 03/97 64,000 16 159,984
Issuance of stock for consulting fees
($5.45 per share) 06/97 39,000 9 212,540
Issuance of stock for consulting fees
($5.00 per share) 09/97 61,000 16 304,985
Amortization of unearned financing costs - - -
Issuance of penalty stock ($5.45 per share) 06/97 500,000 125 2,724,875
Net loss - - -
---------- ------- ----------
Balance - September 30, 1997 17,887,836 $ 4,472 $8,206,682
========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Unearned During the
Due from Financing Development
Period Ended September 30, 1997: Stockholders Costs Stage Total
- -------------------------------- ------------ --------- ----------- ----------
<S> <C> <C> <C> <C>
Balance - December 31, 1996 $ - $(2,493,219) $(3,990,209) $(1,674,824)
Issuance of stock for consulting fees
($2.50 per share) - - - 160,000
Issuance of stock for consulting fees
($5.45 per share) - - - 212,549
Issuance of stock for consulting fees
($5.00 per share) - - - 305,001
Amortization of unearned financing costs - 3,402,404 - 3,402,404
Issuance of penalty stock ($5.45 per share) - (2,725,000) - -
Net loss - - (5,696,999) (5,696,999)
----------- ----------- -----------
Balance - September 30, 1997 $ - $(1,815,815) $(9,687,208) $(3,291,869)
=========== =========== ===========
</TABLE>
(1) Share amounts have been restated to reflect the 4 for 1 stock split on
June 1, 1996.
See notes to financial statements.
5
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended For the Period
September 30, from Inception
----------------------------- (May 26, 1995) to
1996 1997 September 30, 1997
----------- ----------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,464,001) $(5,696,999) $(9,687,208)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 351 3,526 4,717
Amortization of deferred and
unearned financing costs - 3,419,018 3,647,520
Accrued interest 4,983 185,475 220,770
Stock issued for license - - 37,500
Consulting fees satisfied by
stock issuances 1,105,188 677,550 1,887,027
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 (1,327) (14,305)
Increase in security deposit (2,500) - (3,151)
Increase in unearned revenue - 225,000 225,000
Increase in accrued
liabilities 689,947 546,973 803,994
----------- ----------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (665,132) (481,784) (2,809,054)
----------- ----------- -----------
CASHFLOWS FROM INVESTING ACTIVITIES
Organization and patent costs - (5,162) (31,358)
Investment in joint venture - (87,000) (87,000)
Capital expenditures (1,778) (3,391) (14,344)
----------- ----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (1,778) (95,553) (132,702)
----------- ----------- -----------
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 (75,000) - (77,898)
Repayment by stockholders 2,000 - 3,000
Net proceeds from notes payable 341,300 193,140 2,193,140
Deferred financing costs - - (22,150)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 587,950 193,140 2,937,742
----------- ----------- -----------
INCREASE (DECREASE) IN CASH (78,960) (384,197) (4,014)
CASH - BEGINNING 54,001 380,183 -
----------- ----------- -----------
CASH - ENDING $ (24,959) $ (4,014) $ (4,014)
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ - $ 8,127
=========== =========== ===========
Income taxes $ - $ - $ -
=========== =========== ===========
</TABLE>
See notes to financial statements.
6
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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.
7
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 1997, the Company
has a stockholders' deficiency of $3,292,000, a working capital
deficiency of $3,427,000 and has an accumulated deficit since
inception of $9,688,000. 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.
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 $193,140 from three shareholders
of the Company. The loans are due on demand and provide for interest
at the rate of 10% per annum.
8
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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.
In August 1997, the Company received a $225,000 technology transfer
fee under this agreement. The Company has deferred the recognition of
this revenue until the period in which the 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.
9
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 6 - ISRAELI INVESTMENTS
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 investment.
Incubator for Technological Entrepreneurship - Kiryat Weizmann, Ltd.
In July of 1997, the Company has agreed in principle with the
Incubator for Technological Entrepreneurship - Kiryat Weizmann, Ltd.
("Kiryat Weizmann, Ltd.") to participate in certain technology
research and development.
10
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 6 - ISRAELI INVESTMENTS (Continued)
Pursuant to that agreement, the Company will invest $60,000 in
Separator, Ltd. ("Separator"), an Israeli corporation established to
own and develop technology, in exchange for 20% of Separator's voting
equity. As of September 30, 1997, the Company has made its first and
second payments of $15,000 to Separator. The last scheduled payment of
$15,000 is scheduled to be made no later than August 1, 1998. The
Company has also entered into agreements with the holder of 50% of
Separator's outstanding voting equity (the "Principal Shareholder")
granting to the Company an option to acquire from the Principal
Shareholder an additional 31% of Separator's voting equity for
$93,000, and the present right to direct the voting of the Principal
Shareholder's voting equity. 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 Separator, the Company
expects to consolidate the results of Separator with its financial
results commencing with the consummation of the investment.
Ofek Le-Olem Foundation
In August of 1997, the Company has agreed in principle with the Ofek
Le-Olem Foundation ("Foundation") to participate in certain technology
research and development.
Pursuant to that agreement, the Company will invest $60,000 per
company in Comsyntech, Ltd. ("Comsyntech") and Remptech, Ltd.
("Remptech"), Israeli corporations established to own and develop
technology, in exchange for 20% of Comsyntech's and Remptech's voting
equity. As of September 30, 1997, the Company has made its first
payment of $21,000 per company to Comsyntech and Remptech. The last
scheduled payment of $13,000 is scheduled to be made no later than
February 1, 1999. The Company has also entered into agreements with
the holders of 50% of Comsyntech's and Remptech's outstanding voting
equity (the "Principal Shareholders") granting to the Company an
option to acquire from the Principal Shareholders an additional 31% of
Comsyntech's and Remptech's voting equity for $93,000, and the present
right to direct the voting of the Principal Shareholders' voting
equity. 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 Comsyntech and Remptech, the
Company expects to consolidate the results of Comsyntech and Remptech
with its financial results commencing with the consummation of the
investment.
11
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
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.
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.
NOTE 9 - STRATEGIC ALLIANCE
The National German Research Center (Forschung-Szentrum) Julich and
the Company has developed a strategic alliance to facilitate the rapid
approval of the Company's EKOR Foam by the German Radiation Protection
Agency for the use in the containment, transportation, storage and
disposal of radioactive wastes within Germany.
The Research Center Julich plays an important role in the German
nuclear industry including a responsibility for approving all
materials utilized in nuclear activities. The Research Center is also
a member of the European Network of Testing Facilities for the Quality
Checking of radioactive waste packages.
12
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 10 - DUKE ENGINEERING & SERVICES, INC. TEAMING AGREEMENT
In April of 1997, the Company has agreed in principle with Duke
Engineering Services, Inc. ("Duke") to work together as a team to
market the EKOR technology on a worldwide basis. The Company and Duke
intend to consider the formation of a new joint business entity as the
market for the work develop. In September of 1997, there was a
memorandum of understanding between the two parties to define
additional terms and conditions that are specific to the Bechtel
Hanford proposed project that was beyond the broad-based teaming
agreement. The Bechtel Hanford proposed project includes the
application of the EKOR foam.
Each party shall bear its own costs and expenses in connection with
the marketing of this proposal. Duke, upon the contract award, will
assume the role of prime contractor and the Company will be a
subcontractor to Duke. This agreement will expire in one year from the
date of signature.
13
<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 September 30, 1997, the Company incurred a cumulative net loss of
approximately $9,687,000. 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.
14
<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 Nine Months Ended September 30, 1997 Vs. the Nine Months Ended September
30, 1996:
The Company commenced operations on May 26, 1995. The Company had no revenues
for the aforementioned periods. However, the Company did receive a $225,000
technology transfer fee in the third quarter, which the Company tends to
recognize over the period of the construction of the parking garage (see Note
4). Consulting and other general and administrative expenses increased from
$1,663,000 for the nine months ended September 30, 1996 to $1,816,000 for the
nine months ended September 30, 1997 as a result of a increase in professional
fees from $76,000 in 1996 to $320,000 in 1997.
Research and development expenses decreased in the nine months ended September
30, 1997 to $276,000 from $796,000 for the nine months ended September 30, 1996
as the Company completed the research and development related to the EKOR
Project and advanced it to the commercialization stage.
For the nine months ended September 30, 1997 and the nine months ended September
30, 1996, the Company incurred operating losses of $2,093,000 and $2,459,000,
respectively. The losses are principally due to expenses incurred in the
development of the technologies, including administrative expenses and
consulting expenses.
15
<PAGE>
Interest expense and amortization of deferred and unearned finance costs
increased from $5,000 in 1996 to $3,605,000 for the nine months ended September
30, 1997. This increase was attributable to financing costs related to
promissory notes of $193,000 and a bridge loan of $2,000,000.
The Company will record an additional charge against income of approximately
$1,815,000 during the fourth quarter of 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
$3,427,000 and $3,292,000, respectively, as of September 30, 1997.
16
<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 included the remaining cash from the bridge financing as of
December 31, 1996 ($380,000) 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 third 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.
17
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit (27) -- Financial Data Schedule
(b) Reports on Form 8-K
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: November 14, 1997 By: Randolph A. Graves, Jr.
Chairman, Chief Executive Officer
and Chief Financial Officer
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EUROTECH,
LTD. BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND STATEMENT OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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