<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20548
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] 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 0-23761
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 33-0751685
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Taubenstrasse 20, Berlin, Germany, D-10117
(Address of principal executive offices)
(Issuer's telephone number): 011 49 30 201-7780
Kurchatov Research Holdings, Ltd.
(Former name of issuer)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
The number of outstanding shares of the issuer's only class of common
stock as of September 30, 2000 was 15,285,911.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
INDEX TO FORM 10-QSB
SEPTEMBER 30, 2000
Page Nos.
---------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED BALANCE SHEETS F-1
December 31, 1999 and September 30, 2000
CONSOLIDATED STATEMENTS OF OPERATIONS F-2 - F-3
For the Nine Months Ended September 30, 1999 and 2000
For the Three Months Ended September 30, 1999 and 2000
For the Period from Inception (October 25, 1995) to
September 30, 2000
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DEFICIENCY) F-4 - F-7
For the Period from Inception (October 25, 1995) to
September 30,2000
CONSOLIDATED STATEMENTS OF CASH FLOWS F-8
For the Nine Months Ended September 30, 1999 and 2000
For the Period from Inception (October 25, 1995) to
September 30, 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9 - F-23
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 2
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 7
Item 2. Changes in Securities. 7
Item 3. Defaults Upon Senior Securities. 7
Item 4. Submission of Matters to a Vote of Security Holders. 7
Item 5. Other Information. 7
Item 6. Exhibits and Reports on Form 8-K. 7
SIGNATURES 8
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000
ASSETS
------
Current Assets:
Cash $ 49,891
Prepaid expenses and other assets 74,679
Securities available-for-sale 4,702,500
------------
Total Current Assets 4,827,070
Equipment, net of accumulated depreciation 160,356
Investment in Nurescell AG 302,167
------------
Total Assets $ 5,289,593
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accrued liabilities $ 1,639,375
Current portion of obligations under capital
leases 15,466
Due to related parties 1,886,880
Deferred tax liability 1,059,750
------------
Total Current Liabilities 4,601,471
------------
Long-term portion of obligations under capital leases 7,542
------------
Total Liabilities 4,609,013
------------
Commitments and Other Matters (Notes 1,3,4,8,9,10 and 11)
Stockholders' Equity:
Preferred stock - $0.001 par value; 1,000,000 shares
authorized; -0- shares issued and outstanding -
Common stock - $0.0001 par value; 50,000,000 shares
authorized; 15,285,911 shares issued and outstanding 1,889
Additional paid-in capital 4,076,497
Accumulated other comprehensive income 2,138,265
Deficit accumulated during the development stage (5,536,071)
------------
Total Stockholders' Equity 680,580
------------
Total Liabilities and Stockholders' Equity $ 5,289,593
============
The accompanying notes are an integral part of
these consolidated financial statements.
F-1
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD
FOR THE NINE MONTHS FROM INCEPTION
ENDED SEPTEMBER 30, (OCTOBER 25,1995)
--------------------------- TO SEPTEMBER 30,
1999 2000 2000
------------ ------------ ------------
Revenues $ - $ - $ -
------------ ------------ ------------
Costs and Expenses:
Research and development 823,644 115,940 1,786,314
Stock-based compensation 1,070,411 270,000 2,395,411
Consulting fees 261,017 302,263 1,229,039
Other general and administrative
expenses 286,700 1,244,603 2,205,500
Depreciation expense 44,162 14,244 123,723
Interest and amortization of
debt issuance costs 855,667 57,306 1,311,397
------------ ------------ ------------
Total Costs and Expenses 3,341,601 2,004,356 9,051,384
------------ ------------ ------------
Other:
Gain on sale of marketable
securities - (815,625) (815,625)
Acquisition of Aberdeen - 650,000 650,000
------------ ------------ ------------
Loss before extraordinary item (3,341,610) (1,838,731) (8,885,759)
Extraordinary item - gain on sale
of technology interest to former
affiliate, net of income taxes
of $-0- - - 3,349,688
------------ ------------ ------------
Net Loss $(3,341,601) $(1,838,731) $(5,536,071)
============ ============ ============
Basic and diluted loss per share:
Before extraordinary item $ (.16) $ (.12)
Extraordinary item - -
------------ ------------
Net Loss $ (.16) $ (.12)
============ ============
Weighted average shares used in
basic and diluted loss per share 21,358,754 15,182,578
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
F-2
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
-----------------------------
1999 2000
------------- -------------
Revenues $ - $ -
------------- -------------
Costs and Expenses:
Research and development 196,144 72,314
Stock-based compensation - -
Consulting fees 84,017 97,823
Other general and administrative expenses 96,141 702,244
Depreciation expense 14,721 4,401
Interest and amortization of debt issuance
costs 160,532 27,850
------------- -------------
Total Costs and Expenses 551,555 904,632
Other (Income):
Gain on sale of marketable securities - (815,625)
------------- -------------
Loss before extraordinary item (551,555) (89,007)
Extraordinary item - gain on sale of
technology interest to former affiliate,
net of income taxes of $-0- - -
------------- -------------
Net Loss $ (551,555) $ (89,007)
============= =============
Basic and diluted loss per share:
Before extraordinary item $ (.03) $ (.01)
Extraordinary item - -
------------- -------------
Net Loss $ (.03) $ (.01)
============= =============
Weighted average shares used in basic and
diluted loss per share 21,470,911 15,182,578
============= =============
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
<PAGE>
<TABLE>
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM INCEPTION (OCTOBER 25, 1995) THROUGH SEPTEMBER 30, 2000
<CAPTION>
Common Stock Additional
Date of ---------------------------- Paid-in
Transaction Shares Amount Capital
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Period from Inception (October 25, 1995)
through December 31, 1997:
---------------------------------------------
Issuance of common stock to founders for
subscriptions ($0.0001 per share) 10/25/95 12,300,000 $ 1,230 $ -
Issuance of stock for legal fees
($0.04 per share) 10/25/95 500,000 50 19,950
Issuance of stock under consulting agreement
($0.04 per share) 10/25/95 1,375,000 138 54,862
Issuance of stock under consulting agreements
($1.00 per share) 12/02/96 230,000 23 229,977
Net loss - 1996 - - -
Issuance of stock under consulting agreements
($1.00 per share) 01/10/97 750,000 75 749,925
Issuance of stock for cash pursuant to
offering ($2.00 per share) 04/97-09/97 306,500 30 612,970
Offering costs 04/97 - - (50,000)
Comprehensive income:
Net loss - 1997 - - -
------------ ------------ ------------
Balance - December 31, 1997 15,461,500 $ 1,546 $ 1,617,684
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated Total
Other During the Stockholders'
Comprehensive Development Equity Comprehensive
Income (Loss) Stage (Deficiency) Income (Loss)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Period from Inception (October 25, 1995)
through December 31, 1997:
---------------------------------------------
Issuance of common stock to founders for
subscriptions ($0.0001 per share) $ - $ - $ 1,230
Issuance of stock for legal fees
($0.04 per share) - - 20,000
Issuance of stock under consulting agreement
($0.04 per share) - - 55,000
Issuance of stock under consulting agreements
($1.00 per share) - - 230,000
Net loss - 1996 - (372,500) (372,500)
Issuance of stock under consulting agreements
($1.00 per share) - - 750,000
Issuance of stock for cash pursuant to
offering ($2.00 per share) - - 613,000
Offering costs - - (50,000)
Comprehensive income:
Net loss - 1997 - (1,267,567) (1,267,567) $ (1,267,567)
------------- ------------- ------------- -------------
Balance - December 31, 1997 $ - $ (1,640,067) $ (20,837) $ (1,267,567)
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM INCEPTION (OCTOBER 25, 1995) THROUGH SEPTEMBER 30, 2000
<CAPTION>
Common Stock Additional
Date of ---------------------------- Paid-in
Transaction Shares Amount Capital
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998:
--------------------------------
Balance - December 31, 1997, as
previously reported 15,461,500 $ 1,546 $ 1,617,684
Effect of Cetoni pooling-of-
interests 5,000,000 500 27,245
------------ ------------ ------------
Balance - December 31, 1997,
restated 20,461,500 2,046 1,644,929
Comprehensive income:
Net loss, restated for Cetoni
pooling-of-interests - - -
Other comprehensive income,
net of tax:
Translation adjustments - - -
Unrealized gains - - -
------------ ------------ ------------
Balance - December 31, 1998,
Restated 20,461,500 $ 2,046 $ 1,644,929
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated Total
Other During the Stockholders'
Comprehensive Development Equity Comprehensive
Income (Loss) Stage (Deficiency) Income (Loss)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998:
--------------------------------
Balance - December 31, 1997, as
previously reported $ - $ (1,640,067) $ (20,837)
Effect of Cetoni pooling-of-
interests 36,122 (512,769) (448,902)
------------- ------------- -------------
Balance - December 31, 1997,
restated 36,122 (2,152,836) (469,739)
Comprehensive income:
Net loss, restated for Cetoni
pooling-of-interests - (795,568) (795,568) $ (795,568)
Other comprehensive income,
net of tax:
Translation adjustments (54,137) - (54,137) (54,137)
Unrealized gains - - - -
------------- ------------- ------------- -------------
Balance - December 31, 1998,
Restated $ (18,015) $ (2,948,404) $ (1,319,444) $ (849,705)
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
ADVANCED TECHNOLOGY INDUSTRIES, INC. AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM INCEPTION (OCTOBER 25, 1995) THROUGH SEPTEMBER 30, 2000
<CAPTION>
Common Stock Additional
Date of ---------------------------- Paid-in
Transaction Shares Amount Capital
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1999:
----------------------------------
Balance - December 31, 1998,
Restated 20,461,500 $ 2,046 $ 1,644,929
Cancellation of shares issued to
founders 11/99 (6,795,000) (679) 679
Stock issued pursuant to
employment and consulting
agreements 01/99 1,009,411 101 1,009,310
Value assigned to stock options
issued in connection with
consulting agreement 01/99 - - 61,000
Value assigned to 770,000 warrants
issued in connection with
convertible debt 03/99 - - 531,000
Comprehensive income:
Net loss - - -
Other comprehensive income,
net of tax:
Translation adjustments - - -
Unrealized gains - - -
------------ ------------ ------------
Balance - December 31, 1999 14,675,911 $ 1,468 $ 3,246,918
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated Total
Other During the Stockholders'
Comprehensive Development Equity Comprehensive
Income (Loss) Stage (Deficiency) Income (Loss)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1999:
---------------------------------
Balance - December 31, 1998,
Restated $ (18,015) $ (2,948,404) $ (1,319,444)
Cancellation of shares issued
to founders - - -
Stock issued pursuant to
employment and consulting
agreements - - 1,009,411
Value assigned to stock options
issued in connection with
consulting agreement - - 61,000
Value assigned to 770,000
warrants issued in connection
with convertible debt - - 531,000
Comprehensive income, net of tax:
Net loss - (748,936) (748,936) $ (748,936)
Other comprehensive income,
net of tax:
Translation adjustments 92,899 - 92,899 92,899
Unrealized gains 1,117,500 - 1,117,500 1,117,500
------------- ------------- ------------- -------------
Balance - December 31, 1999 $ 1,192,384 $ (3,697,340) $ 743,430 $ 461,463
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM INCEPTION (OCTOBER 25, 1995) THROUGH SEPTEMBER 30, 2000
<CAPTION>
Common Stock Additional
Date of ---------------------------- Paid-in
Transaction Shares Amount Capital
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Nine Months Ended September 30, 2000:
------------------------------------
Balance - December 31, 1999 14,675,911 $ 1,468 $ 3,246,918
Stock options exercised 01/00 30,000 3 14,997
Shares issued for acquisition of Aberdeen 01/00 400,000 400 499,600
Compensatory issuance of stock 04/00 30,000 3 44,997
Value assigned to stock options issued in
connection with consulting agreements 04/00 - - 135,000
Stock options exercised 06/00 90,000 9 44,991
Compensatory issuance of stock 06/00 60,000 6 89,994
Comprehensive income:
Net loss - - -
Other comprehensive income, net of
tax: - - -
Translation adjustments - - -
Unrealized gains - - -
------------ ------------ ------------
Balance - September 30, 2000 15,285,911 $ 1,889 $ 4,076,497
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated Total
Other During the Stockholders'
Comprehensive Development Equity Comprehensive
Income (Loss) Stage (Deficiency) Income (Loss)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Nine Months Ended September 30, 2000:
------------------------------------
Balance - December 31, 1999 $ 1,192,384 $ (3,697,340) $ 743,430
Stock options exercised - - 15,000
Shares issued for acquisition of
Aberdeen - - 500,000
Compensatory issuance of stock - - 45,000
Value assigned to stock options
issued in connection with
consulting agreements - - 135,000
Stock options exercised - - 45,000
Compensatory issuance of stock - - 90,000
Comprehensive income:
Net loss - (1,838,731) (1,838,731) $ (1,838,731)
Other comprehensive income, net of
tax:
Translation adjustments 23,756 - 23,756 23,756
Unrealized gains 922,125 - 922,125 922,125
------------- ------------- ------------- -------------
Balance - September 30, 2000 $ 2,138,265 $ (5,536,071) $ 680,580 $ (892,850)
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-7
<PAGE>
<TABLE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE NINE MONTHS FOR THE PERIOD
ENDED SEPTEMBER 30, FROM INCEPTION
----------------------------- (OCTOBER 25, 1995)
1999 2000 TO SEPTEMBER 30, 2000
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,341,601) $(1,838,731) $(5,536,071)
Adjustments to reconcile net loss to net cash
used in operating activities:
Extraordinary gain - - (3,349,688)
Stock-based compensation 1,070,411 270,000 2,395,411
Acquisition of Aberdeen - 650,000 650,000
Interest and amortization of debt issuance
costs 855,667 - 1,068,191
Research and development costs 627,500 - 437,368
Depreciation 44,162 14,244 123,724
Cash provided by (used in) the change
in assets and liabilities:
Decrease (increase) in prepaid expenses
and other assets 3,346 (2,899) (29,679)
Increase in cumulative translation adjustment 4,490 23,756 98,640
Increase (decrease) in accrued liabilities (80,937) 128,259 1,639,375
------------ ------------ ------------
Net Cash Used in Operating Activities (816,962) (755,371) (2,502,729)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (14,211) (109,429) (246,775)
Investment in Nurescell AG - (302,167) (302,167)
------------ ------------ ------------
Net Cash Used in Investing Activities (14,211) (411,596) (548,942)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock - 15,000 656,975
Offering costs - - (50,000)
Proceeds from convertible debentures 750,000 - 750,000
Financing costs (75,000) - (75,000)
Sale of Eurotech investment - 534,375 534,375
Advances from related parties 2,859 763,323 1,299,509
Payments under capital lease obligations (2,895) (7,944) (14,297)
------------ ------------ ------------
Net Cash Provided by Financing Activities 674,964 1,304,754 3,101,562
------------ ------------ ------------
(Decrease) Increase in Cash (156,209) 137,787 49,891
Cash Overdraft - Beginning of Period (85,202) (87,896) -
------------ ------------ ------------
(Cash Overdraft) Cash - End of Period $ (241,411) $ 49,891 $ 49,891
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ - $ - $ 72,898
============ ============ ============
Income taxes $ - $ - $ -
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH AND FINANCING ACTIVITIES:
Equipment purchased under capital
lease obligations $ - $ - $ 37,305
============ ============ ============
Convertible debentures and interest
assumed by Eurotech $ - $ - $ 1,212,188
============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-8
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND CONTINUED OPERATIONS
Description of Business
-----------------------
Advanced Technology Industries, Inc. (the "Company", or "ATI") was incorporated
under the laws of the State of Delaware on October 25, 1995. On February 1,
2000, the Company changed its name from Kurchatov Research Holdings, Ltd. to
Advanced Technology Industries, Inc. The Company was organized to identify,
assess and commercialize technologies introduced and developed by scientists
throughout the world with particular emphasis on technologies originating in
Israel, Germany and Russia.
The Company is in the development stage and its efforts, until recently,
included the appointment of Russian scientists to the Company's technical
advisory board, the negotiation of an agreement with ERBC Holdings, Ltd.
("ERBC") to manage the Company's operations in Russia, the review of certain
technologies for commercialization, the negotiation of an agreement with
Eurotech, Ltd. ("Eurotech"), a development-stage technology transfer, holding,
marketing and management company, to undertake commercialization of the
technologies and products which may be identified by the technical advisory
board, including the introduction of a certain compound technology known as
"EKOR" to Eurotech (Note 3).
During April of 1999, the Company acquired a 20% equity interest in two Israeli
technology companies, Flexitech, Ltd. and Pirocat, Ltd. (Note 4). Further, in
December of 1999, the Company acquired all of the outstanding capital stock of
Cetoni Umwelttechnologie Entwicklungs GmbH ("Cetoni"), a German-based design and
engineering firm focused on developing and patenting technologies and products
for the consumer market.
In November of 1999, the Company sold its profit interest in the EKOR technology
to Eurotech (see Note 9).
In August of 2000, the Company acquired a 49% interest in Nurescell AG, a
Germany company, which has licensed a technology owned by Nurescell US (see Note
4).
Reorganization
--------------
Pursuant to an Agreement and Plan of Reorganization, effective January 14, 2000,
the Company acquired all the outstanding shares of common stock of Aberdeen
Acquisition Corporation ("Aberdeen"), a Delaware corporation, from the
shareholders thereof, in an exchange for cash of $150,000, plus 400,000 shares
of common stock of the Company valued at $500,000. As a result of this
transaction, Aberdeen has become a wholly-owned subsidiary of ATI effective on
January 14, 2000. The costs of this transaction were charged to operations
during the six months ended June 30,2000.
To date, the Company and Cetoni have not generated any significant revenues from
operations.
F-9
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND CONTINUED OPERATIONS (Continued)
Continued Existence
-------------------
The accompanying consolidated 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 consolidated financial statements, the Company has incurred losses
from operations since inception. Management anticipates incurring substantial
additional losses in 2000. Further, the Company may incur additional losses
thereafter, depending on its ability to generate revenues from the licensing or
sale of its technologies and products, or enter into any or a sufficient number
of joint ventures. The Company has no significant revenue to date. There is no
assurance that the Company can successfully commercialize any of its
technologies and products and realize any revenues therefrom. The Company's
technologies and products have never been utilized on a large-scale commercial
basis and there is no assurance that any of its technologies or products will
receive market acceptance. There is no assurance that the Company can continue
to identify and acquire new technologies. As of September 30, 2000, the Company
had an accumulated deficit since inception of $5,536,071.
Management's business plan will require financing. To support its operations
during 1999, the Company completed a convertible debenture financing for
$750,000 (see Note 8). During November of 1999, the Company sold its profit
interest in the EKOR technology to Eurotech in exchange for 2,000,000 shares of
Eurotech's restricted common stock, approximately 5% of the outstanding common
stock of Eurotech, plus other consideration described in Note 9. These shares
are restricted, however, the Company has demanded registration rights and
piggy-back registration rights. Eurotech's common shares trade in the
over-the-counter market and are quoted through the American Stock Exchange. The
Company plans on either borrowing funds secured by these securities or selling
all or a portion of such securities to fund its operations. The market value of
the Eurotech securities approximated $4,702,500 at September 30, 2000.
While no assurance can be given, management believes the Company can raise
adequate capital to keep the Company functioning during 2000. No assurance can
be given that the Company can continue to obtain any working capital or sell all
or any of its Eurotech securities, or obtain a loan against its Eurotech
securities, or if obtained, that such funding will not cause substantial
dilution to shareholders of the Company. If the Company is unable to raise
additional funds, it may be forced to change or delay its contemplated marketing
and business plans.
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. All of
the factors discussed above raise substantial doubt about the Company's ability
to continue as a going concern.
F-10
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND CONTINUED OPERATIONS (Continued)
Continued Existence (Continued)
-------------------
These consolidated 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
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of ATI and its
majority and wholly-owned subsidiary (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Equity Method of Accounting for Unconsolidated Foreign Affiliates
-----------------------------------------------------------------
Investments in companies in which the Company has a 20% to 50% interest and has
the ability to exercise significant influence over operating and financial
policies are accounted for on the equity method. Accordingly, the Company's
proportionate share of their undistributed earnings or losses are included in
the statement of operations.
At September 30, 2000, investments in companies accounted for under the equity
method consist of the following foreign development-stage technology companies:
County of
% Owned Operations
------- ----------
Flexitech, Ltd. ("Flexitech") 20% Israel
Pirocat, Ltd. ("Pirocat") 20% Israel
Nurescell AG 49% Germany
F-11
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income
--------------------
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes standards for
reporting comprehensive income, defined as all changes in equity from non-owner
sources. Adoption of SFAS No. 130 did not have a material effect on the
Company's financial position or results of operations. SFAS No. 130 requires
foreign currency translation adjustments and unrealized gains or losses on
investments to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of SFAS No.
130. Accumulated other comprehensive income, at September 30, 2000, consists of
the following:
Foreign currency translation adjustments $ 98,640
Unrealized gains on investments, net of
taxes of $1,059,750 2,039,625
-----------
$2,138,265
===========
NOTE 3 - RESEARCH AND DEVELOPMENT AGREEMENT
In 1996, the Company executed an agreement with Eurotech, a former affiliate,
pursuant to which Eurotech will remit to the Company 50% of the net profits
derived from the commercialization of, or other income generated from, any
technologies furnished to Eurotech by the Company's technical advisory board.
Under this agreement, the Company's technical advisory board will identify
technologies and forward such technologies to Eurotech which will seek avenues
for their commercialization.
Under the agreement with Eurotech, the Company has identified and introduced to
Eurotech a certain technology known as "EKOR" with potential uses in connection
with containing both solid and liquid 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. There
can be no assurance that this technology will be commercially saleable or
profitable.
On November 30, 1999, the Company sold its profit interest in the EKOR
technology to Eurotech (see Note 9).
F-12
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACQUISITIONS
Investments in Israeli Technology Companies
-------------------------------------------
During April of 1999, pursuant to agreements with Ofek Le-Oleh Foundation, Ltd.
(the "Foundation"), an Israeli incubator with authority from the Israeli
government, the Company has invested in two Israeli technology companies:
Flexitech, Ltd. and Pirocat, Ltd. Under those agreements, the Company received
20% of each Israeli technology company's common equity in exchange for its
investment of $60,000 in each company.
The investment is payable in installments of $15,000, to each company, due in
April of 1999, October of 1999, April of 2000 and October of 2000. In connection
with these investments, the Company also has obtained an option to purchase an
additional 20% to 25% of the common equity for a sum to be determined in the
future, which options are exercisable for a period of 90 days commencing after
the first year of the development period (generally two years from registration
as an Israeli corporation). During the development period, the sale or other
transfer of 25% or more of the inventor's equity of each of Flexitech and
Pirocat 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 Israeli technology companies are exercisable within such two-year
periods and any acquisition of the common equity purchasable thereunder will,
therefore, require the Chief Scientist's consent. The agreements require the
Company to pay royalties on future revenue generated from the commercialization
of the technologies developed by these Israeli companies.
The Company's share of losses incurred from these research companies has been
accounted for on the equity basis and is included in research and development
expenses. The amount charged to research and development expenses for the nine
months ended September 30, 2000 was $30,000, which reduced the Company's
investment in these two companies to zero.
There can be no assurance that these development projects will result in useful
technologies or that the same will be commercially saleable or profitable.
F-13
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACQUISITIONS (Continued)
Cetoni Umwelttechnologie-Entwicklungs GmbH - Pooling-of-Interests
-----------------------------------------------------------------
On December 6, 1999, the Company completed the acquisition of all of the
outstanding shares of the capital stock of Cetoni Umwelttechnologie-Entwicklungs
GmbH ("Cetoni") for 5,000,000 shares of the Company's restricted common stock.
Cetoni is a German-based design and engineering firm focused on developing and
patenting technologies and products for the consumer market. Since 1995, Cetoni
has designed and patented products for the beverage, automotive accessory,
sport, healthcare, household, office and general consumer markets. Cetoni has
not generated any significant revenues from operations to date. Management of
Cetoni believes that the research and development stage has been completed on
the majority of its products and believes that they are ready for
commercialization in consumer markets.
The acquisition has been accounted for as a pooling-of-interests. Accordingly,
the Company's consolidated financial statements have been restated for all
periods prior to the business combination to include the combined results of ATI
and Cetoni.
Net sales, loss before extraordinary item and net loss for the individual
companies reported prior to the business combination were as follows:
Years Ended December 31,
---------------------------
1998 1999
------------ ------------
Net Sales:
ATI $ - $ -
Cetoni - -
------------ ------------
Total $ - $ -
============ ============
Loss Before Extraordinary Item:
ATI $ (414,446) $(2,916,735)
Cetoni (381,122) (1,181,889)
------------ ------------
Total $ (795,568) $(4,098,624)
============ ============
Net Income (Loss):
ATI $ (414,446) $ 432,953
Cetoni (381,122) (1,181,889)
------------ ------------
Total $ (795,568) $ (748,936)
============ ============
F-14
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACQUISITIONS (Continued)
Cetoni Umwelttechnologie-Entwicklungs GmbH - Pooling-of-Interests
-----------------------------------------------------------------
(Continued)
----------
The conforming of the accounting practices of ATI and Cetoni resulted in no
adjustments to net loss or shareholders' equity. There have been no significant
intercompany transactions between ATI and Cetoni other than loans by ATI to
Cetoni.
Nurescell AG
------------
On August 22, 2000, the Company entered into a joint agreement with Nurescell,
Inc. ("Nurescell US"), a Nevada corporation, to form a German company named
Nurescell AG, which is owned 51% by Nurescell US and 49% by ATI.
In addition, Nurescell AG and Nurescell US executed a license agreement granting
an exclusive license to Nurescell AG in the countries of the former Soviet
Union, the continent of Europe and the British Isles to manufacture and market a
proprietary technology owned by Nurescell US. The technology being licensed is
defined in the license agreement by Nurescell US as a material for shielding and
internment of radioactive materials, radioactive waste, as well as providing
attenuation of x-ray energy. The license term is until August 15, 2020, or when
certain patents expire, which have been applied for by Nurescell US, whichever
later occurs.
The license agreement provides for the payment of a license fee of $1,000,000 to
Nurescell US, which sum is to be paid in four installments of $250,000,
commencing upon execution of the agreement and continuing each quarter
thereafter provided, however, that the entire $1,000,000 will be due at the time
that a minimum of $4,000,000 in capital is raised by Nurescell AG. ATI has
agreed to advance the sum of $1,000,000 to Nurescell AG in consideration for its
49% interest therein. ATI has advanced the initial payment of $250,000, which
has been paid to Nurescell US plus an additional $52,167 for start-up costs. The
source of these funds was the working capital of ATI.
The 51% interest of Nurescell US in Nurescell AG was acquired by it as
additional consideration for the granting of the license to Nurescell AG.
As part of the transaction, Nurescell AG entered into an investment agreement
with Nurescell US in that Nurescell AG, with ATI's assistance, will use its best
efforts to raise DM20 Million (approximately $9.1 Million) in capital for
Nurescell AG.
F-15
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACQUISITIONS (Continued)
Nurescell AG (Continued)
------------
In exchange of raising the above capital, the sale of Nurescell AG shares of
stock cannot exceed thirty-four percent of the outstanding shares of AG. It is
agreed that any such dilution shall apply equally to the holding of Nurescell AG
by ATI and Nurescell US, respectively.
The investment agreement provides that, for a period of five years, Nurescell AG
has the right to acquire up to $4 Million of stock of Nurescell US. Nurescell AG
and Nurescell US have agreed that the price for the stock shall be 80% of the
bid price of Nurescell US determined at specified times. Nurescell US is traded
on the OTC Bulletin Board. In addition, Nurescell AG has been granted the right
to have the shares registered at the expense of Nurescell US, if the
registration is incident to the registration of other stock by Nurescell US, or
at the expense of Nurescell AG, if it demands registration of the stock other
than incident to the registration of other stock by Nurescell US.
NOTE 5 - SECURITIES AVAILABLE-FOR-SALE
Securities available-for-sale consist of 1,500,000 shares of Eurotech restricted
common stock, which trade in the over-the-counter market and are quoted through
the American Stock Exchange. The fair value of such equity securities at
September 30, 2000 was estimated at $4,702,500. The amortized cost basis was
$1,603,125 and the unrealized gain was $3,099,375 at September 30, 2000.
NOTE 6 - CONVERTIBLE DEBENTURES
During March and April 1999, the Company completed a private placement of
$750,000 of 9% convertible debenture notes, due in March and April of 2001.
Interest on the debentures is payable in cash or in shares of common stock
calculated by dividing the interest accrued by the lesser of $1.05 or 60% of the
average closing bid price per share of common stock for the five trading days
preceding the interest payment date. As additional consideration, the Company
issued separate warrants to the purchasers to acquire an aggregate of 375,000
shares of the Company's common stock at $0.65 per share. The value of the
warrants issued to the purchasers was estimated at $259,000, as further
described in Note 8, and was charged to operations as interest expense over the
six-month period ended September 30, 1999. The warrants are exercisable over
five years. In addition, the Company issued warrants to the finders of the
transaction and its counsel to purchase an aggregate of 395,000 shares of common
stock at a price of $0.65 per share, exercisable for a five-year period after
the closing of the transaction. Further, the holders of the warrants were
granted piggy-back registration rights with respect to the shares of common
stock underlying the warrants.
F-16
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - CONVERTIBLE DEBENTURES (Continued)
The debenture agreement permits the holders of the debentures to convert the
debt into shares of common stock at beneficial conversion rates over the
two-year term of the debentures. The conversion price is the lower of $1.05, or
the average bid price per share of the Company's common stock for five trading
days immediately preceding the conversion date, multiplied by 60%. The Company,
at its option, may redeem the debentures at $1,162,500. The excess of the
redemption price of $1,162,500 over $750,000, or $412,500, was charged to
operations as interest expense over the nine-month period ended September 30,
1999.
Costs in connection with the $750,000 Convertible Debenture offering allocated
to the Convertible Debentures were comprised of: (i) a placement fee to an
unrelated party amounting to $75,000 and (ii) warrants issued to the placement
agent and its counsel to purchase 395,000 shares of the Company's common stock
at $0.65 per share, valued at $272,000, as further described in Note 8. The
Company amortized such costs as interest expense over the six-month period ended
September 30, 1999.
Proceeds of the offering were used to pay the first payment for the acquisition
of equity interests in two Israeli technology companies, past due legal fees,
and advances to Cetoni.
On November 30, 1999, as part of the sale of the Company's rights to the EKOR
technology, all outstanding principal, interest and other fees related to the
convertible debentures were assumed by Eurotech. The Company accounted for the
assumption of the debt by Eurotech as if the Company had redeemed the debt.
F-17
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES
The Company has not provided for income taxes for the nine months ended
September 30, 2000, as a result of net operating losses incurred since
inception.
The components of deferred tax assets and liabilities at September 30, 2000 are
as follows:
Deferred Tax Assets:
Net operating loss carryforwards $ 180,000
Compensatory element of stock issuances 536,000
-----------
Total Gross Deferred Tax Assets 716,000
Less: Valuation allowance 536,000
-----------
Net Deferred Tax Assets $180,000
Deferred Tax Liability:
Unrealized gains on available-for-sale
securities (1,239,750)
-----------
Net Deferred Tax Liability - Current $1,059,750
===========
The net change in the valuation allowance for deferred tax assets was an
increase of approximately $18,000 during the nine months ended September 30,
2000. The current deferred tax liability of approximately $1,059,750 was
included in accumulated other comprehensive income in stockholders' equity as of
September 30, 2000.
As of September 30, 2000, the Company had available approximately $450,000 of
net operating losses ("NOL") for income tax purposes that may be carried forward
to offset future taxable income, if any. The NOL carryforwards from December 31,
1997 and prior years expire during the years 2010 through 2013, and the December
31, 1998, 1999 and 2000 NOL carryforwards expire in the years 2018, 2019 and
2020, respectively.
F-18
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES (Continued)
A reconciliation between the statutory federal income tax rate (34%) and the
Company's effective rate is as follows:
For the Nine Months
Ended September 30,
--------------------
1999 2000
-------- --------
Federal statutory rate (34.0)% (34.0)%
Non-deductible expenses and
unutilized losses 32.0 32.0
Change in valuation allowance 2.0 2.0
-------- --------
Effective rate -0- % -0- %
======== ========
NOTE 8 - STOCKHOLDERS' EQUITY
Common Stock
------------
In connection with the organization of the Company, in October 1995, the Company
issued 12,300,000 shares to its founders, CIS Development Corp. ("CIS") and
ERBC, for subscriptions totalling $1,230.
For the period from inception (October 25, 1995) through December 31, 1996, the
Company issued 2,105,000 shares of common stock as consideration for legal and
consulting services performed by various consultants, including related parties,
through December 31, 1996. Shares issued under these arrangements were valued at
$305,000, which was charged to operations for the year ended December 31, 1996.
F-19
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDERS' EQUITY (Continued)
Common Stock (Continued)
------------
During the year ended December 31, 1997, the Company issued 750,000 shares of
common stock pursuant to consulting arrangements with various consultants,
including related parties. Shares issued under these arrangements were valued at
$750,000, which was charged to operations during 1997.
Pursuant to an offering under Rule 504 of Regulation D of the Securities Act of
1933, the Company offered for sale 487,500 shares of its common stock at $2.00
per share. During 1997, the Company sold 306,500 shares of its common stock
under this offering, and derived aggregate proceeds of $613,000. Costs in
connection with this offering approximated $50,000 and were charged against
paid-in capital during the year ended December 31, 1997.
In January of 1999, the Company issued 1,009,411 shares of its common stock
pursuant to one-year consulting agreements with various consultants, including
related parties. Shares issued under these agreements were valued at $1,009,411,
which was charged to operations during 1999.
In December of 1999, in connection with the acquisition of the capital stock of
Cetoni, the Company issued 5,000,000 shares of its common stock to the
shareholders of Cetoni (Note 4).
In January of 2000, the Company issued 400,000 shares of common stock to the
shareholders of Aberdeen in connection with the acquisition of Aberdeen (see
Note 1).
Warrants
--------
At September 30, 2000, there were warrants outstanding to purchase 770,000
shares of the Company's common stock at $0.65 per share. The warrants were
valued at $531,000 using the Black-Scholes pricing model with the following
assumptions:
Risk-free interest rate 5.0%
Expected life 2 years
Expected volatility 65.0%
Dividend yield 0%
F-20
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDERS' EQUITY (Continued)
Options - Outside the Stock Option Plan
---------------------------------------
Pursuant to a 1999 financial consulting agreement, the Company granted to the
consultant options to purchase 100,000 shares of its common stock at prices
ranging from $0.50 to $2.00 per share. The options expire on December 31, 2000.
30,000 options were exercised during the six months ended June 30, 2000 at $0.50
per share. These options were valued at $0.61 each on the grant date using the
Black-Scholes option-pricing model with the following assumptions:
Risk-free interest rate 5.0%
Expected life 2 years
Expected volatility 65.0%
Dividend yield 0%
In February 2000, the Company cancelled the remaining 70,000 options outstanding
under above agreement and entered into a new agreement with the same consultant
providing for 90,000 options to be granted on April 1, July 1 and October 1,
2000 at $0.50 per share. Accordingly, the Company granted to the consultant
options to purchase 90,000 shares of common stock at $0.50 per share on April 1,
2000. In June 2000, the consultant exercised its options and the Company
recorded a receivable for $45,000. These options were valued at $1.75 each on
the grant date using the Black-Scholes option-pricing model with the following
assumptions:
Risk-free interest rate 9.5%
Expected life 60 days
Expected volatility 40.0%
Dividend yield 0%
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:
Warrants to purchase common stock 770,000
Letter of intent to acquire Bavaria Tech based
on estimate of exchange ratio 3,000,000
----------
Total as of September 30, 2000 3,770,000
==========
Substantial issuances after September 30, 2000
through November 17, 2000:
Issuance of shares in connection with
promissory notes 510,000
==========
Options granted to purchase common stock 1,085,000
==========
F-21
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDERS' EQUITY (Continued)
Preferred stock
---------------
The Company has authorized 1,000,000 shares of preferred stock, par value -
$.001 per share. The Board of Directors of the Company has broad discretion to
create one or more series of preferred stock and to determine the rights,
preferences and privileges of any such series.
Stock Option Plan
-----------------
In 1996, the Company adopted an incentive stock option plan. Under the plan,
which authorizes the granting of incentive stock options or non-incentive stock
options, the maximum number of shares of common stock for which options may be
granted is 500,000 shares. Options may be granted for terms not exceeding ten
years from the date of grant, except for options granted to persons holding in
excess of 5% of the common stock, in which case the options may not be granted
for a term not to exceed five years from the date of grant. As of September 30,
2000, no options have been granted under this stock option plan. Subsequent to
September 30, 2000, the above plan was cancelled and replaced with a new plan
(see Note 13).
NOTE 9 - EXTRAORDINARY GAIN ON SALE OF RIGHTS TO TECHNOLOGY
On November 30, 1999, the Company transferred to Eurotech its rights to receive
50% of the net revenues derived by Eurotech from the EKOR technology. In
consideration of ceding these rights, Eurotech (i) issued to the Company
2,000,000 restricted shares of its common stock valued at $2,137,500; (ii)
granted the Company a right to receive 2% of the gross revenues derived by
Eurotech from the sale, service and licensing of the EKOR technology; (iii)
returned to the Company for cancellation 6,795,000 shares of the Company's
common stock previously issued to one of its founders; (iv) assumed $1,212,188
of the Company's debt, which included $750,000 of debt, plus accrued interest,
incurred by the Company, pursuant to certain 9% Convertible Debentures issued by
the Company in 1999; and (v) transferred its royalty rights to a certain
resealable can technology, which the Company's German subsidiary had purchased
from Eurotech earlier in 1999. The Company recognized an extraordinary gain of
$3,349,688 related to the sale of its profit interest in the EKOR technology.
NOTE 10 - RELATED PARTY TRANSACTIONS
Amounts due to related parties represent various demand notes, including
interest at 10%, payable to certain shareholders, relatives of shareholders and
companies affiliated with shareholders. Interest expense accrued on these demand
notes approximated $100,000 during the nine months ended September 30, 2000.
F-22
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - COMMITMENTS AND OTHER MATTERS
Consulting Agreement - ERBC
---------------------------
By letter dated June 1, 1996, the Company engaged ERBC, an affiliate of the
Company by virtue of common shareholders, as a consultant for a one-year period
to undertake all aspects of the Company's operations in Russia. Pursuant to the
letter agreement, the Company agreed to pay ERBC a fee of $115,000 for the year
during which it has been engaged. During June 1997, the Company renewed the
agreement with ERBC for an additional one year period on like terms. During June
1998, the Company renewed the agreement with ERBC for an additional one year
term and agreed to pay ERBC a fee of $168,577 for the year during which it has
been engaged. This agreement was extended under the same terms for one-year
period commencing June 1, 1999.
Distribution Agreement
----------------------
On May 11, 2000, the Company entered into a distribution agreement providing for
the marketing of certain products for an indefinite period of time. No minimum
quantities are required to be purchased from the Company, and the Company is not
required to bear any transport costs until the net value of the goods shipped
exceeds DM5,000.
International Operations
------------------------
The Company has strategic alliances, collaboration agreements, licensing
agreements with entities which are based and/or have operations in Russia and
Ukraine. Both of these countries have experienced volatile and frequently
unfavorable economic, political and social conditions. 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 prospects of wide-spread insolvencies and the collapse
of various economic sectors exist in both countries.
In view of the foregoing, the Company's business, earnings, asset values and
prospects may be materially and adversely affected by developments with respect
to inflation, interest rates, currency fluctuations, government policies, price
and wage controls, exchange control regulations, taxation, expropriation, social
instability, and other political, economic or diplomatic developments in or
affecting Russia and Ukraine. The Company has no control over such conditions
and developments, and can provide no assurance that such conditions and
developments will not adversely affect the Company's operations.
F-23
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - COMMITMENTS AND OTHER MATTERS (Continued)
Letter of Intent
----------------
On May 26, 1999, the Company entered into a non-binding letter of intent with
Bavaria Tech, Ltd., formerly known as Arbat American Autopark, Ltd. and
hereinafter referred to as "Bavaria Tech", an affiliate of the Company by virtue
of common principal shareholders. The letter of intent contemplates that the
Company will acquire all Bavaria Tech's outstanding common shares for common
shares of ATI based upon a valuation of the assets of Bavaria Tech. The Company
estimates that the number of shares which the Company would issue under this
letter of intent would approximate 3 million shares.
The letter of intent is subject to the completion of a definitive agreement,
Bavaria Tech completing its acquisition of certain technology developed by
scientists in Israel, satisfactory due diligence review, satisfactory technology
appraisal, approval of the transaction by the board of directors of ATI and
Bavaria Tech, approval of the transaction by shareholders of ATI and Bavaria
Tech, and satisfactory confirmation from an investment banker that the
transaction is fair to the ATI's shareholders and Bavaria Tech's shareholders.
F-24
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SEGMENT REPORTING
The Company's business is organized on a geographic basis, and the Company's
Chief Operating Decision Maker assesses performance and allocates resources on
this basis. The information provided in the following section is representative
of the information used by the Chief Operating Decision Maker in deciding how to
allocate resources and in assessing performance.
The Company has two geographic reportable segments: U.S.A. and Germany. The
accounting policies of the segments are the same as described in the summary of
significant accounting policies. The Company evaluates segment performance based
on income (loss) before interest, other costs and extraordinary items. Segment
results for are as follows:
U.S.A. Germany Consolidated
------------ ------------ ------------
Nine Months Ended September 30, 1999:
------------------------------------
Loss before interest, other
costs and extraordinary items $(1,864,450) $ (621,484) $(2,485,934)
============ ============ ============
Depreciation and amortization $ - $ 44,612 $ 44,162
============ ============ ============
Identifiable Assets $ 15,088 $ 76,863 $ 91,951
============ ============ ============
Nine Months Ended September 30, 2000:
-------------------------------------
Loss before interest, other
costs and extraordinary items $(1,650,727) $ (181,991) $(1,947,050)
============ ============ ============
Depreciation and amortization $ - $ 14,244 $ 14,244
============ ============ ============
Identifiable Assets $ 4,913,080 $ 376,513 $ 5,289,593
============ ============ ============
F-25
<PAGE>
ADVANCED TECHNOLOGY INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - SUBSEQUENT EVENTS
Stock Option Plan
-----------------
On October 26, 2000, the Board of Directors adopted the Advance Technology
Industries, Inc. 2000 Stock Option Plan ("Plan"). On that date, the Board, which
is the Plan Administrator under the Plan, awarded employees and officers
incentive stock options to purchase 470,000 shares of common stock. In addition,
consultants and advisors were awarded non-qualified stock options to purchase a
total of 615,000 shares. All of the options have an exercise price of $.343 per
share, which was the closing price of the stock on October 25, 2000.
In addition, the Board terminated the 1996 Stock Option Plan.
Loan Agreement
--------------
During October 2000, the Company, in order to provide working capital, plans to
issue up to $750,000 in promissory notes, with a maturity date of six months.
Interest is payable at the rate of 1% per month cumulative. The Company had the
option to pay the interest in cash or restricted stock. If the option is
exercised by the Company to pay the interest in stock, the number of shares to
be delivered to the lender will be determined by multiplying (i) the average
closing bid price of the stock for the five trading days prior to the maturity
date by (ii) 85% and dividing the interest due by the resulting multiple. In
addition, each lender shall receive one share of the common stock for each $1.00
loaned up to the Company. As of October 31, 2000, the Company has received an
aggregate amount of $510,000 from three investors. One of the investors is a
company owned and controlled by an individual who owns approximately 28% of the
Company.
F-26
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Plan of Operation
-----------------
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto included elsewhere in this
Quarterly Report on Form 10-QSB and with (i) our Current Report on Form 8K dated
January 14, 2000 filed by us under our former name Kurchatov Research Holdings,
LTD., (ii) our Annual Report on Form 10-KSB for the fiscal year ended December
31, 1999 dated April 14, 2000, and (iii) our Amendment No. 1 to Current Report
on Form 8K filed May 15, 2000.
We are a development stage company and our efforts have been primarily
devoted to technology identification and acquisition, research and development,
organizational efforts and raising capital. This discussion provides an analysis
of our plan of operation for the next twelve months.
We were formed to acquire and commercialize new or previously existing
but non-commercialized technologies particularly those developed by scientists
and engineers in Israel, Russia, and Germany. We may acquire a direct interest
in the technology, a right to use the technology, and/or an ownership interest
in the entity owning the technology. The acquisition of technologies by us may
be made by the issuance of our stock or securities, cash, or other
consideration, or a combination thereof.
On August 23, 2000 we acquired a 49% interest in Nurescell AG for the
sum of $1,000,000 payable in four quarterly installments. The first installment
of $250,000 was paid on or about August 23, 2000. At the request of Nurescell,
Inc. we have prepaid $100,000 of the second installment and anticipate paying
the remainder of the second installment on or before November 23, 2000. The
remaining 51% of Nurescell AG is owned by Nurescell, Inc.
Nurescell, Inc. and Nurescell AG have entered into a license agreement
whereby Nurescell AG was granted an exclusive license in the countries of the
former Soviet Union, the Continent of Europe, and the British Isles to
manufacture and market a proprietary technology owned by Nurescell, Inc. The
technology consists of a material for shielding and internment of radioactive
materials and radioactive waste as well as providing attenuation of x-ray
energy. This transaction was reported in a Current Report on Form 8K filed on
September 7, 2000.
During the next twelve months the Company intends to concentrate on (i)
the commercialization of certain products of Cetoni GmbH, its wholly owned
subsidiary, (ii) commercialization of the Nurescell technology, (iii) completion
of evaluation of technologies being presently considered and the acquisition
thereof, if appropriate, and (iv) identification, evaluation, and possible
acquisition of additional technologies.
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Cetoni
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It is anticipated that the main emphasis for Cetoni in the next twelve
months will be on the successful commercialization of its beverage packaging
products (resealable aluminum beverage can and resealable tetra pak carton),
automotive accessory products, office products, and consumer products. Cetoni
will seek out product wholesalers with which to enter into distribution
agreements.
Cetoni has entered into two distribution agreements with Fackelmann
GmbH & Co, a major manufacturer and distributor of household and related goods,
for the distribution of two consumer products i.e. the butter dispenser dish and
FruitStripper products. In addition, Cetoni has entered into a distribution
agreement with Falcon Group, Ltd. for distribution of the resealable beverage
can.
Cetoni has entered into manufacturing agreements for certain of its
products and will attempt to locate manufacturers for other products. It will
attempt to locate manufacturers in low cost countries in order to obtain the
manufacture of the products at the least cost possible in order to maximize the
competitiveness of its products. There is no assurance that it will be able to
locate distributors or manufacturers for some or all of the products upon
favorable terms, or at all.
During the period of the plan Cetoni will be required to purchase the
tooling and equipment required to manufacture its products. It is anticipated
that this will amount to approximately $650,000. Cetoni believes that it can
obtain financing upon favorable terms for a substantial portion of this amount
from the manufacturers of the tooling and equipment. However, if financing is
not available, management believes that it will have the necessary funds to pay
for the tooling and equipment. The Company does not anticipate any additional
significant purchases or sales of plant or equipment during the period of the
plan.
Nurescell AG
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The Nurescell nuclear shielding technology is a ceramic product that is
lighter than other products and provides for more shielding in many environments
than comparable products. Nurescell AG is presently developing a business plan
for the manufacture and marketing of the technology in the Soviet Union and
Continental Europe. Nurescell, Inc. states that the technology is suited for use
in radiation recovery rooms and accelerator rooms for isotope production. It may
also be used as radiation shielding against hot spots in nuclear power stations
and mixed waste applications for stabilization. However, we are informed by
Nurescell, Inc. that the technology has not actually been utilized for any of
these purposes. Nurescell AG is presently testing the technology in Russia and
Germany to verify its suitability for these applications as well as others.
Nurescell, Inc. is also developing the technology for use in dry cast containers
for the storing of nuclear waste and the coating protection for the burying of
nuclear submarines.
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We are informed by Nurescell, Inc. that it has received a patent for
the technology in the United States and has applied for patents in Russia and
other European countries.
We intend to be active in the development and marketing of the
Nurescell technology by Nurescell AG.
Other Matters
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During the period of the plan, we do not anticipate any significant
changes in the numbers of employees employed by us or Cetoni, our subsidiary.
Although we have incurred significant research and development expenses
in 1999, these were attributable to one time charges for the most part and we do
not anticipate incurring significant research and development costs for the
period of the plan.
We may incur substantial expenses associated with performing due
diligence incident to the investigation of technologies suitable for
acquisition. The amount and type of expenses incurred will vary depending on the
technology being investigated and it is not possible to project what these
expenses might be during the period of the plan.
Except for a nominal amount of revenue from the sale of Cetoni products
in the period covered by this report, we have not generated any revenue from
operations since our inception and we have not been profitable since our
inception. Although we believe that we will recognize additional revenues during
the next twelve months based on expressions of interest from third parties to
acquire licenses to use our technologies and purchase our products, there can be
no assurances as to when and whether we will be able to commercialize our
products and technologies and realize any revenues therefrom or that Nurescell
AG will be able to do so. Neither our products and technologies or those of
Nurescell AG have ever been utilized on a large-scale commercial basis.
We expect that we will continue to generate losses until at least such
time as we can commercialize our technologies or those of Nurescell AG, if ever.
No assurance can be given that the we can complete the development of any
technology or that, if any technology is fully developed, it can be manufactured
and/or marketed on a commercially viable basis. Furthermore, no assurance can be
given that any technology will receive market acceptance. Being a development
stage company, we are subject to all risks inherent in the establishment of a
developing or new business.
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As of September 30, 2000 we had working capital of 225,599,
shareholders' equity of 680,580 and an accumulated deficit of ($5,536,071). We
anticipate that we will continue to incur significant operating losses for the
next twelve months. We may incur additional losses thereafter, depending upon
our ability or the ability of Nurescell AG to generate revenues from the license
or sale of technologies or products.
We will require additional financing to continue to fund research and
development efforts, operating costs and to complete additional technology
acquisitions. We anticipate that we will be able to raise the needed funds for
continuing operations.
We will attempt to raise this additional capital through the public or
private placement of our securities, debt or equity financing, joint ventures,
or the licensing or sale of our technologies and products. However, the Company
has not entered into any definitive agreements or arrangements to obtain any
such sources of capital and no assurance can be given that it can successfully
obtain additional capital.
On June 20, 2000 we entered into an agreement with Eurotech, Ltd. to
sell to it 500,000 shares of the 2,000,000 shares of common stock of that
company that we owned for $1,350,000. The transaction closed on July 14, 2000.
As part of said transaction we agreed to prepay Eurotech the sum of $350,000
which we owed to it as a result of the acquisition by us of certain technologies
from Eurotech.
We plan to either sell the remaining Eurotech shares or use them for
collateral for a loan to provide funds for operations. The stock is restricted
stock. However, the agreement of June 20, 2000 provides that Eurotech will
either register the remaining 1,500,000 shares by August 20, 2000 or purchase an
additional 500,000 shares of the stock at the then current market price. The
agreement further provides that if Eurotech fails to register the remainder of
said stock by September 20, 2000 it must purchase the remaining 1,000,000 shares
at the then current market price. Eurotech filed a registration statement on
August 18, 2000 which included the entire 1,500,000 shares of stock owned by us.
However, that registration statement has not become effective as of this date.
As a result thereof, we have not been able to sell the remaining 1,500,000
shares or any portion thereof.
In order to raise working capital for operations until the remaining
Eurotech stock can be sold, on October 31, 2000 we commenced an offering of
$750,000 of six-month promissory notes of which we have sold $510,000 as of this
date. This event was reported in Current Report on Form 8K filed on November 15,
2000.
The common stock of Eurotech, Ltd. is traded on the American Stock
Exchange. The closing price was 2-5/16 on November 13, 2000. There can be no
assurance that we can sell said securities or any portion thereof. Moreover, if
we are able to sell said securities, the value thereof at the time of sale may
be less than the present value of said securities.
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We anticipate that we will be able to raise the needed funds for
operations from one or more of the aforementioned sources. However, if we are
not able to raise the needed capital we will be required to curtail and possibly
discontinue operations. There is no assurance that we will be able to continue
to operate if additional capital is not obtained. Furthermore, if we are
required to curtail our operations this could have a serious negative impact on
our ability to proceed with our business plan and to commercialize and/or
develop existing technologies and products or to identify and acquire new
technologies.
In addition, the agreement with Nurescell,Inc. provides that if we are
not able to pay the entire $1,000,000 for our interest in Nurescell AG, our
interest in that company will be proportionately reduced. For instance, if we
only were able to pay $500,000 of the $1,000,000 our interest would be reduced
by 50% to 24.5%.
Forward Looking Statements.
---------------------------
This report on Form 10-QSB contains certain statements that are
"Forward Looking Statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Those statements, among other things, include the discussions of the
Company's expectations contained in the discussion by management of the
Company's Plan of Operation set forth below. Although the Company believes that
the expectations reflected in the Forward Looking Statements are reasonable,
management can give no assurance that such expectations will prove to have been
correct. Generally, these statements relate to business plans or strategies,
projected or anticipated benefits or other consequences of such plans or
strategies, or projections involving anticipated revenues, expenses, earnings,
levels of capital expenditures, liquidity or indebtedness, ability to raise
working capital, or other aspects of operating results or financial position.
All phases of the operations of the Company are subject to a number of
uncertainties, risks and other influences, many of which are outside the control
of the Company and any one of which, or a combination of which, could materially
affect the results of the Company's operations and whether the Forward Looking
Statements made by the Company ultimately prove to be accurate. Although not
always the case, Forward Looking Statements can be identified by the use of
words such as "believes", "expects", "intends", "projects", "anticipates",
"contemplates", or "estimates".
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PART II- OTHER INFORMATION
Item 1. Legal Proceedings.
There are no legal proceedings against us and we are not aware of any
such proceedings contemplated against us.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submissions of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, we are hereby filing a cautionary
statement identifying important factors that could cause our actual results to
differ materially from those projected in Forward-Looking Statements, made by or
on behalf of us.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Exhibit
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27. Financial Data Schedule.
(b) Reports on Form 8-K. A Current Report on Form 8K was filed by the
Company on September 7, 2000 reporting the transaction with Nurescell, Inc.
involving the formation of Nurescell AG and an agreement entered into between
the Company and Adrian and Dianna Joseph concerning the exchange of Nurescell,
Inc. stock for stock of the Company.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVANCED TECHNOLOGY INDUSTRIES, INC.,
Registrant
Dated: November__ , 2000 /S/ Hans Joachim Skrobanek
----------------------------------
Hans Joachim Skrobanek,
President
Dated: November __, 2000 /S/ James Samuelson
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James Samuelson,
Chief Financial Officer
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