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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 0-20701
COMPOSITECH LTD.
(Exact Name of Registrant as specified in its charter)
Delaware 11-2710467
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 Ricefield Lane, Hauppauge, New York 11788
(Address of principal executive offices)
Registrant's telephone number, including area code: (516) 436-5200
Indicate by check mark whether the Registrant (1) 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 requirement for the past 90 days. Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of November 14, 1997:
Common Stock $.01 par value 7,236,631
---------------------------
Class Number of shares
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<PAGE>
COMPOSITECH LTD.
Index
Part I - Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements
Balance Sheets as of September 30, 1997 (unaudited) and
December 31, 1996 ..................................................2
Statements of Operations (unaudited) for the three months
and nine months ended September 30, 1997 and 1996 ..................3
Statements of Cash Flows (unaudited) for the nine months
ended September 30, 1997 and 1996 .................................4
Notes to Financial Statements (unaudited) ...........................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................8
Part II - Other Information
Item 2. Changes in Securities ..............................................12
Item 6. Exhibits and Reports on Form 8-K ...................................12
Signature ...................................................................13
<PAGE>
COMPOSITECH LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
------------ ------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,573,958 $ 673,084
Short-term investments 2,384,700
Inventories 441,578 217,974
Accounts receivable trade - net 11,281 66,293
Prepaid expenses and other 266,914 66,880
------------ ------------
Total current assets 3,293,731 3,408,931
Property and equipment at cost - net 5,271,380 3,866,140
Advance payments on construction-in-progress 237,253 114,712
Deferred debt expense - 5% convertible debentures 564,691
Other assets and other deferred charges 260,479 58,087
------------ ------------
Total assets $ 9,627,534 $ 7,447,870
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 604,710 $ 691,763
Deferred salaries - $ 539,904 to officers/stockholders 715,728 715,728
Accrued interest - $ 67,117 (1997) and all (1996) to stockholders 92,823 61,816
Other accrued liabilities 424,480 227,889
Current maturities of long-term debt - officers / stockholders 100,000
------------ ------------
Total current liabilities 1,837,741 1,797,196
Long-term debt to directors/stockholders 1,595,000 1,495,000
5% Convertible debentures (net of amortized discount of $983,345) 6,421,525
Capital lease obligations 58,172 19,336
Other liabilities 37,500 37,500
Commitments
Stockholders' equity :
Undesignated preferred stock; authorized 4,000,000 shares,
none issued and outstanding
Series A convertible preferred stock, par value $3.00 per share; authorized
shares - 714,161, issued and outstanding shares - 614,161 (1997) and
684,161 (1996) 1,842,483 2,052,483
Common stock, par value $.01 per share; authorized shares - 25,000,000,
issued and outstanding shares - 6,170,439 (1997) and 6,118,939 (1996) 61,704 61,189
Additional paid-in capital 23,882,758 22,558,933
Deficit (26,109,349) (20,573,767)
------------ ------------
Total stockholders' equity (322,404) 4,098,838
------------ ------------
Total liabilities and stockholders' equity $ 9,627,534 $ 7,447,870
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
COMPOSITECH LTD.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------ ------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 115,999 $ 63,100 $ 411,467 $ 158,152
----------- ----------- ----------- -----------
Total revenues 115,999 63,100 411,467 158,152
----------- ----------- ----------- -----------
Costs and expenses:
Manufacturing expenses 1,485,353 671,757 3,640,969 2,011,119
Selling, general and administrative 384,451 313,693 1,176,440 821,552
Research and development 12,765 27,418 58,970 82,900
----------- ----------- ----------- -----------
Total operating expenses 1,882,569 1,012,868 4,876,379 2,915,571
----------- ----------- ----------- -----------
(Loss) from operations (1,766,570) (949,768) (4,464,912) (2,757,419)
Other income (expenses):
Interest income 35,397 73,167 74,230 97,258
Interest expense
(net of interest capitalized of $103,000
(1997) and $15,000 (1996)) (89,291) (33,821) (107,974) (308,857)
Amortization of debt discount and expenses (911,263) (224,814) (1,032,465) (380,734)
Other (12,921) 1,117 (4,461) 8,735
----------- ----------- ----------- -----------
(978,078) (184,351) (1,070,670) (583,598)
----------- ----------- ----------- -----------
Net (loss) ($2,744,648) ($1,134,119) ($5,535,582) ($3,341,017)
=========== =========== =========== ===========
Net (loss) per share ($ 0.42) ($ 0.19) ($ 0.86) ($ 0.68)
=========== =========== =========== ===========
Shares used in computing net (loss) per share 6,465,097 6,013,353 6,462,401 4,917,136
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net (loss) ($ 5,535,582) ($ 3,341,017)
Adjustments to reconcile net (loss) to net cash and
cash equivalents used in operating activities:
Depreciation and amortization, including capital leases 325,104 192,161
Loss on disposal of property and equipment 9,613
Amortization of debt discount and expenses 1,032,465 380,734
Changes in operating assets and liabilities:
Inventories (229,604) (110,875)
Accounts receivable - trade 55,012 (8,869)
Prepaid expenses and other (200,034) 19,836
Other assets and other deferred charges (95,180) 14,911
Accounts payable (87,053) 247,026
Deferred salaries (93,001)
Accrued interest 31,007 (87,146)
Other accrued liabilities 168,260 206,350
------------ ------------
Net cash and cash equivalents used in operating activities (4,525,992) (2,579,890)
Cash Flows from Investing Activities
Purchase of property and equipment - net (1,638,450) (782,473)
Advance payments on construction-in-progress (122,541) (290,140)
Patent costs deferred (111,383)
Short term investments - maturities 2,384,700
------------ ------------
Net cash and cash equivalents (used in) provided by investing activities 512,326 (1,072,613)
Cash Flows from Financing Activities
Net proceeds from issuance of common stock 47,520 11,350,850
Net proceeds from notes payable 145,687
Net proceeds received from convertible debentures 5,891,189
Payment received on notes receivable 750,000
Payment of capital lease obligations (24,169)
Payment of notes payable (4,137,500)
------------ ------------
Net cash and cash equivalents provided by financing activities 5,914,540 8,109,037
------------ ------------
Increase in cash and cash equivalents 1,900,874 4,456,534
Cash and cash equivalents at beginning of period 673,084 925,848
------------ ------------
Cash and cash equivalents at end of period $ 2,573,958 $ 5,382,382
============ ============
Supplemental disclosures of cash flow information
Noncash financing activities:
Capital lease obligations for property and equipment acquisitions $ 91,336
============
Cash paid for:
Interest $ 164,324 $ 436,198
============ ============
</TABLE>
See accompanying notes.
<PAGE>
COMPOSITECH LTD.
Notes to Financial Statements
(Unaudited)
September 30, 1997
Note 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Annual Report on
Form 10-KSB for the year ended December 31, 1996 of Compositech Ltd. (the
"Company"). In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine-month period ended September 30, 1997
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1997.
Through December 31, 1996, the Company's activities had been accounted for
as those of a "Development Stage Enterprise". Based on the level of production
and sales anticipated for 1997, the Company has concluded that it is no longer
in the development stage as of January 1, 1997.
The Company has obtained patents in the United States and internationally
and has filed additional patent applications. As of January 1, 1997, coincident
with no longer being in the development stage, the costs incurred in connection
with patents have been deferred and are being amortized over the life of the
patents beginning upon issue. Costs related to unsuccessful patent applications
will be expensed.
In February 1997, the Financial Accounting Standards Board issued Statement
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of primary and fully diluted earnings per share as of September 30, 1997 and
September 30, 1996 is not material.
Certain reclassifications have been made to the financial statements for
the three months and nine months ended September 30, 1996 to conform to
presentations for the three months and nine months ended September 30, 1997.
5
<PAGE>
Note 2 -Long Term Debt
From May 28 through August 5, 1997, the Company issued $6,505,000 of 5%
convertible debentures (the "Debentures") in a private placement for which the
Company received net proceeds of approximately $5,900,000 after the payment of
commissions and expenses. The Debentures were issued to provide funds to obtain
additional production equipment and for working capital. Interest is payable
quarterly. The Debentures are due May 31, 2000 and are partially collateralized
either by the equipment to be obtained with the proceeds or certain existing
production equipment. The Debentures are convertible into shares of Common Stock
commencing August 26, 1997 at the lesser of (i) $6.00 per share or (ii) (a) from
August 26, 1997 to November 24, 1997, 85% and (b) from November 25, 1997 to
maturity, 80% of the closing bid price of the Common Stock as reported on The
Nasdaq SmallCap Market(SM) for the five trading days prior to the date of
conversion. The Company may repurchase any of the individual Debentures at a 25%
premium if the closing bid price of the Common Stock is less than $4.00 for any
two days out of a five day trading period. Trautman Kramer & Company Inc., the
placement agent, received warrants to buy 182,140 shares of the Company's Common
Stock, at $6.00 per share, as partial compensation in connection with the sale
of Debentures. The value of the warrants have been estimated at $91,070.
Accordingly, additional paid in capital was credited with $31,500 in the second
quarter of 1997 and was credited with $59,570 in the third quarter of 1997. The
debt discount resulting from the warrants and the related commissions and
expenses are being amortized over the life of the Debentures.
Based on a recent SEC pronouncement, due to the difference between the fair
market value of the Common Stock on the dates the Debentures were sold and the
earliest discounted conversion price, the Company recognized deferred financing
costs of $114,000 in the second quarter of 1997 and $861,750 in the third
quarter of 1997. The deferred financing cost were amortized over the periods
from issuance to August 26, 1997, the date on which the Debentures first became
convertible. Management believes that the proceeds received from the Debentures
and the discount offered on conversion of the debt is a fair representation of
the net proceeds the Company would otherwise expect to receive from an equity
offering of a like number of shares after consideration of all associated
commissions, costs and expenses.
In September 1997, the due date of notes payable to stockholders in the
amount of $100,000 was extended to January 2, 1999. In this connection, warrants
to purchase 30,000 shares of common stock were issued at an exercise price of
$6.09 per share, the market value at the date of the extension, expiring in
September 2002.
Subsequent to September 30, 1997, the due date of notes payable to
directors/stockholders in the amount of $1,495,000 was extended to January 2,
1999. The notes payable are shown as non-current liabilities in the accompanying
balance sheet.
Substantially all of the Company's production equipment, patents and patent
applications are collateral for the above mentioned debt.
6
<PAGE>
Note 3 - Common Stock Issuances and Stock Options
During the first quarter of 1997, the Company granted to selected officers,
directors and key employees options to purchase 123,500 shares of common stock
at $5.75 per share, the market value at the date of grant. During the second
quarter of 1997, the Company granted to selected key employees options to
purchase 18,000 shares of common stock at prices ranging from $4.375 to $4.75,
the market values at the date of the grant.
In the nine months ended September 30, 1997, 70,000 shares of the Series A
convertible preferred stock were converted at the existing conversion rate into
35,000 shares of common stock, resulting in a decrease in Series A convertible
preferred stock of $210,000, an increase in common stock of $350 and an increase
in additional paid-in capital of $209,650.
In September 1997, warrants to purchase 16,500 shares of the Company's
common stock were exercised at an exercise price of $ 3.00 per share, resulting
in an increase in common stock of $ 165 and an increase in additional paid in
capital of $ 47,355, net of expenses.
Note 4 - Net Loss Per Share
Net loss per share is based on the weighted average number of shares of
common stock outstanding assuming the conversion of the Series A convertible
preferred stock into common stock.
Note 5 - Subsequent Events
On October 16, 1997, the Company closed its previously announced
transaction with four Quebec institutional investors (collectively, the "Quebec
Investors") to form a 50/50 joint venture for the establishment of a plant in
the greater Montreal area to manufacture Compositech's laminates. The investor
group is comprised of four institutional investors: Societe Generale de
Financement du Quebec, Fonds de solidarite des travailleurs du Quebec (F.T.Q.),
Societe Innovatech du Grand Montreal and Fonds regional de solidarite Ile de
Montreal. The project cost is estimated to be approximately $24.5 million with
an initial capitalization by the parties of approximately $11 million with the
balance to be in debt financing for which firm commitments have been obtained
from the National Bank of Canada and governmental agencies. The Company's
$5,426,917 capital investment in the joint venture was funded by the Quebec
Investors purchasing 1,066,192 shares of the Company's Common Stock at $5.09 per
share, resulting in an increase in common stock of $10,662 and an increase in
additional paid in capital of $5,408,755, net of expenses. The Quebec Investors
have an option to sell their 50% interest in the joint venture to the Company
for a like number of shares and, under certain circumstances, the Company has an
option to purchase the interest for the same number of shares. The plant is
planned to start production late in 1998 or early in 1999 with an anticipated
annual production capacity of approximately 10 million square feet.
7
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-QSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of a number
of important factors. For a discussion of important factors that could affect
the Company's results, please refer to the discussions below and in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996 and
in the Company's Registration Statement on Form S-3 declared effective by the
Securities and Exchange Commission on November 4, 1997.
Overview
The Company was founded in 1984 to develop copper-clad fiberglass epoxy
laminates used to manufacture printed circuit boards required by the electronics
industry. As part of its development program, the Company developed processes
and machinery to manufacture its unique laminates, designed and assembled
prototype equipment to produce 24" x 24" laminates, designed and assembled an
initial production module to produce 36" x 48" laminates, designed, assembled
and started up additional production modules obtained with part of the proceeds
of its IPO in order to achieve commercial levels of production.
During 1996 and continuing through the third quarter of 1997, the Company
has been producing and selling its laminates in limited quantities for
qualification and use in production by its customers. The Company recently added
production modules to achieve higher quantity levels and economies of scale.
This expansion is the first production-scale expansion undertaken by the
Company, and consequently no assurances can be made that the Company's
production facilities will meet the Company's production targets in a timely way
or that the resultant product will meet the high commercial standard needed for
successful market penetration. Furthermore, the expanded production facilities
may not be able to provide adequate efficiencies and produce high yields. In
addition, the costs of production may not be as low as management expects, in
which case the Company may not achieve profitable operations. The Company's
business involves highly complex manufacturing processes which are subject to
disruption. Process disruptions have occurred, resulting in delays in product
shipments. Process disruptions were due to machine breakdowns, lack of adequate
interior atmospheric control of temperature and humidity, electric utility power
failures, problems of breaking in an expanded workforce, contamination generated
during installation of equipment and development of processes, and recently,
defective incoming copper foil. The Company has obtained an alternate source of
supply for copper foil and also has explored solutions with the previous
supplier. There can be no assurance that disruptions will not occur in the
future. The loss of revenue and earnings to the Company from such a disruption
could have a materially adverse effect on its results of operations.
Through December 31, 1996, the Company had been in the development stage
because it had not generated significant revenues from its planned principal
operations. Based on the level of production and sales anticipated for 1997, the
Company has concluded that it is no longer in the development stage as of
January 1, 1997.
8
<PAGE>
Results of Operations
Sales of laminates increased to $115,999 for the three months ended
September 30, 1997 from $63,100 for the three months ended September 30, 1996
and to $411,467 for the nine months ended September 30, 1997 from $158,152 for
the nine months ended September 30, 1996. The increase resulted from additional
orders of laminates by customers but was limited by the production constraints
referred to above and by delays in customers' programs for which Compositech's
laminates were qualified.
Research and development expenses decreased to $12,765 for the three months
ended September 30, 1997 from $27,418 for the three months ended September 30,
1996 and to $58,970 for the nine months ended September 30, 1997 from $82,900
for the nine months ended September 30, 1996, reflecting a concentration on
manufacturing activities. Manufacturing expenses increased to $1,485,353 for the
three month period ended September 30, 1997 from $671,757 for the three months
ended September 30, 1996 and to $3,640,969 for the nine months ended September
30, 1997 from $2,011,119 for the nine months ended September 30, 1996,
reflecting the higher levels of production during 1997, affected by the
production yields referred to above and the addition of manufacturing personnel
to meet anticipated increases in production levels.
Selling, general and administrative expenses increased to $384,451 for the
three months ended September 30, 1997 from $313,693 for the three months ended
September 30, 1996 and to $1,176,440 for the nine months ended September 30,
1997 from $821,552 for the nine months ended September 30, 1996. Legal and other
expenses related to being a public company increased $109,000 for the nine
months ended September 30, 1997 as compared with the nine months ended September
30, 1996. Other increases were approximately $225,000 in personnel costs and
$34,000 in insurance related to increases in commercial activities.
Interest expense (net of interest capitalized) increased to $89,291 for the
three months ended September 30, 1997 from $33,821 for the three months ended
September 30, 1996 and decreased to $107,974 for the nine months ended September
30 from $308,857 for the nine months ended September 30, 1996. The increase in
the three-month period is related to the borrowing costs of the 5% convertible
debentures, while the decrease in the nine-month period was due to the repayment
of a large portion of the Company's debt with the proceeds of the Company's IPO
in July 1996. Amortization of debt discount and expenses increased to $911,263
for the three months ended September 30, 1997 from $224,814 for the three months
ended September 30, 1996 and to $1,032,465 for the nine months ended September
30, 1997 from $380,734 for the nine months ended September 30, 1996. The
amortization of the deferred financing cost included therein (see Note 2 to the
financial statements ) was $861,750 for the three months ended September 30,
1997 and $975,750 for the nine months ended September 30, 1997.
The foregoing resulted in the Company having a net loss of $2,744,648 for
the three months ended September 30, 1997 compared with $1,134,119 for the three
months ended September 30, 1996 and $5,535,582 for the nine months ended
September 30, 1997 compared with $3,341,017 for the nine months ended September
30, 1996. Increases in sales revenue and decreases in interest expense were more
than offset by increases in manufacturing, selling, general and administrative
expenses, and the amortization of debt discount applicable to the Debentures.
9
<PAGE>
Liquidity and Capital Resources
Prior to its IPO, the Company had financed its operations through private
placements of debt and equity securities and from income from a patent immunity
agreement. Some of this financing had come from officers and directors of the
Company.
The Company has been a development stage company through December 31, 1996
and has had limited revenues from the sale of laminates, has incurred
significant losses and has had substantial negative cash flow since its
inception. The Company's independent auditors have included an explanatory
paragraph in their report covering the December 31, 1996 financial statements,
which expresses substantial doubt about the Company's ability to continue as a
going concern. The Company expects significant operating losses to continue in
1997. As of September 30, 1997, the Company had approximately $2.6 million of
available cash resources which the Company believes will be necessary to meet
its cash needs for operations and equipment purchases for the remainder of its
fiscal year. However, the Company will require additional financing thereafter
to cover operating expenses and expenditures for additional production equipment
until revenues from operations are sufficient for these purposes. Such
additional financing may be raised through additional equity offerings, joint
ventures or other collaborative relationships, borrowings or other financings.
There can be no assurance that additional financing will be sufficient and
available or, if it is available, that it will be available on acceptable terms.
If adequate funds are not available to satisfy either short-term or long-term
capital requirements, the Company may be required to limit its operations
significantly. There can be no assurance that the Company will successfully
complete expansion of its production equipment, achieve broad commercial
acceptance of its product or generate sufficient revenues to achieve profitable
operations. The foregoing is based on important assumptions regarding a number
of factors and future events, some of which are beyond the Company's control
including risks and uncertainties described in reports and other documents filed
by the Company from time to time with the Securities and Exchange Commission.
There can be no assurance that management has identified and made appropriate
assumptions regarding all factors that may affect the Company's business in the
future.
On October 16, 1997, the Company closed its previously announced
transaction with four Quebec institutional investors to form a 50/50 joint
venture for the establishment of a plant in the greater Montreal area to
manufacture Compositech's laminates. See Note 5 of the Notes to Financial
Statements. The plant is planned to start production late in 1998 or early 1999
with an anticipated annual production capacity of approximately 10 million
square feet.
Nine Months Ended September 30, 1997 Compared with Nine Months Ended September
30, 1996
Net cash and cash equivalents used in operating activities increased to
$4,525,992 for the nine months ended September 30, 1997 from $2,579,890 for the
nine months ended September 30, 1996. Prepaid expenses increased in the nine
month period ended September 30, 1997 by $200,034 relating to costs of the
Montreal joint venture and tooling costs. The increased net loss, increase in
prepaid expenses, increase of deferred charges related to the Montreal joint
venture and a reduction in the rate of increase of accrued liabilities represent
the principal components of the increase in funds used, partly offset by
increased amortization of debt discount and expenses.
10
<PAGE>
Net cash and cash equivalents provided by investing activities amounted to
$512,326 for the nine months ended September 30, 1997, compared with net cash
and cash equivalents used in investing activities of $1,072,613 for the nine
months ended September 30, 1996. Capital expenditures for equipment and advance
payments for equipment increased to $1,760,991 for the nine months ended
September 30, 1997 from $1,072,613 for the nine months ended September 30, 1996.
The increase resulted from design, engineering and construction of additional
production modules as part of the expansion program and the upgrading of
existing equipment. Patent costs deferred totaled $111,383 for the nine months
ended September 30, 1997. Maturities of short term U.S. Government securities
during the nine months ended September 30, 1997 accounted for $2,384,700 of
funds provided by investing activities.
Cash flows from financing activities decreased to $5,914,540 for the nine
months ended September 30, 1997 from $8,109,037 for the nine months ended
September 30, 1996. The nine months ended September 30, 1997 included the
issuance of the Debentures resulting in net proceeds of $5,891,189 and the
exercise of warrants resulting in net proceeds of $47,520. The principal
financing activities in the nine months ended September 30, 1996 were (i) net
proceeds from the issuance of common stock in the IPO of $9,920,071 and in
private placements of $1,430,779, (ii) net proceeds from notes payable of
$145,687, (iii) the collection of $750,000 of notes receivable received in
connection with the 10% Secured Note financing in 1995 and (iv) the payment of
notes payable of $4,137,500, of which $4,055,000 was from the proceeds of the
IPO.
11
<PAGE>
Part II - Other Information
Item 2. Changes in Securities
(c) Recent Sales of Unregistered Securities.
On September 4 and September 12, 1997, the Company issued to two investors
an aggregate of 16,500 shares of common stock upon their exercise of outstanding
stock purchase warrants to purchase the Company's common stock at an exercise
price of $3.00 per share, or $49,500 in the aggregate. The stock purchase
warrants were originally issued to the investors in a 1995 private placement to
accredited investors. The sales of common stock upon exercise of the stock
purchase warrants were exempt from registration under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to Section 4(2) thereof, as
transactions not involving a public offering.
During the three month period ended September 30,1997, the Company had
closings on an aggregate of $4,255,000 of 5% Convertible Debentures (the
"Debentures") (net proceeds to the Company of approximately $3,869,000) in a
private placement to accredited investors. Closings in this private placement
during this period took place on each of July 21, July 24, August 4 and August
5, 1997. The sales of the Debentures were exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, as transactions not involving a
public offering. The Debentures are convertible into shares of the Company's
common stock pursuant to the terms described in Note 2 to the Financial
Statements. Trautman Kramer & Company, Inc. served as the Company's placement
agent for the private placement. In May and June of 1997, the Company had prior
closings on a aggregate of $2,250,000 in Debentures (net proceeds to the Company
of approximately $2,022,000) with substantially similar terms as the investments
described above.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K None
All other items required in Part II have been filed previously or are not
applicable for the quarter ended September 30, 1997.
12
<PAGE>
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.
COMPOSITECH LTD.
Dated: November 14, 1997 /s/ Samuel S. Gross
-----------------------------------
Executive Vice President and
Treasurer (Principal Accounting
Officer and officer duly authorized
to sign this report on behalf of
the registrant)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form
10-QSB for the period ended September 30, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,573,958
<SECURITIES> 0
<RECEIVABLES> 11,281
<ALLOWANCES> 0
<INVENTORY> 441,578
<CURRENT-ASSETS> 3,293,731
<PP&E> 6,616,110
<DEPRECIATION> 1,344,730
<TOTAL-ASSETS> 9,627,534
<CURRENT-LIABILITIES> 1,837,741
<BONDS> 6,421,525
0
1,842,483
<COMMON> 61,704
<OTHER-SE> 23,882,758
<TOTAL-LIABILITY-AND-EQUITY> 9,627,534
<SALES> 411,467
<TOTAL-REVENUES> 411,467
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,876,379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,140,439<F1>
<INCOME-PRETAX> (5,535,582)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,535,582)
<EPS-PRIMARY> (0.86)
<EPS-DILUTED> 0
<FN>
<F1> Interest Expense includes $1,034,867 of Amortization of Debt Discount and
Expenses.
</FN>
</TABLE>
