SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
--------------------------
Date of Report (date of earliest event reported): April 18, 2000
EuroTelecom Communications, Inc.
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 87-0409699
-------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
0-27673
-------
(Commission File Number)
Farfield Park, Wath Upon Dearne, South Yorkshire, England S63 5BD
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(Address of principal executive offices) (U.K. Postal Code)
011-44-1709-874-600
-------------------
Registrant's U.K. telephone number, including area code
F4 Mexborough Business Center, College Road, Mexborough, Yorkshire, England
---------------------------------------------------------------------------
Former Address
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Acquisition of assets of Timtec International Limited
-----------------------------------------------------
The Company acquired the assets of Timtec International Limited ("Timtec"), an
English company, out of bankruptcy, pursuant to an asset purchase agreement
dated April 18, 2000 between the Company as buyer, Timtec as vendor and Jeffreys
Henry as insolvency administrator. The consideration for the acquisition was
cash in the amount of $1,041,000. The source of the funds used to provide such
consideration was the offering by the Company in April, 2000 of shares in the
Company's class A common stock on the Alternative Investment Market, a regulated
exchange in the U.K. The business of Timtec which was acquired is interior
contracting and architectural joinery in the residential, hotel and retail
sectors. This includes the installation and fitting of such items as office
furniture, carpets, decorations, shop counters, suspended ceilings, light
fittings and window and door joinery. The key intangible asset acquired in the
acquisition is considered by the Company to be the value attributable to the
trade name. The Company intends to use the Timtec assets and trade-name to
re-establish the business previously operated by Timtec.
Acquisition of shares of Q.ton Limited
--------------------------------------
The Company acquired in aggregate 49 percent of Q.ton Limited ("Q.ton"), an
English company, pursuant to a share purchase and subscription and shareholders
agreement dated May 12, 2000 between Amanda Louise Staveley, the sole
shareholder of Q.ton as vendor, the Company as buyer and Q.ton. The
consideration for the purchase of 29 percent of the Q.ton shares held by Ms.
Staveley was 794,000 shares of class A common stock in the Company issued at
fair market value to Ms. Staveley at $1,459,076 per share. Under the agreement,
the Company subscribed for a further twenty percent of Q.ton's shares for a cash
total of $1,139,025.
Q.ton is a development stage company which was incorporated in October 1998. The
company leases two units in the newly-built Cambridge Science Park from Trinity
College Cambridge in the United Kingdom. One of these units, known as the Q.ton
Forum, is being equipped with conference facilities and restaurant facilities;
the other unit is being equipped with leisure facilities. Once operational the
company's revenues will principally be rental income and membership income from
users of the units.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Financial statements of Timtec
------------------------------
The Company however has not provided herewith pro forma or audited financial
statements on Timtec because the Company believes such financial information
would not be meaningful to investors. The historic financial performance of
Timtec during the past two years is not indicative of Timtec's previous
performance nor indicative of what EuroTelecom believes will be the performance
in the future under new management. The reasons for this assumption are as
follows. In 1998, Timtec became engaged in a dispute over one of its contracts
valued at approximately $3,160,000 following which the business went into
decline. These financial difficulties caused the business to be placed in
administration (a U.K. form of bankruptcy) on January 14, 2000. As a result of
these events, the nature of the revenue producing activity of Timtec is not the
same as before the transaction. The reason for the acquisition was principally
to acquire the Timtec name and to re-establish what had previously been the
quality reputation of the business. In addition, due to the procedures
associated with the U.K. bankruptcy procedure the historic financial records of
Timtec are not readily available.
<PAGE>
Financial statements of Q.ton for the period ending October 31, 1999
--------------------------------------------------------------------
Directors A L Staveley
A Burchall
Secretary L Harford
Company number 03650382
Registered office Shakespeare House
42 Newmarket Road
Cambridge
CB5 8EP
Auditors Saffery Champness
Sovereign House
6 Windsor Court
Clarence Drive
Harrogate
HG1 2PE
Bankers National Westminster Bank
PO Box 16, 39 Market Pl.
Ripon
North Yorkshire
HG4 1DB
Solicitors Hewitson, Becke & Shaw
Shakespeare House
42 Newmarket Road
Cambridge CB5 8EP
<PAGE>
Q.TON LIMITED
CONTENTS
--------
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Page
----
Directors' report 1 - 2
Auditors' report 3
Profit and loss account 4
Balance sheet 5
Notes to the financial statements 6 - 9
<PAGE>
Q.TON LIMITED
DIRECTORS' REPORT
-----------------
FOR THE PERIOD ENDED OCTOBER 31, 1999
--------------------------------------------------------------------------------
The directors present their report and financial statements for the period ended
October 31, 1999.
PRINCIPAL ACTIVITIES
The company has not traded during the period and had only incurred pre-trading
expenditure before October 31, 1999.
DIRECTORS
The following directors held office during the period.
A L Staveley (Appointed February 11, 1999)
Instant Companies Limited (Appointed October 15, 1998 and resigned
February 11, 1999)
A Burchall (Appointed May 4, 2000)
DIRECTORS' INTERESTS
The directors' beneficial interests in the shares of the company, including
spouse's interest as required by the Companies Act, were as stated below:
ORDINARY OF (POUND) 1 EACH
OCTOBER 31, 1999 OCTOBER 15, 1998
A L Staveley 2 -
AUDITORS
Saffery Champness were appointed auditors to the company and in accordance with
section 385 of the Companies Act 1985, a resolution proposing that they be
re-appointed will be put to the Annual General Meeting.
DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
Page 1
<PAGE>
Q.TON LIMITED
DIRECTORS' REPORT
-----------------
FOR THE PERIOD ENDED OCTOBER 31, 1999
--------------------------------------------------------------------------------
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
This report has been prepared in accordance with the special provisions of Part
VII of the Companies Act 1985 relating to small companies.
On behalf of the board
/s/: A. Burchall
A. Burchall
DIRECTOR
May 19, 2000
Page 2
<PAGE>
Q.TON LIMITED
-------------
AUDITORS' REPORT
TO THE SHAREHOLDERS OF Q.TON LIMITED
--------------------------------------------------------------------------------
We have audited the financial statements on pages 4 to 9 which have been
prepared under the historical cost convention and the accounting policies set
out on page 6.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 2 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board, which are substantially similar to generally accepted
auditing standards in the United States. An audit includes examination, on a
test basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and
judgements made by the directors in the preparation of the financial statements,
and of whether the accounting policies are appropriate to the company's
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at October 31, 1999 and of its loss for the period
then ended and have been properly prepared in accordance with the Companies Act
1985.
/s/: Saffery Champness
SAFFERY CHAMPNESS
Chartered Accountants Sovereign House
Registered Auditors 6 Windsor Court
Clarence Drive
May 22, 2000 Harrogate
HG1 2PE
Page 3
<PAGE>
Q.TON LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE PERIOD ENDED OCTOBER 31, 1999
--------------------------------------------------------------------------------
PERIOD
ENDED
OCTOBER, 31
1999
Notes (POUND)
Administrative expenses (98,512)
--------
OPERATING LOSS 2 (98,512)
Other interest receivable and similar income 3 3,094
---------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (95,418)
Tax on loss on ordinary activities 4 -
---------
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION 10 (95,418)
=========
The profit and loss account has been prepared on the basis that all operations
are continuing operations.
There are no recognized gains and losses other than those passing through the
profit and loss account.
The notes on pages 6 to 9 form part of these financial statements.
Page 4
<PAGE>
Q.TON LIMITED
BALANCE SHEET
AS AT OCTOBER 31, 1999
1999
NOTES (POUND) (POUND)
Fixed assets
Tangible assets 5 89,946
CURRENT ASSETS
Debtors 6 13,517
Cash at bank and in hand 625,522
---------
639,039
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 7 (174,401)
---------
NET CURRENT ASSETS 464,638
---------
TOTAL ASSETS LESS CURRENT LIABILITIES 554,584
CREDITORS: AMOUNTS FALLING DUE 8 (650,000)
---------
AFTER MORE THAN ONE YEAR
(95,416)
CAPITAL AND RESERVES
Called up share capital 9 2
Profit and loss account 10 (95,418)
---------
SHAREHOLDERS' FUNDS - EQUITY INTERESTS 11 (95,416)
=========
These financial statements have been prepared in accordance with the special
provisions of Part VII of the Companies Act 1985 relating to small companies.
The notes on pages 6 to 9 form part of these financial statements.
The financial statements were approved by the Board on May 19, 2000
/s/: A. Burchall
A. Burchall
DIRECTOR
Page 5
<PAGE>
Q.TON LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED OCTOBER 31, 1999
--------------------------------------------------------------------------------
1 ACCOUNTING POLICIES
1.1 ACCOUNTING CONVENTION
The financial statements are prepared under the historical cost
convention.
1.2 TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are stated at cost less depreciation.
Depreciation is provided at rates calculated to write off the cost less
estimated residual value of each asset over its expected useful life,
as follows:
Land and buildings Leasehold 20% on cost
Fixtures, fittings & equipment 10% on cost
1.3 DEFERRED TAXATION
Deferred taxation is provided at appropriate rates on all timing
differences using the liability method only to the extent that, in the
opinion of the directors, there is a reasonable probability that a
liability or asset will crystallize in the foreseeable future.
2 OPERATING LOSS 1999
(POUND)
Operating loss is stated after charging:
Depreciation of tangible assets 720
Auditors' remuneration 1,000
=====
3 OTHER INTEREST RECEIVABLE AND SIMILAR INCOME 1999
(POUND)
Bank Interest 3,094
4 TAXATION
The company incurred no tax liability on the result for the period, although was
subject to a rate of corporation tax of 20%.
Page 6
<PAGE>
Q.TON LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED OCTOBER 31, 1999
--------------------------------------------------------------------------------
5 TANGIBLE FIXED ASSETS LAND AND PLANT AND TOTAL
BUILDINGS MACHINERY
ETC
(POUND) (POUND) (POUND)
COST
At October 15, 1998 - - -
Additions 83,469 7,197 90,666
------ ----- ------
At October 31, 1999 83,469 7,197 90,666
------ ----- ------
DEPRECIATION
At October 15, 1998 - - -
Charge for the period - 720 720
------ ----- ------
At October 31, 1999 - 720 720
------ ----- ------
NET BOOK VALUE
At October 31, 1999 83,469 6,477 89,946
====== ===== ======
Included in land and buildings are costs incurred in respect of a 15
year lease commencing once certain building work has been completed. An
agreement to lease was signed on September 3, 1999.
6 DEBTORS 1999
(POUND)
Other debtors 13,517
======
7 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 1999
(POUND)
Taxation and social security 2,239
Other creditors 172,162
-------
174,401
=======
Page 7
<PAGE>
Q.TON LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED OCTOBER 31, 1999
--------------------------------------------------------------------------------
8 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 1999
(POUND)
Other creditors 650,000
=======
ANALYSIS OF LOANS
Wholly repayable within five years 650,000
=======
Loan maturity analysis
Between two and five years 650,000
=======
9 SHARE CAPITAL 1999
(POUND)
Authorised
1,000 Ordinary of (pound) 1 each 1,000
=======
Allotted, called up and fully paid
2 Ordinary of (pound) 1 each 2
=======
Further share capital was issued by the company after October 31, 1999
- note 14.
10 STATEMENT OF MOVEMENTS ON PROFIT AND LOSS ACCOUNT
PROFIT AND
LOSS ACCOUNT
(POUND)
Retained loss for the period (95,418)
=========
11 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 1999
(POUND)
Loss for the financial period (95,418)
Proceeds from issue of shares 2
========
Net depletion in shareholders' funds (95,416)
Opening shareholders' funds -
========
Closing shareholders' funds (95,416)
========
Page 8
<PAGE>
Q.TON LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED OCTOBER 31, 1999
--------------------------------------------------------------------------------
12 CONTINGENT LIABILITIES
Under the terms of a contract dated September 3, 1999 between the
company and Trinity College, Cambridge the company has deposited in an
escrow account the sum of (pound)620,000 at October 31, 1999. A further
amount of (pound)350,000 was deposited in the escrow account subsequent
to the balance sheet date. The account is managed by the solicitors to
the parties to the agreement. The company is required to fulfill
certain obligations under the agreement, failure of which could result
in the loss of the deposit made.
13 UK TO US GAAP RECONCILIATION
The directors do not believe that any differences would arise to either
the reported loss for the period or net assets if the accounts were
prepared in accordance with US GAAP.
14 RELATED PARTY TRANSACTIONS
The movement on the director's loan account has been used to fund
expenditure incurred during the period. The year end creditor balance
due within one year on the director's loan account was (pound)171,162
and (pound)650,000 due after more than one year.
15 POST BALANCE SHEET EVENTS
Subsequent to the year end a contract has been entered into for further
improvements to the leasehold premises at a total estimated cost of
(pound)867,000. In addition the company passed a special resolution
increasing its authorised share capital from (pound)1,000 to
(pound)1,000,000 and immediately then issued a further 649,998 ordinary
(pound)1 shares at par to A L Staveley for cash, by conversion of her
loan account included within Creditors: amounts falling due after more
than one year.
On May 10, 2000 the company reclassified 235,625 issued ordinary
(pound)1 shares and a further 162,500 unissued ordinary (pound)1 shares
as 'B' ordinary (pound)1 shares. The remaining ordinary (pound)1 shares
were reclassified as 'A' ordinary (pound)1 shares. On the same date, A
L Staveley sold 235,625 'B' ordinary (pound)1 shares to EuroTelecom
Corporation Limited. EuroTelecom then subscribed for a further 162,500
'B' ordinary (pound)1 shares for the sum of (pound)750,000 cash.
Page 9
<PAGE>
EUROTELECOM COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
Unaudited consolidated pro forma statements of the Company following acquisition
of Q.ton
--------------------------------------------------------------------------------
The following unaudited consolidated pro forma statements of operations give
effect to the acquisition of Q.ton. The pro forma adjustments are based upon
available information and certain assumptions that management believes are
reasonable. The unaudited pro forma statements of operations do not purport to
represent what the results of operations of EuroTelecom Communications, Inc.
("EuroTelecom") would actually have been if the acquisition had in fact occurred
on the indicated date, nor do they purport to project the results of operations
for any future period. The unaudited pro forma balance sheet shows the position
of EuroTelecom at March 31, 2000 as if the acquisition of Q.ton had been made on
that date.
The unaudited pro forma statements of operations for the year ended June 30,
1999 were prepared by combining the audited statement of operations for
EuroTelecom for the six months ended June 30, 1999 and the unaudited statement
of operations for EuroTelecom for the six months ended December 31, 1998 with
EuroTelecom's share of its loss from Q.ton, its affiliated company for that
year. As Q.ton was only incorporated in October 1998 the period presented covers
only nine months.
The unaudited pro forma statements of operations for the nine months ended March
31, 2000 were prepared by combining the unaudited statement of operations for
EuroTelecom for that period together with EuroTelecom's share of the loss from
its affiliated company for that period.
10
<PAGE>
EUROTELECOM COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EUROTELECOM
EUROTELECOM PRO FORMA
CONSOLIDATED CONSOLIDATED
BALANCE SHEET PRO FORMA BALANCE SHEET
MARCH 31, 2000 ADJUSTMENTS MARCH 31, 2000
<S> <C> <C> <C>
TOTAL CURRENT ASSETS $ 3,053 $ - $ 3,053
Property plant and equipment, net 608 - 608
Goodwill, net 308 - 308
Investments at cost 90 - 90
Investment in affiliated company - 2,636 (1) 2,636
Deferred offering costs 880 - 880
---------- ---------- ----------
TOTAL ASSETS $ 4,939 $ 2,636 $ 7,575
---------- ---------- ----------
TOTAL CURRENT LIABILITIES $ 5,241 $ 1,177 (1) $ 6,418
TOTAL LONG TERM LIABILITIES 109 - 109
---------- ---------- ----------
TOTAL LIABILITIES 5,350 1,177 6,527
STOCKHOLDERS' EQUITY (DEFICIT) (411) 1,459 1,048
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 4,939 $ 2,636 $ 7,575
EQUITY ========== ========== ==========
</TABLE>
11
<PAGE>
EUROTELECOM COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRO
FORMA
CONSOLIDATED
EUROTELECOM EUROTELECOM Q.TON FOR THE
6 MONTHS 6 MONTHS 9 MONTHS 12 MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, PRO FORMA JUNE 30,
1998 1999 1999 ADJUSTMENTS 1999
(IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C> <C>
Revenues $ 32 $ 1,323 $ - $ - $ 1,355
Cost of revenues - 803 - - 803
------------ ------------ ------------ ------------ ------------
Gross profit 32 520 - -
552
Selling, general and administrative
expenses 813 1,803 - - 2,616
------------ ------------ ------------ ------------ ------------
Loss from operations (781) (1,283) - - (2,064)
Share of loss from
affiliated company - - (53) (338) (2) (391)
Interest (expense)
income, Net (42) (35) 2 - (75)
Loan stock beneficial - (919) - - (919)
conversion
------------ ------------ ------------ ------------ ------------
Loss before income tax and
minority interest (823) (2,237) (51) (338) (3,449)
Income (tax) benefit - - - - -
------------ ------------ ------------ ------------ ------------
Net loss $ (823) $ (2,237) $ (51) $ (338) $ (3,449)
============ ============ ============ ============ ============
Loss per share, basic and diluted (0.530) (3) (0.525) (3)
Weighted average number of common
shares outstanding 5,777,816 6,571,816
============ ============
</TABLE>
12
<PAGE>
<TABLE>
EUROTELECOM COMMUNICATIONS, INC
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
PRO FORMA
CONSOLIDATED
EUROTELECOM Q.TON FOR THE
9 MONTHS 9 MONTHS 9 MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, PRO FORMA MARCH 31,
2000 2000 ADJUSTMENTS 2000
------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT LOSS PER SHARE)
<S> <C> <C> <C> <C>
Revenues $ 4,977 $ - $ - $ 4,977
Cost of revenues 3,600 - - 3,600
------------- ------------- ------------- -------------
Gross profit 1,377 - - 1,377
Selling, general and
administrative expenses 4,926 - - 4,926
------------- ------------- ------------- -------------
Loss from operations (3,549) - - (3,549)
Share of loss from affiliated
company - (79) (253) (2) (332)
Interest (expense) income, net (122) 10 - (112)
Investment write down (44) - - (44)
------------- ------------- ------------- -------------
Loss before income tax and
minority interest (3,715) (69) (253) (4,037)
Income (tax) benefit - - - -
------------- ------------- ------------- -------------
Net loss $ (3,715) $ (69) $ (253) $ (4,037)
============= ============= ============= =============
Loss per share, basic and diluted (0.276) (3) (0.283) (3)
============= =============
Weighted average number of common
shares outstanding 13,461,622 14,255,662
============= =============
</TABLE>
13
<PAGE>
EUROTELECOM COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(1) Reflects the acquisition of 49% of Q.ton in exchange for
794,000 shares of Class 'A' Common Stock of EuroTelecom and
$1,139,025 payable in cash. The fair value of the 794,000
shares issued was $1,459,076. Total consideration paid,
including acquisition costs, was $2,635,953.
The fair value of the net assets acquired was $1,948,000
resulting in a premium of $1,688,000 which is being amortized
over a 5 year period.
(2) Reflects the increased amortization charge for goodwill.
Goodwill arising on the acquisition is amortized over 5 years.
(3) The basic and diluted loss per share amounts for historical
and pro forma results of operations are identical due to
EuroTelecom's losses.
(4) The fiscal year end for Q.ton was October 31 and has
subsequently been changed to June 30, 2000.
14
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
2.1 Acquisition agreement - Timtec International Limited
2.2 Share Purchase and Subscription and Shareholders Agreement
- Q.ton Limited
SIGNATURE
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.
Date: December 21, 2000
EUROTELECOM COMMUNICATIONS, INC.
(Registrant)
By: /s/: Philip S. Derry
-------------------------------
Name: Philip S. Derry
Title: President and Chief Executive Officer
15
