SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______________ to _______________.
Commission File Number 333-26673
---------------------------------------------------
EUROTECH, LTD.
--------------
(Exact name of small business issuer as specified in its charter)
District of Columbia 33-0662435
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1216 16th Street, NW
Suite 200
Washington, DC 20036-3772
(Address of principal executive offices)
(202) 466-5591
(Issuer's telephone number)
---------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes |X| No |_|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 20,725,122 shares of Common Stock,
$0.00025 par value, were outstanding as of March 31, 1999.
Transitional Small Business Disclosure Forms (check one):
Yes |_| No |X|
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
INDEX TO FORM 10Q
MARCH 31, 1999
Page Nos.
---------
PART I - FINANCIAL INFORMATION:
ITEM I - FINANCIAL STATEMENTS
BALANCE SHEETS F-1
At December 31, 1998 and March 31, 1999
STATEMENTS OF OPERATIONS F-2
For the Three Months Ended March 31, 1998
For the Three Months Ended March 31, 1999
For the Period from Inception (May 26, 1995)
to March 31, 1999
STATEMENTS OF STOCKHOLDERS' DEFICIENCY F-3 - F-6
For the Period from Inception (May 26, 1995)
to December 31, 1998
For the Three Months Ended March 31, 1999
STATEMENTS OF CASH FLOWS F-7
For the Three Months Ended March 31, 1998
For the Three Months Ended March 31, 1999
For the Period from Inception (May 26, 1995)
to March 31, 1999
NOTES TO FINANCIAL STATEMENTS F-8 - F-13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
(Note 2)
<TABLE>
<CAPTION>
At December 31, 1998 At March 31, 1999
-------------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,940 $ 23,790
Receivable from related parties 5,918 5,918
Prepaid expenses and other current assets 200 5,547
------------ ------------
TOTAL CURRENT ASSETS 8,058 35,255
PROPERTY AND EQUIPMENT - net of accumulated
depreciation 31,846 29,797
OTHER ASSETS:
Organization and patent costs - net of accumulated
amortization 26,587 26,071
Deferred financing costs 2,361 --
Other assets 7,551 9,751
------------ ------------
TOTAL ASSETS $ 76,403 $ 100,874
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Convertible notes payable $ -- $ 450,000
Accrued liabilities 1,716,809 1,891,768
Deferred revenue 225,000 325,000
------------ ------------
TOTAL CURRENT LIABILITIES 1,941,809 2,666,768
------------ ------------
CONVERTIBLE DEBENTURES 6,970,000 6,660,000
------------ ------------
COMMITMENTS AND OTHER MATTERS (Notes 1, 2, 3, 5 and 6)
STOCKHOLDERS' 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; 19,621,882 and 20,725,122 shares issued and
outstanding at December 31, 1998 and March 31, 1999,
respectively 4,905 5,181
Additional paid-in capital 15,452,783 16,059,108
Unearned financing costs (47,500) (93,560)
Deficit accumulated during the development stage (24,245,594) (25,196,623)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIENCY (8,835,406) (9,225,894)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 76,403 $ 100,874
============ ============
</TABLE>
See notes to financial statements.
F-1
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
For the Three Months Ended March 31, from Inception
------------------------------------ (May 26, 1995) to
1998 1999 March 31, 1999
------------ ------------ -----------------
<S> <C> <C> <C>
REVENUES $ -- $ -- $ --
------------ ------------ ------------
OPERATING EXPENSES:
Research and development 307,671 293,773 3,723,878
Consulting fees 110,042 113,900 1,504,771
Compensatory element of stock issuances pursuant
to consulting agreements 110,940 89,900 2,561,127
Other general and administrative expenses 559,381 154,216 3,261,169
------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,088,034 651,789 11,050,945
------------ ------------ ------------
OPERATING LOSS (1,088,034) (651,789) (11,050,945)
------------ ------------ ------------
OTHER EXPENSES:
Interest expense 130,625 167,514 1,034,647
Amortization of deferred and unearned financing
costs 1,246,228 131,726 13,111,031
------------ ------------ ------------
TOTAL OTHER EXPENSES 1,376,853 299,240 14,145,678
------------ ------------ ------------
NET LOSS $ (2,464,887) $ (951,029) $(25,196,623)
============ ============ ============
NET LOSS PER COMMON SHARE $ (.13) $ (.05)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 18,950,336 20,074,782
============ ============
</TABLE>
See notes to financial statements.
F-2
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
FOR THE PERIOD FROM INCEPTION (MAY 26, 1995) TO DECEMBER 31, 1998
AND THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional
Date of ------------------ Paid-in
Period Ended December 31, 1995: Transaction Shares Amount Capital
- ------------------------------- ----------- ------ ------ -------
(1)
<S> <C> <C> <C> <C>
Founder shares issued ($0.00025 per share) 05/26/95 4,380,800 $1,095 $ (1,095)
Issuance of stock for offering consulting fees
($0.0625 per share) 08/31/95 440,000 110 27,390
Issuance of stock ($0.0625 and $0.25
per share) Various 4,080,000 1,020 523,980
Issuance of stock for license ($0.0625 per
share) 08/31/95 600,000 150 37,350
Issuance of stock options for offering legal
and consulting fees -- -- 75,000
Offering expenses -- -- (105,398)
Net loss -- -- --
---------- ------ ----------
Balance - December 31, 1995 9,500,800 2,375 557,227
Year Ended December 31, 1996:
- -----------------------------
Issuance of stock ($0.25 per share) Various 1,278,000 320 319,180
Exercise of stock options 01/18/96 600,000 150 --
Issuance of stock for consulting fees
($0.34375 per share) 03/22/96 160,000 40 54,960
Issuance of stock for consulting fees
($0.0625 per share) 05/15/96 2,628,000 657 163,593
Issuance of stock for consulting fees
($0.590625 per share) 06/19/96 1,500,000 375 885,563
Issuance of stock for consulting fees
($1.82 per share) 11/12/96 57,036 14 104,275
Issuance of stock pursuant to bridge financing
($1.81325 per share) 12/96 1,500,000 375 2,719,500
Amortization of unearned financing costs -- -- --
Repayment by stockholders -- -- --
Net loss -- -- --
---------- ------ ----------
Balance - December 31, 1996 17,223,836 $4,306 $4,804,298
========== ====== ==========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Unearned During the
Due from Financing Development
Period Ended December 31, 1995: Stockholders Costs Stage Total
- ------------------------------- ------------ ----- ----- -----
<S> <C> <C> <C> <C>
Founder shares issued ($0.00025 per share) $ -- $ -- $ -- $ --
Issuance of stock for offering consulting fees
($0.0625 per share) -- -- -- 27,500
Issuance of stock ($0.0625 and $0.25
per share) (3,000) -- -- 522,000
Issuance of stock for license ($0.0625 per
share) -- -- -- 37,500
Issuance of stock options for offering legal
and consulting fees -- -- -- 75,000
Offering expenses -- -- -- (105,398)
Net loss -- -- (513,226) (513,226)
------- ----------- ----------- -----------
Balance - December 31, 1995 (3,000) -- (513,226) 43,376
Year Ended December 31, 1996:
- -----------------------------
Issuance of stock ($0.25 per share) -- -- -- 319,500
Exercise of stock options -- -- -- 150
Issuance of stock for consulting fees
($0.34375 per share) -- -- -- 55,000
Issuance of stock for consulting fees
($0.0625 per share) -- -- -- 164,250
Issuance of stock for consulting fees
($0.590625 per share) -- -- -- 885,938
Issuance of stock for consulting fees
($1.82 per share) -- -- -- 104,289
Issuance of stock pursuant to bridge financing
($1.81325 per share) -- (2,719,875) -- --
Amortization of unearned financing costs -- 226,656 -- 226,656
Repayment by stockholders 3,000 -- -- 3,000
Net loss -- -- (3,476,983) (3,476,983)
------- ----------- ----------- -----------
Balance - December 31, 1996 $ -- $(2,493,219) $(3,990,209) $(1,674,824)
======= =========== =========== ===========
</TABLE>
(1) Share amounts have been restated to reflect the 4 for 1 stock split on
June 1, 1996.
See notes to financial statements.
F-3
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
FOR THE PERIOD FROM INCEPTION (MAY 26, 1995) TO DECEMBER 31, 1998
AND THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional
Date of ------------------- Paid-in
Year Ended December 31, 1997: Transaction Shares Amount Capital
- ----------------------------- ----------- ------ ------ -------
(1)
<S> <C> <C> <C> <C>
Balance - December 31, 1996 17,223,836 $4,306 $ 4,804,298
Issuance of stock for consulting fees
($2.50 per share) 03/97 64,000 16 159,984
Issuance of stock for consulting fees
($5.45 per share) 06/97 39,000 9 212,540
Issuance of stock for consulting fees
($5.00 per share) 09/97 59,000 15 294,986
Issuance of stock pursuant to penalty
provision of bridge financing
($5.45 per share) 06/97 500,000 125 2,724,875
Value assigned to conversion feature of
Convertible Debentures 11/97 -- -- 1,337,143
Value assigned to issuance of 127,500 warrants
in consideration for interest and placement
fees in connection with Convertible Debentures 11/97 -- -- 284,480
Value assigned to issuance of 35,000 warrants
to shareholder for consulting services 11/97 -- -- 39,588
Value assigned to issuance of 364,000 warrants
to shareholder as additional consideration
for financing activities 11/97 -- -- 862,680
Issuance of stock for consulting fees
($4.00 per share) 12/97 43,000 11 171,989
Accrual of stock issued January 1998 pursuant
to penalty provision of bridge financing
($2.00 per share) 12/97 1,000,000 250 1,999,750
Amortization of unearned financing costs -- -- --
Net loss -- -- --
---------- ------ -----------
Balance - December 31, 1997 18,928,836 $4,732 $12,892,313
========== ====== ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Unearned During the
Due from Financing Development
Year Ended December 31, 1997: Stockholders Costs Stage Total
- ----------------------------- ------------ ----- ----- -----
<S> <C> <C> <C> <C>
Balance - December 31, 1996 $ -- $(2,493,219) $ (3,990,209) $ (1,674,824)
Issuance of stock for consulting fees
($2.50 per share) -- -- -- 160,000
Issuance of stock for consulting fees
($5.45 per share) -- -- -- 212,549
Issuance of stock for consulting fees
($5.00 per share) -- -- -- 295,001
Issuance of stock pursuant to penalty
provision of bridge financing
($5.45 per share) -- (2,725,000) -- --
Value assigned to conversion feature of
Convertible Debentures -- (1,337,143) -- --
Value assigned to issuance of 127,500 warrants
in consideration for interest and placement
fees in connection with Convertible Debentures -- (284,480) -- --
Value assigned to issuance of 35,000 warrants
to shareholder for consulting services -- (39,588) -- --
Value assigned to issuance of 364,000 warrants
to shareholder as additional consideration
for financing activities -- (862,680) -- --
Issuance of stock for consulting fees
($4.00 per share) -- -- -- 172,000
Accrual of stock issued January 1998 pursuant
to penalty provision of bridge financing
($2.00 per share) -- (2,000,000) -- --
Amortization of unearned financing costs -- 8,426,793 -- 8,426,793
Net loss -- -- (12,441,242) (12,441,242)
--------- ----------- ------------ ------------
Balance - December 31, 1997 $ -- $(1,315,317) $(16,431,451) $ (4,849,723)
========= =========== ============ ============
</TABLE>
(1) Share amounts have been restated to reflect the 4 for 1 stock split on
June 1, 1996.
See notes to financial statements.
F-4
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM INCEPTION (MAY 26, 1995) TO DECEMBER 31, 1998
AND THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional
Date of --------------------- Paid-in
Year Ended December 31, 1998: Transaction Shares Amount Capital
- ----------------------------- ----------- ------ ------ -------
(1)
<S> <C> <C> <C> <C>
Balance - December 31, 1997 18,928,836 $4,732 $12,892,313
Issuance of stock for consulting fees
($2.58 per share) 03/98 43,000 11 110,930
Issuance of stock for consulting fees
($0.85 per share) 06/98 143,000 35 215,895
Issuance of stock for consulting fees
($0.32 per share) 09/98 126,617 32 107,503
Issuance of stock for consulting fees 12/98 155,427 39 81,505
Issuance of stock pursuant to penalty
provision of bridge financing
($1.0625 per share) 04/98 500,000 125 531,124
Value assigned to conversion feature of
Convertible Debentures and 60,000
warrants issued as additional interest 02/98 -- -- 1,100,000
Value assigned to conversion feature of
Convertible Debentures and 125,000 warrants
issued as additional interest 07/98 -- -- 475,000
Cancellation of stock issued for consulting
fees 07/98 (375,000) (94) (93,656)
Issuance of stock for conversion of debenture
note payable ($0.32 per share) 09/98, 11/98 100,002 25 32,169
Amortization of unearned financing costs -- -- --
Net loss -- -- --
---------- ------ -----------
Balance - December 31, 1998 19,621,882 $4,905 $15,452,783
========== ====== ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Unearned During the
Due from Financing Development
Year Ended December 31, 1998: Stockholders Costs Stage Total
- ----------------------------- ------------ ----- ----- -----
<S> <C> <C> <C> <C>
Balance - December 31, 1997 $ -- $(1,315,317) $(16,431,451) $(4,849,723)
Issuance of stock for consulting fees
($2.58 per share) -- -- -- 110,941
Issuance of stock for consulting fees
($0.85 per share) -- -- -- 215,930
Issuance of stock for consulting fees
($0.32 per share) -- -- -- 107,535
Issuance of stock for consulting fees -- -- -- 81,544
Issuance of stock pursuant to penalty
provision of bridge financing
($1.0625 per share) -- (531,249) -- --
Value assigned to conversion feature of
Convertible Debentures and 60,000
warrants issued as additional interest -- (1,100,000) -- --
Value assigned to conversion feature of
Convertible Debentures and 125,000 warrants
issued as additional interest -- (475,000) -- --
Cancellation of stock issued for consulting
fees -- -- -- (93,750)
Issuance of stock for conversion of debenture
note payable ($0.32 per share) -- -- -- 32,194
Amortization of unearned financing costs -- 3,374,066 -- 3,374,066
Net loss -- -- (7,814,143) (7,814,143)
------- ----------- ------------ -----------
Balance - December 31, 1998 $ -- $ (47,500) $(24,245,594) $(8,835,406)
======= =========== ============ ===========
</TABLE>
(1) Share amounts have been restated to reflect the 4 for 1 stock split on
June 1, 1996.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
FOR THE PERIOD FROM INCEPTION (MAY 26, 1995) TO DECEMBER 31, 1998
AND THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional
Date of ------------------ Paid-in
Three Months Ended March 31, 1999: Transaction Shares Amount Capital
- ---------------------------------- ----------- ------ ------ -------
(1)
<S> <C> <C> <C> <C>
Balance - December 31, 1998 19,621,882 $4,905 $15,452,783
Issuance of stock for consulting fees
($0.77 per share) 03/99 116,039 29 89,871
Issuance of stock for conversion of debenture
note payable ($0.35 per share) 02/99 987,201 247 341,029
Value assigned to conversion feature of
Convertible Debentures and 84,750 warrants
issued as additional interest 01/99 -- -- 175,425
Amortization of unearned financing costs -- -- --
Net loss -- -- --
---------- ------ -----------
Balance - March 31, 1999 20,725,122 $5,181 $16,059,108
========== ====== ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Unearned During the
Due from Financing Development
Three Months Ended March 31, 1999: Stockholders Costs Stage Total
- ---------------------------------- ------------ ----- ----- -----
<S> <C> <C> <C> <C>
Balance - December 31, 1998 $ -- $ (47,500) $(24,245,594) $(8,835,406)
Issuance of stock for consulting fees
($0.77 per share) -- -- -- 89,900
Issuance of stock for conversion of debenture
note payable ($0.35 per share) -- -- -- 341,276
Value assigned to conversion feature of
Convertible Debentures and 84,750 warrants
issued as additional interest -- (175,425) -- --
Amortization of unearned financing costs -- 129,365 -- 129,365
Net loss -- -- (951,029) (951,029)
------- --------- ------------ -----------
Balance - March 31, 1999 $ -- $ (93,560) $(25,196,623) $(9,225,894)
======= ========= ============ ===========
</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-6
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Period
March 31, from Inception
------------------------------ (May 26, 1995) to
1998 1999 March 31, 1999
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,464,887) $ (951,029) $(25,196,623)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,349 2,565 16,462
Amortization of deferred and unearned financing costs 1,246,228 131,726 13,111,031
Accrued interest 91,175 31,276 31,276
Stock issued for license -- -- 37,500
Consulting fees satisfied by stock issuances 110,940 89,900 2,561,127
------------ ------------ ------------
Sub-total (1,014,195) (695,562) (9,439,227)
Cash provided by (used in) the change in assets and liabilities:
Decrease in advances to related parties -- -- (5,918)
Increase in prepaid expenses (5,653) (5,347) (5,547)
Increase in other assets -- (2,200) (9,751)
Increase in accrued liabilities 184,830 174,959 1,543,961
Increase in deferred revenue -- 100,000 325,000
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (835,018) (428,150) (7,591,482)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Organization and patent costs -- -- (31,358)
Capital expenditures (13,984) -- (40,972)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (13,984) -- (72,330)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options
Proceeds from issuance of common stock -- -- 150
Offering costs -- -- 841,500
Repayment by stockholders -- -- (2,898)
Proceeds from Convertible Debentures -- -- 3,000
Proceeds from bridge notes 3,000,000 450,000 7,450,000
Repayments of bridge notes -- -- 2,000,000
Borrowings from stockholders (2,000,000) -- (2,000,000)
Repayment to stockholders -- -- 561,140
Deferred financing costs -- -- (561,140)
(235,000) -- (604,150)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 765,000 450,000 7,687,602
------------ ------------ ------------
(DECREASE) INCREASE IN CASH (84,002) 21,850 23,790
CASH - BEGINNING 617,756 1,940 --
------------ ------------ ------------
CASH - ENDING $ 533,754 $ 23,790 $ 23,790
============ ============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 36,630 $ -- $ 315,921
============ ============ ============
Income taxes $ -- $ -- $ --
============ ============ ============
</TABLE>
See notes to financial statements.
F-7
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
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 the year ended December 31, 1998, included in the
Company's Form 10K 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
development-stage, technology transfer, holding, marketing 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. Since the Company's formation, it has acquired development
and marketing rights to a number of technologies by purchase,
assignments, and licensing arrangements. The Company intends to
operate 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 revenues from
operations.
F-8
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
NOTE 2 - BUSINESS AND CONTINUED OPERATIONS (Continued)
The accompanying unaudited 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 March 31,
1999, the Company has a stockholders' deficiency of $9,225,894, a
working capital deficiency of $2,631,513 and an accumulated deficit
since inception of $25,196,623. The Company requires additional
funds to commercialize its technologies and continue research and
development efforts. Until 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,
not yet completely developed, or that with respect to any technology
that is fully developed, it can be manufactured on a large scale
basis or at a feasible cost. Further, no assurance can be given that
any technology will receive market acceptance. Being a start-up
stage entity, the Company is subject to all the risks inherent in
the establishment of a new enterprise and the marketing and
manufacturing of a new product, many of which risks are beyond the
control of the Company. These factors raise substantial doubt about
the Company's ability to continue as a going concern.
Since inception, the Company has financed its operations through
sale of its securities, shareholder loans, a bridge financing
totalling $2,000,000 completed in December of 1996, a Convertible
Debenture financing of $3,000,000 completed in November of 1997 and
a Convertible Debenture financing of $3,000,000 and $1,000,000
completed during February and July 1998, respectively. Proceeds from
the February 1998 Convertible Debenture financing were used to
retire the $2,000,000 bridge note. In January 1999, the Company
borrowed $450,000 from two stockholders and issued a secured
promissory note (see Note 3). 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 1999.
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.
F-9
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
NOTE 3 - NOTES PAYABLE
Secured Promissory Note
On January 6, 1999, the Company's Chairman and the majority
convertible debt holder agreed to provide $500,000 of short-term
financing to the Company, $450,000 payable on January 6, 1999 and
$50,000 payable on March 31, 1999. In exchange for this financing,
the Company issued two secured promissory notes. Each secured
promissory note bears interest at 13% per annum and is due January
6, 2000. The promissory notes are collateralized by the Company's
intangible assets and can be exchanged for 8% Convertible Debentures
under terms similar to the current outstanding debentures. As
additional consideration for the financing, the Company issued to
the secured promissory note holders warrants to purchase 84,750
shares of the Company's common stock at an exercise price of $0.36
per share. The warrants expire five years from January 6, 1999.
During the three months ended March 31, 1999, the Company received
$450,000 under such agreement.
The Company has assigned a value to the debenture's beneficial
conversion feature and warrants amounting to $175,425, and such
amount will be amortized over 180 days commencing January 6, 1999.
NOTE 4 - STOCKHOLDERS' DEFICIENCY
Significant Common Stock Issuances During 1999
During the three months ended March 31, 1999, a debenture holder
converted $310,000 of principal and $31,276 of accrued interest into
987,201 shares of common stock.
During the three months ended March 31, 1999, the Company issued
116,039 shares of common stock as consideration for consulting
services performed by various employees and consultants, including
related parties, through March 31, 1999. Shares issued under these
arrangements were valued at $89,900, which was all charged to
operations during the three months ended March 31, 1999.
F-10
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
NOTE 4 - STOCKHOLDERS' DEFICIENCY (Continued)
Earnings Per Share
Securities that could potentially dilute basic earnings per share
("EPS") in the future that were not included in the computation of
diluted EPS because to do so would have been anti-dilutive for the
periods presented consist of the following:
<TABLE>
<S> <C>
Warrants to purchase common stock 1,696,250
Convertible Debentures (assumed conversion at March 31, 1999
market value price and at largest discount) 16,504,309
----------
Total as of March 31, 1999 18,200,559
==========
Substantial issuance after March 31, 1999 through April 30, 1999:
Shares issued in connection with employment agreement 60,000
==========
</TABLE>
NOTE 5 - TECHNOLOGY INVESTMENTS AND LICENSING AGREEMENT
Investments in Israeli Technology Companies
During 1997 and 1998, the Company agreed to acquire a 20% interest
in seven separate Israeli technology, research and development
companies ("incubators"). The Company's share of losses incurred by
these companies has been accounted for on the equity basis and
included in research and development expenses.
The Company had, as of December 31, 1998, a 20% interest in
Chemonol, an Israeli research and development company. On January
20, 1999, the Company entered into an agreement to invest $300,000
in exchange for an additional 16% of Chemonol's voting stock. The
agreement provides for the Company to make four (4) equal payments
of $75,000 commencing March 1, 1999, July 1, 1999, October 1, 1999
and January 1, 2000. At the completion of the transaction, the
Company will own 36% of Chemonol. During the three months ended
March 31, 1999, the Company paid $75,000 under the agreement, which
was charged to research and development costs.
During the three months ended March 31, 1999, an additional $41,000
was invested in the seven Israeli technology incubators.
The amount charged to research and development expenses related to
these investments for the three months ended March 31, 1999
approximated $116,000, which reduced the carrying value of the
Company's investment in these seven companies to $-0- at March 31,
1999.
F-11
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
NOTE 5 - TECHNOLOGY INVESTMENTS AND LICENSING AGREEMENT (Continued)
Proposed Sale of Technology
The Company received a deposit on a proposed sale of its
sublicensing rights to Re-sealable Container Systems and TetraPak
containers. The proposed transaction is presently in the discussion
stage and to-date, no agreements have been signed. Included in
unearned revenue is the $100,000 deposit related to the proposed
sale.
NOTE 6 - CONTINGENCIES AND OTHER MATTERS
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.
Litigation
In December 1997, Raymond Dirks, Jessy Dirks, Robert Brisotti and
David Morris filed an action in the Supreme Court for the State of
New York, County of New York, against Eurotech, Ltd. for breach of
contract, seeking injunctive relief, specific performance and
monetary damages of nearly $5 million (the "Dirks Litigation"). The
Dirks Litigation arises solely from an agreement between Eurotech
and National Securities Corporation ("National") relating to
financial advisory services to be performed by National Securities
Corporation, a broker/dealer with which the plaintiffs were
affiliated and of which Raymond Dirks Research was a division.
Eurotech granted National a warrant certificate for 470,000 shares
at $1.00 per share as a retainer for general financial advisory
services. In conjunction with the separation of the plaintiffs and
Raymond Dirks Research from National Securities Corporation,
National assigned a significant portion of the warrant certificate
to the plaintiffs. It is Eurotech's position that the warrant
certificate is voidable.
The plaintiffs allege, among other things, that they are entitled to
damages composed of both the value of the stock on the date of their
purported exercise of an alleged assignment of the warrant
certificate, and the decrease in value of the price of the stock
since the date of their purported exercise. Eurotech believes that
the plaintiffs have significantly overstated their monetary damage
claim and that, having sought monetary damages, the plaintiffs are
not entitled to any type of equitable relief.
F-12
<PAGE>
EUROTECH, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
NOTE 6 - CONTINGENCIES AND OTHER MATTERS (Continued)
Litigation (Continued)
Process was served upon Eurotech at its California office in late
January 1998. Based on the advice of its outside counsel, Eurotech
believes that the plaintiffs' claims will be resolved favorably to
the Company. In response to the Dirks litigation, the Company has
filed an appropriate response, including counterclaims relating
thereto. However, it is possible that the Company will be adjudged
liable in the Dirks Litigation, and if so, the resolution of the
litigation could have a material adverse effect on the Company.
Former Employee Dispute
The former president has advised the Company that he believes that
he was wrongfully terminated under the provisions of a certain
employment agreement allegedly executed by the Company in his
behalf, and has made demand for certain payments, as provided in the
employment agreement in his possession. The Company has taken the
position that there is no valid employment agreement with the former
president and that he is not entitled to the payments demanded and
is attempting to negotiate a settlement of the matter. The Company
is unable to predict the outcome of this matter or any potential
liability, which the Company may incur.
NOTE 7 - SUBSEQUENT EVENT
Employment Agreement
In April 1999, the Company entered into an employment agreement with
the President of the Company providing for an annual salary of
$140,000. The contract will commence once the Company secures
additional funding. Until that time, the President will continue to
be compensated under the original consulting agreement with
aggregate compensation of $104,000. In addition, the Company issued
60,000 shares of common stock. According to the agreement, the
Company is obligated to issue an additional 75,000 shares of
restricted common stock on every anniversary. The agreement also
provides for other bonuses, reimbursement of expenses, employee
benefits and non-competition clauses. The agreement expires March
31, 2002 and is automatically renewable for three-year periods.
F-13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
General
The following is a discussion and analysis of the results of operations of the
Company and should be read in conjunction with the financial statements and
related notes contained in this Form 10-Q.
Certain information contained in this Form 10-Q may contain forward-looking
statements. The forward-looking statements are subject to certain risks and
uncertainties. Actual results could differ materially from current expectations.
Among the factors that could affect the Company's actual results and could cause
results to differ from those contained in the forward-looking statements
contained herein is the Company's ability to commercialize its technologies
successfully, which will be dependent on business, financial and other factors
beyond the Company's control, including, among others, market acceptance,
ability to manufacture on a large scale basis and at feasible costs, together
with all the risks inherent in the establishment of a new enterprise and the
marketing and manufacturing of new products.
Overview
The Company, incorporated in May 1995, 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 commercialize those and other Western technologies for business and other
commercial applications principally in Europe, Ukraine, Russia and North
America.
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, assignment and licensing arrangements. Although the
Company intends to continue identifying, monitoring, reviewing and assessing new
technologies, its primary emphasis will be focused on commercializing four of
its present technologies ("Principal Technologies").
The Company believes that the Principal Technologies are 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
the Principal Technologies. The Company recently has initiated a marketing and
sales program for the Principal Technologies, and also has initiated discussions
with a number of prominent, potential users of the technologies, with a view
towards the future negotiation and execution of licensing and/or joint venture
marketing and sales agreements.
The Company intends to operate 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 revenues from these
operations.
<PAGE>
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 March 31, 1999, the Company incurred a cumulative net loss of
approximately $25,196,000. The Company expects that it will generate losses
until at least such time as it can commercialize its technologies, if ever. No
assurance 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.
Results of Operations
For the Three Months Ended March 31, 1999 vs. the Three Months Ended March 31,
1998
The Company has had no revenues since inception. Consulting expenses decreased
from $221,000 for the three months ended March 31, 1998 to $204,000 for the
three months ended March 31, 1999. The decrease in consulting expense is
principally the result of the Company's reduction in the number of consultants
engaged during the period and the reduction in consulting fees paid by issuances
of common stock. Other general and administrative expenses decreased from
$559,000 for the three months ended March 31, 1998, to $154,000 for the three
months ended March 31, 1999 primarily due to a decrease in professional fees and
other costs related to the completion of a registration statement.
Research and development expenses decreased for the three months ended March 31,
1999 to $294,000, from $308,000, for the three months ended March 31, 1998.
During 1998, the Company paid $187,500 to Professor Oleg L. Figovsky, Ph.D. in
connection with four technology purchase agreements. These payments were charged
to research and development expenses during the first quarter of 1998.
For the three months ended March 31, 1999 and 1998, the Company incurred
operating losses of $652,000 and $1,088,000, respectively. The losses are
principally due to expenses incurred in the acquisition and development of its
technologies, consulting costs, general and administrative expenses and the lack
of revenues.
Other expenses, consisting of interest expense and amortization of deferred and
unearned finance costs, decreased from $1,377,000 for the three months ended
March 31, 1998 to $299,000 for the three months ended March 31, 1999. The
increase in interest expense was attributable to an increase in the amount of
debt outstanding. Amortization of deferred and unearned financing costs
decreased from $1,246,000 for the three months ended March 31, 1998 to $132,000
for the three months ended March 31, 1999. The decrease in the amortization of
deferred and unearned financing costs is principally attributable to portions of
unearned financing costs having been fully amortized during 1998.
The Company expects to incur significant losses during 1999. The Company
anticipates that any revenue recognized in 1999 will be substantially offset by
expenses incurred by the Company in its efforts to commercialize, sell and
market its Principal Technologies.
Liquidity and Capital Resources
The Company's principal sources of working capital from inception have been net
proceeds of $842,000 from the offering of common stock under Rule 504 of
Regulation D, shareholder advances aggregating $761,440, a bridge financing
completed in December 1996 of $2,000,000, and from private placement of
$3,000,000 principal amount of 8% Convertible Debentures completed in November
1997, due November 27, 2000, $3,000,000 principal amount of 8% Convertible
Debentures completed in February 1998, due February 23, 2001, $1,000,000
principal amount of 8% Convertible Debentures completed in July of 1998, due
July 20, 2001 and $450,000 of notes exchangeable for 8% Convertible Debentures
completed in January 1999.
<PAGE>
The Debentures may be converted into shares of the Company's common stock at
beneficial conversion rates based on the timing of the conversion. During the
three months ended March 31, 1999, a debenture holder exercised the conversion
right under the November 27, 1997 Convertible Debenture agreement and converted
principal of $310,000 and accrued interest of $31,276 into 987,201 shares of the
Company's common stock. Based on the bid price of the Company's common stock at
March 31, 1999, the Debentures' principal could be converted into approximately
16 million shares of the Company's common stock.
On January 6, 1999, the Company's Chairman and the majority convertible debt
holder agreed to provide $500,000 of short-term financing to the Company,
$450,000 of which was paid on January 6, 1999 and the balance of which has yet
to be received. In exchange for this financing, the Company issued two secured
promissory notes. Each secured promissory note bears interest at 8% per annum
and is due January 6, 2000. The promissory notes are collateralized by the
Company's intangible assets and can be exchanged for 8% Convertible Debentures
under terms similar to the current outstanding debentures.
During the quarter ended March 31, 1999, the Company received a deposit of
$100,000 in connection with the proposed sale of its sublicensing rights to
Resealable Container Systems and TetraPak Containers. The proposed transaction
is presently in the discussion stage and to-date, no agreements have been
signed.
During the three months ended March 31, 1999, the Company's principal source of
cash was the January 1999 secured promissory notes from which it derived net
proceeds of approximately $450,000 and a $100,000 deposit received in connection
with a proposed sale of certain sublicensing rights.
The Company has agreed in principle to fund the commercialization of certain
technologies developed in the former Soviet Union by scientists and researchers
at Kurchatov, other institutes associated therewith, and 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 in principle to provide funding in connection with the marketing and
sale of three of its Principal Technologies. Total expenditures under these
programs approximated $116,000 during the three months ended March 31, 1999. The
Company's principal source of funding for these expenditures during the three
months ended March 31, 1999 was the proceeds from the Debenture Offerings.
On January 20, 1999, the Company entered into an agreement to invest $300,000 in
exchange for an additional 16% interest in Chemonol, an Israeli research and
development company. The agreement obligates the Company to make four equal
payments of $75,000, commencing March 1, 1999, July 1, 1999, October 1, 1999 and
January 1, 2000. At the completion of the transaction, the Company will own 36%
of Chemonol's common stock. During the three months ended March 31, 1999, the
Company paid $75,000 under this obligation.
The Company will require additional financing to continue to fund research and
development efforts, operating costs and complete necessary work to
commercialize its technologies. As the development of each technology is
completed and the technology's commercial applications are identified, the
Company will seek joint venture partners to fund any further capital
expenditures, including the project financing. The Company is exploring
additional sources of working capital, including further private sales of
securities, joint ventures and licensing of technologies. During the first
quarter of 1999, the Company relied on shareholder loans of $450,000 as its
principal source of working capital. The report of the Company's independent
certified public accountants at December 31, 1998 contains an explanatory
paragraph which expresses substantial doubt as to the Company's ability to
continue as a going concern.
<PAGE>
No assurance can be given that the Company can successfully obtain any
additional financing 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.
The Company had a working capital deficiency and stockholders' deficiency of
$2,632,000 and $9,226,000, respectively, as of March 31, 1999.
Year 2000 Compliance
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are a
known risk. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of operational systems. The
Company has established processes for evaluating and managing the risks and
costs associated with this problem. The computing portfolio was identified and
an initial assessment has been completed. The cost of achieving Year 2000
compliance will not have a material impact on the accompanying financial
statements.
Impact of Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 130, "Comprehensive Income"
(SFAS 130), was issued in June 1997. SFAS 130 requires reclassification of
earlier financial statements for comparative purposes. SFAS 130 requires that
all items defined as comprehensive income, including changes in the amounts of
certain items, foreign currency translation adjustments and gains and losses on
certain securities, be shown in a financial statement SFAS 130 does not require
a specific format for the financial statement in which comprehensive income is
reported, but does require that an amount representing total comprehensive
income be reported in that statement. The adoption of SFAS 130 did not have a
material effect on the Company's financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information" ("SFAS 131"), was issued in June 1997.
SFAS 131 becomes effective for the Company's fiscal year 1999 and requires
restatement of disclosures for earlier periods presented for comparative
purposes. This new standard requires companies to disclose segment data based on
how management makes decisions about allocating resources to segments and how it
measures segment performance. SFAS 131 requires companies to disclose a measure
of segment profit or loss, segment assets, and reconciliations to consolidated
totals. It also requires entity-wide disclosures about a company's products and
services, its major customers and the material countries in which it holds
assets and reports revenues. The adoption of SFAS 131 did not have a material
effect on the Company's financial statements.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits" ("SFAS 132"), was issued in
February 1998. SFAS 132 becomes effective for 1999 and requires restatement of
disclosures for earlier periods presented for comparative purposes. SFAS 132
revises employers' disclosure about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans, but
rather standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate analysis, and eliminates certain disclosures that are no
longer useful. The adoption of SFAS 132 did not have a material effect on the
Company's financial statements.
<PAGE>
PART II -- OTHER INFORMATION.
Item 1. Legal Proceedings.
There have been no material legal proceedings to which the Company
is a party which have not been disclosed in previous filings with
the Securities and Exchange Commission. There are no material
developments to be reported in any previously reported legal
proceedings.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Not applicable.
(b) Reports on Form 8-K.
Item 27. Financial Data Schedule (2)
- ------------------------
(2) Filed herewith
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 20, 1999
------------
EUROTECH, LTD. [CORPORATE
(Registrant) SEAL]
/s/ Frank Fawcett
-------------------------------------
President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EUROTECH,
LTD. BALANCE SHEET AS OF MARCH 31, 1999 AND STATEMENT OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 24
<SECURITIES> 0
<RECEIVABLES> 6
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35
<PP&E> 41
<DEPRECIATION> 11
<TOTAL-ASSETS> 101
<CURRENT-LIABILITIES> 2,667
<BONDS> 6,660
0
0
<COMMON> 5
<OTHER-SE> (9,231)
<TOTAL-LIABILITY-AND-EQUITY> 101
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 294
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 299
<INCOME-PRETAX> (951)
<INCOME-TAX> 0
<INCOME-CONTINUING> (951)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (951)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
