<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------
FORM 10-QSB/A-2
(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 3
ITEM I FINANCIAL STATEMENTS 3
Consolidated Balance Sheets of the Company at December 31, 1999
(unaudited) and June 30, 1999 (audited) 3
Consolidated Statements of Operations of the Company (unaudited) for
the three months and six months ended December 31, 1999 and 1998. 5
Consolidated Statements of Cash Flows of the Company (unaudited) for
the six months ended December 31, 1999 and 1998. 6
Consolidated Statement of Stockholders' Deficit (unaudited) for the
three months ended December 31, 1999 7
Consolidated Statement of Comprehensive Loss (unaudited) for the
three months ended December 31, 1999 7
Notes to Consolidated Financial Statements. 8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. 9
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 11
PART II OTHER INFORMATION 12
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS 12
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 12
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
------------------------------
ITEM 1 FINANCIAL STATEMENTS
EUROTELECOM COMMUNICATIONS, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1999 1999
(UNAUDITED) (AUDITED)
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 17,166 $ -
Accounts receivable 1,274,530 884,381
Accounts receivable - related party - 56,913
Other receivables 1,021,906 185,358
Inventories 803,202 357,952
Prepaid expenses 55,930 27,803
Unearned compensation 222,021 -
------------- -------------
TOTAL CURRENT ASSETS $ 3,394,755 $ 1,512,407
Property and equipment, net 481,056 90,718
Goodwill, net 328,549 381,868
Investments at cost 82,772 43,964
------------- -------------
TOTAL ASSETS $ 4,287,132 $ 2,028,957
============= =============
See accompanying notes to Consolidated Financial Statements
3
<PAGE>
EUROTELECOM COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, JUNE 30,
1999 1999
(UNAUDITED) (AUDITED)
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY/DEFICIT
Current Liabilities:
Bank facility $ 896,090 $ 375,261
Current maturities of long-term obligations 46,844 470,627
Accounts payable 2,053,748 743,063
Accounts payable - related party - 9,464
Accrued liabilities 56,737 207,554
Accrued income and other taxes 351,906 311,807
------------- -------------
TOTAL CURRENT LIABILITIES $ 3,405,325 $ 2,117,776
Long-term liabilities:
Notes payable 168,810 941,240
Less: current maturities of long term obligations (46,844) (470,627)
------------- -------------
TOTAL LONG TERM LIABILITIES $ 121,966 $ 470,613
------------- -------------
TOTAL LIABILITIES $ 3,527,291 $ 2,588,389
============= =============
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 8,988,102 shares issued in December
31, 1999 and June 30, 1999 respectively
179,463 89,882
Additional paid-in capital 27,120,361 23,556,427
Less subscriptions receivable - (131,788)
Accumulated deficit (26,590,109) (24,078,967)
Other comprehensive income 50,126 5,014
------------- -------------
TOTAL STOCKHOLDERS' EQUITY/DEFICIT $ 759,841 (559,432)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY/DEFICIT $ 4,287,132 $ 2,028,957
============= =============
See accompanying notes to Consolidated Financial Statements
4
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(UNAUDITED)
Net revenues $ 2,251,448 16,000 $ 3,461,488 32,000
Cost of revenue 1,472,133 - 2,521,658 -
------------ ------------ ------------ ------------
GROSS PROFIT $ 779,315 16,000 $ 939,830 32,000
------------ ------------ ------------ ------------
Expenses:
Selling and administrative 2,357,925 340,011 3,234,545 509,208
Depreciation 14,308 5,586 23,815 11,172
Amortization of intangible
assets 20,388 - 53,319 -
Loss from closed subsidiary - 291,923 - 291,923
------------ ------------ ------------ ------------
OPERATING LOSS $(1,613,306) (621,520) $(3,311,679) (780,303)
------------ ------------ ------------ ------------
Other Income/(expense):
Interest expense (63,048) (25,222) (95,329) (41,978)
Investment writedown - - (43,964) -
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES $(1,676,354) (646,742) $(2,511,142) (822,281)
------------ ------------ ------------ ------------
Income tax expense - (100) - (100)
------------ ------------ ------------ ------------
Net loss for the Period (1,676,354) (646,842) (2,511,142) (822,381)
------------ ------------ ------------ ------------
Net loss per common share
- basic (0.102) (0.102) (0.187) (0.134)
============ ============ ============ ============
Weighted average number
of common shares 16,366,662 6,333,716 13,461,662 6,148,416
------------ ------------ ------------ ------------
Basic and diluted loss per share are the same due to any effect of warrants
outstanding being anti-dilutive.
See accompanying notes to Consolidated Financial Statements
5
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
DECEMBER 31,
1999 1998
------------- -------------
(UNAUDITED)
NET LOSS $ (2,511,142) $ (822,381)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
Non-cash items:
Depreciation and amortization 77,134 11,172
Investment write down 43,964 -
Write off subscription receivable 131,788 -
Stock issued for services 696,240 117,722
Amortization of unearned compensation 27,979 -
CHANGES IN CURRENT ASSETS AND LIABILITIES
Receivables (333,236) -
Inventories (445,250) -
Other current assets (864,675) (37,434)
Accrued expenses (150,193) 31,773
Accounts payable 1,301,221 61,090
Other liabilities 23,217 (291,461)
------------- -------------
Net cash provided by (used in) operating
Activities (2,002,953) (929,519)
============= =============
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (83,405) -
Purchase/Disposal of fixed assets (370,325) 42,036
------------- -------------
Net cash (used in) provided by investing
Activities (453,730) 42,036
============= =============
CASH FLOW FROM FINANCING ACTIVITIES
Repayment of debt - (48,000)
Proceeds from line of credit 520,829 65,904
Proceeds from issuance of common stock 1,907,275 -
Proceeds from issuance of debt - 870,000
------------- -------------
Net cash provided by financing
Activities 2,428,104 887,904
============= =============
Effect of exchange rate changes on cash 45,745 -
============= =============
INCREASE IN CASH 17,166 421
Cash and cash equivalents at beginning of period - -
------------- -------------
Cash and cash equivalents at end of period 17,166 421
============= =============
6
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FROM JULY 1, 1999 TO DECEMBER 31, 1999
<CAPTION>
ACCUMULATED
OTHER
ACCUMULATED COMPREHENSIVE
SHARES AMOUNT PAID IN CAPITAL DEFICIT INCOME
------------ ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance July 1, 1999 8,988,102 $ 89,882 $ 23,556,427 (24,078,967) $ 5,014
Shares issued during period:
Loan stock conversion 5,500,000 55,000 745,000 -- --
Cash 310,000 3,100 303,075 -- --
Net loss for the period
ended September 30, 1999 -- -- -- (834,788) --
Currency translation
differences on foreign
currency net investments -- -- -- -- (3,311)
------------ ------------ ------------ ------------ ------------
Balance September 30, 1999 14,798,102 147,982 24,604,502 (24,913,755) 1,703
ACCUMULATED
OTHER
ACCUMULATED COMPREHENSIVE
SHARES AMOUNT PAID IN CAPITAL DEFICIT INCOME
------------ ------------ --------------- ------------ ------------
Balance October 1, 1999 14,798,102 $ 147,982 $ 24,604,502 (24,913,755) $ 1,703
Shares issued during period:
Acquisition of RTC Inc. 150,000 1,500 248,500 -- --
Consultancy fees 780,000 7,800 252,200 -- --
Employee bonuses 218,120 2,181 434,059 -- --
Cash 2,000,000 20,000 1,581,100 -- --
Net loss for the period
ended Decmber 31, 1999 -- -- -- (1,676,354) --
Currency translation
differences on foreign
currency net investments -- -- -- -- (48423)
------------ ------------ ------------ ------------ ------------
Balance December 31, 1999 17,946,222 179,463 27,120,361 (26,590,109) 50,126
</TABLE>
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
--------------------------------------------
Net loss for the six months ended December 31, 1999 $ (2,511,142)
Currency translation differences on foreign currency
net investments 45,112
--------------
Comprehensive loss $ (2,466,030)
==============
7
<PAGE>
EUROTELECOM COMMUNICATIONS INC. AND SUBSIDIARIES
------------------------------------------------
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
FOR THE THREE MONTHS ENDED 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.
Accordingly, they do not include certain footnotes and financial presentations
normally required under generally accepted accounting principles. In the opinion
of management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included.
On July 1, 1999 unsecured convertible loan notes in the amounts of $80,000,
$360,000 and $360,000 issued at the beginning of 1999 were converted into
550,000, 2,475,000 and 2,475,000 shares of common stock respectively.
On August 16, 1999, the Company entered into what it described at the time as an
"Agreement of Sale" with Ray May for all of the shares of capital stock of RTC,
Inc. ("RTC"). As part of the agreement Ray May simultaneously entered into a
three-year employment contract with the Company and a covenant not to compete.
The purchase price for RTC was 150,000 shares of the common stock of the Company
valued at $250,000. At the time of the transaction, RTC had no assets,
liabilities or contracts in progress and no financial statements. The Company
now believes, after consultations with its newly appointed auditors, that the
transaction, in substance, was not a business acquisition but a three-year
employment agreement with Ray May for future services. To properly match costs
and revenues the Company will amortize the value of the stock over the
employment agreement.
The impact of this revised accounting treatment has been to reduce goodwill by
$280,947 and record an asset for unearned compensation of $222,021. For the
consolidated statement of operations for the three months ended December 31,
1999 the loss for the period has increased by $22,194 together with a
reclassification of $17,561 from amortization charge to selling and
administrative expenses.
For the six month period ended December 31, 1999 the loss has increased by
$53,911 including a reclassification of $17,561 from amortization expense to
selling and administrative expense.
In the three months ended December 31, 1999 the Company raised additional equity
through issuing Common Stock pursuant to Regulation S. The Company issued
2,998,120 shares for $2,297,340 to non US persons representing a mixture of cash
and services provided to the Company.
8
<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 OF 1999 TO EQUIVALENT PERIODS IN
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 $2,235,448 from $16,000 for the three months ended
December 31, 1998 to $2,251,448 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 $3,461,488, an
increase of $3,429,488 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 $674,380, 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
$298,542 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 $1,010,865 for the
three months ended December 31, 1999 with no revenues for the three months ended
December 31, 1998.
9
<PAGE>
The air conditioning subsidiary, Chunlan Limited, contributed net revenues of
$110,925 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 $779,315
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 $939,830 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 $2,017,914 from $340,011 for
the three months ended December 31, 1998 to $2,357,925 for the three months
ended December 31, 1999. Selling and administrative expenses increased by
$2,725,337 from $509,208 for the six months ended December 31, 1998 to
$3,234,545 for the six months ended December 31, 1999.
AMORTIZATION OF INTANGIBLE ASSETS
The amount of amortization of intangible assets has increased by $20,338 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 acquisition of
Easy IP Limited.
INTEREST EXPENSE
The interest expense increased to $63,048 in the three months ended December 31,
1999 from $25,222 in the three months ended December 31, 1998 and to $95,329 in
the six months ended December 31, 1999 from $41,978 in the six months ended
December 31, 1998.
The increase is due to obtaining additional lines of bank credit in the period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations during the six months ended December 31, 1999
amounted to $(2,002,953) and consisted of the $(2,511,142) net loss decreased by
the $508,189 decrease in working capital and other non cash items.
Accounts payable and accruals were a source of funding to the extent of
$1,151,028.
Accounts receivable used $333,236 of funds due to increased revenues.
The Company has a credit facility with National Westminster Bank plc 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 the Company owed $896,090 to the bank under such facility.
10
<PAGE>
INVESTING ACTIVITIES
Capital expenditures of $302,816 for the three months ended December 31, 1999
consisted primarily of fixed asset additions.
FINANCING ACTIVITIES
Cash received from financing activities in the second quarter consisted of the
private placement of 2,000,000 shares of common stock for $1,601,100 and
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 Pound
to 1.6 Dollars. Variations in the Pound Sterling to Dollar exchange rate could
effect a proportional change in asset value and income.
11
<PAGE>
PART II - OTHER INFORMATION
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
3,148,120 shares on December 28, 1999 valued at $2,297,340 to non US persons
representing a mixture of cash and services. In addition, in August 1999 the
Company issued 150,000 shares of Common Stock in connection with its acquisition
of RTC Inc.
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: December 21, 2000 By: /S/ David Linell
-----------------------------------
DAVID LINELL
CHIEF FINANCIAL OFFICER
12
