<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------------------------
FORM 10-Q
(MARK ONE) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
[X] OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
OR
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 0-27673
EUROTELECOM COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 87-0409699
(State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization) Identification No.
MEXBOROUGH BUSINESS CENTRE, COLLEGE ROAD,
MEXBOROUGH, S63 9JP, YORKSHIRE, UNITED KINGDOM
(Address of Principal Executive Offices)
011 44 1709 590899
011 44 1709 590939
(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)
--------------------------------------
Indicate by check mark whether the Registrant: (I) 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 [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There were 17,946,222 shares of Common Stock, $0.01 par value outstanding as of
December 31, 1999.
<PAGE>
EUROTELECOM COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX
-----
PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
Consolidated Balance Sheets of the Company at December
31, 1999 (unaudited) and June 30, 1999.
Consolidated Statements of Operations of the Company
(unaudited) for the three months and six months ended
December 31, 1999 and 1998.
Consolidated Statements of Cash Flows of the Company
(unaudited) for the six months ended December 31, 1999
and 1998.
Notes to Consolidated Financial Statements.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5 OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PART 1 - FINANCIAL INFORMATION
------------------------------
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
EUROTELECOM COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
(UNAUDITED) (AUDITED)
-------------- --------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 17,003 $ -
Accounts receivable 1,262,458 897,109
Accounts receivable - related party - 57,732
Other receivables 1,012,227 188,026
Inventories 795,594 363,104
Prepaid expenses 55,400 28,202
-------------- --------------
TOTAL CURRENT ASSETS $ 3,142,682 $ 1,534,173
Property and equipment, net 481,199 92,024
Goodwill, net 332,978 92,811
Investments at cost 81,989 44,597
-------------- --------------
TOTAL ASSETS $ 4,038,848 $ 1,763,605
============== ==============
</TABLE>
See accompanying notes to Consolidated Financial Statements
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS, INC. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED BALANCE SHEETS (CONTINUED)
---------------------------------------
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
(UNAUDITED) (AUDITED)
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Bank facility $ 887,602 $ 380,662
Current maturities of long-term obligations 46,400 470,627
Accounts payable 2,002,284 753,757
Accounts payable - related party - 9,600
Accrued liabilities 11,200 210,541
Accrued income and other taxes 348,573 316,294
--------------- ---------------
TOTAL CURRENT LIABILITIES $ 3,296,059 $ 2,141,481
Long-term liabilities:
Notes payable 168,000 941,891
Less: current maturities of long term debt (46,400) (470,627)
--------------- ---------------
TOTAL LONG TERM LIABILITIES $ 121,600 $ 471,264
--------------- ---------------
TOTAL LIABILITIES $ 3,417,659 $ 2,612,745
=============== ===============
Stockholders' Equity (deficit):
Preferred Stock $.01 par value. Authorized
10,000,000 shares; none issued.
Common Stock, $.01 par value. Authorized
20,000,000 shares; 17,946,222 and 8,977,102
shares issued in December 31, 1999 and June
30, 1999 respectively 179,463 89,772
Additional paid-in capital 24,589,398 21,778,006
Less subscriptions receivable - (131,787)
Accumulated deficit (24,147,672) (22,585,131)
--------------- ---------------
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY $ 621,189 $ (849,140)
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 4,038,848 $ 1,763,605
=============== ---------------
</TABLE>
See accompanying notes to Consolidated Financial Statements
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS, INC. AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues $ 2,230,122 16,000 $ 3,438,659 32,000
Cost of revenue 1,458,189 0 2,378,410 0
-------------- -------------- -------------- --------------
GROSS PROFIT $ 771,933 16,000 $ 1,060,249 32,000
-------------- -------------- -------------- --------------
Expenses:
Selling and administrative 1,478,780 281,436 2,141,001 450,633
Asset writedowns 14,172 5,586 23,667 11,172
Amortization of goodwill 9,083 0 9,833 0
-------------- -------------- -------------- --------------
OPERATING LOSS $ (730,102) (271,022) $ (1,114,252) (429,805)
-------------- -------------- -------------- --------------
Other Income/(expense):
Interest expense (62,451) (25,270) (94,692) (42,026)
Write offs 0 0 (353,597) 0
LOSS FROM CONTINUING
OPERATIONS BEFORE INCOME
-------------- -------------- -------------- --------------
TAXES $ (792,553) (296,292) $ (1,562,541) (471,831)
-------------- -------------- -------------- --------------
Income tax expense 0 (100) 0 (100)
-------------- -------------- -------------- --------------
Net loss from continuing operations (792,553) (296,392) (1,562,541) (471,931)
-------------- -------------- -------------- --------------
Loss on discontinued operations 0 (291,923) 0 (291,923)
-------------- -------------- -------------- --------------
LOSS FOR THE PERIOD $ (792,553) (588,315) $ (1,562,541) (763,854)
-------------- -------------- -------------- --------------
Net loss per share from:
Discontinued operations - (0.046) - (0.047)
Continuing operations (0.048) (0.047) (0.116) (0.077)
NET LOSS PER COMMON
============== ============== ============== ==============
SHARE $ (0.048) (0.093) $ (0.116) (0.124)
============== ============== ============== ==============
Weighted average number of common
shares 16,366,662 6,333,716 13,461,662 6,148,416
</TABLE>
See accompanying notes to Consolidated Financial Statements
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS, INC. AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
------------------------------------
1999 1998
---------------- ---------------
(UNAUDITED)
<S> <C> <C>
Net Income $ (1,562,541) $ (763,854)
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH FROM OPERATING ACTIVITIES
Depreciation and amortization 33,500 11,172
Extraordinary loss - 291,923
Non-cash items:
Stock issued for services - 235,000
CHANGES IN CURRENT ASSETS AND LIABILITIES
Receivables (307,617) 0
Inventories (432,490) 0
Other current assets (851,399) (37,434)
Accrued expenses (199,341) 31,826
Accounts payable 1,238,927 117,138
Other liabilities 32,279 0
Net cash provided by (used) by operating ---------------- ---------------
Activities (2,048,682) (114,229)
================ ===============
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of subsidiary RTC Inc (250,000)
Purchase of investments (37,392)
Purchase of fixed assets (412,842) 11,434
Net cash provided by (used in) investing ---------------- ---------------
Activities (700,234) 11,434
================ ===============
CASH FLOW FROM FINANCING ACTIVITIES
Notes payable repaid (800,000) -
New notes payable 26,109 -
Proceeds from issuance of common stock 2,901,083 -
Write off subscription receivable 131,787 -
Proceeds from issuance of debt net of repayments - 74,610
Net cash provided by (used in) financing ---------------- ---------------
activities 2,258,979 74,610
================ ===============
INCREASE (DECREASE) IN CASH (489,937) (28,185)
Cash and cash equivalents at beginning of period - -
Cash and cash equivalents at end of period - -
</TABLE>
<PAGE>
EUROTELECOM COMMUNICATIONS, INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
-----------
DECEMBER 31, 1999
-----------------
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by the
Company without audit in accordance with generally accepted accounting
principles for interim financial statements and with instructions to Form 10-Q.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included.
The accompanying consolidated financial statements do not include certain
footnotes and financial presentations normally required under generally accepted
accounting principles and, therefore should be read in conjunction with the
audited financial statements included in the company's Form 10-SB as of June 30,
1999.
On July 1, 1999 the unsecured convertible notes in the amounts of $80,000,
$360,000 and $360,000 issued at the beginning of the year were converted into
550,000, 2,475,000 and 2,475,000 shares of restricted common stock respectively.
In August 1999 the Company purchased RTC, Inc for 250,000 shares of restricted
stock valued at $250,000. The transaction involved recording $250,000 of
goodwill; there were no assets or liabilities acquired. Goodwill is to be
written off over ten years. RTC is incorporated in the State of Maryland and
operates as a full service technical marketing, sales and consulting firm
specializing in electronic communication.
The company also incorporated several new subsidiary companies;
i. Objectiveplan Limited
ii. E-Linking Limited
iii. ETConnect Limited
In the three months ended December 31, 1999 the Company raised additional equity
through issuing Common Stock pursuant to Regulation S. The Company issued
3,159,120 shares for $1,794,908 to non US persons.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 1999
This Form 10-Q contains certain 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. The forward looking statements
involve risks and uncertainties that could cause actual results to differ
materially from those expressed in, or implied by, the forward looking
statements. Factors that might cause such a difference include, but are not
limited to, those relating to: general economic conditions in which the Company
operates, dependence on suppliers, third party manufacturers and channels of
distribution; customer and product concentration; fluctuations in customer
demand, maintaining access to external sources of capital; ability to execute
management's margin improvement; overall management of the company's expansion;
and other risk factors detailed from time to time in the Company's filings with
the Securities and Exchange Commission.
RESULTS OF OPERATIONS
COMPARISON OF SECOND QUARTER AND FIRST HALF 1999 TO 1998
The Company's financial year end is June 30.
The second quarter therefore refers to the three months ended December 31, 1999
and the first half refers to the six months ended December 31, 1999.
NET REVENUE
Revenues increased by $2,214,122 from $16,000 for the three months ended
December 31, 1998 to $2,230,122 for the three months ended December 31, 1999.
The Company was still in its development stage for the second quarter of 1998.
The second quarter of 1999 shows the continued development of the Company. For
the six months ended December 31, 1999, revenues totalled $3,438,659, an
increase of $3,406,659 from $32,000 for the six month period ended December 31,
1998.
The individual divisions of the Company showed revenue growth for the quarter.
Easy IP Limited contributed net revenues for the three months ended December 31,
1999. of $667,992, this being the second full quarter of contribution since
acquisition in April 1999 with no revenues for the three months ended December
31, 1998.
RTC Inc. contributed net revenues of $94,540 for the three months ended December
31, 1999, this being an acquisition in August 1999, with no revenues for the
three months ended December 31, 1998.
The commercial security division in Mexborough contributed net revenues of
$295,714 for the three months ended December 31, 1999 with no revenues for the
three months ended December 31, 1998.
The defense division in Blandford contributed net revenues of $1,001,290 for the
three months ended December 31, 1999, with no revenues for the three months
ended December 31, 1998.
<PAGE>
The air conditioning subsidiary Chunlan Limited contributed net revenues of
$109,874 for the three months ended December 31, 1999 with no revenues for the
three months ended December 31, 1998.
GROSS PROFIT
Gross profit for the three months ended December 31, 1999 increased to $771,933
compared with the three months ended December 31, 1998 of $16,000. The six month
period ended December 31, 1999 showed a gross profit of $1,060,249 compared with
a gross profit of $32,000 for the six months ended December 31 1998.
The change is due to the fact that the Company was in the development stage
during the equivalent period in 1998.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses increased by $1,197,344 from $281,436 for
the three months ended December 31, 1998 to $1,478,780 for the three months
ended December 31, 1999. Selling and administrative expenses increased by
$1,690,368 from $450,633 for the six months ended December 31, 1998 to
$2,141,001 for the six months ended December 31, 1999.
AMORTIZATION OF GOODWILL
The amount of amortization of goodwill has increased by $9,083 in the three
months ended December 31, 1999 from $0 in the three months ended December 31,
1998. The charge relates to the goodwill associated with the two acquisitions of
RTC Inc and Easy IP Limited.
INTEREST EXPENSE
The interest expense increased to $62,451 in the three months ended December 31,
1999 from $25,270 in the three months ended December 31, 1998 and to $94,692 in
the six months ended December 31, 1999 from $42,026 in the six months ended
December 31, 1998.
The increase is due to obtaining additional lines of bank credit in the period.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations during the six months ended December 31, 1999
amounted to $(2,048,682) and consisted of the $(1,562,541) net loss increased by
the $486,141 decrease in working capital.
Accounts payable and accruals were a source of funding to the extent of
$1,039,586.
Accounts receivable used $307,617 of funds due to increased revenues.
The Company has a credit facility with National Westminster Bank, PLC in the
maximum amount of $560,000 repayable on demand. By informal agreement with the
bank, the Company has been permitted to borrow in excess of this amount on a
demand basis. As of December 31, 1999, $887,602 was owing to the bank.
INVESTING ACTIVITIES
Capital expenditure of $700,234 for the three months ended December 31, 1999
consisted primarily of fixed asset additions.
FINANCING ACTIVITIES
Cash received from the private placement sales of common stock in the second
quarter amounted to 3,159,120 shares for $1,794,908 and increased borrowings
under the credit facility with National Westminster Bank plc.
LIQUIDITY
The company has to date not generated positive cash flow from operations.
Accordingly, the Company has required additional capital to fund activities and
to provide for increased working capital requirements which arise from increased
sales activities. Since June 30, 1999, the Company's working capital
requirements have been met by collections of accounts receivable and by
borrowings under the revolving credit facility together with additional sales of
common stock. The Company is currently actively pursuing other sources of
capital, including the issuance of additional equity.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company does not invest in risk sensitive instruments, such as derivative
financial instruments, other financial instruments or derivative commodity
instruments, either for trading or non trading purposes. Most of the Company's
activities are conducted in the United Kingdom in British Pounds Sterling; a
smaller part of its activities are conducted in the United States through the
Company's subsidiary, RTC, Inc., in United States Dollars. The Pound Sterling to
Dollar exchange rate has remained stable for the past few years at about 1.5
Pounds to 1 Dollar. Variations in the Pound Sterling to Dollar exchange rate
could effect a proportional change in asset value and income.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
In the three months ended December 31, 1999 the Company raised additional equity
through issuing Common Stock pursuant to Regulation S. The Company issued
3,159,120 shares on December 28, 1999 for $1,794,908 to non US persons.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits.
Exhibit No. Exhibit
27 Financial Data Schedule
b. Reports on Form 8-K
No reports on Form 8-K were filed by the registrant for the period.
SIGNATURES
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.
EUROTELECOM COMMUNICATIONS INC.
(REGISTRANT)
Date: February 14, 2000 By:/S/ Philip Derry
----------------- -----------------------------------------
PHILIP DERRY
CHIEF EXECUTIVE OFFICER
& PRINCIPAL ACCOUNTING OFFICER
<PAGE>
INDEX TO EXHIBITS
-----------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,003
<SECURITIES> 0
<RECEIVABLES> 1,262,458
<ALLOWANCES> 0
<INVENTORY> 795,594
<CURRENT-ASSETS> 3,142,682
<PP&E> 481,199
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,038,848
<CURRENT-LIABILITIES> 3,296,059
<BONDS> 0
0
0
<COMMON> 179,462
<OTHER-SE> 441,726
<TOTAL-LIABILITY-AND-EQUITY> 4,038,848
<SALES> 3,438,659
<TOTAL-REVENUES> 3,438,659
<CGS> 2,378,410
<TOTAL-COSTS> 4,552,911
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,692
<INCOME-PRETAX> (1,562,541)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,562,541)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,562,541)
<EPS-BASIC> (.116)
<EPS-DILUTED> (.116)
</TABLE>
