Registration No. 333-26673
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
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 Classification Code Number) Identification No.)
organization)
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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$6,280.00
Common Stock, par -6,188.88(2)
value $.00025 per ---------
share 7,121,605 shares $2.91 $20,723,871 91.12
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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 on January 12, 1998.
(2) Amount of Registration Fee submitted upon original filing.
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
<TABLE>
<CAPTION>
Registration Statement Items and Headings Location in Prospectus
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<S> <C> <C>
1. Forepart of the Registration Statement and Facing page of registration statement and outside
Outside Front Cover of Prospectus................ 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
</TABLE>
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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 JANUARY 15, 1998
3,985,035 SHARES OF COMMON STOCK
EUROTECH, LTD.
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This Prospectus relates to the resale of 7,121,605 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 January 12, 1998, was $3.06.
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 January __, 1998
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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
657,500 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 834,000 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 2,142,857 shares of Common Stock upon the conversion
of outstanding convertible debentures, (iv) the issuance of up to 500,000
additional shares of Common Stock reserved for issuance under the Company's 1995
Stock Option Plan, and (v) 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
GENERAL
Eurotech, Ltd. (the "Company"), which was incorporated in May, 1995 under
the laws of the District of Columbia, is a development stage, technology
transfer, holding and management company formed to commercialize new, existing
but previously unrecognized, and previously "classified" technologies, with a
particular current emphasis on technologies developed by prominent research
institutes and individual researchers in the former Soviet Union and in Israel,
and to license those and other Western technologies for business and other
commercial applications principally in Western and Central Europe, Ukraine,
Russia, and North America. Although the Company intends to continue identifying,
monitoring, reviewing and assessing new technologies, its primary emphasis is
marketing and sales of four of its present technologies that it deems to be
ready for present commercialization (the "Principal Technologies"). Since the
Company's formation it has acquired development and marketing rights to a number
of technologies by purchase, assignments, and licensing arrangements, four of
which the Company believes to be presently ready for commercialization and
marketing. To that end, the Company recently has initiated discussions with a
number of potential end-users of those technologies, with a view towards the
future negotiation and execution of licensing and/or joint venture marketing
agreements. Additionally, the Company is proceeding with the marketing and
potential application of its silicon-organic (EKOR) compound technology (which
is one of the Principal Technologies) in connection with nuclear contamination
remediation projects at the Chernobyl Nuclear Power Plant ("ChNPP") in Ukraine,
and in the United States. See "Business - Principal Technologies," and
"Management's Discussion and Analysis of Results of Operation and Financial
Condition - Plan of Operation." The Company operates its business by licensing
its technologies to end-users and through development and operating joint
ventures and strategic alliances. To date, the Company has not generated any
significant revenues from operations.
The Company's plan of operation for the next twelve months will consist of
activities principally aimed at: (i) negotiating and executing license and/or
joint venture agreements with industrial users for the marketing and sale of
coatings based on its "Non-isocyanate Polyurethane" technology, "Rub Con" (a
rubber-based concrete) and "Liquid Ebonite Material" (a liquid rubber,
protective coating material), which are Israeli technologies the Company has
acquired, and each of which is a Principal Technology; (ii) continuing its work
with the I.V. Kurchatov Institute ("Kurchatov") in Moscow, Russia, the
Euro-Asian Physical Society ("EAPS") and ChNPP with a view towards using the
EKOR compound in the remediation of ChNPP Reactor 4 (which experienced a
catastrophic near-meltdown in 1986); and (iii) through an agreement entered into
in April, 1997 with Duke Engineering and Services ("DES"), a business unit of
Duke Power Company, jointly bidding with DES on U.S. nuclear waste
transportation, remediation and like projects utilizing the EKOR compound. To a
lesser extent (and not included in the Principal Technologies), the Company also
intends to continue its efforts in connection with the contemplated introduction
of its waste-to-energy technology in Ukraine, and the further development (in
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conjunction with Kurchatov and EAPS) of a silicon carbide "wafer" technology
with potential application in manufacturing integrated circuit computer chips.
Israeli Technologies
Incubator Technologies
The Company has agreed in principle with three Israeli technology
incubators, the Technion Entrepreneurial Incubator Co., Ltd. ("TEI"), the Ofek
Le-Oleh Foundation ("Ofek") and the Incubator for Technological
Entrepreneurship-Kiryat Weizmann, Ltd. ("Weizmann") (collectively, the
"Incubators"), to participate in certain technology research and development
projects which the Incubators individually sponsor. Pursuant thereto, 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 and in such Israeli corporations as are formed for the purpose of
owning, developing and commercializing the technologies resulting from those
selected projects (each, an "Israeli Technology Company"). In furtherance of
this, the Company has opened an office at the premises of TEI in Haifa, Israel.
Pursuant to agreements with each of Chemonol, Ltd., an Israeli corporation
("Chemonol"), and with Ofek and Weizmann, the Company has invested in four such
Israel Technology Companies, to wit: Chemonol, which has developed materials and
processes for manufacturing industrial coatings embodying non-isocyanate
polyurethane ("NIPU") technology it acquired from Oleg L. Figovsky, Ph.D. (who
is a consultant to the Company) (see "Business - Acquisition of Israeli
Technologies - Technologies Acquired from Dr. Oleg L. Figovsky; - Principal
Technologies," "Risk Factors - Conflicts of Interest," and "Certain Transactions
- - Acquisition of Technologies from Consultant"); Separator, Ltd. ("Separator"),
which is developing a process for the electromagnetic separation and production
of high temperature superconductive metallic powders; Remptech, Ltd.
("Remptech") which is developing processes for the production of extra-fine
cobalt and nickel powders; and Comsyntech, Ltd. ("Comsyntech"), which is
developing a process for the continuous combustion synthesis of ceramic,
composite and intermetallic powders. See "Business-Other Technologies." Under
those agreements the Company will receive 20% of each Israeli Technology
Company's common equity, and will invest U.S. $60,000 in each such corporation.
In connection therewith, the Company also has obtained: (i) options to purchase
up to an additional 51% of Remptech's and Comsyntech's common equity, and up to
an additional 31% of Chemonol's and Separator's common equity, and (ii) the
perpetual right to direct the voting of the common equity owned by the holders
of a majority of the outstanding common equity of each such corporation (the
"Principal Shareholders").
In the event the Company exercises the foregoing equity purchase options,
it will control the respective Israeli Technology Company. Although the Company
presently anticipates it will exercise the Chemonol option, there is no
assurance that it or any other of the foregoing options will be exercised. There
is no assurance that when such options become exercisable the Company will have
sufficient funds to exercise any of them.
Additionally, for a period of two years commencing on the date of its
registration as an Israeli corporation, the sale or other transfer of 25% or
more of the outstanding common equity of each of Chemonol, Separator, Remptech
and Comsyntech requires the consent of the Chief Scientist of the Israeli
Ministry of Commerce and Technology. The Company's options to acquire additional
common equity of the above Israeli Technology Companies are exercisable within
such two year periods and any acquisition of the common equity purchasable
thereunder will, therefore, require the Chief of Scientist's consent. Although
the Company presently expects that if requested such consent would be given,
there is no assurance that such consent will be obtained. Accordingly, the
Company intends to amend the terms of those options so as to extend their
respective exercise periods beyond the applicable two-year periods during which
the Chief of Scientist's consent is required, prior to the times they each first
commence.
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Technologies Acquired from Dr. Oleg L. Figovsky
Pursuant to three Technology Purchase Agreements each dated January 1,
1998, the Company has acquired from Oleg L. Figovsky, Ph.D. (who is a consultant
to the Company) all right, title and interest in and to the following
technologies developed by him, inclusive of future improvements thereto: (i) a
group of related technologies collectively known as "Interpenetrated Network
Polymers" ("INPs"), (ii) "Liquid Ebonite Material" ("LEM") and (iii) "Rubber
Concrete" ("RubCon") for purchase prices of $75,000, $15,000 and $35,000,
respectively (each, a "Purchase Price"). Pursuant to each such Technology
Purchase Agreement, during the 15-year period commencing on January 1, 1998, the
Company is also obligated to pay to Dr. Figovsky royalties equal to 49% of the
Company's net revenues from the sales or licensing of any products incorporating
the applicable technology, subject to the Company's right to deduct from the
first royalties otherwise payable under each agreement an aggregate sum equal to
the Purchase Price paid thereunder.
The Company believes that two of these technologies, RubCon and LEM, are
presently ready for commercialization, and has included them in the Principle
Technologies which the Company's recently indicated marketing and sales program
is directed at. RubCon is a rubberized concrete which the Company believes is
superior to presently available similar concretes and to conventional
cement-based concretes for applications in, among other things, the manufacture
of industrial floorings, equipment operating in aggressive chemical media,
building foundations, concrete pipes and outdoor structures. LEM is a synthetic,
liquid rubber having enhanced mechanical, permeability and anti-corrosive
qualities, that the Company believes can be applied successfully as a protective
covering for such things as small-diameter piping, and intricate parts of pumps,
fans and centrifuge rotors. See "Business - Principal Technologies."
The INP technology consists of a related group of technological processes
to produce a variety of polymeric compounds, including polyurethanes, that is
based on modifying the molecular structure of olygomeric cyclocarbonates. The
rights to develop one of these related technologies, "non-isocyanante
polyurethane" ("NIPU"), into industrial coatings has been acquired from Dr.
Figovsky by Chemonol, one of the four Israeli Technology Companies in which the
Company has invested and is one of the Company's Principal Technologies. Other
INP constituent technologies presently are in their respective research and
development phases. No assurance can be given that any of these other INP
constituents will be successfully developed or, if developed, will result in
commercially saleable or profitable products or processes.
PRINCIPAL TECHNOLOGIES
Silicon-Organic (EKOR) 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 Euro-Asian 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 Transactions -
Silicon-Organic (EKOR) Compound."
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
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preventing such materials and dust from escaping into the atmosphere and from
leaching into and contaminating ground-water supplies. On November 28, 1997, the
Ministry of Health of the Russian Federation certified EKOR and its components
as non-toxic, thereby allowing for EKOR's production, delivery, sale and use in
the Russian Federation.
As a silicon-based elastomer, the EKOR compound has adhesive properties
that allow it to stick to a wide variety of surfaces and materials. When
applied, the EKOR compound surrounds and "glues down" nuclear debris ranging
from fine dust to broken fuel rods, and in combination with its fire-resistant
and water-proof properties, prevents such debris from migrating by water or as
air-borne particles. The EKOR compound can be applied by a number of methods,
but most generally will be sprayed onto contaminated areas using a hose and
nozzle arrangement. The foaming rate and "curing" time for the EKOR compound can
be varied, thereby allowing it to penetrate cracks and crevices before curing,
and providing a seal against the transport of radioactive particles and
water-soluble radionuclides. The application of the EKOR compound to nuclear
accident sites is intended as an interim containment measure, pending the
removal and permanent storage or other disposal of the radioactive contaminants.
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 ("ChNPP") 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 may
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, Limited, a British Virgin Islands 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 or licensing of
the EKOR compound 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
6.95% of the Company's outstanding Common Stock. See "Principal and Selling
Shareholders" and "Certain Transactions."
Based on the properties demonstrated by the EKOR compound, ChNPP (an
industrial amalgamation of the State Committee of Ukraine on Atomic Energy),
Kurchatov, "Ukrstroj" and the Company entered into a Memorandum of Intent (the
"Chernobyl Memorandum of Intent") which acknowledged the successful completion
of the laboratory development of EKOR compound applicable to the radioactive
contamination remediation of ChNPP Reactor 4, and pursuant to which the Company,
"Ukrstroj" and EAPS entered into a co-operation Agreement whereby the Company
has provided financing for demonstrating the technical and mechanical
feasibility of applying the EKOR compound for ChNPP Reactor 4 remediation. In
furtherance of the foregoing, "Ukrstroj" and ChNPP entered into an agreement
(the "Ukrstroj"-ChNPP Agreement") to conduct such 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 also provides for the Company's participation in and financing of the
EKOR demonstration test.
On April 24, 1997, the demonstration of the equipment for synthesizing and
applying the EKOR compound was successfully conducted for officials of ChNPP and
"Ukrstroj" at the Sverdlosk Chimmash manufacturing facility in Ekaterinburg,
Russia. Following this successful demonstration, the Company, the management of
the ChNPP Reactor 4 Shelter Project, "Ukrstroj" and EAPS entered into a Joint
Working Group Agreement for the purpose of initiating the EKOR application
program at ChNPP Reactor 4, which implementation presently is expected to occur
during the second quarter of 1998. In connection therewith, and at the request
of ChNPP, the Company presently is constructing industrial scale machinery for
application of the EKOR compound at ChNPP Reactor 4, based on the application
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machinery successfully demonstrated on April 24, 1997. Financing therefor is
being provided by KRH. Although the Company expects such time-frames will
substantially be met, no assurance can be given that implementation of the EKOR
application machinery at ChNPP Reactor 4 will not experience delays, and that if
delays occur, the EKOR application machinery will be completed at the time
presently contemplated. The occurrence of substantial delays will adversely
affect the Company's generation of near-term revenues.
Coordination and management of the formal selection of contractors and
technologies for studies relating to the ChNPP Reactor 4 remediation project has
been delegated to the European Bank of Reconstruction and Development ("ERBD")
on the basis of submitted bids, to be passed on by ERBD and ChNPP. It is
presently expected that ERBD, through G-7 funds, will provide the financing for
the actual remediation project. Additionally, ChNPP is authorized to initiate
further, independent studies. In September, 1997, Duke Engineering and Services
("DES"), a business unit of Duke Power Company, on its and the Company's behalf,
submitted to ERBD and ChNPP a letter of intent to bid on the ChNPP Reactor 4
remediation project. Although no assurance can be given, based on the Chernobyl
Memorandum of Intent, the "Ukrstroj" - ChNPP Agreement, the Co-operation
Agreement, the Joint Working Group Agreement, the results of the April 24, 1997
EKOR application demonstration test, and ChNPP's role in the Reactor 4
remediation selection process, the Company believes that the EKOR compound will
be selected for the ChNPP Reactor 4 remediation project and that the Company
will be selected as the contract vendor of EKOR for that purpose.
In addition to remediation of ChNPP Reactor 4, the Company's near- and
mid-term commercialization and marketing efforts relative to the EKOR compound
principally are directed at nuclear waste remediation projects in the U.S.
Separately from its contemplated ChNPP bid, the Company-DES Agreement provides
for joint bidding on U.S. nuclear waste transportation, containment, storage and
burial projects utilizing the EKOR compound technology. The Company also has
entered into an agreement with the Research Center Julich, a German governmental
research institution, providing for its assistance with certifying the EKOR
compound for use in Germany. Pursuant to a joint bidding agreement between the
Company and DES (the "Company-DES Agreement"), the Company and DES have
submitted a successful, first-round demonstration project bid on the U.S.
Department of Energy's ("DoE") reactor decommissioning technology program at
DoE's Hanford, Washington, reactor facility, utilizing the EKOR compound.
Additionally, joint Company-DES bids presently are being prepared for other DoE
demonstration projects. The Company is also in the process of identifying
potential licensees of the EKOR technology, and has commenced initial licensing
discussions with a Japanese corporation. No assurance can be given that the EKOR
compound will be certified for use in Germany, that the Hanford, Washington DoE
demonstration will be successful or that if successful it will result in a
project contract being awarded to the Company, or that such licensing
discussions will successfully result in the execution of an EKOR license.
In addition, further applications of the EKOR technology are being
reviewed for 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). To this end, at nominal
cost to it, the Company has provided EKOR documentation and material samples to
these sites, and has arranged for personnel from Kurchatov and EAPS to be
available to provide technical advice regarding pertinent applications of the
EKOR compound. To date, the Company has not entered into any agreements
pertaining to either the testing or application of the EKOR compound at these
sites.
Non-isocyanate Polyurethane. Non-isocyanate polyurethane ("NIPU") is one
of the constituent technologies of the Interpenetrated Network Polymer
technology independently developed by Dr. Oleg L. Figovsky, a consultant to the
Company. See "Business - Acquisition of Israeli Technologies Technologies
Acquired from Dr. Oleg L. Figovsky." NIPU is a modified polyurethane that does
not contain the toxic isocyanates used in the production of conventional
polyurethane. NISU has lower permeability and greater chemical resistance
qualities as compared to conventional polyurethane. The Company believes that
these advanced qualities of NIPU make NIPU superior to conventional
polyurethanes in connection with their use in a number of industrial application
contexts such as manufacturing automotive bumpers, paints, plastics and truck
beds; airplane and rocket sealants, interior
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components and seating; construction adhesives, coatings, flooring, glues and
rooftops; industrial equipment and machinery; and consumer goods such as
appliances, footwear, furniture and plastic products.
The rights to develop, market and sell industrial coatings based on NIPU
were acquired from Dr. Figovsky by Chemonol, Ltd. ("Chemonol"), an Israeli
corporation which is one of the four Israeli Technology Companies in which the
Company has invested. At the date hereof, the Company is the holder of 20% of
Chemonol's common equity, and has an option to purchase an additional 31% of
such common equity from Chemonol's Principal Shareholder. See "Business -
Acquisition of Israeli Technologies - Incubator Technologies." There can be no
assurance that such equity purchase option will be exercised, which will
principally depend upon the results of the Company's efforts to commercially
market and sell NIPU to industrial users.
Consistent with its general plan of operation, the Company intends to
market and sell NIPU through one or more license and/or joint venture agreements
with major chemical companies, and has recently commenced initial discussions
with several major international chemical companies with a view towards
negotiating one or more licenses and/or joint venture agreements for the
marketing and sale of NIPU. Such discussions are in their initial stages, only,
and no assurance can be given that all or any of them will result in a NIPU
license or joint venture agreement, or that such license or agreement, if
concluded, will be on terms favorable to the Company.
Liquid Ebonite Material. Liquid Ebonite Material ("LEM") is a synthetic
liquid rubber with enhanced mechanical, permeability and anti-corrosive
qualities as compared to conventional sheet rubber coverings. In laboratory
testing, coverings made with LEM have, as compared to conventional sheet rubber
coverings, displayed greater resistance to harsh chemicals such as acids,
alkalis and benzene, and have been successfully applied to intricate and complex
surfaces such as sieve meshing. Based on the physical and chemical properties of
LEM, and on such tests, the Company believes that LEM coverings are capable of
providing superior protection to small-diameter piping, and to the intricate
parts of pumps, fans, centrifuge rotors. LEM can be applied to form surface
coverings using standard coating techniques, including spraying and dipping.
LEM was independently developed by Oleg L. Figovsky, Ph.D., who is a
consultant to the Company, and was acquired by the Company pursuant to a
Technology Purchase Agreement dated January 1, 1998, for a purchase price of
$15,000, plus royalties equal to 49% of the Company's net revenues from sales or
licenses of any products incorporating LEM, payable for a period of 15 years
commencing on January 1, 1998. To date, the Company has not derived any such
revenues and does not expect to derive any such revenues until the third quarter
of 1998, at the earliest. See "Business General - Acquisition of Israeli
Technologies - Technologies Acquired from Dr. Oleg L. Figovsky," "Risk Factors -
Conflicts of Interest," "Management-Consultants," and "Certain Transactions."
A major international chemical company headquartered in India has
expressed interest in potentially licensing LEM for production and world-wide
distribution and sales. At such company's request, the Company is preparing
evaluation samples of LEM. No assurance can be given that such chemical company
or any chemical or other company will determine that LEM is suitable or
economically viable for its business purposes or that any
production/distribution license for LEM will be negotiated or executed with that
company. See "Business - General," "Risk Factors - Uncertainty of Sales Revenues
and of Technology Transfer Fee, Consulting Fee and Royalty Payments; - No
Assurance of Joint Venture Licenses, Further Collaborative Agreements or Further
Project Contracts; - Uncertainty of Market Acceptance," and "Management's
Discussion and Analysis of Results of Operation and Financial Condition - Plan
of Operation."
RubCon. "RubCon" is a technologically advanced, polymer-based, rubberized
concrete that utilizes polybutadiene (a polymer derived from liquid rubber) as a
binding material for the various aggregates that, together with binders,
constitute concrete. In laboratory testing RubCon has exhibited high degrees of
compression, bending and tensile strength, a high degree of water-resistance and
a high degree of resistance to aggressive, corrosive chemicals as compared to
conventional "cement" concrete. The Company believes that RubCon has significant
potential utility in the manufacture of industrial flooring,
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7
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equipment operating in aggressive chemical media such as galvanic and
electrolysis "baths," foundations, concrete pipes and other underground
structures, seismic reinforcement materials, and outdoor structures such as
bridges that are routinely exposed to harsh weather, climatic and corrosive
conditions.
RubCon was independently developed by Oleg L. Figovsky, Ph.D., who is a
consultant to the Company, and was acquired by the Company pursuant to a
Technology Purchase Agreement dated January 1, 1998, for a purchase price of
$35,000, plus royalties equal to 49% of the Company's net revenues from sales or
licenses of any products incorporating LEM, payable for a period of 15 years
commencing on January 1, 1998. To date, the Company has not derived any such
revenues and does not expect to derive any such revenues until the third quarter
of 1998, at the earliest. See "Business General - Acquisition of Israeli
Technologies - Technologies Acquired from Dr. Oleg L. Figovsky," "Risk Factors -
Conflicts of Interest," "Management - Consultants," and "Certain Transactions."
Four major chemical companies presently are evaluating RubCon. Based on
their prior expressions of interest, the Company currently anticipates that it
will enter into discussions with one or more of these companies with a view
towards negotiating product purchase and/or license agreements, as the case may
be. No assurance can be given that any of those or other chemical companies will
determine that RubCon is suitable or economically viable for its business
purposes, that the Company will enter into discussions or negotiations with any
of those companies, or that, if entered into, they will result in product
purchases or license agreements. See "Business - General," "Risk Factors -
Uncertainty of Sales Revenues and of Technology Transfer Fee, Consulting Fee and
Royalty Payments; - No Assurance of Joint Venture Licenses, Further
Collaborative Agreements or Further Project Contracts; - Uncertainty of Market
Acceptance," and "Management's Discussion and Analysis of Results of Operation
and Financial Condition - Plan of Operation."
OTHER TECHNOLOGIES
In addition to the foregoing Principal Technologies, with respect to which
the Company has commenced initial marketing and sales efforts, the Company also
is engaged in the continuing research and development of other technologies it
believes to be of potential, future commercial significance. The Company has
reduced its level of activity in connection with the proposed introduction of
its waste-to-energy technology in Ukraine, due to the present lack of adequate
project funding among the Company's co-venturers and the Company's belief that
the commencement of marketing and sales activities in connection with the
Principal Technologies is more likely to result in the near-to-mid-term
generation of revenues than is the existing, Ukrainian waste-to-energy venture.
Electromagnetic Separation Technology. The Company is participating in the
further research and development of a process to electromagnetically separate
high temperature superconducting ("HTSC") metal powders, that has been developed
by Separator, Ltd. ("Separator"), an Israeli corporation, which is one of the
four Israeli Technology Companies in which the Company has invested. At the date
hereof the company is the holder of 20% of Separator's common equity and has an
option to purchase an additional 31% of such common equity from Separator's
Principal Shareholders. See "Business - General - Acquisition of Israeli
Technologies - Incubator Technologies." The electromagnetic separation ("EMS")
of HTSC powdered metals is based on the interaction of HTSC particles with
alternating magnetic fields at temperatures approaching the level required for
"HTSC transition," i.e., the point at which a substance becomes superconducting.
The research and testing data provided by Separator indicates that the EMS
technology allows for the extraction of powdered metal particles having optimal
electrophysical qualities, and in the production of HTSC metallic powders with a
critical electrical current that exceeds those of HTSC powders produced using
conventional technologies. Based on demonstration testing conducted by
Separator, the Company believes that the EMS process for HTSC metallic powder
can be used with a variety of powdered metals, and can be configured either as a
small bench testing device for laboratory applications at universities and
research and development companies, or as an industrial-scale device with the
capacity to produce up to 8 kilograms per hour of HTSC powdered metal. The
Company believes that the EMS technology can be commercially applied in the
production of underground electric transmission cables, transformers, electric
power system control and protection systems, motors, generators, magnetic
resonance imaging equipment and cellular telephone base stations.
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8
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At the date hereof, the Company is the holder of 20% of Separator's
outstanding common equity and has an option to purchase an additional 31% of
such common equity from Separator's Principal Shareholder. There can be no
assurance that such equity purchase option will be exercised, which will
principally depend upon the results of further research and development
activities and later expressions of commercial interest, if any, in the EMS
technology.
Powdered Metallurgy Technology. The Company is participating in the
further research and development of a process developed by Remptech, Ltd.
("Remptech") an Israeli corporation, to produce extra fine cobalt and nickel
powders by recycling materials containing cobalt and nickel. Remptech is one of
the four Israeli Technology Companies in which the Company has invested.
Powdered metallurgy is generally acknowledged as being capable of yielding
product with superior structural, physical and mechanical properties. The
Company believes that the powdered metallurgy process developed by Remptech is
technologically advanced and, based on Remptech's research and testing data, is
capable of producing cobalt and nickel powders of very high purity and very
small grain size. The powdered metallurgy technology is based on recycling
cobalt and nickel-containing materials using internal hydrogen in composition
with cobalt and nickel fluoride salts. Remptech data presently indicates that
the resulting cobalt and nickel powders have a purity of 99.8% and a grain size
of 1-2 microcentimeters. The Company believes that such purities and grain sizes
are significant factors in the manufacture of materials of high quality and
internal physical integrity from powdered cobalt and nickel. Cobalt and nickel
are among the three naturally occurring elements that display magnetic
properties at room temperature and are widely used in metal alloys. Powdered
cobalt and nickel are used in a wide variety of industrial applications,
including magnetic, electrical and electronic materials and products.
At the date hereof the Company is the holder of 20% of Remptech's common
equity and has options to purchase the 20% common equity interest in Remptech of
the Ofek Le-Oleh Foundation ("Ofek"), an Israeli technology incubator that is
partially sponsoring Remptech's research and development activities, and an
additional 31% of such common equity from Remptech's Principal Shareholders. See
"Business - Acquisition of Israeli Technologies - Incubator Technologies." There
can be no assurance that such equity purchase options will be exercised, which
will principally depend upon the results of further research and development
activities and later expressions of commercial interest, if any, in the Powdered
Metallurgy technology.
Continuous Combustion Synthesis Technology. The Company also is
participating in the further research and development of a process for the
continuous combustion synthesis ("CCS") of ceramic, composite and intermetallic
powders, including titanium carbide powder, developed by Comsyntech, Ltd.,
("Comsyntech"), an Israeli corporation which is one of the four Israeli
Technology Companies in which the Company has invested. CCS is a newly devised
process for the production of ceramic, composite and intermetallic powders based
on utilizing the internal chemical energy of initial reactants, performed in a
continuous action reactor, a device being developed by Comsyntech, which the
Company believes offers competitive advantages (such as increased productivity
and lower production costs) over conventional technology. Comsyntech research
and testing data indicate that materials produced with the CSS technology have
exhibited superior high-thermomechanical properties such as high strength,
thermo and wear resistance and good corrosion stability. Based on these
properties, the Company believes that the CSS technology is of potentially
significant utility in producing ceramic, composite and intermetallic powders
with potential commercial application in the production of metal-cutting tools
and abrasives; metal alloys; aircraft and automotive combustor, nozzle and
turbine parts; piezo- and ferro-electric materials; and surgical instruments.
At the date hereof the Company is the holder of 20% of Comsyntech's common
equity and has options to purchase the 20% common equity interest in Comsyntech
of the Ofek Le-Oleh Foundation ("Ofek"), which is partially sponsoring
Comsyntech's research and development activities, and an additional 31% of such
common equity from Comsyntech's Principle Shareholders. See "Business
Acquisition of Israeli Technologies - Incubator Technologies." There can be no
assurance that such equity purchase options will be exercised, which will
principally depend upon the results of further research and development
activities and later expressions of commercial interest, if any, in the powdered
metallurgy technology.
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Silicon-Carbide "Wafer" Technology. The Company is participating in the
development of a silicon carbide "wafer" technology in conjunction with the I.V.
Kurchatov Institute ("Kurchatov") in Moscow, Russia, and the Euro-Asian Physical
Society ("EAPS"). 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 automobile and aircraft engine control
systems, high power environments such as power control transistors, and
environments subject to ionizing radiation such as spacecraft.
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 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.
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. The Company has entered into a technology transfer
and consulting agreement with Eurowaste Management, Ltd., a Delaware corporation
("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 "Management," "Risk
Factors - Conflicts of Interest," and "Certain Transactions." The initial,
Cherkassy waste-to-energy facility will take approximately thirteen months to
construct. Its operational, energy output is expected to be approximately seven
megawatts per day, based on an assumed consumption of approximately 240 tons of
municipal waste per day.
Neither the Ukrainian government, the city of Cherkassy nor Eurowaste has
obtained construction or other financing for the proposed Cherkassy
waste-to-energy facility. The Company is not obligated to finance or arrange for
the financing of the Cherkassy facility. However, the Company has paid the
$15,000 cost of a financial feasibility study for the proposed Cherkassy
waste-to-energy facility, which in November, 1997 was submitted by "Ukrstroj",
the Ukrainian State Construction company, to an Austrian financial institution
as part of an application for construction financing. There is no assurance that
the necessary financing will be obtained or that, if obtained, it will be on
terms favorable to the venture. Neither is there any assurance that the
Ukrainian government will not abandon its support of the proposed Cherkassy
waste-to-energy facilities in Ukraine. In the absence of such governmental
support the construction of any waste-to-energy facilities utilizing the
Company's technology cannot be expected to occur. See "Business -- Risk Factors
- -- Risks Relating to the Russian Federation and Ukraine."
Automated Parking Garages. The Company has entered into a Supply and
Assembly Contract with MEPA-Sachisische Parksystemme GmbH, a German manufacturer
of parking garage systems, for the purchase of the plant, equipment and
engineering documentation for automated parking garages adapted for 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. Essentially, automobiles are raised by
elevators to computer-controlled carousels which rotate the vehicles to their
respective parking slots. 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 has introduced 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 Company presently expects the Arbat
parking garage to be completed in or about December, 1998.
The Moscow automated parking garage is being developed by and upon
completion will be, 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, Limited, a British Virgin
Island 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 6.97% 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.
Pursuant to a technology license agreement entered into with Arbat
American, the Company has been paid a one-time royalty of U.S. $225,000 in
respect of the Arbat parking garage ($1,250 for each parking space to be
contained in the automated parking facility), which constitutes the Company's
sole compensation in respect of that facility. That agreement also provides for
the payment to the Company of a one-time royalty of U.S. $1,250 for each parking
space to be contained in any garage facilities that in the future are developed,
owned and/or operated by Arbat American and use the Company's automated parking
technology. Presently, the Company is not aware of any plans of Arbat American
for any further such parking garages. See "Risk Factors - Conflicts of
Interest," "Principal and Selling Shareholders," "Management," and "Certain
Transactions."
Other technologies, including the "CORO" telephone technology (see note
9(d) to Item 13. "Financial Statements and Supplementary Data"), are presently
being evaluated by the Company. Pending the results of those evaluations, the
Company has no current plans to develop or commercialize those technologies.
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.............. 7,121,605 shares of Common Stock,
$.00025 par value per share.
Capital Stock Outstanding
Before Offering....................... 17,916,834 shares of Common Stock,
par value $.00025 per share.
Capital Stock Outstanding
After Offering (1).................... 20,717,191 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.
- ----------
(1) Gives effect to the issuance of 657,500 shares of Common Stock issuable
upon exercise of stock options and warrants, and of up to 2,142,857 shares
of Common Stock issuable upon conversion of convertible debentures,
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
834,000 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 are
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 Registration Statement. The financial
data for the three month periods ended September 30, 1996 and 1997, for the nine
month periods ended September 30, 1996 and 1997, and for the period from
inception (May 26, 1995) through September 30, 1997 are derived from unaudited
financial statements included elsewhere in this Registration Statement.
Operating results for the three months ended September 30, 1997 and the nine
month period ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the entire fiscal year ending December 31,
1997. The following data should be read in conjunction with such Financial
Statements and Management's Discussion and Analysis and Plan of Operation.
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Statement of Operations Data:(1)
<TABLE>
<CAPTION>
For the Period
from
For the Period Inception
from Inception For the Year (May 26, Three Months Ended
(May 26, 1995) Ended 1995) to September 30, 1997
to December December December --------------------------
31, 1995 31, 1996 31, 1996 1996 1997
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RESEARCH AND DEVELOPMENT $ 212,000 $ 1,171,000 $ 1,383,000 $ 359,000 $ 6,000
EXPENSES
CONSULTING FEES 267,000 1,487,000 1,754,000 91,000 433,000
OTHER GENERAL AND 34,000 547,000 581,000 170,000 139,000
ADMINISTRATIVE EXPENSES
INTEREST EXPENSE -- 43,000 43,000 5,000 64,000
AMORTIZATION OF DEFERRED AND -- 229,000 229,000 -- $ 2,048,000
UNEARNED FINANCE COSTS ---------- ----------- ----------- ----------- -----------
NET LOSS $ (513,000) $(3,477,000) $(3,990,000) $ (625,000) $(2,690,000)
========== =========== =========== =========== ===========
NET LOSS PER SHARE $(0.06) $(0.23) $(.05) $(0.15)
========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF 8,159,467 14,808,000 12,576,476 17,827,000
SHARES OUTSTANDING ========== =========== =========== ===========
</TABLE>
For the
Period from
Inception
Nine Months Ended (May 26,
September 30, 1997 1995) to
--------------------------- September
1996 1997 30, 1997
----------- ----------- ------------
RESEARCH AND DEVELOPMENT $ 796,000 $ 276,000 $ 1,659,000
EXPENSES
CONSULTING FEES 1,351,000 1,086,000 2,839,000
OTHER GENERAL AND 313,000 731,000 1,312,000
ADMINISTRATIVE EXPENSES
INTEREST EXPENSE 5,000 185,000 229,000
AMORTIZATION OF DEFERRED AND -- 3,419,000 3,648,000
UNEARNED FINANCE COSTS ----------- ----------- ------------
NET LOSS $(2,464,000) $(5,697,000) $ (9,687,000)
=========== =========== ============
NET LOSS PER SHARE $(0.20) $(0.32)
=========== ===========
WEIGHTED AVERAGE NUMBER OF 12,576,467 17,553,000
SHARES OUTSTANDING =========== ===========
Balance Sheet Data:
At December 31,
-------------------------- At September
1995 1996 30, 1997
----------- ----------- ------------
Working Capital (deficit) $ 42,000 $(1,809,000) $(3,427,000)
Total assets $ 56,000 $ 617,000 $ 155,000
Total liabilities $ 13,000 $ 2,292,000 $ 3,447,000
Deficit accumulated during
the development stage $ (513,000) $(3,990,000) $(9,687,000)
Total stockholders' equity
(deficiency) $ 43,000 $(1,675,000) $(3,292,000)
- ----------
(1) Through September 30, 1997, and since that date, the Company has not derived
any significant sales revenues.
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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; Uncertainty of Continuation as a Going Concern
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 ($3,291,869 at September
30, 1997), a working capital deficit of $1,809,237 ($3,427,000 at September 30,
1997), and an accumulated deficit since inception of $3,990,209 ($9,687,000 at
September 30, 1997). Additionally, at December 31, 1996 and at September 30,
1997, 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 first quarter of 1998, 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. See "Risk Factors-Competition;
- - Risks Related to the Russian Federation and Ukraine - Political and Social
Risks Economic Risks - Risks as to Availability and Cost of Materials, Supplies
and Equipment; - Regulation."
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; Possibility of Future Dilution."
15
<PAGE>
Need for Additional Financing; Possibility of Future Dilution
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 existence
and terms of any licensing and/or joint venture agreements for the marketing and
sales of the Company's Principal Technologies; 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 to a lesser extent, the commitment of capital resources
for research and development activities. Although based on the completion in
November 1997 of a private placement of $3,000,000 principal amount of its 8%
convertible debentures due November 27, 2000, the Company believes it has
adequate financing and capital through the end of fiscal year 1998, there can be
no assurance that additional capital requirements will not arise or that for
periods following fiscal year 1998 the Company will generate sufficient revenues
to cover its expenses or generate profits. If adequate financing is not
available, the Company may be required to delay, scale back or eliminate certain
of its research and development programs and marketing and sales 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 "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
Liquidity and Capital Resources."
No assurance can be given that the Company can successfully obtain any
further working capital or complete any further 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 "Management's Discussion
and Analysis of Results of Operation and Financial Condition - Liquidity and
Capital Resources."
Uncertainty of Sales Revenues and of Technology Transfer Fee, Consulting Fee and
Royalty Payments
The Company's near-term revenues are expected substantially to derive from
royalties pursuant to potential licenses of its Principal Technologies, sales of
those technologies and of products produced thereby pursuant to potential
marketing and sales joint ventures, and the receipt of funds in connection with
U.S. nuclear waste remediation projects. Presently the Company does not expect
to derive near-term revenues from transfer and consulting fees in respect of
Ukrainian waste-to-energy facilities or from any further royalties in respect of
automated parking garages.
The Company has only recently determined to focus the majority of its
business activities and resources on the marketing and sale of its four
Principal Technologies (i.e., EKOR compound, "Non-isocayanate polyurethane,"
"Liquid Ebonite Material," and "RubCon," see "Business -- General; -
Principal Technologies"). The Company's marketing and sales program, which
presently depends upon joint ventures with and licenses of its technologies to
major international chemical companies, and upon successfully bidding on U.S.
and foreign nuclear contamination remediation projects (including the
remediation of Reactor 4 at the Chernobyl Nuclear Power Plant in Ukraine), is in
its initial stage, only, and to date the Company has not entered into any such
license or joint venture, and has successfully bid on only one U.S.,
first-round, nuclear contamination remediation demonstration project. Although
based on the expressions of interest in the Principal Technologies received to
date from such companies and on preliminary discussions with several of those
companies the Company believes that it will enter into
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such licenses and/or joint ventures, no assurance can be given that any such
licenses or joint ventures will be entered into or that if entered into they
will result in significant revenues to the Company.
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. 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 ("ChNPP") 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. The allocation of the Moscow site for the
automated parking garage is controlled by the City of Moscow. 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
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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 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.
Although the present, public policy initiatives of Russia are favorable to
the commercialization of the Company's automated parking garage technology in
Moscow, and those of Ukraine are favorable to the utilization of the Company's
EKOR compound technology to remediate ChNPP Reactor 4 and to the use of the
Company's waste-to-energy technology for production of energy from municipal
waste products, the present political instability, social unrest and
dislocations of governmental authority in either
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or both countries could result in changes in Russian and Ukrainian public policy
that are adverse to the commercialization of the Company's technologies or that
favor other, competing technologies for use in the same or similar projects for
which the Company's EKOR compound, automated parking garage and waste-to-energy
technologies are currently contemplated. No assurance can be given that such
changes will not occur, or, if they do occur, will not have a significant
adverse impact on the Company's financial condition, business and business
prospects.
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.
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.
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Risks as to Availability and Cost of Materials, Supplies and Equipment
Presently, the development of the silicon-carbide "wafer" technology is
being conducted, and the Company's EKOR compound is being manufactured and
produced, in Russia by a Russian sub-contractor of the I.V. Kurchatov Institute
("Kurchatov"), which is a state-controlled entity. While most of the constituent
materials used in manufacturing the EKOR compound are commercially available at
competitive prices on a world wide basis, a key chemical catalyst - without
which the EKOR compound cannot be produced - is presently a trade secret of and
produced only by Kurchatov. Accordingly, without the continued cooperation of
Kurchatov, which is subject to the dictates and policies of the Russian
Government and over which the Company has no control, the Company will be unable
to produce, commercialize or sell the EKOR compound, or complete the development
of the silicon-carbide "wafer" technology. No assurance can be given that the
present, favorable policy of the Russian Government will continue (see "Risk
Factors-Risks Relating to the Russian Federation and Ukraine-Political and
Social Risks") or that Kurchatov's processes for producing such chemical
catalyst and the silicon-carbide "wafers" will at any time be made available to
the Company, or that if such processes are made available to the Company, their
respective costs to the Company will be reasonable.
Additionally, both Russia and Ukraine historically have experienced
persistent shortages of basic, industrial materials and goods, including piping,
pumps, machine tools, presses and the like, some or all of which are used in
manufacturing the EKOR compound and in producing the silicon-carbide "wafers".
No assurance can be given that such shortages will not occur, interfere with
and/or substantially increase the cost of either or both manufacturing the EKOR
compound in commercially saleable quantities, and completing the development of
the silicon-carbide "wafer" technology, either of which could have a presently
unquantifiable, substantial adverse impact on the Company's financial condition,
business and business prospects.
No Assurance of Joint Venture Licenses, Further Collaborative Agreements or
Further Project Contracts
The Company's business strategy presently is principally based upon
entering into joint ventures and licenses for the marketing and sale of its
Principal Technologies, collaborative agreements that allow the Company to bid
on nuclear waste and contamination remediation projects, the awarding of such
project contracts to the Company, and to a lesser extent collaborative joint
working arrangements with foreign governmental and quasi-governmental entities.
To date, the Company has entered into one such collaborative bidding agreement
(with Duke Engineering and Services) which has resulted in one successful,
first-round demonstration project bid, and has not entered into any licenses or
joint venture for the marketing and sale of its four Principal Technologies.
Duke Engineering and Services has submitted a letter of intent to bid, on behalf
of itself and the Company, to the European Reconstruction and Development Bank
in connection with studies for the remediation of Reactor 4 at the Chernobyl
Nuclear Power Plant ("ChNPP"). There can be no assurance that the Company will
enter into any further collaborative bidding agreements, will enter into
definitive project agreements, will successfully bid with respect to ChNPP, or
will enter into any licenses or joint ventures for the marketing and sale of its
Principal Technologies. There can be no assurance that, if entered into, any
such agreements will (in the case of projects in Russia and Ukraine) be similar
in form to Western agreements covering like activities, or (in the case of all
such agreements) 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 further
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.
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Uncertainty of Market Acceptance
Many prospective users of the Company's EKOR compound 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 in large measure will depend on demonstrating to
prospective licensees, joint venturers, collaborative partners and users the
advantages of the EKOR compound, the Company's other Principal Technologies, and
(in light of the Company's recent decision to concentrate on marketing and
selling its Principal Technologies) to a significantly lesser extent its
waste-to-energy technology over alternative products and technologies. There can
be no assurance that the Company will be successful in any of these efforts. See
""Business--Principal Technologies,--Other Technologies."
Risk of Environmental Liability; Present Lack of Environmental Liability
Insurance
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 does not presently carry any environmental liability insurance, and may
be required to obtain such 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, remediation and transportation, and
chemical manufacturing. Mid-term markets are expected to continue in these
technologies. The Company has limited experience in marketing its products and
technologies and, other than in connection with the remediation of Reactor 4 at
the Chernobyl Nuclear Power Plant, intends to rely on licenses and joint
venturers with major international chemical and other companies for the
marketing and sale of its Principal Technologies. In contrast, 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 compound material. To date, patent applications on EKOR have been
filed and are pending in the U.S., Ukraine and Japan, and two such patent
applications have been filed in Russia, one of which is pending, and one of
which has been granted. The Company's success depends, in part, on its ability
to obtain and protect patents covering, and maintain trade secrecy protection of
its EKOR compound and other Principal Technologies, as well as other, future
technologies, and to operate without infringing on the proprietary rights of
third parties. Additionally, 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. There can be no assurance that any of the Company's
pending or future patent applications
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<PAGE>
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
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, Limited ("ERBC"). The loss of the services of any of these
individuals or of ERBC 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. None of these individuals presently is covered by
key-man life insurance. See "Management."
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 Transactions." Specifically, Kurt Seifman, the beneficial owner of
1,246,300 shares of the Company's Common Stock, is the chief executive officer
of ERBC Holdings, Limited. ("ERBC") which, in turn: (i) has licensed the
Silicon-Organic (EKOR) compound technology to the Company (see "Business -
Principal Technologies - 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 - Principal Technologies - Silicon-Organic 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 developing a Moscow, Russia, parking garage
utilizing the Company's automated parking technology. See "Business - Other
Technologies - Automated Parking Garages." In addition, Hans-Joachim Skrobanek,
who is a Director and Secretary of the Company and
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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 1,110,000
shares of the Company's Common Stock, is an employee of ERBC. See "Business -
Other Technologies," "Management," and "Certain Transactions."
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.
In addition, Oleg L. Figovsky, Ph.D., a consultant to the Company, is the
originator and developer of three technologies, "Interpenetrated Network
Polymers," "Liquid Ebonite Material" and "Rubber Concrete," all right, title and
interest in which was purchased by the Company from Dr. Figovsky in January,
1998, for an aggregate purchase price of $125,000 plus royalties equal to 49% of
the Company's net revenues from the sale and/or licensing of such technologies,
payable for a period of 15 years commencing on January 1, 1998. Furthermore, one
of the Company's Principal Technologies, the production of industrial coatings
based on non-isosyauate polyurethane, was acquired by its developer, Chemonol,
Ltd., from Dr. Figovsky. See "Business -- General -- Acquisition of Israeli
Technologies - - Incubator Technologies -- Technologies Purchased from Dr. Oleg
L. Figovsky; - Principal Technologies," "Management - Consultants," and "Certain
Transactions."
Proceeds Not Available to Company
The Company will not receive any proceeds from the sale of 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., Russian and various Western European environmental safety laws and
regulations pertaining to the containment and remediation of radioactive
contamination and the toxicity of materials used in connection therewith (in the
case of the EKOR compound), 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). Based on
the results of tests conducted at Kurchatov, the Company believes that the EKOR
compound meets applicable U.S. and German regulatory standards. However, there
can be no assurance that more stringent standards may in the future be adopted,
or that if adopted, they will not materially increase the cost to the Company of
licensing, and using the EKOR compound, or prevent its use. Moreover, there can
be no assurance that any or all jurisdictions in which the Company presently or
in the future conducts its business will not enact laws or adopt regulations
which increase the cost of or prevent the Company from licensing its other
technologies or otherwise doing business therein. Particularly in the cases of
Russia and Ukraine, the enactment of such laws or the adoption of such
regulations may have a presently unquantifiable, substantial adverse impact on
the Company's financial condition, business and business prospects. See "Risk
Factors - Risks Related to the Russian Federation and Ukraine-Political and
Social Risks, - Economic Risks; - Limited Operating History; Net Losses; Future
Losses; Initial Commercialization Stage; Uncertainty of Continuation as a Going
Concern."
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Shares Eligible for Future Sale
Of the 20,717,191 shares of the Company's Common Stock to be outstanding
after the Offering(1), 7,121,605 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. Of the
shares of Common Stock to be outstanding after the Offering(1), 3,797,229 shares
will be "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 such
"restricted" shares of Common Stock will become eligible for sale at various
times after the applicable holding period has expired, without registration. See
"Shares Eligible for Future Sale."
2,000,000 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 2,000,000 shares of Common Stock have exercised their mandatory
registration rights, Those shares have been registered in this Offering, and are
free-trading.
2,142,857 of the Shares offered hereby represent the shares of Common
Stock issuable upon the conversion of outstanding convertible debentures, and
have been registered in the Registration Statement of which this Prospectus is a
part. They will be free-trading at the time of issuance.
1,491,500 shares of Common Stock are issuable upon the exercise of
outstanding options and warrants. 657,500 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 3,634,357 shares of Common Stock
issuable upon the conversion of outstanding convertible debentures and 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.
- ----------
(1) Gives effect to the issuance of 657,500 shares of Common Stock issuable upon
exercise of stock options and warrants, and of up to 2,142,857 shares of Common
Stock issuable upon the conversion of convertible debentures, outstanding at the
date of this Prospectus. Does not give effect to the issuance of (i) up to
834,000 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."
24
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
December 31, 1996 and September 30, 1997, and (ii) as adjusted to reflect the
issuance of 657,500 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 September 30, 1997
------------------------- -------------------------
Actual As Adjusted Actual As Adjusted
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BRIDGE NOTES $ 2,000,000 $ 2,000,000 $ 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; as of
December 31, 1996, 17,223,836 shares
issued and outstanding actual, and
17,881,336 outstanding as adjusted; as of
September 30, 1997: 17,887,836 shares
issued and outstanding actual, and
18,545,336 outstanding as adjusted 4,000 4,000 4,000 4,000
Additional paid-in capital 4,804,000 6,137,000 8,207,000 9,540,000
Unearned financing costs (2,493,000) (2,493,000) (1,816,000) (1,816,000)
Deficit accumulated during the development
stage (3,990,000) (3,990,000) (9,687,000) (9,687,000)
----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIENCY) (1,675,000) (945,000) (3,292,000) (1,959,000)
----------- ----------- ----------- -----------
TOTAL CAPITALIZATION $ 325,000 $ 1,055,000 $(1,292,000) $ 41,000
=========== =========== =========== ===========
</TABLE>
25
<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 development stage, 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 in Israel, and to license
those and other Western technologies for business and other commercial
applications principally in Central Europe, Ukraine, Russia and North America.
Through the technology management expertise of its senior executives, until
recently the Company had been principally engaged in identifying, monitoring,
reviewing and assessing technologies for their commercial applicability and
potential, and in acquiring selected technologies by equity investment,
purchase, assignments, and licensing arrangements, four of which the Company
believes to be presently ready for commercialization and marketing. To that end,
the Company has decided to devote its business activities and resources
principally to the marketing and sale of those technologies, which include its
EKOR compound technology. Accordingly, the Company recently has initiated a
marketing and sales program for those four Principal Technologies, and also has
initiated discussions with a number of prominent, potential users thereof, with
a view towards the future negotiation and execution of licensing and/or joint
venture marketing and sales agreements. The Company is proceeding with the
marketing and potential application of its EKOR compound technology in
connection with nuclear contamination remediation projects at the Chernobyl
Nuclear Power Plant, and in the U.S. See "Business." 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 until recently 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, and for the period from inception to September 30,
1997, 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 any of the Company's
technologies 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: (i) negotiating and executing license and/or joint venture
agreements with industrial end-users for the marketing and sale of
"Non-isocyanate Polyurethane," "RubCon" (a rubber-based concrete) and "Liquid
Ebonite Material" (a liquid rubber, protective coating material), Israeli
technologies as to which the Company has acquired equity participation and
marketing rights (see "Business"); (ii) continuing its work with the I.V.
Kurchatov Institute ("Kurchatov") in Moscow, Russia, the Euro-Asian Physical
Society
26
<PAGE>
("EAPS"), and the Chernobyl Nuclear Power Plant ("ChNPP") with a view towards
using the EKOR compound in the remediation of ChNPP Reactor 4 (which experienced
a catastrophic near-meltdown in 1986); and (iii) through an agreement entered
into in April, 1997 with Duke Engineering and Services ("DES"), a business unit
of Duke Power Company, continue to bid jointly with DES on U.S. nuclear waste
transportation, contaminant and like projects utilizing the EKOR compound. See
"Business". To a lesser extent, the Company also intends to continue its efforts
in connection with the contemplated introduction of its waste-to-energy
technology in Ukraine, and the further development, in conjunction with
Kurchatov and EAPS, of a silicon carbide "wafer" technology with potential
application in manufacturing integrated circuit computer chips.
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 principally as a result of adding an executive
secretary, a Director of Corporate Planning and a Market Research Analyst as
employees and increased marketing and research 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 (consisting principally of expenses associated
with the final development of the EKOR compound, validation testing of the EKOR
compound and its application, and the fabrication of EKOR production equipment)
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 three
quarters 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.
For the Three Months Ended September 30, 1996
vs. the Three Months Ended September 30, 1997:
For the three months ended September 30, 1997, consulting expenses
increased from approximately $91,000 for the three months ended September 30,
1996 to approximately $433,000, principally as a result of the Company's
engagement of additional consultants in the fourth quarter of 1996 relative to
the acquisition of certain Israeli technologies. Other general and
administrative expenses for the three months ended September 30, 1997 decreased
to $139,000 from $170,000 for the three months ended
27
<PAGE>
September 30, 1996 principally as a result of the incurring of decreased
professional fees in the 1997 period as compared to the 1996 period.
Research and development expenses for the three months ended September 30,
1997, decreased to $6,000 from $359,000 for the three months ended September 30,
1996, attributable to the Company having completed research and development
related to its EKOR compound technology and having advanced that technology to
it initial commercialization stage.
For the three months ended September 30, 1997 and the three months ended
September 30, 1996, the Company incurred operating losses of $578,000 and
$620,000, respectively. These losses are principally the result of expenses
incurred in developing the Company's EKOR technology and the lack of revenues.
Interest expense and amortization of deferred and unearned finance costs
increased from $5,000 for the three months ended September 30 1996, to an
aggregate of $2,112,000 for the three months ended September 30, 1997 (of which,
$64,000 represents interest expense). This increase was attributable to
financing costs related to promissory notes of $193,000 and a bridge loan of
$2,000,000.
For the Nine Months Ended September 30, 1996
vs. the Nine Months Ended September 30, 1997:
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 of 1997 in respect of a
project to construct a parking garage facility in Moscow, Russia, utilizing the
Company's automated parking technology. The Company intends to recognize such
fee as revenue over the period of that facility's construction (See Note 4 to
accompanying financial statements). 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
principally as a result of an 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, attributable to the Company having completed the research
and development related to the EKOR compound and having advanced that technology
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. These losses are principally due to increased expenses
incurred in the development of the Company's technologies, including
administrative expenses and consulting expenses.
Interest expense and amortization of deferred and unearned finance costs
increased from $5,000 for the nine months ended September 30, 1966 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 1996. The Company has only recently initiated marketing and sales
efforts in connection with its four Principal Technologies (see "Business -
General; - Principal Technologies"), and, consequently, there can be no
assurance that the company will be profitable on quarterly or annual basis.
28
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of working capital have been net proceeds
of $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. The Company had a working
capital deficiency and stockholders' deficiency of $1,809,000 and $1,675,000,
respectively, as of December 31, 1996 and $3,427,000 and $3,292,000,
respectively, at September 30, 1997. The report of the Company's independent
certified public accountants contains an explanatory paragraph which expresses
substantial doubt as to the Company's ability to continue as a going concern.
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 by Rule 501 of Regulation D under the Securities Act of 1933, as amended
(the "Act") in reliance on an exemption from registration under Rule 506 of
Regulation D (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 require the Company to
issue to the unit holders up to 1,000,000 additional shares of common stock if
shares are not under the Act 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 two filing deadlines. To date, the Company has not met either
filing deadline and, accordingly, an additional 500,000 common shares were
issued to such holders in April, 1997, and a further 500,000 common shares have
been issued to such holders in August, 1997. See Note 6 to accompanying
financial statements. As of their maturity in December 1997, the Company had
insufficient funds to repay such notes and, accordingly, has obtained the
agreement of the noteholders to extend the notes' maturity until March 18, 1998,
in consideration of the issuance to the noteholders of an aggregate of 1,000,000
shares of the Company's Common Stock. The Company has agreed to register such
shares of Common Stock under the Act. Pursuant to the terms of the notes, as of
December 19, 1997 their interest rate has been increased to 15% per annum.
In November 1997, the Company completed a private placement of $3,000,000
principal amount of its 8% Convertible Debentures due November 27, 2000 (the
"Debentures") and of warrants (the "Warrants") to purchase up to 60,000 shares
of its Common Stock (the Debentures and Warrants, collectively, the
"Securities," and the offering of the Securities the "Debenture Offering"). The
Securities were offered and sold only to accredited investors as defined by Rule
501 of Regulation D under the Act, in reliance on an exemption from registration
under Rule 506 of Regulation D.
The Debentures may be converted by the holders thereof (each a "Debenture
Holder" and collectively the "Debenture Holders"), in whole or in part, at any
time and from time to time during the period beginning on the earlier of
February 25, 1998, or the date upon which a Registration Statement under the Act
covering the shares of Common Stock into which the Debentures are convertible
(the "Underlying Shares") is declared effective by the Securities and Exchange
Commission (the "SEC"), and ending on November 27, 2000, into a number of shares
of Common Stock equal to the quotient of (i) the outstanding principal amount of
Debentures to be converted (plus all accrued but unpaid interest thereon),
divided by (ii) the "Conversion Price" (determined as set forth below). The
Debentures may also be converted by the Company, in whole or in part, at any
time and from time to time on or after November 27, 1999 (subject to certain
restrictions relating to the registration of the Underlying Shares
29
<PAGE>
and the trading of the Company's Common Stock) into a number of shares of Common
Stock determined in accordance with the foregoing calculation. The "Conversion
Price" in relation to conversion of the Debentures by either the Debenture
Holders or the Company is the lesser of (a) $5.38 or (b) the average closing bid
price per share of Common Stock for the five trading days immediately preceding
the conversion date, multiplied by (x) 80% in the case of conversions effected
prior to May 29, 1998, (y) 75% in the case of conversions effected on or after
May 29, 1998 but prior to November 25, 1998 and (z) 70% in the case of
conversions effected on or after November 25, 1998. In the case of Debenture
conversions by Debenture Holders, the "Conversion Price" may not be less than a
specified "floor" initially set at $2.00.
The Warrants may be exercised by the holders thereof (each a "Warrant
Holder" and collectively the "Warrant Holders") at any time and from time to
time during the period beginning on November 27, 1997 and ending at 5:30 p.m.
New York time on November 27, 1999 at a per share exercise price of $4.73. The
Warrant Holders have "piggy-back" registration rights with respect to all or any
portion of the Warrant Shares, pursuant to which the Company, upon the request
of any Warrant Holder, is obligated to include the Warrant Holder's Warrant
Shares (or any portion thereof as the Warrant Holder may elect) in any
Registration Statement under the Act that the Company files with the SEC (other
than Registration Statements on Form S-8 or Form S-4 covering securities issued
by the Company pursuant to an employee benefit plan or in connection with a
merger, acquisition or similar transaction, respectively), and naming the
Warrant Holder as a selling shareholder therein.
Pursuant to the Debenture Offering the Company has agreed that if a
Registration Statement under the Act covering the Underlying Shares is either
not filed with the SEC on or prior to January 15, 1998 or, if filed, is not
declared effective by the SEC on or prior to February 16, 1998, the Company will
be obligated to pay to the Debenture Holders liquidated damages equal to 1% of
the aggregate principle amount of the then outstanding Debentures, on the first
day of each month until such filing or effectiveness deficiency is cured.
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. The Company also
has agreed to provide funding in connection with the marketing and sale of three
Israeli technologies ("RubCon," "Liquid Ebonite Mixture" and Non-isocyanate
Polyurethane, see "Business -- General; -- Principal Technologies") and to
provide funding for the further research and development of four other Israeli
technologies. See "Business -- Other Technologies." Total planned expenditures
under these programs, including related general and administrative expenses, are
expected to approximate $1,500,000 during fiscal year 1997 and $800,000 during
fiscal year 1998. The Company's principal sources of funding for these
expenditures during fiscal 1997 have been remaining cash from the Bridge
Financing ($380,000 as of December 31, 1996 and $0 as of September 30, 1997) and
loans from shareholders and other private lenders, which for the period January
1, 1997, through September 30, 1997, have totalled $368,000. The Company's
principal source of funding for these expenditures during fiscal year 1998 will
be the proceeds of the November, 1997 private placement of $3,000,000 principal
amount of 8% Convertible Debentures due November 27, 2000. As the development of
each technology is completed and the technology's commercial applications are
identified, the Company also will seek joint venture partners to fund any
further capital expenditures, including the project financing.
As discussed above, the Company may require additional financing to
continue to fund research and development efforts, operating costs and complete
necessary work to commercialize its technologies. The Company has determined not
to proceed with a previously contemplated, initial public offering of 5,000,000
shares of cumulative convertible preferred stock. Costs in connection therewith,
aggregating $75,000, will be charged to expenses during fiscal year 1997.
30
<PAGE>
The Company is exploring additional sources of working capital, including
further private sales of securities and joint ventures and licensing of
technologies. During the first three quarters of 1997 the Company relied on
shareholder loans and remaining Bridge Financing proceeds as its principal
sources of working capital. Through its joint bidding agreement with Duke
Engineering and Services (see "Business -- Principal Technologies --
Silicon-Organic Compound"), the Company has successfully bid on a remediation
demonstration project at the federal nuclear facility in Hanford, Washington.
While management believes that other successful private placement and successful
bids on U.S. nuclear remediation demonstration projects are possible, there is
no assurance that the its present joint venture with Duke Engineering and
Services will result in the award of any further nuclear remediation contracts.
No assurance can be given that the Company can successfully obtain any
additional working capital or complete any additional 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 Company's technologies. See
"Risk Factors - Need for Additional Financing; Possibility of Future Dilution; -
No Assurance of Collaborative Agreements, Licenses or Project Contracts; -
Uncertainty of Market Acceptance".
31
<PAGE>
BUSINESS
GENERAL
Eurotech, Ltd. (the "Company"), which was incorporated in May, 1995 under
the laws of the District of Columbia, is a development stage, technology
transfer, holding and management company formed to commercialize new, existing
but previously unrecognized, and previously "classified" technologies, with a
particular current emphasis on technologies developed by prominent research
institutes and individual researchers in the former Soviet Union and in Israel,
and to license those and other Western technologies for business and other
commercial applications principally in Western and Central Europe, Ukraine,
Russia, and North America. Although the Company intends to continue identifying,
monitoring, reviewing and assessing new technologies, its primary emphasis is
marketing and sales of four of its present technologies that it deems to be
ready for present commercialization (the "Principal Technologies"). Since the
Company's formation it has acquired development and marketing rights to a number
of technologies by purchase, assignments, and licensing arrangements, four of
which the Company believes to be presently ready for commercialization and
marketing. To that end, the Company recently has initiated discussions with a
number of potential end-users of those technologies, with a view towards the
future negotiation and execution of licensing and/or joint venture marketing
agreements. Additionally, the Company is proceeding with the marketing and
potential application of its silicon-organic (EKOR) compound technology (which
is one of the Principal Technologies) in connection with nuclear contamination
remediation projects at the Chernobyl Nuclear Power Plant ("ChNPP") in Ukraine,
and in the United States. See "Business - Principal Technologies," and
"Management's Discussion and Analysis of Financial Results of Operation and
Financial Condition - Plan of Operation." The Company operates its business by
licensing its technologies to end-users and through development and operating
joint ventures and strategic alliances. To date, the Company has not generated
any significant revenues from operations.
The Company's plan of operation for the next twelve months will consist of
activities principally aimed at: (i) negotiating and executing license and/or
joint venture agreements with industrial users for the marketing and sale of
coatings based on its "Non-isocyanate Polyurethane" technology, "Rub Con" (a
rubber-based concrete) and "Liquid Ebonite Material" (a liquid rubber,
protective coating material), which are Israeli technologies the Company has
acquired, and each of which is a Principal Technology; (ii) continuing its work
with the I.V. Kurchatov Institute ("Kurchatov") in Moscow, Russia, the
Euro-Asian Physical Society ("EAPS") and ChNPP with a view towards using the
EKOR compound in the remediation of ChNPP Reactor 4 (which experienced a
catastrophic near-meltdown in 1986); and (iii) through an agreement entered into
in April, 1997 with Duke Engineering and Services ("DES"), a business unit of
Duke Power Company, jointly bidding with DES on U.S. nuclear waste
transportation, remediation and like projects utilizing the EKOR compound. To a
lesser extent (and not included in the Principal Technologies), the Company also
intends to continue its efforts in connection with the contemplated introduction
of its waste-to-energy technology in Ukraine, and the further development (in
conjunction with Kurchatov and EAPS) of a silicon carbide "wafer" technology
with potential application in manufacturing integrated circuit computer chips.
Acquisition of Israeli Technologies
Incubator Technologies
The Company has agreed in principle with three Israeli technology
incubators, the Technion Entrepreneurial Incubator Co., Ltd. ("TEI"), the Ofek
Le-Oleh Foundation ("Ofek") and the Incubator for Technological
Entrepreneurship-Kiryat Weizmann, Ltd. ("Weizmann") (collectively, the
"Incubators"), to participate in certain technology research and development
projects which the Incubators individually sponsor. Pursuant thereto, 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
32
<PAGE>
Company and in such Israeli corporations as are formed for the purpose of
owning, developing and commercializing the technologies resulting from those
selected projects (each, an "Israeli Technology Company"). In furtherance of
this, the Company has opened an office at the premises of TEI in Haifa, Israel.
Pursuant to agreements with each of Chemonol, Ltd., an Israeli corporation
("Chemonol"), and with Ofek and Weizmann, the Company has invested in four such
Israel Technology Companies, to wit: Chemonol, which has developed materials and
processes for manufacturing industrial coatings embodying non-isocyanate
polyurethane ("NIPU") technology it acquired from Oleg L. Figovsky, Ph.D. (who
is a consultant to the Company) see "Business - Acquisition of Israeli
Technologies - Technologies Acquired from Dr. Oleg L. Figovsky; - Principal
Technologies," "Risk Factors - Conflicts of Interest," and "Certain Transactions
- - Acquisition of Technologies from Consultant;" Separator, Ltd. ("Separator"),
which is developing a process for the electromagnetic separation and production
of high temperature superconductive metallic powders; Remptech, Ltd.
("Remptech") which is developing processes for the production of extra-fine
cobalt and nickel powders; and Comsyntech, Ltd. ("Comsyntech"), which is
developing a process for the continuous combustion synthesis of ceramic,
composite and intermetallic powders. See "Business-Other Technologies." Under
those agreements the Company will receive 20% of each Israeli Technology
Company's common equity, and will invest U.S. $60,000 in each such corporation.
In connection with these investments, the Company also has obtained: (i) options
to purchase Ofek's 20% common equity interest in each of Remptech and
Comsyntech, each of which is exercisable for a period of 90 days commencing on
November 6, 1999 at an exercise price to be fixed by the parties; (ii) options
to acquire from the holders of a majority of the outstanding common equity (the
"Principal Shareholders") of each of Chemonol, Separator, Remptech and
Comsyntech an additional 31% of each corporation's common equity, which are
exercisable for a period of 6 months commencing on May 4, 1998 in the case of
Chemonol, 12 months commencing on September 4, 1998 in the case of Separator,
and 12 months commencing on May 6, 1998 in the cases of Remptech and Comsyntech,
each at an exercise price of U.S.$93,000, and (iii) the perpetual right to
direct the voting of the Principal Shareholders' common equity.
In the event the Company exercises the foregoing equity purchase options,
it will own 51% of each of Chemonol's and Separator's common equity and 71% of
the common equity of each of Remptech and Comsyntech, will control those
corporations, and for financial reporting purposes will consolidate each of
those corporation's balance sheets and other financial statements with the
Company's. Although the Company presently anticipates it will exercise the
Chemonol option, there is no assurance that it or any other of the foregoing
options will be exercised. There is no assurance that when such options become
exercisable the Company will have sufficient funds to exercise any of them.
Additionally, for a period of two years commencing on the date of its
registration as an Israeli corporation, the sale or other transfer of 25% or
more of the outstanding common equity of each of Chemonol, Separator, Remptech
and Comsyntech requires the consent of the Chief Scientist of the Israeli
Ministry of Commerce and Technology. The Company's options to acquire additional
common equity of the above Israeli Technology Companies are exercisable within
such two year periods and any acquisition of the common equity purchasable
thereunder will, therefore, require the Chief of Scientist's consent. Although
the Company presently expects that if requested such consent would be given,
there is no assurance that such consent will be obtained. Accordingly, the
Company intends to amend the terms of those options so as to extend their
respective exercise periods beyond the applicable two-year periods during which
the Chief of Scientist's consent is required, prior to the times they each first
commence.
Technologies Acquired from Dr. Oleg L. Figovsky
Pursuant to the Technology Purchase Agreements each dated January 1, 1998,
the Company has acquired from Oleg L. Figovsky, Ph.D. (who is a consultant to
the Company) all right, title and interest in and to the following three
technologies developed by him, inclusive of future improvements thereto:
33
<PAGE>
(i) a group of related technologies collectively known as "Interpenetrated
Network Polymers" ("INPs"), (ii) "Liquid Ebonite Material" ("LEM") and (iii)
"Rubber Concrete" ("RubCon") for purchase prices of $75,000, $15,000 and
$35,000, respectively (each, a "Purchase Price"). Pursuant to each such
Technology Purchase Agreement, during the 15-year period commencing on January
1, 1998, the Company is also obligated to pay to Dr. Figovsky royalties equal to
49% of the Company's net revenues from the sales or licensing of any products
incorporating the applicable technology, subject to the Company's right to
deduct from the first royalties otherwise payable under each agreement an
aggregate sum equal to the Purchase Price paid thereunder.
The Company believes that two of these technologies, RubCon and LEM, are
presently ready for commercialization, and has included them in the Principle
Technologies which the Company's recently indicated marketing and sales program
is directed at. RubCon is a rubberized concrete which the Company believes is
superior to presently available similar concretes and to conventional
cement-based concretes for applications in, among other things, the manufacture
of industrial floorings, equipment operating in aggressive chemical media,
building foundations, concrete pipes and outdoor structures. LEM is a synthetic,
liquid rubber having enhanced mechanical, permeability and anti-corrosive
qualities, that the Company believes can be applied successfully as a protective
covering for such things as small-diameter piping, and intricate parts of pumps,
fans and centrifuge rotors. See "Business - Principal Technologies."
The INP technology consists of a related group of technological processes
to produce a variety of polymeric compounds, including polyurethanes, that is
based on modifying the molecular structure of olygomeric cyclocarbonates. The
rights to develop one of these related technologies, "non-isocyanante
polyurethane" ("NIPU"), into industrial coatings has been acquired from Dr.
Figovsky by Chemonol, one of the four Israeli Technology Companies in which the
Company has invested (see "Business Principal Technologies") and is one of the
Company's Principal Technologies. Other INP constituent technologies presently
are in their respective research and development phases. No assurance can be
given that any of these other INP constituents will be successfully developed
or, if developed, will result in commercially saleable or profitable products or
processes.
PRINCIPAL TECHNOLOGIES
Silicon-Organic (EKOR) Compound. Pursuant to agreements variously among
the Company, "Ukrstroj" (the Ukrainian State Construction Company), ChNPP,
Kurchatov and EAPS, the Company has provided financing for and has successfully
completed demonstration testing of its proprietary silicon-organic (EKOR)
compound technology for the purpose of remediating the severe radioactive
contamination problems that persist from the 1986 explosion of Reactor 4 at
ChNPP, in Chernobyl, Ukraine. In September, 1997, pursuant to joint-bidding
agreement between the Company and Duke Engineering and Services ("DES"), a
business unit of Duke Power Company (the "Company-DES Agreement"), the Company
and DES submitted to the European Bank of Reconstruction and Development a
letter of intent to bid in "Early Biddable (Study) Projects for the Chernobyl
Unit 4 Shelter Implementation Plan." The Company believes its EKOR compound
technology is the most effective existing technology and material for containing
and facilitating the disposal of radioactive dust and waste materials.
The Company's silicon-organic (EKOR) compound technology was jointly
developed by scientists at the I.V. Kurchatov Institute ("Kurchatov") in Moscow
and the Euro-Asian 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
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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 Transactions - Silicon-Organic (EKOR)
Compound."
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. On
November 28, 1997, the Ministry of Health of the Russian Federation certified
EKOR and its components as non-toxic, thereby allowing for EKOR's production,
delivery, sale and use in the Russian Federation.
As a silicon-based elastomer, the EKOR compound has adhesive properties
that allow it to stick to a wide variety of surfaces and materials. When
applied, the EKOR compound surrounds and "glues down" nuclear debris ranging
from fine dust to broken fuel rods, and in combination with its fire-resistant
and water-proof properties, prevents such debris from migrating by water or as
air-borne particles. The EKOR compound can be applied by a number of methods,
but most generally will be sprayed onto contaminated areas using a hose and
nozzle arrangement. The foaming rate and "curing" time for the EKOR compound can
be varied, thereby allowing it to penetrate cracks and crevices before curing,
and providing a seal against the transport of radioactive particles and
water-soluble radionuclides. The application of the EKOR compound to nuclear
accident sites is intended as an interim containment measure, pending the
removal and permanent storage or other disposal of the radioactive contaminants.
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 ("ChNPP") 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 may
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, Limited, a British Virgin Islands 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 or licensing of
the EKOR compound 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
6.95% of the Company's outstanding Common Stock. See "Principal and Selling
Shareholders," and "Certain Transactions."
Based on the properties demonstrated by the EKOR compound, ChNPP (an
industrial amalgamation of the State Committee of Ukraine on Atomic Energy),
Kurchatov, "Ukrstroj" and the Company entered into a Memorandum of Intent (the
"Chernobyl Memorandum of Intent") which acknowledged the successful completion
of the laboratory development of EKOR compound applicable to the radioactive
contamination remediation of ChNPP Reactor 4, and pursuant to which the Company,
"Ukrstroj" and EAPS entered into a co-operation Agreement whereby the Company
has provided financing for demonstrating the technical and mechanical
feasibility of applying the EKOR compound for ChNPP
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Reactor 4 remediation. In furtherance of the foregoing, "Ukrstroj" and ChNPP
entered into an agreement (the "Ukrstroj"-ChNPP Agreement") to conduct such
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 also provides for the Company's
participation in and financing of the EKOR demonstration test.
On April 24, 1997, the demonstration of the equipment for synthesizing and
applying the EKOR compound was successfully conducted for officials of ChNPP and
"Ukrstroj" at the Sverdlosk Chimmash manufacturing facility in Ekaterinburg,
Russia. Following this successful demonstration, the Company, the management of
the ChNPP Reactor 4 Shelter Project, "Ukrstroj" and EAPS entered into a Joint
Working Group Agreement for the purpose of initiating the EKOR application
program at ChNPP Reactor 4, which implementation presently is expected to occur
during the second quarter of 1998. In connection therewith, and at the request
of ChNPP, the Company presently is constructing industrial scale machinery for
application of the EKOR compound at ChNPP Reactor 4, based on the application
machinery successfully demonstrated on April 24, 1997. Financing therefor is
being provided by KRH. Although the Company expects such time-frames will
substantially be met, no assurance can be given that implementation of the EKOR
application machinery at ChNPP Reactor 4 will not experience delays, and that if
delays occur, the EKOR application machinery will be completed at the time
presently contemplated. The occurrence of substantial delays will adversely
affect the Company's generation of near-term revenues.
Coordination and management of the formal selection of contractors and
technologies for studies relating to the ChNPP Reactor 4 remediation project has
been delegated to the European Bank of Reconstruction and Development ("ERBD")
on the basis of submitted bids, to be passed on by ERBD and ChNPP. It is
presently expected that ERBD, through G-7 funds, will provide the financing for
the actual remediation project. Additionally, ChNPP is authorized to initiate
further, independent studies. In September, 1997, Duke Engineering and Services
("DES") on its and the Company's behalf, submitted to ERBD and ChNPP a letter of
intent to bid on the ChNPP Reactor 4 remediation project. Although no assurance
can be given, based on the Chernobyl Memorandum of Intent, the "Ukrstroj" -
ChNPP Agreement, the Co-operation Agreement, the Joint Working Group Agreement,
the results of the April 24, 1997 EKOR application demonstration test, and
ChNPP's role in the Reactor 4 remediation selection process, the Company
believes that the EKOR compound will be selected for the ChNPP Reactor 4
remediation project and that the Company will be selected as the contract vendor
of EKOR for that purpose.
In addition to remediation of ChNPP Reactor 4, the Company's near- and
mid-term commercialization and marketing efforts relative to the EKOR compound
principally are directed at nuclear waste remediation projects in the U.S.
Separately from its contemplated ChNPP bid, the Company-DES Agreement provides
for joint bidding on U.S. nuclear waste transportation, containment, storage and
burial projects utilizing the EKOR compound technology. The Company also has
entered into an agreement with the Research Center Julich, a German governmental
research institution, providing for its assistance with certifying the EKOR
compound for use in Germany. Pursuant to the Company-DES Agreement, the Company
and DES have submitted a successful, first-round demonstration project bid on
the U.S. Department of Energy's ("DoE") reactor decommissioning technology
program at DoE's Hanford, Washington, reactor facility, utilizing the EKOR
compound. Additionally, joint Company-DES bids presently are being prepared for
other DoE demonstration projects. The Company is also in the process of
identifying potential licensees of the EKOR technology, and has commenced
initial licensing discussions with a Japanese corporation. No assurance can be
given that the EKOR compound will be certified for use in Germany, that the
Hanford, Washington DoE demonstration will be successful or that if successful
it will result in a project contract being awarded to the Company, or that such
licensing discussions will successfully result in the execution of an EKOR
license.
In addition, further applications of the EKOR technology are being
reviewed for three sites in Russia: Sverdlosk Chimmash (a major development,
production and testing facility for nuclear, chemical
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and related equipment), Chelyabinsk Mayak (a plutonium production site) and Kola
(a disposal site for nuclear fuel from atomic-powered ships and submarines). To
this end, at nominal cost to it, the Company has provided EKOR documentation and
material samples to these sites, and has arranged for personnel from Kurchatov
and EAPS to be available to provide technical advice regarding pertinent
applications of the EKOR compound. To date, the Company has not entered into any
agreements pertaining to either the testing or application of the EKOR compound
at these sites.
Non-isocyanate Polyurethane. Non-isocyanate polyurethane ("NIPU") is one
of the constituent technologies of the Interpenetrated Network Polymer
technology independently developed by Dr. Oleg L. Figovsky, a consultant to the
Company. See "Business - Acquisition of Israeli Technologies Technologies
Acquired from Dr. Oleg L. Figovsky." NIPU is a modified polyurethane that does
not contain the toxic isocyanates used in the production of conventional
polyurethane. NISU has lower permeability and greater chemical resistance
qualities as compared to conventional polyurethane. The Company believes that
these advanced qualities of NIPU, which are based on hydrogen bonds within
NIPU's molecular structure, make NIPU superior to conventional polyurethanes in
connection with their use in a number of industrial application contexts such as
manufacturing automotive bumpers, paints, plastics and truck beds; airplane and
rocket sealants, interior components and seating; construction adhesives,
coatings, flooring, glues and rooftops; industrial equipment and machinery; and
consumer goods such as appliances, footwear, furniture and plastic products.
The rights to develop, market and sell industrial coatings based on NIPU
were acquired from Dr. Figovsky by Chemonol, Ltd. ("Chemonol"), an Israeli
corporation which is one of the four Israeli Technology Companies in which the
Company has invested. At the date hereof, the Company is the holder of 20% of
Chemonol's common equity, and has an option to purchase an additional 31% of
such common equity from Chemonol's Principal Shareholder. See "Business -
Acquisition of Israeli Technologies - Incubator Technologies." There can be no
assurance, however, that such $60,000 investment will be completed or that such
equity purchase option will be exercised, both of which will principally depend
upon the results of the Company's efforts to commercially market and sell NIPU
to industrial users.
Consistent with its general plan of operation, the Company intends to
market and sell NIPU through one or more license and/or joint venture agreements
with major chemical companies. In September 1997, the Company presented NIPU at
the World Congress on Polyurethanes (the "WCP"), in Amsterdam, Netherlands. As a
result of the expressions of interest shown at the WCP, the Company has recently
commenced initial discussions with several major international chemical
companies with a view towards negotiating one or more licenses and/or joint
venture agreements for the marketing and sale of NIPU. Such discussions are in
their initial stages, only, and no assurance can be given that all or any of
them will result in a NIPU license or joint venture agreement, or that such
license or agreement, if concluded, will be on terms favorable to the Company.
To date, the Company has incurred expenses of $30,000 in connection with
Chemonol, and through the end of fiscal year 1998 the Company presently expects
to incur an aggregate of $30,000 in additional such expenses, which will
principally be funded from the net proceeds of the private placement of
$3,000,000 principal amount of the Company's 8% Convertible Debentures due
November 27, 2000 (the "Debenture Offering") which was completed on November 27,
1997. See "Management's Discussion and Analysis of Results of Operation and
Financial Condition - Liquidity and Capital Resources."
Liquid Ebonite Material. Liquid Ebonite Material ("LEM") is a synthetic
liquid rubber with enhanced mechanical, permeability and anti-corrosive
qualities as compared to conventional sheet rubber coverings. In laboratory
testing, coverings made with LEM have, as compared to conventional sheet rubber
coverings, displayed greater resistance to harsh chemicals such as acids,
alkalis and benzene, and have been successfully applied to intricate and complex
surfaces such as sieve meshing. Based on the physical and chemical properties of
LEM, and on such tests, the Company believes that LEM coverings are capable of
providing superior protection to small-diameter piping, and to the intricate
parts of pumps,
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fans, centrifuge rotors. LEM can be applied to form surface coverings using
standard coating techniques, including spraying and dipping.
LEM was independently developed by Oleg L. Figovsky, Ph.D., who is a
consultant to the Company, and was acquired by the Company pursuant to a
Technology Purchase Agreement dated January 1, 1998, for a purchase price of
$15,000, plus royalties equal to 49% of the Company's net revenues from sales or
licenses of any products incorporating LEM, payable for a period of 15 years
commencing on January 1, 1998. To date, the Company has not derived any such
revenues and does not expect to derive any such revenues until the third quarter
of 1998, at the earliest. See "Business General - Acquisition of Israeli
Technologies - Technologies Acquired from Dr. Oleg L. Figovsky; "Risk Factors -
Conflicts of Interest," "Management Consultants," and "Certain Transactions."
A major international chemical company headquartered in India has
expressed interest in potentially licensing LEM for production and world-wide
distribution and sales. At such company's request, the Company is preparing
evaluation samples of LEM. No assurance can be given that such chemical company
or any chemical or other company will determine that LEM is suitable or
economically viable for its business purposes or that any
production/distribution license for LEM will be negotiated or executed with that
company. See "Business - General," "Risk Factors - Uncertainty of Sales Revenues
and of Technology Transfer Fee, Consulting Fee and Royalty Payments - No
Assurance of Joint Venture Licenses, Further Collaborative Agreements or Further
Project Contracts - Uncertainty of Market Acceptance," and "Management's
Discussion and Analysis of Results of Operation and Financial Condition - Plan
of Operation."
To date, the Company has incurred $15,000 in expenses in connection with
the LEM acquisition. Through the end of fiscal year 1998, the Company expects to
incur an aggregate of approximately $25,000 in additional, LEM-related expenses,
of which approximately $15,000 is expected to be incurred in connection with
further research and development activities, and $10,000 is expected to be
incurred in connection with marketing and sales efforts. Such additional
expenses will be funded principally through the application of the net proceeds
of the Debenture Offering.
RubCon. "RubCon" is a technologically advanced, polymer-based concrete
that utilizes polybutadiene (a polymer derived from liquid rubber) as a binding
material for the various aggregates that, together with binders, constitute
concrete. The fabrication of RubCon results in a rubberized concrete that in
laboratory testing has exhibited high degrees of compression, bending and
tensile strength, a high degree of water-resistance and a high degree of
resistance to aggressive, corrosive chemicals as compared to conventional
"cement" concrete. RubCon is applied in the same manner as conventional
concrete. The Company believes that RubCon has significant potential utility in
the manufacture of industrial flooring, equipment operating in aggressive
chemical media such as galvanic and electrolysis "baths," foundations, concrete
pipes and other underground structures, seismic reinforcement materials, and
outdoor structures such as bridges that are routinely exposed to harsh weather,
climatic and corrosive conditions.
RubCon was independently developed by Oleg L. Figovsky, Ph.D., who is a
consultant to the Company, and was acquired by the Company pursuant to a
Technology Purchase Agreement dated January 1, 1998, for a purchase price of
$35,000, plus royalties equal to 49% of the Company's net revenues from sales or
licenses of any products incorporating LEM, payable for a period of 15 years
commencing on January 1, 1998. To date, the Company has not derived any such
revenues and does not expect to derive any such revenues until the third quarter
of 1998, at the earliest. See "Business General - Acquisition of Israeli
Technologies - Technologies Acquired from Dr. Oleg L. Figovsky," "Risk Factors -
Conflicts of Interest," "Management - Consultants," and "Certain Transactions."
The Company has provided samples of RubCon to four major chemical
companies which have, variously, expressed interest in direct purchases of
RubCon and in licensing RubCon for production and commercial sale. These
chemical companies presently are evaluating RubCon. The Company currently
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anticipates that it will enter into discussions with one or more of these
companies with a view towards negotiating product purchase and/or license
agreements, as the case may be. No assurance can be given that any of those or
other chemical companies will determine that RubCon is suitable or economically
viable for its business purposes, that the Company will enter into discussions
or negotiations with any of those companies, or that, if entered into, they will
result in product purchases or license agreements. See "Business - General,"
"Risk Factors - Uncertainty of Sales Revenues and of Technology Transfer Fee,
Consulting Fee and Royalty Payments - No Assurance of Joint Venture Licenses,
Further Collaborative Agreements or Further Project Contracts - Uncertainty of
Market Acceptance," and "Management's Discussion and Analysis of Results of
Operation and Financial Condition - Plan of Operation."
To date, the Company has incurred $35,000 in expenses in connection with
the RubCon acquisition, $5,000 in connection with RubCon research and
development activities and $3,000 in marketing and sales activities related to
RubCon. Through the end of fiscal year 1998, the Company expects to incur an
aggregate of approximately $35,000 in additional, RubCon-related expenses,
principally in connection with marketing and sales efforts. Such additional
expenses will be funded principally through the application of the net proceeds
of the Debenture Offering.
OTHER TECHNOLOGIES
In addition to the foregoing Principal Technologies, with respect to which
the Company has commenced initial marketing and sales efforts, the Company also
is engaged in the continuing research and development of other technologies it
believes to be of potential, future commercial significance. The Company has
reduced its level of activity in connection with the proposed introduction of
its waste-to-energy technology in Ukraine, due to the present lack of adequate
project funding among the Company's co-venturers and the Company's belief that
the commencement of marketing and sales activities in connection with the
Principal Technologies is more likely to result in the near-to-mid-term
generation of revenues than is the existing, Ukrainian waste-to-energy venture.
Electromagnetic Separation Technology. The Company is participating in the
further research and development of a process to electromagnetically separate
high temperature superconducting ("HTSC") metal powders, that has been developed
by Separator, Ltd. ("Separator"), an Israeli corporation, which is one of the
four Israeli Technology Companies in which the Company has invested. At the date
hereof the company is the holder of 20% of Separator's common equity and has an
option to purchase an additional 31% of such common equity from Separator's
Principal Shareholders. See "Business - General - Acquisition of Israeli
Technologies - Incubator Technologies." The electromagnetic separation ("EMS")
of HTSC powdered metals is based on the interaction of HTSC particles with
alternating magnetic fields at temperatures approaching the level required for
"HTSC transition," i.e., the point at which a substance becomes superconducting.
The research and testing data provided by Separator indicates that the EMS
technology allows for the extraction of powdered metal particles having optimal
electrophysical qualities, and in the production of HTSC metallic powders with a
critical electrical current that exceeds those of HTSC powders produced using
conventional technologies. Based on demonstration testing conducted by
Separator, the Company believes that the EMS process for HTSC metallic powder
can be used with a variety of powdered metals, and can be configured either as a
small bench testing device for laboratory applications at universities and
research and development companies, or as an industrial-scale device with the
capacity to produce up to 8 kilograms per hour of HTSC powdered metal. The
Company believes that the EMS technology can be commercially applied in the
production of underground electric transmission cables, transformers, electric
power system control and protection systems, motors, generators, magnetic
resonance imaging equipment and cellular telephone base stations.
To date, the Company has invested $30,000 in Separator, and pursuant to
its agreement with the Incubator for Technological Entrepreneurship - Kiryat
Weizmann, Ltd., an Israeli technology incubator, and the individual originators
of the EMS technology, the Company expects to invest an additional
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$30,000 during 1998. Assuming the completion of the contemplated $60,000
investment, if the Company exercises its equity purchase option, the Company
will own 51% of Separator's voting equity and will control Separator. Although
the Company presently intends to complete the $60,000 investment in Separator
and expects to exercise its equity purchase option, there can be no assurance
that the investment will be completed or that the equity purchase option will be
exercised, both of which will principally depend upon the results of further
research and development activities and later expressions of commercial
interest, if any, in the EMS technology.
Powdered Metallurgy Technology. The Company is participating in the
further research and development of a process developed by Remptech, Ltd.
("Remptech") an Israeli corporation, to produce extra fine cobalt and nickel
powders by recycling materials containing cobalt and nickel. Remptech is one of
the four Israeli Technology Companies in which the Company has invested. At the
date hereof the Company is the holder of 20% of Remptech's common equity and has
options to purchase the 20% common equity interest in Remptech of the Ofek
Le-Oleh Foundation ("Ofek"), an Israeli technology incubator that is partially
sponsoring Remptech's research and development activities, and an additional 31%
of such common equity from Remptech's Principal Shareholders. See "Business -
Acquisition of Israeli Technologies - Incubator Technologies." Powdered
metallurgy is generally acknowledged as being capable of yielding product with
superior structural, physical and mechanical properties. The Company believes
that the powdered metallurgy process developed by Remptech is technologically
advanced and, based on Remptech's research and testing data, is capable of
producing cobalt and nickel powders of very high purity and very small grain
size. The powdered metallurgy technology is based on recycling cobalt and
nickel-containing materials using internal hydrogen in composition with cobalt
and nickel fluoride salts. Remptech data presently indicates that the resulting
cobalt and nickel powders have a purity of 99.8% and a grain size of 1-2
microcentimeters. The Company believes that such purities and grain sizes are
significant factors in the manufacture of materials of high quality and internal
physical integrity from powdered cobalt and nickel. Cobalt and nickel are among
the three naturally occurring elements that display magnetic properties at room
temperature and are widely used in metal alloys. Powdered cobalt and nickel are
used in a wide variety of industrial applications, including magnetic,
electrical and electronic materials and products.
To date, the Company has invested $21,000 in Remptech and pursuant to its
agreement with Ofek and the individual originators of the Powdered Metallurgy
technology, the Company expects to invest an additional $39,000 during 1998.
Assuming completion of the contemplated $60,000 investment, if the Company
exercises its equity purchase options, the Company will own 71% of Remptech's
voting equity and will control Remptech. Although the Company presently intends
to complete the $60,000 investment in Remptech and expects to exercise its
equity purchase options, there can be no assurance that the investment will be
completed or that the equity purchase options will be exercised, both of which
will principally depend upon the results of further research and development
activities and later expressions of commercial interest, if any, in the Powdered
Metallurgy technology.
Continuous Combustion Synthesis Technology. The Company also is
participating in the further research and development of a process for the
continuous combustion synthesis ("CCS") of ceramic, composite and intermetallic
powders, including titanium carbide powder, developed by Comsyntech, Ltd.,
("Comsyntech"), an Israeli corporation which is one of the four Israeli
Technology Companies in which the Company has invested. At the date hereof the
Company is the holder of 20% of Comsyntech's common equity and has options to
purchase the 20% common equity interest in Comsyntech of the Ofek Le-Oleh
Foundation ("Ofek"), which is partially sponsoring Comsyntech's research and
development activities, and an additional 31% of such common equity from
Comsyntech's Principle Shareholders. See "Business - Acquisition of Israeli
Technologies - Incubator Technologies." CCS is a newly devised process for the
production of ceramic, composite and intermetallic powders based on utilizing
the internal chemical energy of initial reactants, performed in a continuous
action reactor, a device being developed by Comsyntech.
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Presently, ceramic, composite and intermetallic powders generally are
manufactured with the use of electrical and melting furnaces, high-temperature
sprayers and crushing and grinding equipment, in closed reactors which entails a
cyclical manufacturing process of loading, synthesis, cooling and unloading. The
Company believes that the CSS technology using the Comsyntech continuous reactor
potentially offers competitive advantages (such as increased productivity and
lower production costs) over conventional technology.
Comsyntech research and testing data indicate that materials produced with
the CSS technology have exhibited superior high-thermomechanical properties such
as high strength, thermo and wear resistance and good corrosion stability. Based
on these properties, the Company believes that the CSS technology is of
potentially significant utility in producing ceramic, composite and
intermetallic powders with potential commercial application in the production of
metal-cutting tools and abrasives; metal alloys; aircraft and automotive
combustor, nozzle and turbine parts; piezo- and ferro-electric materials; and
surgical instruments.
To date, the Company has invested $21,000 in Comsyntech and pursuant to
its agreement with Ofek and the individual originators of the CCS technology,
expects to invest an additional $39,000 during 1998. Assuming completion of the
contemplated $60,000 investment, if the Company exercises its equity purchase
options, the Company will own 71% of Comsyntech's voting equity and will control
Comsyntech. The Company presently intends to complete the $60,000 investment in
Comsyntech and expects to exercise its equity purchase option. However, there
can be no assurance that the investment will be completed or that the equity
purchase option will be exercised, both of which will principally depend upon
the results of further research and development activities and later expressions
of commercial interest, if any, in the powdered metallurgy technology.
Silicon-Carbide "Wafer" Technology. The Company is participating in the
development of a silicon carbide "wafer" technology 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 $40,000 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 automobile and aircraft
engine control systems, high power environments such as power control
transistors, and environments subject to ionizing radiation such as spacecraft.
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 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.
41
<PAGE>
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 Company, 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. Mr. Taylor will be
compensated on a per diem consulting fee basis, which presently is being
negotiated. Based on those discussions, the Company expects that Mr. Taylor's
consulting fees will be approximately $1,000 per day. Detroit Stoker will be
compensated on the basis of phased, project engineering fees which, based on its
fees for similar projects, are expected to approximate $50,000 per
waste-to-energy plant.
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. The Company has entered into a technology transfer
and consulting agreement with Eurowaste Management, Ltd., a Delaware corporation
("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 "Management," "Risk
Factors - Conflicts of Interest," and "Certain Transactions." The initial,
Cherkassy waste-to-energy facility will take approximately thirteen months to
construct. Its operational, energy output is expected to be approximately seven
megawatts per day, based on an assumed consumption of approximately 240 tons of
municipal waste per day.
Although the necessary Ukrainian governmental approvals for the Cherkassy
waste-to-energy facility have been obtained, including local site allocation and
construction approvals and 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, neither
the Ukrainian government, the city of Cherkassy nor Eurowaste has obtained
construction or other financing for the proposed Cherkassy waste-to-energy
facility. The Company is not obligated to finance or arrange for the financing
of the Cherkassy facility. However, the Company has paid the $15,000 cost of a
financial feasibility study for the proposed Cherkassy waste-to-energy facility,
which in November, 1997 was submitted by "Ukrstroj", the Ukrainian State
Construction company, to an Austrian financial institution as part of an
application for construction financing. There is no assurance that the necessary
financing will be obtained or that, if obtained, it will be on terms favorable
to the venture. Neither is there any assurance that the Ukrainian government
will not abandon its support of the proposed Cherkassy waste-to-energy
facilities in Ukraine. In the absence of such governmental support the
construction of any waste-to-energy facilities utilizing the Company's
technology cannot be expected to occur. See "Risk Factors -- Risks Relating to
the Russian Federation and Ukraine."
Automated Parking Garages. The Company has entered into a Supply and
Assembly Contract with MEPA-Sachisische Parksystemme GmbH, a German manufacturer
of parking garage systems, for the purchase of the plant, equipment and
engineering documentation for automated parking garages adapted for 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. Essentially, automobiles are raised by
elevators to computer-controlled carousels which rotate the vehicles to their
42
<PAGE>
respective parking slots. 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 has introduced 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 Company presently expects the Arbat
parking garage to be completed in or about December, 1998.
The Moscow automated parking garage is being developed by and upon
completion will be, 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, Limited, a British Virgin
Island 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 6.97% 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.
Pursuant to a technology license agreement entered into with Arbat
American, the Company has been paid a one-time royalty of U.S. $225,000 in
respect of the Arbat parking garage ($1,250 for each parking space to be
contained in the automated parking facility), which constitutes the Company's
sole compensation in respect of that facility. That agreement also provides for
the payment to the Company of a one-time royalty of U.S. $1,250 for each parking
space to be contained in any garage facilities that in the future are developed,
owned and/or operated by Arbat American and use the Company's automated parking
technology. Presently, the Company is not aware of any plans of Arbat American
for any further such parking garages. See "Risk Factors - Conflicts of
Interest," Principal and Selling Shareholders," and "Certain Transactions."
Other technologies, including the "CORO" telephone technology (see note
9(d) to Item 13. "Financial Statements and Supplementary Data"), are presently
being evaluated by the Company. Pending the results of those evaluations, the
Company has no current plans to develop or commercialize those technologies.
The Company is not a subsidiary of another corporation, entity or other
person. The Company does not have any subsidiaries.
EMPLOYEES
The Company has six 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.
43
<PAGE>
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 31, 2002, for which the Company pays an annual rent of $48,000.
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.
The Company also occupies office space at the premises of Technion
Entrepreneurial Incubator, Ltd., in Haifa, Israel, on a month-to-month tenancy
basis. The Company expects to commence rental payments for such Israeli office
in March, 1997 at the rate of $300 per month. Such office will be utilized by
the Company for its contemplated, Israeli technology development and marketing
activities. See, "Business -- General."
LITIGATION
The Company is not involved in any litigation.
44
<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 years 1996 and
1997. 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) as of December 31,
of Fiscal Year 1996 1997
- --------------------------------------------------------------------
Common Stock 59 141
Dividends. To date the Company has not declared or paid dividends on its Common
Stock. The Company presently plans to retain earnings, if any, for use in its
business.
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 .718 .531 .781 .593
SEPT. 29
OCT. 2
THRU 1 .562 1.125 .75
DEC. 29
1996
----
JAN. 2
THRU
MAR. 29 1.343 1 1.467 1.125
(Excluding Jan. 8)
APR. 1
THRU 2.312 .625 2.406 .75
JUNE 21
JUNE 24
THRU 2.625 2 2.875 2.375
JUNE 28
45
<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
1997
----
JAN. 2
THRU 12.25 5.625 12.50 6
MAR. 31
APR. 1 6.50 5 7 5.25
THRU
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.
46
<PAGE>
MANAGEMENT
Executive Officers and Directors
Name Age Position with the Company
---- --- -------------------------
Randolph A. Graves, Jr. 57 Director, Chairman and Chief Executive
Officer, President
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.
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.
KEY CONSULTANTS
Name Age
---- ---
Oleg L. Figovsky 57
James D. Watkins 70
Oleg L. Figovsky has served as a technology and business development
consultant to the Company since April, 1996. From 1993 Dr. Figovsky has served
as the General Manager of Polyadd, Ltd., an Israeli corporation. From 1992 until
1993, Dr. Figovsky was the Manager of Research and Development at the Israeli
Corrosion Research Institute. From 1990 until 1991 Dr. Figovsky served as the
Director of Research Center
47
<PAGE>
of "Intercorr", an Austrian-Russian joint venture, and from 1986 until 1991 he
was the Head of the Corrosion Protection Department of the All-Union Corrosion
Protection Research Institute in Moscow, Russia. Dr. Figovsky received a Masters
of Science degree in Materials Engineering from the All-Union Civil Engineering
Institute, Moscow, Russia, in 1964, a Ph.D in Materials Engineering from the
Moscow Civil Engineering Institute in 1971, and a Doctor of Science in Materials
Engineering from the Institute of Corrosion Protection, Moscow, in 1989.
James D. Watkins is a retired Admiral of the U.S. Navy, and has served as
a technology consultant to the Company since October, 1996. Since 1993, Admiral
Watkins has served as the President of the Joint Oceanographic Institutions,
Inc., in Washington, D.C. From March, 1989 until January, 1993 Admiral Watkins
served as the Secretary of the U.S. Department of Energy. Admiral Watkins was
selected as the Chief of Naval Operations in June, 1982. Admiral Watkins is a
1949 graduate of the U.S. Naval Academy, and received a Master's Degree in
Mechanical Engineering from the U.S. Naval Postgraduate School in 1958.
Executive Compensation
The following table sets forth the compensation paid by the Company for
services rendered in all capacities during the calendar years 1997, 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 $100,000.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------
Annual Compensation
- --------------------------------------------------------------------------------------------------------------
Other Annual
Salary Bonus Compensation(1)
Name and Principal Position Year ($) ($) ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Randolph A. Graves, Jr, President & Chief Executive 1997 $77,374 0 0
Officer..................................................... 1996 $77,374 $20,000 $243,109
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.
- ----------
(1) Reflects the value of common stock issued as partial compensation for
services rendered in 1995 and 1996, respectively.
48
<PAGE>
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.
On November 17, 1997, Karl J. Krobath resigned as a Director of the
Company. The Company is actively seeking to fill the resulting vacancy on its
Board of Directors.
Audit Committee of the Board of Directors
The Board of Directors has established an Audit Committee, the current
member of which is Mr. Graves. 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.
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
49
<PAGE>
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 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
50
<PAGE>
permitted by law each person that such law grants the corporation
the power to indemnify.
51
<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 7,146,605
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 1,246,300 6.95% 370,000 876,300 4.2%(1)
Peter Gulko(2)
976 Rock Haven Drive
Rockville, Maryland 20852 1,110,000 6.2 -- 1,110,000 5.4%(1)
Randolph A. Graves, Jr.(2)(3)
3299 Villanova Avenue
San Diego, California 92122 615,000 3.4 -- 615,000 3.0%(1)
Hans Joachim Skrobanek(2)
Wiesbadener Strasse 17A
D-12309 Berlin
Germany 145,000 .8 -- 145,000 .7%(1)
Mr. John A. Kinard
919 Kay Street
Murfreesboro, TN 37130 265,000 1.5 265,000 -- --(1)
Ms. D.K. Rogers
20 West 86th Street Apt 5A
New York, NY 10024 452,500 2.5 582,500 -- --(1)
Mr. Chad Nellis
3812 Pacific Avenue, #3
Marina del Rey, Ca. 90292 300,000 1.7 300,000 -- --(1)
Mr. Simon Nemzov
30 Blackstone Blvd
Providence, RI 02906 112,500 .6 112,500 -- --(1)
Mr. Miguel N. Alexiades
375-21C South End Avenue
New York, NY 10280 12,500 -- 12,500 -- --(1)
Mr. James C. Buckner
402 Harbor Drive North
Indian Rocks Beach, Fla
33785 18,750 .1 18,750 -- --(1)
</TABLE>
52
<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>
CBB Office Furnishings
Defined Benefit Plan
34 Lincoln Drive
Sausalito, Ca 94965-1641 49,250 .3 49,250 -- --(1)
Mr. Charles D. Smith
4661 Cedar Grove Road
Murfreesboro, TN 37127 150,000 .8 150,000 -- --(1)
Mr. Colin Cody
1059 Ocotillo Drive
Sun City, AZ 85373 187,500 1.0 187,500 -- --(1)
Mr. Monni Weisberger
1016 East 18th Street
Brooklyn, New York 11230 325,000 1.8 105,000 220,000 1.1(1)
Mr. David Weisberger
1016 East 18th Street
Brooklyn, NY 11230 75,000 .4 75,000 -- --(1)
Mr. Richard D. Willey &
Linda Willey JTWRS
926 Keowee Avenue
Knoxville, TN 37919 37,500 .2 37,500 -- --(1)
Mr. John C. Trotter
4309 Topside Road
Knoxville, TN 37920 37,500 .2 37,500 -- --(1)
Mr. Patrick S. Martin
8916 Strawflower Drive
Knoxville, TN 37920 206,250 1.2 206,250 -- --(1)
Chad A. Verdi
100 Pheasant Drive
E. Greenwich, RI 02818 75,000 .4 75,000 -- --(1)
Ms. Pamela Kaweske
P.O. Box 31457 SMB
Grand Cayman
Cayman Islands 93,750 .5 93,750 -- --(1)
Mr. Wesley Burdette
2733 Jersey Avenue, B-300
Knoxville, TN 37919 75,000 .4 75,000 -- --(1)
Mr. William T. Thompson
31 Ridge Road
Ridgewood, New Jersey 07450 150,000 .8 150,000 -- --(1)
Sherwood Securities
Attn: Michael Caedinale
10 Exchange Place Centre
Jersey City, N.J. 07302 100,000 .6 100,000 -- --(1)
</TABLE>
53
<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>
David Wilkes
15 Sommerset Dr., South
Great Neck, NY 11020 75,000 .4 75,000 -- --(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 50,000 .3 50,000 -- --(1)
Jeffrey Markowitz
7 Kensington Road
Scarsdale, NY 10583 100,000 .6 250,000 -- --(1)
Richard Friedman
49 Fort Royal Isle
Fort Lauderdale, Fla. 33308 200,000 1.2 350,000 -- --(1)
Chana Sasha Foundation
1 State Street Plaza, 29th Floor
New York, NY 10004
(Morris Wolfson, President) 75,000 .4 50,000 25,000 .12(1)
Mr. Frank T. Rogers
20 West 86th Street Apt 5A
New York, NY 10024 28,124 .16 28,124 -- --(1)
Mr. Craig S. Rogers
20 West 86th Street Apt 5A
New York, NY 10024 28,124 .16 28,124 -- --(1)
Credit Suisse
c/o Nesbit Burns
Triftstrasse 4
80538 Munich
Germany
Attn: Rolf 10,000 -- 10,000 -- --(1)
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 50,000 .3 50,000 -- --(1)
</TABLE>
54
<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>
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 97,000 .54 25,000 72,000 --(1)
AIM Corporate Relations Inc.
5540 14B Avenue
Tsawwassen, British Columbia
V4M 2G6 Canada -- -- 100,000 -- .5(1)
ERBC Holdings, Ltd.
Weisbadner Strasse 1/A
D-12309 Berlin
Germany 255,000 1.4 255,000 -- --(1)
ABW Trading/NFC (Service) Ltd.
POB12 Budleigh Salterton
Devon FX96TA
England 119,000 .7 119,000 -- --(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 .17 30,500 -- --(1)
Mindy Ackerman
1137 East 24th Street
Brooklyn, NY 11210 5,000 -- 5,000 -- --(1)
</TABLE>
55
<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>
Gerald Bruno
c/o Tabb, Conigliaro &
McGaun
200 Madison Avenue
New York, NY 10016 40,000 .22 40,000 -- --(1)
EITZ Chaim Foundation
1505 Coney Island Avenue
Brooklyn, NY 11230
Richard Jedwab, Pres 5,000 -- 5,000 -- --(1)
David Lane
904 Benedict Canyon Dr.
Beverly Hills, CA 90210 35,000 .2 35,000 -- --(1)
Martin Spicer
2144 California St. #904
Washington, D.C. 20008 7,000 -- 3,000 4,000 --(1)
CDC Consulting, Inc.
19476 Dorado Dr.
Trabuco Canyon, CA 92679 -- -- 67,500 -- --(1)
JNC Opportunity Fund Ltd.
c/o Olympia Capital
(Bermuda) Ltd.
Williams House, 20 Reid St
Hamilton HM 11, Bermuda -- -- 1,835,714 -- --(1)
Diversified Strategies
Fund, L.P.
c/o Encore Capital
Management, L.L.C
12007 Sunrise Valley Dr.
Suite 460
Reston, VA 20191 -- -- 367,143 -- --(1)
Directors and Officers
As a Group
(3 Persons) 1,870,000 10.43 -- 1,870,000 9.0
</TABLE>
- ----------
(1) Gives effect to: (i) the issuance of 657,500 shares of Common Stock
issuable upon the exercise of stock options and warrants, and of up to
2,142,857 shares of Common Stock issuable upon the conversion of
convertible debentures, 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.
56
<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.
During 1977, Richard A. Wall Associates, Inc., loaned $367,000 to the
Company.
The loans made by Richard A. Wall Associates, Inc., in 1996 and in 1997
were repaid in full in fiscal years 1996 and 1996, respectively. 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 and
Kelly Capital Corporation to acquire 200,0001 shares, each, of the Company's
Common Stock in exchange for past financial public relations and investment
banking 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.(1)
The services of Mr. Wall and Kelly Capital Corporation were each valued by
the Company at $25,000, which valuation the Company believes to be fair and
reasonable.
Acquisition of Technologies from Consultant
In addition, to the Company, is the originator and developer of three
technologies, "Interpenetrated Network Polymers," "Liquid Ebonite Material" and
"Rubber Concrete," all right, title and interest in which was purchased by the
Company from Dr. Figovsky in January, 1998, for an aggregate purchase price of
$125,000 plus royalties equal to 49% of the company's net revenues from the sale
and/or licensing of such technologies, payable for a period of 15 years
commencing on January 1, 1998. Furthermore, one of the Company's Principal
Technologies, the production of industrial coatings based on non-isosyauate
polyurethane, was acquired by its developer, Chemonol, Ltd., from Dr. Figovsky.
See "Business -- General -- Acquisition of Israeli Technologies -- Incubator
Technologies - Technologies Purchased from Dr. Oleg L. Figovsky; - Principal
Technologies," Risk Factors -- Conflicts of Interest," "Management --
Consultants," and "Certain Transactions."
Common Directors and Shareholders
See "Risk Factors - Conflicts of Interest."
- ----------
(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 of Common Stock issuable upon exercise of the foregoing options
has been restated to reflect such stock split.
57
<PAGE>
ERBC Holdings, Limited. ERBC Holdings, Limited., a British Virgin Islands
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 1,110,000 shares, of the Company's Common
Stock. The chief executive officer of ERBC, Kurt Seifman, is the beneficial
owner of 1,246,300 shares of the Company's Common Stock.
Eurowaste Management, Ltd. The chairman and chief executive officer of
Eurowaste Management, Ltd., a Delaware corporation ("Eurowaste"), Karl Krobath,
is a shareholder of the Company. Mr. Krobath is the beneficial owner of 25,000
shares of the Company's Common Stock.
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.
Transactions Involving ERBC, Eurowaste and Arbat American.
See "Risk Factors - Conflicts of Interest."
Business Structure; Inter-company Relationships. The business structure
and relationships between the Company, ERBC, Eurowaste and Arbat American
diagrammed and described below (i) separate the Compan y's business purpose of
developing and commercializing technologies from end-user business operations,
and from on-going research in Russia, and (ii) advance the Company's strategy of
commercializing technologies through joint ventures, license arrangements and
strategic alliances. Additionally, such structure reduces the Company's exposure
to the various risks of conducting on-going business operations in Russia and
Ukraine. See "Risk Factors - Risks Relating to the Russian Federation and
Ukraine."
Silicon-Organic (EKOR) Compound. The Euro-Asian Physical Society ("EAPS"),
a professional society of scientists, physicists and engineers in the former
Soviet Union, is the applicant under pending patent applications in respect of
the EKOR compound filed in Russia, the U.S., Ukraine, Japan and Germany.
Pursuant to a License Agreement among EAPS (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 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.
58
<PAGE>
----------
| EAPS |
----------
|
|
Technology
License
v
|
----------
----------------| ERBC |--------------
| ---------- |
minority | 50%
shareholder | shareholder
| v v
| | |
| --------------- -------
| | EUROTECH, | | KRH |
------------->| LTD. | -------
--------------- ^
| |
| 50% of |
------>net EKOR----
profits
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.
------------------
| |
------------->| EUROTECH, LTD. |---------
| | | |
| ------------------ |
| v |
| Technology |
| License 8%
Technology v shareholder
License & ------------------ |
Transfer | EUROWASTE -<--------
Fees ------------------
--<-----------|
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.
59
<PAGE>
----------------
| EUROTECH, |
----------->| LTD. |<-------------
| ---------------- |
| v minority
| Technology shareholder
Royalties License ^
| | --------
| | | ERBC |
| | --------
v 40%
| -------------------- shareholder
----------| ARBAT AMERICAN | |
--------------------------------
v
50% shareholder
v
------------------------------
| CINEMA WORLD ON ARBAT (1)|
| (Russian operating entity) |
------------------------------
- ----------
(1) See "Business - Other Technologies - Automated Parking Garages."
60
<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 December 31, 1997,
there were outstanding 17,916,834 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.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Of the 20,717,191 shares of the Company's Common Stock to be outstanding
after the Offering(1), 7,121,605 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. Of the
shares of Common Stock to be outstanding after the Offering(1), 3,797,229 shares
will be "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 such
"restricted" shares will become eligible for sale under Rule 144, at various
times, after the applicable holding period has expired, without registration.
2,000,000 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 2,000,000 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
conversion of outstanding convertible debentures and 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 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.
Registration Rights
In connection with the Bridge Financing completed in December, 1996, the
Company granted to the holders of an aggregate of 2,000,000 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 2,000,000 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".
- ----------
(1) Gives effect to the issuance of 657,500 shares of Common Stock issuable upon
exercise of stock options and warrants, and up to 2,142,857 shares of Common
Stock issuable upon the conversion of convertible debentures, outstanding at the
date of this Prospectus. Does not give effect to the issuance of (i) up to
834,000 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."
62
<PAGE>
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.
63
<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).
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Eurotech, Ltd.
Index to Audited Financial Statements..............................F-1
Report of Independent Accountants................................. F-2
Financial Statements.............................................. F-3
Notes to Financial Statements..................................... F-7
Index to Unaudited Financial Statements.......................... F-28
Unaudited Financial Statements................................... F-29
Notes to Unaudited Financial Statements.......................... F-35
65
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
INDEX TO AUDITED 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-27
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
(Except for Note 14 dated July 1, 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, 12 and 14) -- 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 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, 11 and 14)
<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)
========== ======== ========== ========= ===========
</TABLE>
Deficit
Accumulated
During the
Development
Period Ended December 31, 1995: Stage Total
- ------------------------------ ----------- -----------
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)
=========== ===========
(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
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 (1,557) (24,639) (26,196)
Organization and patent costs - (10,953) (10,953)
Capital expenditures ---------- ----------- -----------
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
Proceeds from notes payable - 2,141,300 2,141,300
Repayment of notes payable - (141,300) (141,300)
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 the sales of its securities,
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 periods when the fees have been earned.
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, which represent both the
statutory and economic lives of the patents.
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. An impairment in the amount of the shortfall would be
recognized if those estimated future cash flows were less than
the unamortized costs.
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 has been computed based on the
weighted average number of shares of common stock outstanding
during the periods presented, which were retroactively
adjusted to give recognition to the stock split on June 1,
1996. Common stock equivalents, consisting of warrants
discussed in Note 6, were not included in the calculation of
loss per share because their inclusion would have had the
effect of decreasing the loss per share otherwise computed.
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. See Note 14.
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
======== ========
Patent costs capitalized during 1996 represent legal and other
costs related to filing of patent applications in various
countries.
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.
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 5 - NOTES PAYABLE TO/RECEIVABLES FROM RELATED PARTIES (Continued)
During 1996, the Company advanced $5,918 to Arbat Autopark,
Ltd., a company related by virtue of common shareholders.
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 three
related parties 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.
To date, the Company has not met both the April 1, 1997 and
the July 1, 1997 filing deadlines (see Note 14).
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 issued under this agreement 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.
General
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. The fair market value
of the shares issued were determined by taking into
consideration restrictions on future sale, risks associated
with start-up of a new business, lack of revenues, lack of
working capital and equity and other various economic risks.
Compensation to related parities paid in the form of shares of
common stock or stock options materially approximated amounts
which would be assessed by unrelated parties.
Warrants
In April of 1996, the Company issued 600,000 warrants, which
carry certain anti-dilution provisions, which will become
exercisable on May 22, 1997, for a term of four years at an
exercise price of $1.00 per share.
In October of 1996, the Company issued 300,000 warrants, which
carry certain anti-dilution provisions, which became
exercisable on October 1, 1996, for a period of five years at
an exercise price of $1.50 per share.
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 7 - COMMON STOCK (Continued)
At December 31, 1996, the Company had outstanding warrants to
purchase 900,000 shares of the Company's common stock.
These warrants were valued at zero in the accompanying
financial statements since the exercise price represented a
premium over the market value at the time of the issuances.
In estimating the value of warrants pursuant to the accounting
provisions of Financial Accounting Standards No. 123 ("FAS
123"), the Company used the following assumptions:
December 31, 1996
-----------------
Risk-free interest rate 6%
Expected life 3 years
Expected volatility .3
Dividend yield .00
If such accounting provisions of FAS 123 were applied, then
the Company's net loss and the net loss per share would have
been $3,764,983 and $.25, respectively, for the year ended
December 31, 1996.
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 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.
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 8 - 1995 STOCK OPTION PLAN (Continued)
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-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)
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"), a related party, 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. The Company is an 8%
shareholder of Eurowaste and will account for its
investment under the cost method.
The Company intends to recognize the $2,450,000 payment
to be received from Eurowaste as revenue from the sale
of technology in the year in which the construction
commences on the first waste-to-energy plant using this
technology. Revenue from the $425,000 design and
implementation and consulting fee will be recognized
during the construction period of each subsequent
waste-to-energy plant.
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 9 - RESEARCH, COLLABORATION AND LICENSING AGREEMENTS (Continued)
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 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 a $200,000 initial license fee upon
delivery of the technology, along with an 8% royalty
payable semi-annually on equipment gross sales.
If the technology is delivered, the Company intends to
account for the $200,000, an initial license fee and
amortize over the shorter of the economic life of the
technology or remaining term of license agreement.
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.
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
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 stock and such bonus
and other additional compensation as the Board of Directors
may authorize. The 255,000 shares issued pursuant to the
contract was valued at $152,000 and was charged to operations
during 1996.
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.
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)
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. The shares issued under the
arrangement were valued at $44,250 and the full amount was
charged to operations during 1996.
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.
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 11 - COMMITMENTS AND OTHER MATTERS (Continued)
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.
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.
Compensation paid to related parties under the above listed
consulting and other arrangements materially approximated
amounts which would be assessed by unrelated parties.
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 11 - COMMITMENTS AND OTHER MATTERS (Continued)
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.
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.
On June 23, 1997, the Company decided not to proceed with this
proposed preferred stock offering (see Note 14).
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.
F-24
<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 13 - SUPPLEMENTAL CASH FLOW INFORMATION (Continued)
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.
The Company intends to recognize revenue under this agreement
during the period under which each facility is constructed.
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-25
<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)
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. 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.
Aborted Proposed Public Offering
On June 23, 1997, the Company decided not to proceed with the
proposed preferred stock offering discussed in Note 12 to the
accompanying financial statements. Accordingly, the deferred
offering costs of $75,000 will be 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-26
<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)
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 (see Note 7). 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. To date, the
Company has issued 500,000 additional common shares to the
holders under such offering, and is currently negotiating with
the holders to extend the deadline for the second penalty.
Unless the Company is successful in its negotiations with such
holders, the agreement requires an additional 500,000 shares
to be issued to such holders which will result in a charge to
financing costs of approximately $3,000,000 during the second
half of 1997.
F-27
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
INDEX TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
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Page Nos.
---------
<S> <C>
BALANCE SHEETS F-29
At December 31, 1996 and September 30, 1997
STATEMENTS OF OPERATIONS F-30
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 F-31
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 F-32 - F-33
For the Period from Inception (May 26, 1995) to December 31, 1996
For the Nine Months Ended September 30, 1997
STATEMENTS OF CASH FLOWS F-34
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 F-35 - F-41
</TABLE>
F-28
<PAGE>
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
F-29
<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
F-30
<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
F-31
<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>
Additional
Date of Common Stock Paid-in Due from
Period Ended December 31, 1995: Transaction Shares Amount Capital Stockholders
- ------------------------------ ----------- ---------- -------- ---------- ------------
(1)
<S> <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 -
Amortization of unearned financing costs - - - -
Repayment by stockholders - - - 3,000
Net loss - - - -
----------- -------- ---------- ---------
Balance - December 31, 1996 17,223,836 $ 4,306 $4,804,298 $ -
========== ======== ========== =========
<CAPTION>
Deficit
Accumulated
Unearned During the
Financing Development
Period Ended December 31, 1995: Costs Stage Total
- ------------------------------ --------- ----------- -----------
<S> <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) - - 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) (2,719,875) - -
Amortization of unearned financing costs 226,656 - 226,656
Repayment by stockholders - - 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
F-32
<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 Unearned
Date of --------------------- Paid-in Due from Financing
Period Ended September 30, 1997: Transaction Shares Amount Capital Stockholders Costs
- ------------------------------- ----------- ---------- -------- ---------- ------------ -----------
(1)
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 17,223,836 $ 4,306 $4,804,298 $ - $(2,493,219)
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 - - - - 3,402,404
Issuance of penalty stock ($5.45 per share) 06/97 500,000 125 2,724,875 - (2,725,000)
Net loss - - - - -
---------- -------- ---------- --------- -----------
Balance - September 30, 1997 17,887,836 $ 4,472 $8,206,682 $ - $(1,815,815)
========== ======== ========== ========= ===========
</TABLE>
Deficit
Accumulated
During the
Development
Period Ended September 30, 1997: Stage Total
- ------------------------------- ----------- -----------
Balance - December 31, 1996 $(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
Issuance of penalty stock ($5.45 per share) - -
Net loss (5,696,999) (5,696,999)
----------- -----------
Balance - September 30, 1997 $(9,687,208) $(3,291,869)
=========== ===========
(1) Share amounts have been restated to reflect the 4 for 1 stock split on June
1, 1996.
See notes to financial statements
F-33
<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)
----------- ----------- -----------
CASH FLOWS 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
F-34
<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.
F-35
<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.
F-36
<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.
F-37
<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.
F-38
<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.
F-39
<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.
F-40
<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.
F-41
<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.
7,121,605 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
4,280,000(1) 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 license $ 37,500
Technology development $ 165,000
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
In November 1997, the Company completed a private placement of $3,000,000
principal amount of its 8% Convertible Debentures due November 27, 2000 (the
"Debentures") and of Warrants to purchase up to 60,000 shares of the Company's
Common Stock (the "Warrants") (the Debentures and the Warrants, collectively,
the "Securities"). The Warrants were issued as additional consideration for the
purchase of the Debentures. The Securities 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. See "Management's Discussion and Analysis of Results of Operation
and Financial Condition - - Liquidity and Capital Resources." The proceeds of
such offering have been and will be used as follows:
Purpose Amount
------- ------
Technology acquisition and $ 1,000,000
development
Retirement of debt 678,000
Working capital 1,000,000
II-4
<PAGE>
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(2)
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
(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
- ----------
(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.
(2) To be filed by amendment.
II-5
<PAGE>
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.
The undersigned Registrant hereby further undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any acts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-6
<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
January 14, 1998.
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, January 14, 1998
- ------------------------------ Chief Executive Officer and
Chief Financial Officer
/s/ Jans-Joachim Skrobanek Director, Secretary January 14, 1998
- ------------------------------
/s/ Peter Gulko Director January 14, 1998
- ------------------------------
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
January 15, 1998
