UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended September 30, 2000
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 NUMBER)
FARFIELD PARK, WATH UPON DEARNE
SOUTH YORKSHIRE
ENGLAND S63 5BD
(Address of principal executive offices)
011 44 1709 874 600
Telephone Number
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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 [ ] No [X]
As of October 30, 2000 there were 17,946,222 and 12,075,118 shares of the
Registrant's Common Stock and Class A Common Stock outstanding, respectively.
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS, INC
INDEX
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Consolidated Statements of Operations--Three months ended September 30, 2000 and 1999............2
Consolidated Balance Sheet -- September 30, 2000.................................................5
Consolidated Statements of Cash Flows--Three months ended September 30, 2000 and 1999............7
Notes to Consolidated Financial Statements.......................................................9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...........................................................................22
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES...........................................................................26
</TABLE>
<PAGE>
PART 1: FINANCIAL INFORMATION
------------------------------
<TABLE>
EUROTELECOM COMMUNICATIONS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
------------------------------------------------------------------------------------------
<CAPTION>
UNAUDITED
SEPTEMBER 30,
2000
(IN THOUSANDS)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,844
Accounts receivable, net of provision for doubtful accounts of $ 3069 6,215
Inventories 1,398
Precontract costs 1,746
Unearned compensation 149
Prepaid expenses and other current assets 1,566
Costs and estimated earnings in excess of billings on uncompleted contracts 405
--------
TOTAL CURRENT ASSETS 19,323
--------
NON-CURRENT ASSETS
Property, plant and equipment, net of accumulated depreciation
of $441,000 2,871
Goodwill, net of accumulated amortization of $ 267,000 1,001
Investment in affiliated company 2,363
--------
TOTAL NON-CURRENT ASSETS 6,235
--------
TOTAL ASSETS $25,558
========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET (CONTINUED)
------------------------------------------------------------------------------------
<CAPTION>
UNAUDITED
SEPTEMBER 30,
2000
(IN THOUSANDS)
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank line of credit $ 1,742
Accounts payable 3,022
Accrued liabilities 1,389
Other taxes payable 1,203
Current maturities of long-term obligations 25
---------
TOTAL CURRENT LIABILITIES 7,381
---------
NON-CURRENT LIABILITIES
Notes payable 109
Less: current maturities of long-term obligations (25)
---------
TOTAL NON-CURRENT LIABILITIES 84
---------
TOTAL LIABILITIES 7,465
---------
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.01, 10,000,000 authorized, none issued -
'A' common stock shares $0.01 par value, 50,000,000 authorized;
12,075,118 issued and outstanding 120
Common stock, $0.01 par value, 50,000,000 authorized shares;
17,946,222 issued and outstanding 180
Additional paid in capital 51,969
Less: subscriptions receivable (132)
Accumulated deficit (33,555)
Accumulated other comprehensive loss (489)
---------
TOTAL STOCKHOLDERS' EQUITY 18,093
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,558
=========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------------------------------------------
<CAPTION>
UNAUDITED
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
(IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C>
REVENUES
Sale of goods sold $ 909 $ 1,042
Sale of services 2,196 168
Contract revenues earned 572 -
------------ ------------
3,677 1,210
COST OF REVENUES
Cost of goods sold 722 915
Cost of services 1,604 134
Cost of contract revenues earned 453 -
------------ ------------
GROSS PROFIT 898 161
Selling, general and administrative expenses 2,969 877
Depreciation and amortization 300 9
Loss from closed subsidiary - 34
------------ ------------
LOSS FROM OPERATIONS (2,371) (759)
Share of loss from affiliated company (125) -
Interest income (expense), net 89 (32)
Investment writedowns - (44)
------------ ------------
LOSS BEFORE INCOME TAX (2,407) (835)
Income taxes - -
============ ============
NET LOSS $ (2,407) $ (835)
============ ============
Loss per share
Basic and diluted $ (0.08) $ (0.07)
============ ============
Weighted average number of common shares 30,021,340 11,882,102
============ ============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<CAPTION>
UNAUDITED
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,407) $ (835)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES
Depreciation and amortization 300 42
Amortization of unearned compensation 21 10
Share of loss of affiliate 125 -
Provision against investment - 44
CHANGES IN ASSETS AND LIABILITIES
Accounts payable 195 621
Accrued liabilities 212 63
Other current liabilities 450 69
Accounts receivable (3,346) (266)
Costs in excess of billings on uncompleted contracts 1,918 -
Inventories (500) (188)
Precontract costs (1,746) -
Prepaid expenses and other current assets 226 (90)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (4,552) (530)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash paid on fixed assets (765) (167)
Proceeds from sale of fixed assets 90 -
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (675) (167)
======== ========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
--------------------------------------------------------------------------------
<CAPTION>
UNAUDITED
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds received from issuance of common stock, net 36 438
Short-term bank line of credit 1,574 369
Repayment of debt - (97)
Payments under financing arrangement (41) -
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,569 710
--------- ---------
Effects of exchange rate changes on cash (612) (3)
--------- ---------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (4,270) 10
Cash and cash equivalents at beginning of period 12,114 -
--------- ---------
Cash and cash equivalents at end of period $ 7,844 $ 10
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 14 $ 32
Cash received during the period for:
Interest $ 103 $ -
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
<PAGE>
EUROTELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements have been
prepared in conformity with generally accepted accounting principles
for interim financial information and the instructions for Form 10-QSB
and Item 310 of Regulation S-B. Accordingly, they do not include all
the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. In the
opinion of management, the statements contain all adjustments
(consisting only of normal recurring accruals) necessary to present
fairly the financial position as of September 30, 2000, the results of
operations for the three months ended September 30, 2000 and 1999 and
changes in cash flows for the three months ended September 30, 2000 and
1999. The results of operations for the three months ended September
30, 2000 and 1999 are not necessarily indicative of the results to be
expected for the full year.
2 THE COMPANY
EuroTelecom Communications, Inc. ("the Company" or "EuroTelecom") was
incorporated under the laws of the State of Delaware in December 1996.
The Company trades principally in the UK through its wholly owned
subsidiary, EuroTelecom Corporation Limited, and in the US through its
wholly owned subsidiary, RTC, Inc.
EuroTelecom carries out its varied businesses under three segments:
Projects, Services and Communications. The individual lines of business
under each segment are set out below:
Projects - design and installation of application linking
platforms
- supply of computer equipment to the defense
industry
Services - provision of consultancy services for the
design and installation of secure computer
networks to the defense industry
- provision of security services
- contracted fit-outs
- sale and installation of air-conditioning units
Communications - distribution of software products
<PAGE>
As of September 30, 2000, the Company had the following principal
subsidiaries:
<TABLE>
<CAPTION>
COUNTRY OF
INCORPORATION
NAME OF COMPANY NATURE OF BUSINESS AND OPERATION
<S> <C> <C>
EuroTelecom Corporation Application linking, security, sale of
Limited ("ECL") equipment and consultancy UK
SUBSIDIARIES OF ECL
Chunlan Limited Supplier of air conditioning units UK
Timtec International Limited Shop fitting and interior fitting out construction UK
Easy IP Limited Software distribution UK
EuroTelecom Connect Limited Internet application service provider UK
Universal Communications Design and installation of telecommunication
Solutions Limited infrastructure to the oil and gas industry UK
RTC, Inc. Technical marketing, sales and consulting
services USA
Timtec International Limited is wholly owned by Chunlan Limited.
</TABLE>
<PAGE>
EUROTELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
3 SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial
statements of EuroTelecom and its subsidiaries and affiliate.
EuroTelecom Secure Networks Limited is recorded as a closed
subsidiary in the period ended September 30, 1999 since it ceased
operations on February 1999. All significant intercompany
transactions have been eliminated in consolidation. Investments in
affiliates are accounted for using the equity method when the
Company owns at least 20% but no more than 50% of such affiliates.
Under the equity method the Company records its proportionate share
of profits and losses based on its percentage interest in those
affiliates.
(b) GOODWILL
The excess of cost of investments over the fair value of net assets
acquired which is not otherwise allocated is determined to be
goodwill and is amortized on a straight-line basis over a period of
5 years.
(c) LONG-LIVED ASSETS
Long-lived assets, such as property, plant and equipment, goodwill
and investments in affiliates, are evaluated for impairment when
events or changes in circumstances indicate that the carrying amount
of the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When
any such impairment exists, the related assets will be written down
to fair value. No impairment write-down was recorded for the three
months ended September 30, 2000 or 1999.
(d) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated using the straight-line
method over estimated useful life of up to seven years.
(e) INCOME TAXES
The Company recognises deferred tax liabilities and assets for the
expected future tax consequences of events that have been included
in the financial statements or tax returns. Accordingly, deferred
tax liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and
liabilities using enacted rates in effect for the year in which the
differences are expected to reverse. The effect on deferred tax
assets and liabilities of a change in tax rates is recognised in
income in the period that includes the enactment date.
A valuation allowance is established to reduce the deferred tax
assets when management determines it is more likely than not that
the related tax benefits will not be realised.
<PAGE>
EUROTELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) REVENUE RECOGNITION
Revenues comprise:
i) Sale of equipment and software which is recognised when
shipped.
ii) Provision of consultancy and security services is recognised
as services are performed.
iii) Provision of maintenance and monitoring services is
recognised on a straight line basis over the period of the
contract.
iv) The Company recognizes revenues from fixed-price and
modified fixed-price application linking and fit-out
contracts on the percentage of completion method, measured
by the percentage of cost incurred to date to estimated
total cost for each contract. That method is used because
management considers total cost to be the best available
measure of progress on the contracts. Because of inherent
uncertainties in estimating costs, it is at least reasonably
possible that the estimates used will change within the near
term.
Contract costs include all direct material and labor costs
and in the case of fit-out costs an element of indirect
costs are included. Selling, general and administrative
costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Changes in job
performance, job conditions, and estimated profitability may
result in revisions to costs and income, which are
recognized in the period in which the revisions are
determined. Changes in estimated job profitability are
accounted for as changes in estimates in the current period.
The asset "Costs and estimated earnings in excess of
billings on uncompleted contracts," represents revenues
recognized in excess of amounts billed. The liability,
"Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of
revenues recognized.
(g) FOREIGN CURRENCIES
The reporting currency of the Company is the United States dollar.
The Company's functional currency is the United Kingdom pound
sterling for the majority of its business.
For consolidation purposes, the assets and liabilities of overseas
subsidiaries are translated at the closing exchange rates.
Consolidated statements of income of such subsidiaries are
consolidated at the average rates of exchange during the period.
Exchange differences arising on the translation of subsidiaries'
financial statements are recorded in the cumulative foreign currency
translation adjustment account as a component of stockholders'
equity.
(h) CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers
all investments with an original maturity of three months or less to
be a cash equivalent.
<PAGE>
EUROTELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) INVENTORY
Inventories are stated at lower of cost using the first in first out
method, or market.
(j) USE OF ESTIMATES
In preparing the consolidated financial statements in conformity
with generally accepted accounting principles, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
liabilities at the date of the consolidated financial statements and
revenues and expenses during the reported period. Actual results
could differ from these estimates.
(k) FINANCIAL INSTRUMENTS
Financial instruments held by the Company include cash and cash
equivalents, accounts receivable and payable, notes payable and
approximated fair value as of September 30, 2000 due to either short
maturity or terms similar to those available to similar companies in
the open market. The investment in affiliated company approximated
fair value as of September 30, 2000 due to the fact that it was
recently acquired.
(l) ADVERTISING COSTS
The company expenses advertising costs as incurred. Advertising
costs in the three months ended September 30, 2000 and three months
ended September 30,1999 were $93,000, and $24,000 respectively.
(m) COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standard
("SFAS") No.130, "Reporting Comprehensive Income", which establishes
standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other
disclosures, SFAS No.130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
The only item of comprehensive income is foreign currency exchange
translation adjustments.
(n) RESEARCH AND DEVELOPMENT
The Company incurred research and development costs in the three
months ended September 30, 2000 and September 30, 1999 of $0.00 and
$0.00 respectively.
(o) STOCK COMPENSATION
The Company applies the recognition and measurement provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees" and the disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation" in accounting for
stock options issued to employees.
<PAGE>
EUROTELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(p) EARNING PER SHARE
The Company follows SFAS No. 128, "Earnings per share," which
requires presentation of basic earnings per share and diluted
earnings per share by all entities that have publicly traded common
stock or potential common stock (options, warrants, convertible
securities or contingent stock arrangements). Basic earnings per
share is computed by dividing income available to common
stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share gives
effect to dilutive potential common shares outstanding during the
year. Assumed exercise of options and warrants has not been included
in the calculation of diluted loss per share since the effect would
be anti-dilutive. Accordingly, basic and diluted net loss per share
do not differ for any period presented. The number of options and
warrants outstanding as of September 30, 2000 is 1,189,362.
(q) EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". This
bulletin summarizes views of the Staff on applying generally
accepted accounting principles to revenue recognition in financial
statements. The Company will be required to adopt SAB No. 101, as
amended by SAB 101B, in the fourth quarter of fiscal 2001.
Management believes that the current revenue recognition policy
complies with the guidelines in SAB No. 101 and, therefore, does not
believe the adoption of SAB No. 101B will have a material impact on
the financial position or results of operations.
<PAGE>
EUROTELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
4 INDUSTRY AND GEOGRAPHIC AREA SEGMENTS
The Company and its subsidiaries are engaged in three lines of
business: Projects, Services and Communications. Operations of the
subsidiary companies are conducted in the UK and US. The following is a
summary of the Company's operations by business segment and by
geographical segment. The accounting policies of the segments are the
same as those described in Note 3 - Significant accounting policies
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
(IN THOUSANDS)
<S> <C> <C>
(a) Statement of operations
Revenues
Projects $ 617 $ 393
Services 2,027 224
Communications 1,033 593
-------- --------
Revenues for reportable segments
and consolidated revenues 3,677 1,210
-------- --------
Loss before tax
Projects 1,707 628
Services 531 103
Communications 133 (5)
Add: interest, loan beneficial conversion,
loss from closed subsidiary, share of
loss of affiliated company and investment
writedowns 36 109
-------- --------
Total loss for reportable segments $ 2,407 $ 835
======== ========
Depreciation and amortization
Projects $ 182 $ 1
Services 91 1
Communications 27 7
-------- --------
$ 300 $ 9
======== ========
</TABLE>
<PAGE>
EUROTELECOM COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
4 INDUSTRY AND GEOGRAPHIC AREA SEGMENTS (CONTINUED)
SEPTEMBER 30,
2000
(IN THOUSANDS)
(b) Total assets
Projects $18,157
Services 5,552
Communciations 1,849
--------
$ 25,553
==========
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
(IN THOUSANDS)
(c) Geographic analysis of revenue
United Kingdom $ 3,514 $ 1,210
United States 163 -
---------- ----------
3,677 1,210
========== ==========
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth certain operating information regarding
EuroTelecom for the three months ended September 30, 2000 and 1999.
Three Months Ended September 30,
2000 1999
$'000's $'000's
Revenues 3,677 1,210
Cost of Revenues 2,779 1,049
Net Loss (2,407) (835)
Loss Per Share $(0.08) $(0.07)
Revenues
--------
In the three months ended September 30, 2000, the Company's gross revenues from
operations were $3,677,000, as compared to $1,210,000 from operations for the
three months ended September 30, 1999, an increase of $2,467,000 or 204%.
Revenues for each segment were as follows:
Three Months Ended
September 30,
2000 % 1999 %
$'000's $'000's
Projects 617 17 393 32
Services 2,027 55 224 19
Communications 1,033 28 593 49
--------- ----- -------- -----
3,677 100% 1,210 100
--------- ----- -------- -----
Included in revenues is income from Projects of $571,830 which was generated
from the application linking platform installed at Q.ton Forum in Cambridge and
'The Printworks' in Manchester. The remainder of the revenue from Projects in
the three months ended September 30, 2000 is from the sale of facsimile machines
to the Ministry of Defence.
Of the increase in Services revenues, $346,920 is attributable to the sale and
installation of air conditioning units, compared with $51,878 of sales in the
three months ended September 30, 1999, an increase of $294,842 or 568%.
$852,600 of the Services increase was a result of revenues attributable to
office fit outs undertaken by TimTec, being a new business operation compared to
the three months ended September 30, 1999.
$523,320 of Services revenues was attributable to the Commercial Security
Division in the three months ended September 30, 2000 compared with $172,118 in
the three months ended September 30, 1999, an increase of $351,202 or 204%.
$310,163 of Services revenues was attributable to the facilities management
contract with Jarvis Workplace Limited, this being a contract awarded in August
2000, for the three months ended September 30, 2000.
<PAGE>
Of the revenues from Communications, $163,000 was derived from the RTC
subsidiary for the three months ended September 30, 2000 compared with nil
revenues for the three months ended September 30, 1999.
$867,300 was derived from the Easy IP subsidiary for the three months ended
September 30, 2000 compared with $592,700 for the three months ended September
30, 1999, an increase of $274,600 or 46%. The increase in revenue was due to new
customer growth and increased product range available to the existing customer
base.
EuroTelecom Connect contributed revenues of $2,940 in the three months ended
September 30, 2000 compared with nil revenues in the three months ended
September 30, 1999.
Cost of Revenues
----------------
Costs incurred by the Company in producing revenues in the three months ended
September 30, 2000 were $2,779,000, compared with $1,049,525 in the three months
ended September 30, 1999, an increase of $1,729,475 or 165%.
Cost of revenues for each segment were as follows:
Three Months Ended
September 30,
2000 ($) 1999 ($)
Projects 492,450 349,516
Services 1,484,700 270,929
Communications 801,850 429,080
----------- -----------
2,779,000 1,049,525
=========== ===========
Gross Profit
For the three months ended September 30, 2000 the Company returned a gross
profit of $898,000, compared with a gross profit of $161,000 for the three
months ended September 30, 1999, an increase of $737,000 or 458%. The gross
profit for each segment is as follows:
Three Months Ended
September 30,
2000 ($) 1999 ($)
Projects 124,950 43,828
Services 541,770 (46,448) (Note)
Communications 231,280 163,620
---------- -----------
898,000 161,000
========== ===========
Note: The commercial security division achieved a gross margin of $68,536 before
a write down in certain costs carried forward of $128,000.
<PAGE>
Selling, General and Administrative Expenses
--------------------------------------------
The Company's selling, general and administrative expenses increased $2,092,000
from $877,000 in the three months ended September 30, 1999 to $2,969,000 in the
three months ended September 30, 2000, an increase of 238% Wages and salaries
increased in the three months ended September 30, 2000 to $1,385,000 from
$840,000 in the three months ended September 30, 1999, an increase of $545,000
or 65%. The increase is due to the hiring of additional personnel to take
account of the increased revenues and the potential revenues in the future. No
general increase in salary levels for existing employees was made.
The sales and marketing expense increased in the three months ended September
30, 2000 to $111,000 from $51,275 in the three months ended September 30, 1999,
an increase of $59,725 or 116%. The increase is due to the Company's decision to
have a high profile in sales of its products and service.
Professional costs increased in the three months ended September 30, 2000 to
$233,000 from $68,052 in the three months ended September 30, 1999, an increase
of $164,948 or 242%. The increase relates to ongoing advice with potential
acquisitions.
Motor and travel expenses increased in the three months ended September 30, 2000
to $251,000 from $116,284 in the three months ended September 30, 1999. The
increase relates to the hiring of additional personnel.
Selling, general and administrative expenses for the segments were as follows:
Three Months Ended
September 30,
2000 ($) 1999 ($)
Projects 1,631 361
Services 299 214
Communications 1,039 302
----------- -----------
2,969 877
=========== ===========
The increases in each segment were substantial as the Company continues to build
its technology infrastructure, hire more personnel, operate new companies and
acquired new distributor rights.
Depreciation and Amortization Expense
-------------------------------------
Depreciation and amortization expense increased from $9,000 in the three months
ended September 30, 1999 to $300,000 in the three months ended September 30,
2000, an increase of $291,000. The Company had incurred additional sums on
capital expenditure and the recorded amortization of goodwill on the acquisition
of Easy IP.
Financial Items
---------------
Financial items resulted in interest income of $89,000 in the three months ended
September 30, 2000 compared to an interest expense of $32,000 in the three
months ended September 30, 1999. The increase is due to cash reserves generated
from the issue of new equity on April 5, 2000 being placed on deposit with the
National Westminster Bank in the U.K.
Liquidity and Capital Resource
------------------------------
Net cash used in operations during the three months ended September 30, 2000
amounted to $(4,552,000) and consisted of the $(2,407,000) net loss increased by
the $2,145,000 increase in working capital and other non cash items.
Accounts payable and accruals were a source of funding to the extent of
$857,000.
Accounts receivable, costs in excess of billings and other assets used
$1,181,000 of funds due to increased growth in revenues in the three months
ended September 30, 2000. Inventories used a further $2,246,000 of funds due to
ongoing business and revenue expansions.
Some of the company's subsidiary companies have a credit facility with the
National Westminster Bank secured by parent company guarantees against cash
reserves held with the bank on deposit. At September 30, 2000 the Company owed
$1,742,000 to the bank under such facility.
Investing Activities
--------------------
Capital expenditure of $765,000 for the three months ended September 30, 2000
consisted primarily of fixed asset additions. Proceeds from the sale of fixed
assets amounted to $90,000.
Liquidity
---------
The company has to date not generated positive cash flow from operations.
Accordingly, the company has drawn on cash reserves generated from the issue of
new equity on April 5, 2000 to fund activities and to provide for increased
working capital requirements which have arisen from increased sales activity.
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Pursuant to a share sale agreement dated April 19,1999, EuroTelecom acquired
Easy IP Limited from Ian Reay and Jayne Holmes (together the "Vendors"). The
total consideration was $173,760 payable in cash, of which $86,880 was paid on
completion of the transaction on April 19, 1999 and of which $86,880 was paid on
January 31, 2000, and the issue on April 19, 1999 of 200,000 shares of Common
Stock to the Vendors. The $86,880 of the deferred cash remaining outstanding was
satisfied by a cash payment of $43,440 and the issue of 20,000 share of Class A
Common Stock to the Vendors on July 1, 2000. The Class A Common Stock were
issued to the Vendors at a price per share of $2.172. The Class A Common Stock
are unregistered securities and were sold in an offshore transaction in
accordance with Regulation S of the Securities Act of 1933, as amended, under an
exemption from registration for offers and sales of securities outside the U.S.
to non-U.S. persons.
<PAGE>
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)
/s/ Philip Derry
----------------------
Philip Derry
Chief Executive
/s/ David Linell
-----------------------
David Linell
CHIEF FINANCIAL OFFICER
Dated: November 20, 2000
