UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For quarterly period ended December 31, 1995
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
Commission file number: 0-11372
CHURCHILL TECHNOLOGY INC.
(Exact name of small business issuer as specified in its charter)
Colorado 84-0904172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
181 Cooper Avenue
Tonawanda, N.Y. 14150
(address of principal executive offices)
(716) 874-8696
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (x) No ( )
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
As of February 1, 1996, the Registrant had 89,673,306 shares of
Common Stock outstanding.
Traditional Small Business Disclosure Format (check one): Yes ( ) No
(x)
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CHURCHILL TECHNOLOGY INC. AND SUBSIDIARIES
Form 10-QSB Quarterly Report
Quarter ended December 31, 1995
INDEX
PART I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet 3 - 4
December 31, 1995
Consolidated Statements of Operation 5
Three Months Ended December 31, 1995 and 1994
Consolidated Statement of Shareholders' Equity 6
Three Months Ended December 31, 1995
Consolidated Statements of Cash Flows 7
Three Months Ended December 31, 1995 and 1994
Notes to Consolidated Financial Statements 8 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 16
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
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CHURCHILL TECHNOLOGY INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Unaudited)
December 31,1995
December 31, 1995
ASSETS
CURRENT ASSETS
Cash $ 56,281
Accounts receivable - trade, less allowance
for doubtful accounts of $27,745. 166,810
Interest receivable 4,533
Inventories 239,082
Prepaid expenses 27,059
_____________
493,765
PROPERTY AND EQUIPMENT, AT COST
Machinery and equipment 1,924,447
Furniture, fixtures and leasehold improvements 103,705
_____________
2,028,152
Accumulated depreciation and amortization (250,699)
__________
1,777,453
Equipment under construction 670,354
__________
2,447,807
__________
OTHER ASSETS
Investments 6,458,010
Note receivable 150,000
Patents and related technology,
net of accumulated amortization of $974,906 9,961,052
Prepaid royalties 103,984
Other assets 59,195
__________
16,732,241
__________
TOTAL ASSETS $ 19,673,813
"See accompanying notes to consolidated financial statements."
3
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CHURCHILL TECHNOLOGY INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Unaudited) (Continued)
December 31,1995
December 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $1,150,737
Accrued liabilities 207,600
Notes payable - banks and other 1,034,189
Current portion - long-term debt 377,678
Notes payable - related party 184,104
_________
2,954,308
LONG-TERM DEBT, LESS CURRENT MATURITIES $1,159,572
_________
COMMITMENTS AND CONTINGENCIES
Common Stock to be Issued,
Net of Offering Costs 650,750
SHAREHOLDERS' EQUITY
Preferred stock - $1.00 par value;
5,000,000 shares authorized;
1,000,000 Series A shares issued and outstanding;
$6,000,000 liquidation preference 1,000,000
Common stock - $.02 par value;
200,000,000 shares authorized;
99,930,306 shares issued and
99,448,306 shares outstanding 1,998,607
Additional paid-in capital 35,830,595
Unearned consulting fees (1,910,166)
Accumulated deficit (21,656,852)
Cumulative translation adjustment 8,499
__________
15,270,683
Treasury stock, 482,000 shares, at cost (361,500)
__________
14,909,183
__________
TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY $19,673,813
__________
"See accompanying notes to consolidated financial statements."
4
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CHURCHILL TECHNOLOGY INC. AND SUBSIDIARIES
Consolidated Statement of Operations (Unaudited)
For the Period Ended December 31, 1995 and 1994
Three Months Ended December 31
1995 1994
REVENUES
Product Sales $ 217,238 $
OPERATING EXPENSES
Manufacturing 248,190
General and administrative 472,505 581,028
Research and development 59,517
Marketing and selling 146,878
Depreciation and amortization 336,837 10,099
__________ _________
1,263,927 591,127
LOSS FROM OPERATIONS (1,046,689) (591,127)
OTHER EXPENSE (INCOME)
Interest expense 57,444
Interest and other income (18,727) (12,430)
__________ _________
38,717 (12,430)
__________ _________
LOSS FROM CONTINUING OPERATIONS $(1,085,406) $ (578,697)
__________ _________
INCOME FROM DISCONTINUED OPERATIONS
Income from discontinued operations 4,534
NET LOSS $(1,085,406) $(574,163)
__________ _________
LOSS PER SHARE OF COMMON STOCK
Loss from continuing operations $ (.01) $ (.01)
Net loss $ (.01) $ (.01)
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE PERIOD 99,447,219 48,966,236
"See accompanying notes to consolidated financial statements."
5
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CHURCHILL TECHNOLOGY INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For the Period Ended December 31, 1995
Preferred Stock Common Stock
_____________________ ______________________
Shares Amount Shares Amount
_____________________ ______________________
BALANCE-9/30/95 1,000,000 $1,000,000 $99,830,306 $1,996,607
ISSUANCE OF COMMON STOCK
FOR SERVICES
Investment Banking Fee 100,000 2,000
FOREIGN CURR. TRANSLATION
NET LOSS
_________ __________ ___________ __________
BALANCE-12/31/95 1,000,000 $1,000,000 $99,930,306 $1,998,607
_________ __________ ___________ __________
Additional Unearned
Paid-In Consulting Treasury Accumulated
Capital Fees Stock Deficit
__________ ___________ _________
____________
BALANCE-9/30/95 $35,798,195 $(1,910,166)$(361,500)$(20,571,446)
ISSUANCE OF COMMON STOCK
FOR SERVICES
Investment Banking Fee 32,400
FOREIGN CURR. TRANSLATION
NET LOSS (1,085,406)
_________ _____________________ __________
BALANCE-12/31/95 $35,830,595 $(1,910,166)$(361,500)$(21,656,852)
_________ _____________________ __________
Cumulative
Translation
Adjustment
_____________
BALANCE-9/30/95 $4,966
ISSUANCE OF COMMON STOCK
FOR SERVICES
Investment Banking Fee
FOREIGN CURR. TRANSLATION 3,533
NET LOSS
_________
BALANCE-12/31/95 $8,499
_________
"See accompanying notes to consolidated financial statements."
6
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CHURCHILL TECHNOLOGY INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
For the Period Ended December 31, 1995 and 1994
Three Months Ended December 31
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES$ (573,297) $ (558,374)
CASH FLOWS FROM INVESTING ACTIVITIES (141,667) (2,034,601)
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES 632,761 4,563,195
EFFECT OF EXCHANGE RATE CHANGES ON CASH 191
___________ ____________
NET INCREASE (DECREASE) IN CASH (82,012) 1,970,220
CASH, BEGINNING OF PERIOD 138,293 54,018
___________ ____________
CASH, END OF PERIOD $ 56,281 $ 2,024,238
_________________ __________________
"See accompanying notes to consolidated financial statements."
7
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CHURCHILL TECHNOLOGY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A - UNAUDITED FINANCIAL STATEMENTS
The interim financial information furnished herein was prepared from the
books and records of Churchill Technology Inc. and its subsidiaries (the
"Company") as of December 31, 1995 and for the period then ended, without
audit; however, such information reflects all adjustments which are, in
the opinion of management, necessary to a fair presentation of financial
position and of the statements of operations and cash flows for the
interim period presented. Management feels that the adjustments made
during the current operating period were of a normal, recurring nature.
The interim financial information of the Company includes the results and
accounts of its wholly-owned subsidiary, Churchill Technology (Isle of
Man) Limited ("CTI-IOM") for the three months ended December 31, 1994,
after giving effect to a reverse acquisition as described in Note C-
Acquisitions. Upon application of the appropriate accounting treatment
for a reverse acquisition, the historical financial statements prior to
the acquisition date of February 22, 1994 are those of CTI-IOM. As a
result of the provisions of the purchase agreement of CTI-IOM, the
Company's wholly-owned subsidiary, Churchill USA, Inc., will be accounted
for on the cost method. The interim financial information of the Company
also includes the results and accounts of its wholly-owned subsidiary,
Novon International, Inc. ("Novon") from the acquisition date of February
10, 1995 as described in Note C -Acquisitions.
The interim financial information furnished herein should be read in
conjunction with the financial statements included in this report and the
financial statements and notes contained in the Company's annual report
on Form 10-KSB for the fiscal year ended September 30, 1995.
The interim financial information presented is not necessarily indicative
of the results from operations expected for the full fiscal year.
NOTE B - SUPPLEMENTAL DATA TO CONSOLIDATED STATEMENT OF CASH FLOWS
Excluded from the consolidated statement of cash flows for the period
ended December 31, 1995 and 1994 were the effects of certain non-cash
investing and financing activities as follows:
1995 1994
Issuance of common stock for
investment banking fees $34,400
Issuance of common stock for
acquisitions of wholly-owned
subsidiary. $2,975,000
Cash paid for interest in the periods ended December 31, 1995 and 1994
was $ 47,598 and $ -0-, respectively.
8
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CHURCHILL TECHNOLOGY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE C - ACQUISITIONS AND DISPOSITIONS
Churchill Technology (Isle of Man) Limited
On December 8, 1993, the Company exchanged 2.5 million shares of its
common stock for ten percent of the issued share capital of Churchill
Technology (Isle of Man) Limited ("CTI-IOM"), an Isle of Man company
which owns certain intellectual property rights related to a process of
manufacturing composite polymeric articles referred to as "biodegradable"
plastic. On February 22, 1994, the Company exchanged 28,750,000 shares
of its common stock to acquire the remaining 90 percent of CTI-IOM. The
Company accounted for the transaction as a recapitalization of CTI-IOM
with CTI-IOM as the accounting acquirer (reverse acquisition).
Accordingly, the financial statements reflect the net assets and
shareholders' equity of CTI-IOM at their historical cost. Additionally,
upon application of the appropriate accounting treatment for a reverse
acquisition, the historical financial statements prior to the acquisition
date of February 22, 1994 are those of CTI-IOM. However, CTI-IOM was
incorporated subsequent to September 30, 1993 and therefore there are no
historical comparative financial statements of CTI-IOM prior to its
inception. Similarly, as there are no historical comparative financial
statements to be presented, no pro forma information for this acquisition
is presented.
On February 22, 1995, the Company assigned and transferred all of the
issued and outstanding capital stock of CTI-IOM to a former officer of
CTI-IOM. In exchange, Novon was assigned all of the intellectual
property rights relating to "biodegradable" plastics. This transaction
reflects management's intent to consolidate and streamline its
biodegradable business. CTI-IOM was a development stage company as
defined by SFASB No. 7. The Company recorded a $2,958 loss from the sale
of CTI-IOM.
As a condition precedent to the acquisition of CTI-IOM, the Company
transferred all of the assets, property, subsidiaries, investments,
equity interests, cash, contract rights, royalty rights and other rights
owned or held by the Company immediately prior to the closing date (the
"Churchill Properties"), excluding the ten percent of CTI-IOM acquired in
December 1993, to a wholly-owned subsidiary of the Company, Churchill
USA, Inc., a newly-formed Colorado corporation ("CUSA"). CUSA also
assumed all liabilities associated with the Churchill Properties.
Concurrent with the acquisition of CTI-IOM, the Company assigned 100
percent of the CUSA common stock to a trust (the "CUSA Trust"). The CUSA
Trust will hold the CUSA shares until February, 2001. A former president
of the Company is the trustee of the CUSA Trust.
Additionally, the Company issued, assigned and deposited with the CUSA
Trust 1,000,000 Series A Convertible Preferred Shares for the benefit of
the Churchill shareholders of record as of February 22, 1994.
As a result of the provisions of the CUSA Trust Agreement, the Company
presently lacks significant influence or control over CUSA and,
accordingly its investment in CUSA is accounted for using the cost
method. The original cost investment of CUSA was recorded as $7,158,010,
representing the net book value of CUSA as of February 22, 1994.
9
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CHURCHILL TECHNOLOGY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
During June 1994, a portion of CUSA's assets were impaired. CUSA
recorded a loss on investment of $3,621,319. The impairment of CUSA's
assets affected the Company's carrying value of its investment in CUSA.
The Company reduced the carrying value of its investment in CUSA by $1
million during the period ended September 30, 1994, to reflect
management's estimate of net realizable value. Even though CUSA's net
book value as of September 30, 1994, declined by more than $1 million,
management is of the opinion that its investment in CUSA had only
declined by $1 million when considering the fair value of CUSA's net
assets as of September 30, 1994. The Company determined CUSA's fair
value of net assets based on discounted future net cash flows from CUSA's
oil and gas reserves.
Stark Industries, Inc.
On December 1, 1994, the Company entered into an Agreement to acquire all
the issued and outstanding shares of Stark Industries, Inc. ("Stark") in
exchange for 3.6 million newly issued restricted common shares of the
Company and $315,000 cash, less $100,000 in liabilities assumed. The
sole asset of Stark is a 54% ownership interest in Consolidated Health
Corporation of Mississippi ("CHC"). CHC operates and manages three
hospitals in Mississippi. The acquisition was accounted for as a
purchase. Accordingly, the $3,190,000 purchase price was allocated to
assets acquired based on their estimated fair values. This treatment
resulted in $2,835,301 of cost in excess of net assets acquired as of
December 1, 1994. Such excess will be amortized on a straight-line basis
over an estimated life of seven years. The results of operation of Stark
are included in the consolidated results of operation from the date of
acquisition. On July 13, 1995, the Company sold it's 54 % ownership
interest in CHC for $825,000 cash and 600,270 shares of preferred
convertible stock of the purchaser with a carrying value of $300,000.
The Company continues to hold 100% of the issued and outstanding common
stock of Stark.
Novon International
On February 10, 1995, the Company completed the acquisition of 100% of
the outstanding capital stock of Novon International, a privately-held
Delaware corporation incorporated in February 1994. The shareholders of
Novon have received 10,518,000 restricted shares of the Company's common
stock. Additionally, the Company contributed 482,000 restricted shares
to Novon. Pursuant to the Agreement and Plan of Merger dated February
10, 1995 among the Company, Novon and Novon Acquisition Corp. (the
"Acquisition Agreement"), the Company has agreed to adjust the purchase
price in the event that the sixty (60) day average closing bid price of
the Company's common stock as reported by Nasdaq for the 60-day period
preceding the one-year anniversary of the closing is less than $1.00 per
share. If such event should occur, the Company has agreed to issue,
within 30 days of the one-year anniversary, that number of additional
shares of the Company's common stock as is necessary so that the
aggregate value of all shares of common stock issued pursuant to the
Acquisition Agreement is equal to $11,000,000 up to an aggregate maximum
of 11,000,000 additional shares of common stock. Novon manufactures and
markets biodegradable additives and compounds and related products.
10
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CHURCHILL TECHNOLOGY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The acquisition was accounted for as a purchase and, accordingly, the
acquired assets and liabilities have been recorded and consolidated at
their estimated fair market values at the date of the acquisition as
follows:
Current assets and current liabilities, net $(1,924,296)
Property and equipment 2,458,131
Patents and related technology 10,751,898
Other assets 467,944
Long-term debt, less current maturities (1,197,437)
Notes payable, Churchill Technology, Inc. (2,306,240)
___________
$ 8,250,000
___________
NOTE D - SUBSEQUENT EVENTS
Issuance of Shares for Financial Advisor
In January 1996, the Company entered into an investment banking and
financial consulting agreement with Fima Capital Corporation, Ltd., a
British Virgin Islands corporation ("Fima Capital") which beneficially
owns 9.1% of the Company's Common Stock, and which Gamal Marwan, a
director of the company, indirectly owns 100% of the outstanding common
stock. The agreement provides investment banking advice relative to the
design and implementation of a three year financing plan which defines
working capital and fixed expenditures requirements, identifies sources
of funding and assists in the structuring and negotiation of the
financing. In exchange for services, the Company has agreed to pay to
Fima Capital: (i) Fima Capital's choice of 2,000,000 shares of common
stock with registration rights or $200,000 cash for investment banking
advice relating to the design and implementation of a financing plan of
the Company. (ii) 3,000,000 shares of the Company's common stock upon the
confirmation of availability of $3,000,000 of debt financing, (iii) up
to 3,500,000 warrants, each exercisable for three years to purchase one
share of the Company's common stock at an exercise price of $.10 for the
arrangement of an additional $3,500,000 of financing, (iv) an aggregate
of 1,500,000 warrants exercisable for three years to purchase one share
of the Company's common stock at an exercise price of $.10 for general
financial consulting services, Fima Capital's expenses incurred in
setting up European and Middle Eastern marketing and structuring
international trade finance and barter agreements for the Company.
Acquisition of Shares
The Company entered into agreements with shareholders and former officers
of the Company, which provides for the return of 12,515,000 shares of
common stock to treasury. In exchange, the Company will issue a total of
7,458,000 two-year warrants at an exercise price of $0.60 which carry
$0.20 puts at the option of the holder, exercisable during the ten day
period prior to the maturity date at the option of the holder of the
warrant.
11
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CHURCHILL TECHNOLOGY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Additional Share Issuance
Under the Novon Acquisition Agreement the Company has agreed to adjust
the purchase price of that acquisition in the event that the sixty (60)
day average closing bid price of the Company's Common Stock as reported
by Nasdaq for the 60-day period preceding the one-year anniversary of the
closing is less than $1.00 per share. The one-year anniversary occurred
on February 10, 1996, and the Company will issue on or before March 10,
1996, 11,000,000 shares of common stock, with registration rights, to the
former Novon shareholders.
12
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CHURCHILL TECHNOLOGY INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
The Company's acquisition strategy resulted in the acquisition of CTI-IOM
in February 1994, Stark in December 1994 and Novon in February 1995. The
Company has issued a total of 46,250,000 shares of Common Stock to
complete these acquisitions. ( In conjunction with the acquisition of
Novon, the Company has agreed to provide financing to Novon not to exceed
$6.0 million. ) This financing will enable Novon to acquire additional
manufacturing equipment and capacity. A portion of the financing will be
used to satisfy working capital requirements. As of December 31, 1995,
an amount of $4,352,058 has been advanced to Novon.
On March 28, 1995, the Company entered into a letter of intent to sell
its 54% interest in Consolidated Health Corporation of Mississippi, Inc.
("CHC"). The transaction closed on July 13, 1995, and the Company
received $825,000 cash and 600,270 shares of preferred convertible stock
of the purchaser, Rx Medical Services Inc. ("RxMedical") . This
transaction reflects management's intent to exit the health care
management industry. The Company has no influence in the management of
Rx Medical or its subsidiary.
During the year ended September 30, 1995, the Company was loaned
$3,513,980 from two shareholders. During the year ended September
30,1995, the Company made payments of $2,913,980 on these shareholder
loans. In May 1995, one shareholder agreed to convert loans in the
amount of $1,030,000 million into 5,493,000 common shares of the Company.
The loan was converted at a discount of 53% to the market price of the
Company's common stock on the date of conversion. The Company's common
stock had a market value at the date of conversion of $0.40 per share.
In January 1996, this shareholder returned 5,583,000 shares to the
Company's treasury in exchange for 5,583,000 warrants exercisable until
January 31, 1998 to purchase one share of the Company's Common Stock at
$0.60 each. Such warrants carry a put to the company at $0.20,
exercisable during the ten day period prior to the maturity date at the
option of the holder of the warrant.
Additionally, the Chief Executive Officer had made loans to Novon prior
to its acquisition by the Company. The loans are due on demand and total
$184,104 at December 31, 1995. Also, The Chief Executive Officer has
personal assets, collateralizing loans totaling $450,000 and personal
guarantees on loans totaling $2,446,816. In January 1996, the Chief
Executive Officer of the Company and his wife loaned an additional
$269,500, of which $169,500 carries a 15% interest rate and matures
February 29, 1996. In February, 1996, Fima Capital Corporation loaned
the Company $200,000 at no interest, with no set maturity date to be paid
from future fundings.
13
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CHURCHILL TECHNOLOGY INC. AND SUBSIDIARIES
In May 1995, the Company settled a ten year consulting contract through
the issuance of 1,607,000 shares valued at $450,000. The consulting
contract was with a shareholder of the Company whose services would no
longer be necessary due to the relocation of activities related to the
biodegradable products and patents to Novon. In January 1996, this
shareholder returned 2,107,000 shares to the Company's treasury in
exchange for 500,000 warrants exercisable until January 31, 1998 to
purchase one share of the Company's Common Stock at $0.60 each, and which
carry a put to the Company at $0.20, exercisable during the ten day
period prior to the maturity date at the option of the holder of the
warrant.
In May 1995, the Company issued 1,000,000 shares valued at $250,000 as
severance pay to the former president of the Company. In January 1996,
the former president of the Company returned 975,000 shares to the
Company's treasury in exchange for 975,000 warrants exercisable until
January 31, 1998 to purchase one share of the Company's Common Stock at
the lesser of $0.60 each or at 20% discount from the Company's bid price
at the date of the exercise. The warrants carry a put to the company at
$0.20, exercisable during the ten day period prior to the maturity date,
at the option of the holder of the warrant.
In April 1994, the Board of Directors approved the issuance of 4,350,000
shares of common stock as bonus compensation to the former Chairman of
the Board and Chief Executive Officer, all of which were issued. In
January 1996, the shares were returned by the former Chairman of the
Board and Chief Executive Officer for the Company to be carried as
treasury shares at no cost to the Company.
In March 1995, the Company entered into an agreement with a financial
consulting group to act as its financial advisor with respect to
identifying and evaluating various financing opportunities. The
financial consulting group is assisting the Company to raise working
capital up to a minimum aggregate value of $10 million, and the Company
will pay a fee equal to 10% of the principal amount of financing.
Furthermore, the Company agreed to issue to the financial consulting
group, a total of 6,000,000 shares of common stock. The Company has paid
cash commissions of $107,680 through December 31, 1995, pursuant to this
agreement. On July 5, 1995, the Company issued 200,000 shares valued at
$100,000 in conjunction with commissions due. Additionally, on July 5,
1995, the Company issued 6,000,000 shares valued at $2,389,500 pursuant
to this agreement. The Company has recorded $479,334 in stock issuance
costs which have been offset against proceeds from the sale of Common
Stock in private offerings pursuant to this agreement and it has recorded
$1,910,166 as unearned consulting fees.
In October 1995, the Company entered into an agreement with Discovery
Capital, Inc. ("Discovery Capital") for a $1,000,000 private placement of
up to 4,000,000 shares of restricted Common Stock of the Company. Each
share of stock purchased through this placement included an option for a
period of three years from the date of the agreement to purchase one
additional share of Common Stock of the Company at an exercise price of
$1.00 per share. In December 1995, the agreement was modified by
extending the exercise period of the option to four years and decreasing
the exercise price to $0.72. In addition, the Company has agreed to
adjust the purchase price of the shares at the end of one year to the
issue price of $0.25 by issuing additional shares with a limit of one
additional share per share issued. The Company sold 2,740,000 shares for
net proceeds of $650,750. The Company paid Discovery Capital a placement
fee of ten percent of all capital raised. Fifty percent of the placement
fee was paid in shares of the Company's restricted Common Stock. The
private placement closed on December 26, 1995. The Company issued the
shares of common stock in connection with this private placement during
January, 1996.
14
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CHURCHILL TECHNOLOGY INC. AND SUBSIDIARIES
The Company and its consolidated subsidiary Novon International Inc. have
working capital deficiencies, net deficit and losses in recent and
current periods. Working capital deficiencies were $2,460,543 at
December 31, 1995. The Company, through Fima Capital is negotiating to
obtain additional financing in the forms of trade finance lines of
credit for its export sales, and a combination of medium term debt and
mezzanine financing sufficient to satisfy its working capital and fixed
equipment expenditures requirements for the next eighteen to twenty four
months. Such mezzanine financing, still under negotiation, may be in the
form of convertible debt. The Company also expects to establish license
agreements and joint development partnerships for its technologies in
certain geographical and product specific areas. The Company expects
these activities will generate additional working capital. However,
there can be no assurances that the operations of the Company's
subsidiaries will achieve profitability or that additional financing will
be available to the Company on terms that will be acceptable to it.
Results of Operations
The consolidated statement of operations for the three months ended
December 31, 1995 include the
results of operations of Novon, which is in the business of development,
production and distribution of biodegradable additives, compounds and
related products.
The consolidated statements of operations for the three months ended
December 31, 1994, include the results of operations of Stark, which is
in the hospital management business and the historical results of CTI-IOM
using the accounting treatment consistent with a reverse acquisition.
This historical statement of operations for CUSA has not been included in
the consolidated statements of operations for the three months ended
December 31, 1995 and 1994 due, in part, to the CUSA investment being
recorded on the cost basis.
Three Months Ended December 31, 1995 and 1994
Revenues
During the three months ended December 31, 1995, the Company recorded
revenues of $217,238 related to sales of its biodegradable and related
products. In conjunction with the sale of CHC, the Company has recorded
the results of the three months ended December 31, 1994 of CHC as
discontinued operations. Accordingly, the net income of CHC for the one
month from acquisition date of December 1, 1994, of $4,534 is recorded as
income from discontinued operations. This net income was generated on
revenues of $239,300 and expenses of $234,766.
15
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CHURCHILL TECHNOLOGY INC. AND SUBSIDIARIES
Expenses
During the three months ended December 31, 1995, the Company incurred
cost of sales of $248,190. The costs of sales includes raw materials,
labor, direct and indirect manufacturing costs, excluding depreciation,
associated with the production of Novon's biodegradable additives,
compounds and related products.
During the three months ended December 31, 1995, the Company incurred
general and administrative expenses of $472,505. Of this total, $240,360
related to the operations of the parent company's executive offices' as
compared to $581,028 for the three months ended December 31, 1994. This
represents a reduction as the Company continues to recognize the benefits
of consolidating corporate activities at the Novon facility.
During the three months ended December 31, 1995, the Company incurred
$206,395 of research marketing and selling expense which relates all to
Novon's operations. Novon was acquired in February 1995. The increase
of $326,738 in depreciation and amortization expense for the three months
ended December 31, 1995, from a year ago is primarily due to the increase
in manufacturing equipment and patents related to the acquisition of
Novon.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Description
10.1 Remuneration for Services Agreement between the
Company and Fima Capital Corporation Ltd. dated
January 10, 1996.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated January 19, 1996,
reporting the execution of the Remuneration for Services Agreement
between the Company and Fima Capital Corporation Ltd. dated January 10,
1996.
16
<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.
CHURCHILL TECHNOLOGY INC.
Date:__________________________ /s/______________________________
Bertha H. Mitchell
Chief Financial and Accounting
Officer
17
<PAGE>
Ref.-FCC/CTI-011A
REMUNERATION FOR SERVICES
AGREEMENT
This Agreement comprising 6 (six) pages is signed this 10th January
1996 by and between:
Fima Capital Corporation Ltd., a corporation incorporated in and
subject to the laws of the Territory of the British Virgin Islands
registered under the number 135682 and having its registered office
at: Craigmuir Chambers, P.O.Box 71, Road Town, Tortola, British
Virgin Islands, (hereinafter "FCC") and represented by Mr. Gamal
Ashraf Marwan in his capacity as President, of the one part, and;
Churchill Technology Inc., a corporation incorporated in and subject
to the laws of the State of Colorado, and having its principal place
of business at: 181 Cooper Ave., Tonawanda, New York, (hereinafter
"NOVON" or the "company") and represented by Mr. Robert Downie in his
capacity as President and CEO, of the second and final part;
Whereas FCC is prepared to employ it's best endeavours to provide the
financing requirements as detailed out in the Presentation and
wherever FCC is mentioned in this Agreement in respect to the
provision of services, funds or financing, such mention shall include
FCC investors, bankers, banking relations, external investors
introduced by FCC and in general any source of such services, funds
or financing that FCC may cause to be employed in the fulfilment of
FCC's obligations hereunder detailed.
Whereas FCC is prepared to provide various services to Novon in an
effort to assist Novon in the successful implementation of the
Business Plan.
Whereas Novon accepts that FCC's effective provision of such
financing requirements as detailed in the Presentation shall be
remunerated.
Whereas Novon accepts that FCC's effective provision of services
which may help Novon in its successful implementation of the Business
Plan shall also be remunerated.
GIVEN THAT WHICH PRECEDES THE PARTIES HERETO HEREBY AGREE TO THAT
WHICH FOLLOWS:
_________________________ _______________________________
Churchill Technology Inc. Fima Capital Corporation Ltd.
Page (1) of (6)
<PAGE>
1. FCC's contributions to help achieve the objectives set out in
section 3 of the Presentation
During the period that the current SEC investigation is still
ongoing FCC will employ its best endeavours to:
1.1. Provide funds as warranted up to the amount of US
$3,000,000 (Three million US Dollars) (hereinafter referred
to as the "Loan").
1.2.The Loan may be made, if deemed appropriate, as a Medium
Term Secured Convertible Debenture (the "Debenture").
The Debenture shall be secured by a primary lien over the
company's Novon and Vertix patent assets (the " patent
assets"), any income streams, and any plant or equipment
that may have been acquired in part or in whole with funds
arising from the Debenture.
1.3. Under the terms of this Agreement FCC undertakes to arrange
for medium term financing to be made available against
income streams arising from royalty or similar sources (the
"income streams"). In the event that the parties with whom
FCC may arrange such financing to be made available require
a first lien over the income streams, then FCC undertakes
to assign such first liens over the income streams which
FCC may have taken or caused to be taken as security for
the Loan to be made freely available to those parties
providing finance against the income streams.
At such time FCC's first lien over the income streams will be
converted to a second lien. The first lien that FCC may have
taken over Novon's patent assets and/or plant and equipment shall
not be affected by this provision and FCC makes no undertaking to
reduce it's lien over Novon's patent assets and FCC shall, at
FCC's sole discretion, maintain a first lien over Novon's patent
assets. Insofar as may be required to ensure the successful
acquisition of a credit line the primary lien over the income
streams may be transferred, in part or in whole, to the banking
institution which will eventually give the company a credit line
against the income streams. At this time FCC will take a
secondary lien over the income stream in addition to maintaining
the primary lien as provided for in 1.3 above.
1.4. Any second liens taken by FCC as security for the
Loan will remain in place until such time as the
loan is repaid or until the Debenture is fully
converted to Common Stock in the company and FCC
shall have no obligation to relinquish such
second liens for any reason other than as a result of
Novon's complete reimbursement of the Loan or the
conversion of the debenture as may be applicable.
2. Once the SEC investigation is complete and this is reflected in
a 10-Q or a 10-K filing, and in the event that FCC has not been
successful in completing the above, then FCC undertakes to fulfil
the items listed in 1.1 and 1.2 above within six months of the
date at which the aforementioned SEC situation is resolved or in
accordance with the schedule as contained in the Presentation.
_________________________ _______________________________
Churchill Technology Inc. Fima Capital Corporation Ltd.
Page (2) of (6)
<PAGE>
3. In any event and not conditioned by the items listed in 1 above
FCC will employ its best endeavours to:
3.1. Negotiate with the Trustees of CUSA for the early release
of the CUSA assets or any other arrangement which may be
beneficial to the operational requirements of Novon.
3.2. Negotiate and present to the private market and/or to
banking institutions a debenture or medium term loan
based on the Licence income.
3.3. Under the authority of Novon's marketing and technical
managers, assist Novon to establish marketing operations in
Europe with a view to concluding licensing and production
agreements in the medium term future.
3.4. Under the authority of Novon's marketing and technical
managers, establish marketing operations in specific Middle
East countries with a view to concluding licensing and
production agreements in the medium term future.
3.5. Under the authority of Novon's marketing manager, put at
the disposition of a marketing/sales person or persons in
FCC's subsidiaries offices in London and generally finance
at FCC's expense, the marketing and sales of Novon's
products in Europe and where appropriate, other
regions.
3.6. The expenses incurred by FCC in its fulfilment of these
marketing, sales and lobbying activities as detailed in the
above undertakings shall be defrayed by commissions on
sales of Novon's products that FCC's efforts shall
generate. The amount of such commission to be
determined by mutual consent between Novon and FCC.
3.7. After exhausting the financing possibilities laid out
above, negotiate private placement of the company's stock
to fund the unfulfilled requirements.
3.8. Provide general financial consultancy services on all
matters pertaining to the company's activities.
3.9. Support the current management in furthering the company's
strategies and objectives in developing sales and expanding
its industrial base.
4. Novon agrees that FCC's remuneration in return for the fulfilment
of its undertakings as here-above detailed shall be made as set
forth hereunder:
4.1. FCC shall receive 5,000,000 (Five million) ordinary shares
of Churchill Technology's stock issued as follows:
4.1.1. US $ 200,000 (Two Hundred thousand dollars) or,
at FCC's discretion, 2,000,000 (Two million)
ordinary shares to be issued and registered at
the signature of this Agreement as an investment
banking consultancy fee.
_________________________ _______________________________
Churchill Technology Inc. Fima Capital Corporation Ltd.
Page (3) of (6)
<PAGE>
4.1.2. 3,000,000 (Three million) ordinary shares to be
issued and registered upon FCC confirming the
availability of funds for the purchase of the
license income. These shares represent, at
current market value a commission of
approximately 10% of the value of the finance
raised.
4.2. FCC will further receive warrants to purchase 5,000,000
(Five million) Churchill Technology common stock at an
exercise price of 10 cts. valid for 4 years from the date
of issue. These warrants to be issued as follows:
4.2.1. 2,000,000 (Two million) 3 year warrants to be
issued upon the conclusion of arrangements for a
further credit line to that specified in 4.1.2
above of at least US $ 2,000,000 to be made
available on future income streams and/or other
assets that Novon may have or obtain in the
future. Such credit line to be made available
within 1 year of the signature of this agreement.
These warrants represent, at current market value
a commission of approximately 10% of the value of
the finance raised.
4.2.2. 1,500,000 (One million five hundred thousand) 3
year warrants to be issued upon the conclusion of
arrangements for a further credit line to that
specified in 4.1.2 above of at least US $
1,500,000 to be made available on future income
streams and/or other assets that Novon may have
or obtain in the future. Such credit line to be
made available within 1 year of the signature of
this agreement. These warrants represent, at
current market value a commission of
approximately 10% of the value of the finance
raised.
4.2.3. 500,000 (Five hundred thousand) 3 year warrants
to be issued to FCC as payment for consultancy
services provided by FCC under the terms and
provisions of this Agreement. Such warrants to be
issued on or before the 31st of December 1996 at
FCC's request.
4.2.4. 500,000 (Five hundred thousand) 3 year warrants
to be issued to FCC as compensation for FCC's
expenses incurred in setting up European and
Middle Eastern marketing and sales facilities
from its London subsidiary's offices. Such
warrants to be issued and on or before the 31st
of December 1996 at FCC's request.
4.2.5. 500,000 (Five hundred thousand) 3 year warrants
to be issued to FCC as compensation for expenses
incurred in developing trade finance and barter
agreements with international clients. Such
warrants to be issued on or before the 31st of
December 1996 at FCC's request.
5. Mr. Marwan will remain a Non-Executive Director of the company.
_________________________ _______________________________
Churchill Technology Inc. Fima Capital Corporation Ltd.
Page (4) of (6)
<PAGE>
6. As and when the SEC investigation is completed, FCC will have
the option to nominate one other person for election to the
Board of Director of Novon.
7. Novon and FCC will enter into a non-dilution agreement which
will be drawn up by FCC's specialized counsel.
8. General Conditions:
8.1 Waiver of Rights
8.1.1. The rights which each Party has under this
Agreement shall not be prejudiced or restricted by
any indulgence or forbearance extended to another
Party. No waiver by any Party in respect of a
breach shall operate as a waiver in respect any
subsequent breach.
8.1.2. This Agreement shall not be varied or cancelled,
unless the variation or cancellation is expressly
agreed in writing by a duly authorized person for
and on behalf of each Party.
8.2 Notice
Any notice or other document to be given hereunder shall be
in writing and deemed duly given if delivered by hand or
sent by registered or recorded delivery post or telex or
facsimile transmission to the address of the relevant Party
as stated above or to such other address of which notice
has been given to the other Party hereto, and shall be
deemed to be served the next working day, after in the
ordinary course of the means of transmission it would be
first received by the addressee. In proving the giving of a
notice, it shall be sufficient to prove that the notice was
left at the relevant address or that the envelope
containing such notice was properly addressed, stamped and
posted or that the applicable means of telecommunication
was properly addressed and dispatched (as the case maybe).
8.3 Proper Law & Jurisdiction:
The Parties to this Agreement hereby recognize and accept
that the Proper Law to which this Agreement is subject is
the Law of the State of New York and furthermore the
parties to this Agreement hereby accept that any dispute
arising from or as a result or consequence of this
Agreement to bring such dispute before the Courts of New
York which court is accepted by the Parties hereto to be
the Court of jurisdiction for the settlement of any dispute
arising from or as a result or consequence of this
Agreement. Furthermore the Parties hereto undertake to
abide by the decisions and rulings of the Court of
competent jurisdiction as agreed herein and not to seek
recourse or redress in any other jurisdiction other than
such Courts of Appeal which the Court of Jurisdiction may
allow.
In witness of their Agreement the Parties hereto set their hands to
this Agreement this 10th Day of January 1996 by signing this
signature page and initialling all other pages and Annexes attached
hereto in acknowledgement of their contents.
For and on Behalf of Churchill Technology Inc.
________________________________________
Mr. Robert Downie
President & CEO.
For and on Behalf of Fima Capital Corporation Ltd.
_________________________ _______________________________
Churchill Technology Inc. Fima Capital Corporation Ltd.
Page (5) of (6)
<PAGE>
________________________________________
Mr. Gamal Ashraf Marwan
President
_________________________ _______________________________
Churchill Technology Inc. Fima Capital Corporation Ltd.
Page (6) of (6)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> DEC-31-1995
<CASH> 56,281
<SECURITIES> 0
<RECEIVABLES> 194,555
<ALLOWANCES> 27,745
<INVENTORY> 239,082
<CURRENT-ASSETS> 493,765
<PP&E> 2,698,506
<DEPRECIATION> (250,699)
<TOTAL-ASSETS> 19,673,813
<CURRENT-LIABILITIES> 2,954,308
<BONDS> 0
0
1,000,000
<COMMON> 1,998,607
<OTHER-SE> 11,190,576
<TOTAL-LIABILITY-AND-EQUITY> 19,673,813
<SALES> 217,238
<TOTAL-REVENUES> 217,238
<CGS> 248,190
<TOTAL-COSTS> 146,876
<OTHER-EXPENSES> 907,576
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<INTEREST-EXPENSE> 57,444
<INCOME-PRETAX> (1,046,689)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,085,406)
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