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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------
Commission file number 0-26202
CZECH INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
-----------------------
DELAWARE 52-1807562
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
15245 SHADY GROVE ROAD, SUITE 340, ROCKVILLE, MARYLAND 20850
(Address of principal executive offices) (Zip Code)
(301) 527-1110
(Registrant's telephone number, including area code)
-----------------------
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 requirements for the past 90 days. Yes [X] No [ ]
Transitional Small Business Disclosure Format: Yes [ ] No [X]
The total number of shares of the registrant's Common Stock, $.05 par value,
outstanding on November 1, 1996, was 2,871,000.
<PAGE>
CZECH INDUSTRIES, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Historical Financial Statements
Consolidated Statements of Financial Condition ............................... 2
Consolidated Statements of Operations
Quarter Ended September 30, 1996 .......................................... 3
Six Months Ended September 30, 1996 ....................................... 3
Consolidated Statements of Cash Flows ........................................ 4
Notes to Consolidated Financial Statements ................................... 5
Pro forma Condensed Consolidated Financial Statements
Acquisition of Eastbrokers
Pro forma Condensed Consolidated Statements of Operations ................. 6
Transitional Period Ended March 31, 1996 ............................... 7
Quarter Ended September 30, 1996 ....................................... 8
Six Months Ended September 30, 1996 .................................... 9
Notes to Pro forma Condensed Consolidated Statements of Operations ..... 10
Pro forma Condensed Consolidated Statements of Financial Condition ........ 11
Notes to Pro forma Condensed Consolidated Statements of Financial Condition 13
Disposition of Hotel Fortuna a.s.
Pro forma Condensed Consolidated Statements of Operations ................. 14
Six Months Ended September 30, 1996 .................................... 15
Notes to Pro forma Condensed Consolidated Statements of Operations ..... 16
Pro forma Condensed Consolidated Statements of Financial Condition ........ 17
Notes to Pro forma Condensed Consolidated Statements of Financial Condition 19
Item 2. Management's Discussion and Analysis or Plan of Operation ................... 20
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ......................... 23
Item 5. Other Information ........................................................... 23
Item 6. Exhibits and Reports on Form 8-K ............................................ 24
Signature ........................................................................... 25
</TABLE>
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1995 1996
----------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,104,625 $ 6,175,810
Cash and securities segregated for regulatory
purposes or deposited with clearing organizations 0 33,577
Securities purchased under agreements to resell 0 6,687,236
Receivables
Customers 524,487 4,050,623
Broker dealers and other 0 774,643
Affiliated companies 0 1,531,703
Other 0 2,788,603
Securities owned, at value
Equities and other 0 967,572
Buildings, furniture and equipment, at cost (net of
accumulated depreciation and amortization of
$368,665 and $811,528 respectively) 18,501,387 20,270,947
Deferred taxes 16,691 143,996
Investments held for resale 3,001,869 262,300
Investments in affiliated companies 0 5,665,728
Goodwill 0 777,874
Other assets 151,894 863,413
----------- -----------
Total Assets $27,300,953 $50,994,025
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings
Lines of credit $ 0 $ 1,080,924
Affiliated companies 0 297,697
Other 111,678 17,783
Payables
Customers 0 9,490,175
Broker dealers and other 0 869,414
Accounts payable and accrued expenses 186,229 582,802
Other liabilities and deferred amounts 0 1,097,301
----------- -----------
297,907 13,436,096
Long-term borrowings 3,072,610 5,632,434
----------- -----------
Total liabilities 3,370,517 19,068,530
----------- -----------
Minority interest in consolidated subsidiaries 8,161,015 11,984,694
----------- -----------
Stockholders' equity
Common stock; $.05 par value; 10,000,000 shares
authorized; 1,781,000 and 2,871,000 shares issued and
outstanding at September 30, 1995 and 1996, respectively 89,050 143,550
Paid-in capital 13,693,733 19,089,233
Retained earnings 23,426 195,557
Cumulative translation adjustment 1,963,212 512,461
----------- -----------
Total stockholders' equity 15,769,421 19,940,801
----------- -----------
Total Liabilities and Stockholders' Equity $27,300,953 $50,994,025
=========== ===========
</TABLE>
See notes to consolidated financial statements.
- 2 -
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
1995 1996 1995 1996
--------- --------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Hotel room revenues $ 842,009 $ 418,703 $1,590,323 $ 778,919
Hotel food and beverage revenues 526,873 196,969 550,526 314,797
Other 121,247 221,279 167,270 496,999
Equity in earnings of unconsolidated
affiliates 87,072 0 87,072 0
---------- ---------- ---------- ----------
Total revenues 1,577,201 836,951 2,395,191 1,590,715
---------- ---------- ---------- ----------
Costs and expenses
Cost of sales 244,010 72,276 254,964 111,801
Compensation and benefits 318,895 290,904 601,126 511,788
Interest 315,565 42,890 439,108 134,960
General and administrative 174,135 295,270 479,817 624,600
Depreciation and amortization 166,276 107,412 234,906 207,154
Loss on foreign currency transactions 0 0 0 38,444
---------- ---------- ---------- ----------
Total costs and expenses 1,218,881 808,752 2,009,921 1,628,747
---------- ---------- ---------- ----------
Income (loss) before provision for income
taxes and minority interest in earnings
of subsidiaries 358,320 28,199 385,270 (38,032)
Provision for income taxes (82,000) 0 (123,555) 0
Minority interest in earnings of
subsidiaries (132,900) (109,466) (186,067) (115,193)
---------- ---------- ---------- ----------
Net income (loss) $ 143,420 $ (81,267) $ 75,648 $ (153,225)
========== ========== ========== ==========
Weighted average number of shares
outstanding 1,781,000(1) 2,871,000 1,781,000(1) 2,871,000
========== ========== ========== ==========
Earnings (loss) per share $ 0.08 $ (0.03) $ 0.04 $ (0.05)
========== ========== ========== ==========
</TABLE>
(1) Adjusted for 1 for 5 reverse stock split in September 1996
See notes to consolidated financial statements.
- 3 -
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------
1995 1996
----------- ----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 75,648 $ (153,225)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 234,906 207,154
Deferred taxes 166,600 76,565
Equity in earnings (loss) of unconsolidated affiliates 522,039 0
---------- ----------
999,193 130,494
Changes in operating assets and liabilities
Receivables
Customers (190,275) (47,585)
Affiliated companies 0 (2,215,772)
Other assets 226,790 167,249
Accounts payable and accrued expenses (196,734) 216,111
---------- ----------
Net cash provided by (used in) operating activities 838,974 (1,749,503)
---------- ----------
Cash flows from investing activities
Net proceeds from (payments for)
Acquisition of net assets of Eastbrokers
Beteiligungs AG, net of cash acquired 0 (2,441,047)
Investments in affiliates (3,001,869) 0
Investments held for resale 851,158 1,677,623
Purchases of furniture and equipment 66,715 0
---------- ----------
Net cash provided by (used in) investing activities (2,083,996) (763,424)
---------- ----------
Cash flows from financing activities
Net proceeds from (payments for)
Proceeds from public offering 11,717,835 0
Proceeds from public offering - Eastbrokers Beteiligungs AG 0 3,387,150
Short-term financings (850,000) 0
Other long-term debt (5,811,478) (97,007)
---------- ----------
Net cash provided by (used in) financing activities 5,056,357 3,290,143
---------- ----------
Foreign currency translation adjustment 943,024 208,008
---------- ----------
Increase (decrease) in cash and cash equivalents 4,754,359 985,224
Cash and cash equivalents at beginning of period 350,266 5,190,586
---------- ----------
Cash and cash equivalents at end of period $5,104,625 $6,175,810
========== ==========
Supplemental disclosure of cash flow information
Cash paid for income taxes $ 4,401 $ 0
========== ==========
Cash paid for interest $ 439,108 $ 150,430
========== ==========
Non-cash transactions
Czech Industries shares issued as part of Eastbrokers
Beteiligungs AG acquisition $ 0 $1,090,000
========== ==========
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION AND INTERIM REPORTING
The financial statements of Czech Industries, Inc. (the "Company") for
the quarter and six months ended September 30, 1996 have been prepared by
the Company, are unaudited, and are subject to year-end adjustments.
These unaudited financial statements reflect all known adjustments (which
included only normal, recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods presented in
accordance with generally accepted accounting principles. The results
presented herein for the interim periods are not necessarily indicative
of the actual results to be expected for the fiscal year.
The notes accompanying the consolidated financial statements in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1995 and in the Company's Transitional Report on Form 10-KSB for the
period ended March 31, 1996, include accounting policies and additional
information pertinent to an understanding of these interim financial
statements.
For the quarter and six months ended September 30, 1995, the accompanying
consolidated financial statements include the financial position, results
of operations and cash flows of the Company and its subsidiary, Hotel
Fortuna a.s., for the quarter and six months ended September 30, 1995.
For the quarter and six months ended September 30, 1996, the accompanying
consolidated financial statements include the financial position, results
of operations and cash flows of the Company for the quarter and six
months ended September 30, 1996, the financial position of its
subsidiary, Eastbrokers Beteiligungs Aktiengesellschaft ("Eastbrokers") as
of the date of acquisition (August 1, 1996), and the financial position,
results of operations, and cash flows of its subsidiary, Hotel Fortuna a.s.
for such periods.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Certain amounts in prior periods have been reclassified to conform to the
current presentation.
2. ACQUISITION OF EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
On August, 1, 1996, the Company acquired 80 percent of the outstanding
stock of Eastbrokers through the issuance of 5,400,000 shares of the
Company (1,080,000 shares as adjusted for the reverse stock split effective
September 1996). The Company acquired an additional 245,320 shares in
Eastbrokers increasing its ownership percentage to 83.62 percent.
3. SUBSEQUENT EVENTS
In October 1996, the Company entered into an agreement to sell its
interest in the Hotel Fortuna a.s. The sale of the Hotel was completed on
November 5, 1996. The Company received 100,000 shares of Ceske
energeticke zavody a.s. ("CEZ") and 86,570 shares of Vodni Stavby Praha
a.s. as consideration for its interest in Hotel Fortuna a.s. The market
value of these shares was approximately $8,100,000 after estimated
selling expenses on the date of receipt. The loss associated with the
sale of the Hotel is expected to be approximately ($1,300,000). See Item 5
of this Form 10-QSB. Pro forma condensed consolidated financial statements
have been included elsewhere herein with the estimated results of this
transaction.
- 5 -
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ACQUISITION OF EASTBROKERS
FOR THE TRANSITIONAL PERIOD ENDED MARCH 31, 1996,
THE QUARTER ENDED SEPTEMBER 30, 1996 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
The following unaudited Pro forma Condensed Consolidated Statements of
Operations are presented as if Czech Industries, Inc. (the "Company") had
owned Eastbrokers Beteiligungs Aktiengesellschaft ("Eastbrokers") as of
January 1, 1995 and the purchase for stock by Czech Industries, Inc. had
occurred at the beginning of each period. The unaudited Pro forma Condensed
Consolidated Statements of Operations should be read in conjunction with the
historical financial statements of the Company included elsewhere herein. In
the opinion of management, all adjustments necessary to reflect the
acquisition transactions have been made.
These unaudited Pro forma Condensed Consolidated Statements of Operations are
not necessarily indicative of what the actual results of operations the
Company would have been assuming the acquisition transactions had been
consummated as of the beginning of each period, nor does it purport to
represent the results of operations attainable for future periods.
- 6 -
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ACQUISITION OF EASTBROKERS
<TABLE>
<CAPTION>
TRANSITIONAL PERIOD ENDED MARCH 31, 1996
---------------------------------------------------------
CZECH PRO FORMA PRO FORMA
INDUSTRIES, INC. EASTBROKERS ADJUSTMENT AS ADJUSTED
--------------- ------------- ---------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Investment bank and brokerage revenues $ 0 $4,220,481 $ 0 $4,220,481
Hotel revenues 0 0 0 0
Gain on sales of investments 327,104 0 0 327,104
Equity in earnings of affiliates 0 644,904 0 644,904
Other 72,114 1,376,068 0 1,448,182
---------- ---------- --------- ----------
Total revenues 399,218 6,241,453 0 6,640,671
---------- ---------- --------- ----------
Expenses
Cost of sales 0 0 0 0
Compensation and benefits 106,583 1,183,471 0 1,290,054
General and administrative 133,929 3,154,564 0 3,288,493
Interest 45,595 558,815 0 604,410
Depreciation and amortization 0 135,882 0 135,882
Loss on foreign currency exchange 12,653 0 0 12,653
---------- ---------- --------- ----------
Total expenses 298,760 5,032,732 0 5,331,492
---------- ---------- --------- ----------
Income before provision for income
taxes and minority interest in
earnings of consolidated
subsidiaries 100,458 1,208,721 0 1,309,179
Provision for (benefit from)
income taxes 0 253,721 0 253,721
---------- ---------- --------- ----------
Income before minority interest
in earnings of consolidated
subsidiaries 100,458 955,000 0 1,055,458
Minority interest in earnings of
consolidated subsidiaries 0 (84,973) (142,510)(a) (227,483)
---------- ---------- --------- ----------
Net income (loss) $ 100,458 $ 870,027 $(142,510) $ 827,975
========== ========== ========= ==========
Pro forma weighted average
shares outstanding 2,871,000 528,913 0 2,871,000
========== ========== ========= ==========
Pro forma earnings per share $ 0.03 $ 1.64 $ 0.00 $ 0.29
========== ========== ========= ==========
</TABLE>
See notes to pro forma consolidated financial statements.
- 7 -
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ACQUISITION OF EASTBROKERS
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, 1996
---------------------------------------------------------
CZECH PRO FORMA PRO FORMA
INDUSTRIES, INC. EASTBROKERS ADJUSTMENT AS ADJUSTED
--------------- ------------- ---------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Investment bank and brokerage revenues $ 0 $ 879,345 $ 0 $ 879,345
Hotel revenues 615,672 0 0 615,672
Gain on sales of investments 0 0 0 0
Equity in earnings of affiliates 0 393,512 0 393,512
Other 221,279 14,101 0 235,380
---------- ---------- --------- ----------
Total revenues 836,951 1,286,958 0 2,123,909
---------- ---------- --------- ----------
Expenses
Cost of sales 72,276 0 0 72,276
Compensation and benefits 290,904 157,902 0 448,806
General and administrative 295,270 716,269 0 1,011,539
Interest 42,890 5,201 0 48,091
Depreciation and amortization 107,412 35,714 0 143,126
Loss on foreign currency exchange 0 0 0 0
---------- ---------- --------- ----------
Total expenses 808,752 915,086 0 1,723,838
---------- ---------- --------- ----------
Income before provision for income
taxes and minority interest in
earnings of consolidated
subsidiaries 28,199 371,872 0 400,071
Provision for (benefit from)
income taxes 0 137,380 0 137,380
---------- ---------- --------- ----------
Income before minority interest
in earnings of consolidated
subsidiaries 28,199 234,492 0 262,691
Minority interest in earnings of
consolidated subsidiaries (109,466) 17,151 (41,219)(a) (133,534)
---------- ---------- --------- ----------
Net income (loss) $ (81,267) $ 251,643 $ (41,219) $ 129,157
========== ========== ========= ==========
Pro forma weighted average
shares outstanding 2,871,000 528,913 0 2,871,000
========== ========== ========= ==========
Pro forma earnings per share $ (0.03) $ 0.48 $ 0.00 $ 0.04
========== ========== ========= ==========
</TABLE>
See notes to pro forma consolidated financial statements.
- 8 -
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ACQUISITION OF EASTBROKERS
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------------------
CZECH PRO FORMA PRO FORMA
INDUSTRIES, INC. EASTBROKERS ADJUSTMENT AS ADJUSTED
--------------- ------------- ---------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Investment bank and brokerage revenues $ 0 $2,037,057 $ 0 $2,037,057
Hotel revenues 1,093,716 0 0 1,093,716
Gain on sales of investments 0 0 0 0
Equity in earnings of affiliates 0 573,028 0 573,028
Other 496,999 191,767 0 688,766
---------- ---------- --------- ----------
Total revenues 1,590,715 2,801,852 0 4,392,567
---------- ---------- --------- ----------
Expenses
Cost of sales 111,801 0 0 111,801
Compensation and benefits 511,788 399,051 0 910,839
General and administrative 624,600 1,646,729 0 2,271,329
Interest 134,960 93,185 0 228,145
Depreciation and amortization 207,154 53,196 0 260,350
Loss on foreign currency exchange 38,444 0 0 38,444
---------- ---------- --------- ----------
Total expenses 1,628,747 2,192,161 0 3,820,908
---------- ---------- --------- ----------
Income before provision for income
taxes and minority interest in
earnings of consolidated
subsidiaries (38,032) 609,691 0 571,659
Provision for (benefit from)
income taxes 0 201,346 0 201,346
---------- ---------- --------- ----------
Income before minority interest
in earnings of consolidated
subsidiaries (38,032) 408,345 0 370,313
Minority interest in earnings of
consolidated subsidiaries (115,193) (92,755) (51,694)(a) (259,642)
---------- ---------- --------- ----------
Net income (loss) $ (153,225) $ 315,590 $ (51,694) $ 110,671
========== ========== ========= ==========
Pro forma weighted average
shares outstanding 2,871,000 528,913 0 2,871,000
========== ========== ========= ==========
Pro forma earnings per share $ (0.05) $ 0.60 $ 0.00 $ 0.04
========== ========== ========= ==========
</TABLE>
See notes to pro forma consolidated financial statements.
- 9 -
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ACQUISITION OF EASTBROKERS
FOR THE TRANSITIONAL PERIOD ENDED MARCH 31, 1996,
THE QUARTER ENDED SEPTEMBER 30, 1996 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
The financial information included in the accompanying Pro forma Condensed
Consolidated Statements of Operations has been derived and accumulated as
follows:
TRANSITIONAL PERIOD ENDED MARCH 31, 1996
Czech Industries, Inc. includes information derived from the audited
financial statements for the transitional period ended March 31, 1996.
This includes only the results of operations of Czech Industries, Inc.
for the first three months of 1996. Results of operations for the
Hotel Fortuna a.s. are not included in these transitional period
statements.
Eastbrokers includes the information derived from the compiled
consolidated financial statements included with the Current Report on
Form 8-K filed in connection with the acquisition of Eastbrokers.
Included in this period are the consolidated results of operations for
the year ended December 31, 1995.
QUARTER ENDED SEPTEMBER 30, 1996
Czech Industries, Inc. includes information derived from the Form 10-QSB
historical financial statements for the quarter ended September 30, 1996.
This includes the results of operations of Czech Industries, Inc.
for the quarter ended September 30, 1996 and the results of operations of
the company's subsidiary, Hotel Fortuna a.s., for the quarter ended
June 30, 1996.
Eastbrokers includes information derived from the consolidated results of
operations for the quarter ended June 30, 1996.
SIX MONTHS ENDED SEPTEMBER 30, 1996
Czech Industries, Inc. includes information derived from the Form 10-QSB
historical financial statements for the six months ended September 30,
1996. This includes the results of operations of Czech Industries, Inc.
for the six months ended September 30, 1996 and the results of operations
of the company's subsidiary, Hotel Fortuna a.s., for the six months ended
June 30, 1996.
Eastbrokers includes information derived from the consolidated results of
operations for the six months ended June 30, 1996.
ASSUMPTIONS:
1. Czech Industries, Inc. acquired 83.62 percent of the outstanding
capital stock of Eastbrokers as of the beginning of each period
for cash and shares of Czech Industries, Inc. The total value of
this transaction is $8,971,028. The purchase was comprised of
5,400,000 shares of Czech Industries, Inc. issued for the initial
acquisition and cash to Eastbrokers for the issuance of additional
shares of $3,571,028. (The value assigned to these shares by the
Board of Directors was $1.00 per share for a total of $5,400,000).
After a one for five reverse stock split, the total shares related
to this transaction were 1,080,000 at an assigned value of $5.00
per share.
ADJUSTMENTS:
(a) Adjustment to recognize the minority shareholders' interest in the
net income of Eastbrokers for each of the periods presented.
- 10 -
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
ACQUISITION OF EASTBROKERS
FOR THE TRANSITIONAL PERIOD ENDED MARCH 31, 1996,
THE QUARTER ENDED SEPTEMBER 30, 1996 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
The following unaudited Pro forma Condensed Consolidated Statement of
Financial Condition is presented as if Czech Industries, Inc. (the "Company")
had owned a controlling interest in Eastbrokers as of June 30, 1996.
Information relating to Czech Industries, Inc. has been derived from the
Form 10-QSB historical financial statements for the six months ended September
30, 1996. This includes the financial condition of Czech Industries, Inc.
as of September 30, 1996, and the financial condition of the company's
subsidiary, Hotel Fortuna a.s., as of June 30, 1996. Eastbrokers includes
information derived from the consolidated financial condition as of June 30,
1996. This unaudited Pro forma Condensed Consolidated Statement of Financial
Condition should be read in conjunction with the historical financial
statements of the Company included elsewhere herein. In the opinion of
management, all adjustments necessary to reflect the acquisition transactions
have been made.
This unaudited Pro forma Condensed Consolidated Statement of Financial
Condition is not necessarily indicative of what the actual financial position
of the Company would have been assuming the acquisition transactions had been
consummated as of June 30, 1996, nor does it purport to represent the future
financial position of the Company.
-11-
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
ACQUISITION OF EASTBROKERS
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
ASSETS
CZECH PRO FORMA PRO FORMA
INDUSTRIES, INC. EASTBROKERS ADJUSTMENT AS ADJUSTED
--------------- ------------- ---------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents $1,708,679 $ 6,399,665 $ 0 $ 8,108,344
Securities purchased under
agreements to resell 0 5,813,593 0 5,813,593
Receivables 2,589,299 9,789,168 (2,215,772)(c) 10,162,695
Securities owned, at value 0 689,327 0 689,327
Investments held for resale 0 936,062 0 936,062
Other current assets 247,729 133,563 0 381,292
----------- ----------- ----------- -----------
Total current assets 4,545,707 23,761,378 (2,215,772) 26,091,313
Property and equipment, net 18,225,799 1,894,002 0 20,119,801
Investments in affiliated companies 8,971,028 5,011,967 (8,366,323)(b) 5,616,672
Other assets 0 602,795 777,874 (b) 1,380,669
----------- ----------- ----------- -----------
Total Assets $31,742,534 $31,270,142 $(9,804,221) $53,208,455
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 0 $ 3,264,802 $ 0 $ 3,264,802
Payables 0 12,408,350 (2,215,772)(c) 10,192,578
Accounts payable and accrued expenses 398,160 242,902 0 641,062
Other liabilities and deferred amounts 0 1,250,141 0 1,250,141
----------- ----------- ----------- -----------
Total current liabilities 398,160 17,166,195 (2,215,772) 15,348,583
----------- ----------- ----------- -----------
Long-term borrowings 1,929,425 3,587,371 0 5,516,796
----------- ----------- ----------- -----------
Total liabilities 2,327,585 20,753,566 (2,215,772) 20,865,379
----------- ----------- ----------- -----------
Minority interest in consolidated
subsidiaries 9,474,148 975,631 1,952,496 (b) 12,402,275
----------- ----------- ----------- -----------
Stockholders' equity 19,940,801 9,540,945 (9,540,945)(b) 19,940,801
----------- ----------- ----------- -----------
Total Liabilities and
Stockholders' Equity $31,742,534 $31,270,142 $(9,804,221) $53,208,455
=========== =========== =========== ===========
</TABLE>
See notes to pro forma consolidated financial statements.
- 12 -
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
ACQUISITION OF EASTBROKERS
FOR THE TRANSITIIONAL PERIOD ENDED MARCH 31, 1996,
THE QUARTER ENDED SEPTEMBER 30, 1996 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
ASSUMPTIONS:
1. Czech Industries, Inc. acquired 83.62 percent of the outstanding
capital stock of Eastbrokers as of the beginning of each period for
cash and shares of Czech Industries, Inc. The total value of this
transaction is $8,971,028. The purchase was comprised of 5,400,000
shares of Czech Industries, Inc. issued for the initial acquisition
and cash to Eastbrokers for the issuance of additional shares of
$3,571,028. (The value assigned to these shares by the Board of
Directors was $1.00 per share for a total of $5,400,000.) After a
one for five reverse stock split, the total shares related to this
transaction were 1,080,000 at an assigned value of $5.00 per share.
ADJUSTMENTS:
(b) Adjustment to record the consolidation of Eastbrokers into Czech
Industries, Inc., recognition of minority interest in the equity of
Eastbrokers AG, and recording the goodwill related to the purchase
as March 31, 1996. Common stock and cash with a combined value of
$8,971,028 was used to acquire net assets of $8,193,154 leaving
goodwill acquired of $777,874.
(c) Adjustment to eliminate intercompany loans and related receivables
as of September 30, 1996.
-13-
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
DISPOSITION OF HOTEL FORTUNA A.S.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
The following unaudited Pro forma Condensed Consolidated Statement of
Operations is presented as if Czech Industries, Inc. (the "Company") had
disposed of its ownership interest in the Hotel Fortuna a.s., as of September
30, 1996. The unaudited Pro forma Condensed Consolidated Statement of
Operations should be read in conjunction with the historical financial
statements of the Company included elsewhere herein. In the opinion of
management, all adjustments necessary to reflect the acquisition transactions
have been made.
This unaudited Pro forma Condensed Consolidated Statement of Operations is not
necessarily indicative of what the actual results of operations the Company
would have been assuming the disposition transactions had been consummated as
of September 30, 1996, nor does it purport to represent the actual results of
operations. Fluctuations in the foreign currency exchange rate, the market
value of the consideration received, and the actual proceeds received from the
disposition of the consideration may significantly affect the actual results
of this transaction.
-14-
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
DISPOSITION OF HOTEL FORTUNA A.S.
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------------------
PRO FORMA
CZECH DISPOSITION PRO FORMA
INDUSTRIES, HOTEL DISPOSITION PRO FORMA
INC. FORTUNA ADJUSTMENT AS ADJUSTED
--------------- ------------ -------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Hotel revenues $1,093,716 $ 0 $ 0 $1,093,716
Other 496,999 0 0 496,999
----------- ----------- ------------ -----------
Total revenues 1,590,715 0 0 1,590,715
----------- ----------- ------------ -----------
Expenses
Cost of sales 111,801 0 0 111,801
Compensation and benefits 511,788 0 0 511,788
General and administrative 624,600 0 0 624,600
Interest 134,960 0 0 134,960
Depreciation and amortization 207,154 0 0 207,154
Loss on foreign currency exchange 38,444 0 0 38,444
----------- ----------- ------------ -----------
Total expenses 1,628,747 0 0 1,628,747
----------- ----------- ------------ -----------
Income (loss) from continuing operations
before provision for income taxes and
minority interest in earnings of
consolidated subsidiaries (38,032) 0 0 (38,032)
Provision for (benefit from)
income taxes 0 0 0 0
----------- ----------- ------------ -----------
Income (loss) from continuing operations
before minority interest in earnings
of consolidated subsidiaries (38,032) 0 0 (38,032)
Minority interest in earnings of
consolidated subsidiaries (115,193) 0 0 (115,193)
----------- ----------- ------------ -----------
Income (loss) from
continuing operations (153,225) 0 0 (153,225)
----------- ----------- ------------ -----------
Discontinued operations
Loss from operations 0 0 (115,000)(a) (115,000)
Loss on disposal 0 0 (1,300,000)(b) (1,300,000)
----------- ----------- ------------ -----------
Loss from discontinued operations 0 0 (1,415,000) (1,415,000)
----------- ----------- ------------ -----------
Net income (loss) $ (153,225) $ 0 $(1,415,000) $(1,568,225)
=========== =========== ============ ===========
Pro forma weighted average
shares outstanding 2,871,000 0 0 2,871,000
=========== =========== ============ ===========
Pro forma earnings per share $ (0.05) $ 0.00 $ 0.00 $ (0.55)
=========== =========== ============ ===========
</TABLE>
See notes to pro forma consolidated financial statements.
- 15 -
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
DISPOSITION OF HOTEL FORTUNA A.S.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
The financial information included in the accompanying Pro forma Consolidated
Condensed Statement of Operations has been derived and accumulated from the
Form 10-QSB historical financial statements for the six months ended September
30, 1996. This includes the results of operations of Czech Industries, Inc.
for the six months ended September 30, 1996 and the results of operations of
the Company's subsidiary, Hotel Fortuna a.s. for the six months ended June 30,
1996.
ASSUMPTIONS:
1. Czech Industries, Inc. disposed of its 50.2 percent interest in the
Hotel Fortuna a.s. (251,000 shares) as of September 30, 1996. The
company received 100,000 shares of Ceske energeticke zavody a.s.
(CEZ) and 86,570 shares of Vodni stavby Praha a.s. (VS) as
consideration for the 251,000 shares of Hotel Fortuna a.s.
2. As of September 30, 1996, the estimated total value of the shares
received is approximately $8,100,000 after estimated selling
expenses of the CEZ and VS shares. This total value is based on the
market value of the shares on the date the transaction was completed
and the current foreign currency exchange rate.
3. As of September 30, 1996, the Company had sold 13,900 shares of VS
for approximately $930,000 USD.
4. As of September 30, 1996, the Company was holding 97,500 shares of
CEZ and 42,368 shares of VS. As of the date of this filing, the
combined estimated market value of these holdings is approximately
$5,244,000.
5. As of September 30, 1996, the Company repaid the outstanding balance
of the Note payable including accrued interest due on the note of
approximately $2.1 million USD with 2,500 shares of CEZ and 30,302
shares of VS.
6. The cost basis of the hotel is approximately $9,400,000. Estimated
loss associated with the sale of the hotel is approximately
($1,300,000). Expenses to close down the Company's portion of the
hotel operations are estimated to be approximately $115,000.
ADJUSTMENTS:
(a) Adjustment to record the estimated expenses related to hotel
operations through the date of sale.
(b) Adjustment to recognize the estimated loss associated with the sale
of the Company's interest in the hotel.
-16-
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DISPOSITION OF HOTEL FORTUNA A.S.
SEPTEMBER 30, 1996
(UNAUDITED)
The following unaudited Pro forma Condensed Consolidated Statement of
Financial Condition is presented as if Czech Industries, Inc. (the "Company")
had disposed of its ownership interest in the Hotel Fortuna a.s. as of
September 30, 1996. The unaudited Pro forma Condensed Consolidated Statement
of Financial Condition should be read in conjunction with the historical
financial statements of the Company included elsewhere herein. In the opinion
of management, all adjustments necessary to reflect the acquisition
transactions have been made.
This unaudited Pro forma Condensed Consolidated Statement of Financial
Condition is not necessarily indicative of what the actual financial position
of the Company would have been assuming the disposition transactions had been
consummated as of September 30, 1996, nor does it purport to represent the
future financial position of the Company.
-17-
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DISPOSITION OF HOTEL FORTUNA A.S.
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
ASSETS
PRO FORMA
CZECH DISPOSITION PRO FORMA
INDUSTRIES, HOTEL DISPOSITION PRO FORMA
INC. FORTUNA ADJUSTMENT AS ADJUSTED
--------------- ------------ -------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents $6,209,387 $ (536,400) (c) $ 930,063 (d) $6,603,050
Securities purchased under
agreements to resell 6,687,236 0 0 6,687,236
Receivables 9,145,572 (373,527) (c) 0 8,772,045
Securities owned, at value 967,572 0 5,244,000 (d) 6,211,572
Investments held for resale 262,300 9,489,063 (c) (9,489,063) (d) 262,300
Other current assets 143,996 0 0 143,996
----------- ----------- ----------- ------------
Total current assets 23,416,063 8,579,136 (3,315,000) 28,680,199
Property and equipment, net 20,270,947 (18,135,611) (c) 0 2,135,336
Investments in affiliated companies 5,665,728 0 0 5,665,728
Other assets 1,641,287 (112,400) (c) 0 1,528,887
----------- ----------- ----------- ------------
Total Assets $50,994,025 $(9,668,875) $(3,315,000) $38,010,150
=========== =========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 1,396,404 $ 0 $ 0 $ 1,396,404
Payables 10,359,589 0 0 10,359,589
Accounts payable and accrued
expenses 582,802 (194,727) (c) 0 388,075
Other liabilities and deferred
amounts 1,097,301 0 0 1,097,301
----------- ----------- ----------- ------------
Total current liabilities 13,436,096 (194,727) 0 13,241,369
----------- ----------- ----------- ------------
Long-term borrowings 5,632,434 0 (1,900,000) (d) 3,732,434
----------- ----------- ----------- ------------
Total liabilities 19,068,530 (194,727) (1,900,000) 16,973,803
----------- ----------- ----------- ------------
Minority interest in consolidated
subsidiaries 11,984,694 (9,474,148) (c) 0 2,510,546
----------- ----------- ----------- ------------
Stockholders' equity 19,940,801 0 (1,415,000) (d) 18,525,801
----------- ----------- ----------- ------------
Total Liabilities and
Stockholders' Equity $50,994,025 $ (9,668,875) $ (3,315,000) $ 38,010,150
=========== =========== =========== ============
</TABLE>
See notes to pro forma consolidated financial statements.
- 18 -
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DISPOSITION OF HOTEL FORTUNA A.S.
SEPTEMBER 30, 1996
(UNAUDITED)
ASSUMPTIONS:
1. Czech Industries, Inc. disposed of its 50.2 percent interest in the
Hotel Fortuna a.s. (251,000 shares) as of September 30, 1996. The
company received 100,000 shares of Ceske energeticke zavody a.s.
(CEZ) and 86,570 shares of Vodni stavby Praha a.s. (VS) as
consideration for the 251,000 shares of Hotel Fortuna a.s.
2. As of September 30, 1996, the estimated total value of the shares
received is approximately $8,100,000 after estimated selling
expenses of the CEZ and VS shares. This total value is based on the
market value of the shares on the date the transaction was completed
and the current foreign currency exchange rate.
3. As of September 30, 1996, the Company had sold 13,900 shares of VS for
approximately $930,000 USD.
4. As of September 30, 1996, the Company was holding 97,500 shares of
CEZ and 42,368 shares of VS. As of the date of this filing, the
combined estimated market value of these holdings is approximately
$5,244,000.
5. As of September 30, 1996, the Company repaid the outstanding balance
of the Note payable including accrued interest due on the note of
approximately $2.1 million USD with 2,500 shares of CEZ and 30,302
shares of VS.
6. The cost basis of the hotel is approximately $9,400,000. Estimated
loss associated with the sale of the hotel is approximately
($1,300,000). Expenses to close down the Company's portion of the
hotel operations are estimated to be approximately $115,000.
ADJUSTMENTS:
(c) Adjustment to eliminate the assets and liabilities of the hotel at
September 30, 1996.
(d) Adjustment to eliminate the investment in the hotel at September 30,
1996 and recognize the estimated net proceeds and securities
remaining from the sale after payment of outstanding debt and
accrued expenses.
-19-
<PAGE>
PART I -- FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Form 10-QSB for the quarterly period ended September 30, 1996, makes
reference to the Company's Current Report on Form 8-K dated August 1, 1996
("Report"). The Report, which is incorporated by reference herein, includes
information necessary or useful to an understanding of the Company's
businesses and financial statement presentations. The Report more fully
describes the terms and conditions of the Agreement between the Company and
Eastbrokers Beteiligungs Aktiengesellschaft ("Eastbrokers") a Vienna, Austria
based investment banking and stock brokerage firm. Such information relating
to the Agreement between the Company and Eastbrokers is not contained in this
Form 10-QSB. The Report is included as an exhibit in this Form 10-QSB and the
Company will furnish a copy of this Report upon request made directly to the
Company's headquarters at 15245 Shady Grove Road, Suite 340, Rockville,
Maryland 20850, telephone number (301) 527-1110 and facsimile number
(301) 527-1112.
On August 1, 1996, the Company consummated its acquisition of Eastbrokers
reflecting its previously stated objective of seeking to invest into, merge
with or acquire one or more companies generating strong earnings in growth
oriented industries. The Company was seeking such investment opportunities
throughout Eastern and Central Europe and not just in the Czech Republic.
Eastbrokers is a holding company that, through its subsidiaries, provides
financial services in Eastern and Central Europe. The acquisition of
Eastbrokers improves the financial condition of the Company by providing
earnings from its brokerage business, while positioning the Company to take
advantage of what management considers as a significant opportunity to provide
investment banking and corporate finance services in an emerging market
infrastructure and growth industries.
During the quarter ended September 30, 1996, management augmented mid-level
personnel and increased office space and management information systems in
several of its Eastern European offices. Management has also been considering
offering certain services and products to firms and individuals involved in
the U.S. capital markets.
On September 10, 1996, the Company held a Special Meeting of Stockholders. At
this meeting, the Board of Directors of the Company submitted to the
shareholders two proposed amendments to the Company's Certificate of
Incorporation. Both proposals passed, and the Certificate of Incorporation was
amended. See Item 4 of this Form 10-QSB for a brief description of each matter
voted upon, and the number of votes cast for, against, and withheld, the
number of abstentions, and broker non-votes. The Board of Directors submitted
such proposals to the stockholders to address the issue raised by the Nasdaq
Stock Market, Inc. ("Nasdaq") that, as a result of the acquisition of
Eastbrokers, the Company may not meet the criteria for initial listing on the
Nasdaq SmallCap Market. Subsequent to the passage of the proposals, Nasdaq
officially notified the Company that it has met all the initial listing
requirements. Consequently, the Company has maintained its listing on the
Nasdaq SmallCap Market.
On November 5, 1996, a date subsequent to the period which this Form 10-QSB
covers, the Company consummated the sale of its ownership interest in the
Hotel Fortuna a.s. See Item 5 of this Form 10-QSB for information regarding
the disposition of the Hotel Fortuna a.s. stock. Upon review of the market
conditions facing the hotel industry in Prague, management determined that it
would be in the best interest of the Company to liquidate its investment in
the hotel. The Company intends to use the net proceeds generated from the sale
to expand operations.
In return for the Company's shares of the Hotel Fortuna a.s., the Company
received 100,000 shares of Common Stock of Ceske energeticke zavody a.s.,
nominal value 1,100 CZK ("CEZ"), a Czech utility company, and 86,570 shares of
Common Stock of Vodni stavby Praha a.s., nominal value 1,000 CZK ("VS"), a
Czech construction company. Both CEZ and VS are actively traded on the Prague
Stock Exchange's Main Market ("PSE"). At the time of this filing, the Company
was holding 97,500 shares of CEZ having a market value of 900 CZK per share
(approximately $3,270,000 USD) and 42,368 shares of VS having a market value
of 1,250 CZK per share (approximately $1,974,000 USD). Management believes
that due to the fluctuations inherent in the PSE holding the CEZ and VS Common
Stock poses an uncertainty that may reasonably have a material impact on the
Company's short term liquidity.
On November 6, 1996, a date subsequent to the period which this Form 10-QSB
covers, the Company used
-20-
<PAGE>
2,500 shares of CEZ and 30,302 shares of VS to repay the balance of the
principal and interest due under a Note payable owed to Finn s.r.o. in the
approximate amount of $2.1 million USD. Also, the Company sold 13,900
shares of VS at 1,800 CZK per share for approximately $930,000 USD. The
repayment of this Note is not reflected in the Historical Financial
Statements of the Company (pages 2 through 5 of this Form 10-QSB) but is
reflected in the Pro Forma Consolidated Financial Statements (pages 6
through 19 of this Quarterly Report on Form 10-QSB).
Also on November 6, 1996, the European Association of Securities Dealers
(EASD) approved for membership into its organization WMP Borsenmakler AG
("WMP"), a partially owned subsidiary of the Company. The EASD operates
EASDAQ, which is a screen-based stock market that uses a multiple
market-making system similar to that used by NASDAQ in the United States. WMP
provides market making services in over 400 Austrian securities trading on the
Vienna Stock Exchange, underwriting services to issuers seeking to raise
capital on the Vienna Stock Exchange, and brokerage services to institutional
clients investing in the Eastern European stock markets. WMP intends to expand
its market making, underwriting and brokerage services to countries and
companies serviced by the EASD and through EASDAQ.
The information contained in this Item contains forward looking statements.
The matters referred to in such statements could be effected by the risks and
uncertainties involved in the Company's business, including (without
limitation) the effect of political, economic and market conditions both
domestically and in Eastern and Central Europe. Accordingly, the Company makes
no assurances as to the future success of these matters.
Results of Operations. See Note 1 of the Notes to Consolidated Financial
Statements For the Six Months Ended September 30, 1996, for an explanation of
the basis of presentation of the financial statements. For the three month
period ended September 30, 1996, the Company generated consolidated revenues
in the amount of $836,951, compared to $1,577,201 for the three month period
ended September 30, 1995. This decrease is related to an overall reduction in
revenues generated from hotel operations, foreign currency fluctuations, and a
change in the Company's fiscal year end. For the period ended September 30,
1995, the Company's consolidated financial statements contained the hotel's
revenues and expenses for the quarter and six months ended September 30, 1995.
For the period ended September 30, 1996, the Company's consolidated financial
statements contain the hotel's revenues and expenses for the quarter and six
months ended June 30, 1996. The quarter ended September 30, is typically the
strongest quarter for the hotel's operations. Occupancy percentages is this
market are generally highest during the quarter ended September 30 due to
increased travel and tourism business. The revenues and expenses of the hotel
for the quarter ended September 30, 1996 are not reflected in the consolidated
financial statements included elsewhere herein. This factor alone accounts for
nearly all of the significant decline in the revenues reported this period as
compared to the same period one year ago. Comparing the hotel's operations for
the quarter ended June 30 of both years, combined hotel room revenues and
hotel food and beverage revenues increased approximately 36 percent over the
three month period ended June 30, 1996. This increase is attributable to the
Company's affiliation with the Quality Hotel franchise effective January 1,
1996.
The Company incurred total consolidated costs and expenses of $808,752 for the
three month period ended September 30, 1996, compared to $1,218,881 for the
three month period ended September 30, 1995. During this period the cost of
sales decreased in relation to the decrease in hotel revenues. Interest
expense decreased approximately 86 percent due primarily to curtailments of
debt principal made possible by the public offering in 1995. General and
administrative expenses increased approximately 70 percent as a result of
additional costs associated with the Eastbrokers acquisition.
The Company incurred a consolidated net loss of $81,267 for the three month
period ended September 30, 1996, compared to a net gain of $143,420 for the
three month period ended September 30, 1995. Net earnings from the hotel
increased from $79,284 to $110,345 for the periods ended September 30, 1995,
and September 30, 1996, respectively.
During the quarter, the Company, through a capital stock purchase, invested
$3.1 million USD into Eastbrokers. Also, during July 1996, the Company loaned
to Eastbrokers $1.5 million USD. Eastbrokers used the proceeds of the capital
stock purchase to increase its equity in the Eastbrokers Warsaw unit, the
Eastbrokers Budapest unit and WMP Borsenmakler AG ("WMP"). The Eastbrokers
Warsaw and Budapest units are using the funds for working capital. WMP used
the funds to acquire IS Bohemia, a Czech Fund manager which manages five Czech
privatization funds (total approximate value of assets under management is
- 21 -
<PAGE>
$14.5 million USD) and owns a commercial real estate project located in Brno,
Czech Republic. Management intends to sell the Brno real estate project in 1997.
The sale will be contingent on the existing market conditions.
Eastbrokers used proceeds of the loan to provide intercompany loans to the
Eastbrokers Instanbul unit, the Eastbrokers Almaty unit, the Eastbrokers
Ljubljana unit and the Eastbrokers Sofia unit. The Eastbrokers Instanbul, Almaty
and Ljubljana units are using the funds for working capital. The Eastbrokers
Sofia unit used the funds to market the TRUDInvestment Fund, a Bulgarian
privatization fund (due to the status of the privatization process in Bulgaria
the value of this fund cannot presently be determined).
On September 30, 1996, the Company had total current assets of $23,009,767 and
total current liabilities of $13,436,096, compared to $5,685,672 and $297,907,
respectively, on September 30, 1995. As of the date of this filing, the
Company believes that it has adequate liquidity to meet its current
obligations. However, no assurances can be made as to the Company's ability to
meet its cash requirements subsequent to any further business combinations.
- 22 -
<PAGE>
PART II -- OTHER INFORMATION
ITEM 2 -- CHANGES IN SECURITIES
See Item 4 of this Form 10-QSB.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 10, 1996, the Company held a Special Meeting of
Stockholders ("Special Meeting"). The Board of Directors of the Company
submitted to the shareholders a proposed amendment to the Company's
Certificate of Incorporation that would effect a reverse stock split of
the Company's Common Stock on the basis of one new share of Common Stock
for each five shares of presently outstanding Common Stock and reduce
the authorized number of Common Stock from 50,000,000 shares to
10,000,000 shares.
The number of shares of stock issued and outstanding prior to the
reverse split was 14,355,000. The holders of 8,005,122 shares of stock
entitled to vote, which constituted a quorum, were present at the
Special Meeting. As to the approval of the amendment to the Company's
Certificate of Incorporation to effect a one for five reverse split of
the Company's Common Stock, 7,974,422 voted for the proposal, 27,200
voted against the proposal, and 3,500 abstained. There were 6,349,878
shares of the Company's Common Stock that were not voted.
As to the modification of the Company's Certificate of Incorporation to
increase the par value of the Company's Common Stock to $.05 per share,
7,974,422 voted for the proposal, 27,200 voted against the proposal, and
3,500 abstained. There were 6,349,878 shares of the Company's Common
Stock that were not voted.
The meeting did not involve the election of any directors.
ITEM 5 -- OTHER INFORMATION
On October 1, 1996, the Company entered into an agreement with Y.S.E. a.s.
to dispose of the Company's controlling equity interest in the Hotel
Fortuna a.s. The Company had owned 251,000 shares of Common Stock of the
Hotel Fortuna a.s., which owns a 242 room hotel, restaurant and lounge
located in Prague, Czech Republic. The disposition in the Company's
interest in the Hotel Fortuna a.s. is deemed to be a disposition of a
significant amount of the Company's assets.
In return for its equity interest in the Hotel Fortuna a.s., the Company
received 100,000 shares of Common Stock of Ceske energeticke zavody
a.s., nominal value 1,100 CZK ("CEZ"), a Czech utility company, and
86,570 shares of Common Stock of Vodni stavby Praha a.s., nominal value
1,000 CZK ("VS"), a Czech construction company. Both CEZ and VS are
actively traded on the Prague Stock Exchange's Main Market. The VS
shares were transferred to the Company on or about October 15, 1996, and
the CEZ shares were transferred to the Company on or about November 5,
1996. The Company transferred its shares of the Hotel Fortuna a.s. to
Y.S.E. a.s. on or about November 6, 1996.
The Company determined the value of the Hotel Fortuna a.s. shares by
adding the Company's historical cost basis in the hotel with the
Company's proportionate share of the hotel's earnings it received
through June 30, 1996. As a result of this calculation, the Company
determined the value of its interest in the hotel to be approximately
$9,400,000 USD. The company valued the CEZ and VS shares it received
as consideration by determining the market value of the shares as quoted
on the PSE on October 1, 1996, the date of the execution of the contract.
On October 1, 1996, the PSE quoted prices of CEZ and VS were 1,040 CZK
and 1,900 CZK per share, respectively.
On a date subsequent to obtaining the shares, the Company used 2,500
shares of CEZ and 30,302 shares of VS to repay the balance of the
principal and interest due under a Note payable to Finn s.r.o. in the
approximate amount of $2.1 million USD. Also, the Company sold 13,900
shares of VS at 1,800 CZK per share for approximately $930,000 USD.
At the time of this filing, the Company was holding 97,500 shares of
CEZ having a market value of
- 23 -
<PAGE>
approximately $3,270,000 USD and 42,368 shares of VS having
a market value of approximately $1,974,000 USD. Accordingly, the Company
has experienced a paper loss on the sale of the Hotel Fortuna a.s. of
approximately ($1,300,000). The estimated effect of this paper loss is not
reflected in the Historical Financial Statements of the Company (pages 2
through 5 of this Form 10-QSB) but is reflected in the Pro Forma
Consolidated Financial Statements (pages 6 through 19 of this Form
10-QSB).
The transaction between the Company and Y.S.E. a.s. was arranged
by Stratego Invest a.s., a broker-dealer and financial consulting company
organized under the laws of the Czech Republic. Ing. Petr Bednarik, a
director and shareholder of the Company, is the Chairperson of the
Supervisory Board and a beneficial owner of Stratego Invest a.s. For
providing services related to the transaction, Stratego Invest a.s.
received a commission fee of 1,000,000 CZK (approximately $37,000 USD).
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits required by Item 601 of Regulation S-B
Exhibit No. Description
----------- -----------
(3)(i) Certificate of Incorporation of Czech
Industries, Inc., as amended.
(10) Material Contract between the Company and YSE a.s.
entered into on October 1, 1996, subject to the
receipt and delivery of certain consideration.
(27.1) Financial Data Schedule (Electronic Filing Only).
(27.2) Item 2 of Current Report on Form 8-K dated August 1,
1996.*
b. Reports on Form 8-K
On August 8, 1996, the Company filed with the Commission a Current
Report on Form 8-K dated August 1, 1996 containing information
relating to Item 2, Acquisition or Disposition of Assets, and Item 7,
Financial Statements and Exhibits. Such Report contained financial
statements, including the separate financial statements of
Eastbrokers.
* Incorporated by reference from Current Report on Form 8-K dated
August 1, 1996 (File No. 0-26202).
- 24 -
<PAGE>
SIGNATURES
In accordance with 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.
CZECH INDUSTRIES, INC.
(Registrant)
By /s/ Martin A. Sumichrast
------------------------------
Martin A. Sumichrast
Chief Financial Officer, Executive Vice-President, Director
Dated: November 14, 1996
- 25 -
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description PAGE
- ----------- ----------- ----
<S> <C> <C>
(3)(i) Certificate of Incorporation of Czech Industries, Inc., as amended. 27
(10) Material Contract between the Company and YSE a.s. 34
(27.1) Financial Data Schedule (Electronic Filing Only).
(27.2) Item 2 of Current Report on Form 8-K dated August 1, 1996.*
</TABLE>
* Incorporated by reference from Current Report on Form 8-K dated
August 1, 1996 (File No. 0-26202).
-26-
<PAGE>
EXHIBIT NO. (3)(i)
CERTIFICATE OF INCORPORATION
OF
THE CZECH FUND
I, the undersigned, in order to form a corporation for the purposes
hereinafter stated and under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, certify as follows:
FIRST: The name of the corporation is
THE CZECH FUND
SECOND: The registered office of the corporation is to be located at
1209 Orange Street, County of New Castle, Wilmington, DE 19801. The name of its
registered agent at that address is The Corporation Trust Company.
THIRD: The purposes of the corporation are:
To furnish, perform and conduct services, undertakings, projects and
assignments of all kinds related to or useful in connection with corporation,
commercial, business, real estate, medical, sports, entertainment, energy,
management, insurance, investments, mortgages, securities, mergers and
acquisitions.
To create, purchase, finance, invest in, lend to, own, control,
operate, manage, engage in conduct or otherwise acquire, take any other
interest in, deal with, and dispose of corporations, businesses, joint
ventures, undertakings and projects of very description in the United States
and any other country; and to furnish services and assistance of all kinds to
and on behalf of other corporations, persons and entities, including
managerial, planning, advisory, financial, investment, technical,
administrative, consulting, manufacturing, marketing, promotional,
distributive, research and reporting and reporting services on a state,
national, and international scale.
The corporation shall have the power to do any and all acts and things
necessary or useful to its business and purposes, and shall have the general,
specific and incidental powers and privileges granted to it by statute,
including, but not limited to:
To enter into and perform contracts; to acquire and exploit patents,
trademarks, rights of all kinds and related and other interests; to acquire,
use, deal in and with, encumber and dispose of real and personal property
without limitation, including obligations and securities; to borrow and lend
money for its corporate purposes; to invest and reinvest its funds, and to
take, hold and deal with real and personal property as security for the payment
of funds loaned or invested or otherwise; to vary any investment or employment
of capital of the corporation from time to time; to create or participate with
other corporations and entities for the performance of all undertakings as
partner, joint venturer, or otherwise, and to share or delegate control
therewith or thereto.
To pay pensions and establish and carry out pension, profit sharing,
stock option, stock purchase, stock bonus, retirement, benefit, incentive or
commission plans, trusts and provisions for any or all of the directors,
officers and employees of its subsidiaries; and to provide insurance for its
benefit on the life of any of its directors, officers or employees, or on the
life of any stockholder for the purpose of acquiring at his death shares of its
stock owned by such stockholder.
To invest in, merge or consolidate with any corporation in such manner
as may be permitted by law, to aid in any manner any corporation whose stocks,
bonds or other obligations are held or in any manner guaranteed by this
corporation or in which this corporation is in any way interested; to do any
other act or thing for the preservation, protection, improvement or enhancement
of the value of any such stock, bonds or other securities and while owner
thereof to exercise all the rights, powers and privileges of ownership and any
voting powers
27
<PAGE>
thereon; and to guarantee the indebtedness of others and the payment of
dividends upon the stock the principle and/or interests of any bonds or other
securities, and the performance of any contracts.
To do all and everything necessary, suitable and proper for the
accomplishment of any of the purposes, the attainment of any of the objects, or
the furtherance of any of the powers hereinbefore set forth either alone or in
association with other corporations, firms, partnerships or individuals; to do
every other act and thing incidental or appurtenant to, growing out of, or
connected with the aforesaid business or powers to the extent permitted by the
laws of Delaware under which this corporation is organized, and to do all such
acts and things, conduct business, have one or more offices, and exercise its
corporate powers in any and all places without limitation.
FOURTH: 1) The total number of shares of common stock which
this corporation is authorized to issue is twenty-five million (25,000,000)
shares, $.01 par value.
2) The corporation is hereby empowered to issue from time to time its
authorized shares and securities, options, warrants, and other rights
convertible thereinto for such lawful consideration, whether money or
otherwise, as the Board of Directors shall determine. Any shares issued for
which the consideration so fixed has been paid or delivered shall be fully paid
stock and the holder of such shares shall not be liable for any further call or
assessment or any other payment thereon, provided that the actual value of such
consideration is not less than the par value of the shares so issued.
3) The stockholders of the corporation do not have any preemptive or
preferential right to subscribe to or purchase unissued shares of any class of
stock of the corporation whether such shares are now or hereafter authorized,
or any Treasury shares to be sold by the corporation.
Transferability of the shares of the corporation is restricted in the
following manner:
The price to be paid for the shares which shall be set forth in the
written offers and notices prescribed above, shall be the fair market value
thereof, or, if there is no established market value, the book value thereof
("book value" being the appraised value of all corporate assets and liabilities
as of the date of the last balance sheet), or at a price not exceeding the
amount offered in writing by a bona fide offer to purchase said shares,
whichever shall be higher.
These terms shall be binding upon all stockholders of record, their
heirs, representatives, executors, administrators and assigns, and shall
include transfers by will, gift, intestacy and all third parties, or otherwise.
All offers and notices, if mailed, shall be deemed to have been
delivered on the day mailed postage prepaid, addressed to the shareholders of
the corporation, as above, according to the books of the corporation, and the
shares shall be transferable, other than to the corporation's shareholders in
the manner required herein, only upon proof of the compliance herewith.
FIFTH: The corporation is to have perpetual existence.
SIXTH : The private property of the stockholders shall not be subject
to the payment of corporate debts to any extent whatever, and they shall not be
personally liable for the payment of the corporation's debts except as they may
be liable by reason of their own conduct or acts.
SEVENTH: The following provisions are inserted for the management of
the business and the conduct of affairs of the corporation, and for further
definition, limitation and regulation of the powers of the corporation and of
its directors and stockholders.
1) The number of directors comprising the Board of Directors of the
corporation shall be such as from time to time shall not be fixed by or in the
manner provided in the By-Laws, but shall not be less than one. Election of
directors need not be by ballot unless the By-Laws so provide.
28
<PAGE>
2) The Board of Directors shall have the power, unless and to the
extent that the Board may from time to time by resolution relinquish or modify
the power, without the asset or vote of the shareholders:
a) To make, alter, amend, change, add to or repeal the
By-Laws of the corporation; to fix and vary the amount of
capital of the corporation to be reserved for any proper
purpose; to authorize and cause to be executed mortgages
and liens upon all or any part of the property of the
corporation; to determine the use and disposition of any
surplus or net profits, and to fix the times for the
declaration and payment of dividends
3) The Board of Directors in its discretion may submit any contract
or act for approval or ratification at any annual meeting of the stockholders
or at any meeting of the stockholders called for the purpose of considering any
act or contract. Any contract or act that shall be approved or ratified by the
vote of the holders of a majority of the stock represented in person or by
proxy at such meeting and entitled to vote (provided that a lawful quorum of
stockholders be there represented in person or by proxy) shall be as valid and
as binding upon the corporation and its stockholders as though it had been
approved or ratified by every stockholder of the corporation, whether or not
the contract or act would otherwise be open to legal attack because of a
director's interest or for any other reason.
4) No contract or transaction between this corporation and one or
more of its directors or officers or between this corporation and any other
corporation, partnership, association or other organization in which one or
more of its directors or officers are directors or officers or have a financial
interest shall be void or voidable solely for this reason or solely because the
director or officer is present at or participates in the meeting of the board
or committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if the contract or
transaction is fair as to the corporation or if the material facts relating
thereto are disclosed to or are known by the directors or shareholders, and are
approved thereby pursuant to Section 144 of Title 8 of the Delaware Code.
5) In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the Board of Directors is hereby
empowered to exercise all such powers and to do all such acts and things as may
be exercised or done by the corporation, subject to the provisions of the
statutes of Delaware, of this certificate, and to any By-Laws from time made by
the stockholders, and provided that no By-Laws so made shall invalidate any
prior act of the board which would have been valid if such By-Law had not been
made.
EIGHTH: The corporation shall, to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law as amended from time to
time, indemnify all persons whom it may indemnify pursuant thereto. To the
fullest extent permitted by the Delaware General Corporation Law as the same
exists or may hereafter be amended, a director of the corporation shall not be
liable to the corporation or its stockholders for monetary damages for the
breach of fiduciary duty as a director.
NINTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them, any court of equitable
jurisdiction within the State of Delaware may, in the application in a summary
way of this corporation of any receiver or receivers appointed for this
corporation under the provisions of Section 291 of Title 8 of the Delaware Code
or on the application of the trustees in dissolution or of any receiver or
receivers appointed for this corporation under the provisions of Section 279 of
Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors or of the stockholders or class of stockholders of this corporation,
as the case may be, to be summoned in such manner as the said courts directs.
If a majority in number representing three-fourths in value of the creditors or
class of creditors or of the stockholders or class of stockholders, as the case
may be, agree to any compromise or arrangement or to any reorganization of this
corporation as a consequence of such compromise or arrangement, said
compromise, arrangement, or reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors or on all the stockholders or class of stockholders, as the
case may be, and also on this corporation.
29
<PAGE>
TENTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
ELEVENTH: The name and address of the incorporator is:
Martin A. Sumichrast
1919 Pennsylvania Avenue, N.W.
Suite 600
Washington, D.C. 20006
TWELFTH: The name and address of each person who is to serve as a
director until the first annual meeting of stockholders or until his or their
successors are elected and qualified shall be as follows:
Martin A. Sumichrast
1919 Pennsylvania Avenue, N.W.
Suite 600
Washington, D.C. 20006
Executed this 20th day of January 1993.
30
<PAGE>
AMENDMENT #1 TO THE CERTIFICATE OF INCORPORATION OF THE CZECH FUND
Effective as of November 28, 1994:
The Certificate of Incorporation of the Corporation is hereby amended by
striking out Article "FIRST" thereof and by substituting in lieu of said
Article the following new Article:
"FIRST. The name of the Corporation is CZECH INDUSTRIES, INC."
The Certificate of Incorporation of the Corporation is hereby amended by
striking out Article "FOURTH" thereof and by substituting in lieu of said
article the following new Article
FOURTH: 1) The total number shares of common stock which this
corporation is authorized to issue is twenty-five million
(25,000,000) shares, $.01 par value.
Upon the effective time of the Certificate of Amendment to the
Corporation's Certificate of Incorporation whereby Article FOURTH is
amended to include the within paragraph, each 1.2094 issued and
outstanding shares of Common Stock of the Corporation shall thereby be
combined into one (1) share of validly issued, fully paid and
non-assessable share of Common Stock having a par value per share of
$.01. Each person at that time holding of record any issued and
outstanding shares of Common Stock shall receive upon surrender to the
Corporation's transfer agent a stock certificate or certificates to
evidence and represent the number of shares of post-reverse split
Common Stock to which such stockholder is entitled after giving effect
to the reverse split; provided, however, that the Corporation shall
not issue fractional shares of Common Stock in connection with this
reverse stock split, but, in lieu thereof shall round up any such
fractional share to the nearest whole share for any holder who would
otherwise be entitled to receive fractional shares, except for the
provisions hereof, upon surrender of certificates representing those
shares to the Corporation's transfer agent. The ownership of such
fractional interests shall not entitle the holder thereof to any
voting, dividend or other right, except the right to receive payment
therefor as described above.
2) The corporation is hereby empowered to issue from time to
time its authorized shares and securities, options, warrants, and
other rights convertible thereinto for such lawful consideration,
whether money or otherwise, as the Board of Directors shall determine.
Any shares issued for which the consideration so fixed has been paid
or delivered shall be fully paid stock and the holder of such shares
shall not be liable for any further call or assessment or any other
payment thereon, provided that the actual value of such consideration
is not less than the par value of the shares so issued.
3) The stockholders of the corporation do not have any
preemptive or preferential right to subscribe to or purchase unissued
shares of any class of stock of the corporation whether such shares
are now or hereafter authorized, or any Treasury shares to be sold by
the corporation.
31
<PAGE>
AMENDMENT #2 TO THE CERTIFICATE OF INCORPORATION OF CZECH INDUSTRIES, INC.
Effective as of March 2, 1995:
The Certificate of Incorporation of the Corporation is hereby amended by
striking out clause 1) of Article FOURTH thereof and by substituting in lieu of
said clause the following new clause:
"1) The total number of shares of common stock which this corporation
is authorized to issue is fifty million (50,000,000) shares, $.01 par
value."
The Certificate of Incorporation of the Corporation is hereby amended by
striking clause 1) of Article SEVENTH thereof and by substituting in lieu of
said clause the following new clause:
"1) (a) The number of directors constituting the entire Board shall be
as fixed from time to time by vote of a majority of the entire Board;
provided, however, that the number of directors shall not be reduced
so as to shorten the term of any director at the time in office.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in numbers as the then total number of directors
constituting the entire Board permits with the term of office of one
class expiring each year. At the initial election of directors in
accordance with this provision, directors of the second class shall be
elected to hold office for a term expiring at the second succeeding
annual meeting and directors of the third class shall be elected to
hold office for a term expiring at the third succeeding annual
meeting. Any vacancies in the Board of Directors for any reason, and
any directorships resulting from any increase in the number of
directors, may be filled by the Board of Directors, acting by a
majority of the directors then in office, although less than a quorum,
and any directors so chosen shall hold office until the next election
of the class for which such directors shall have been chosen and until
their successors shall be elected and qualified. At each annual
meeting of stockholders the successors to the class of directors whose
term shall then expire shall be elected to hold office for a term
expiring at the third succeeding annual meeting.
(c) Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding
that a lesser percentage may be specified by law, this Certificate of
Incorporation or otherwise), any director or the entire Board of
Directors may be removed at any time but only for cause and only by
the affirmative vote of sixty-six and two third percent (66 2/3%) or
more of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors."
The Certificate of Incorporation of the Corporation is hereby amended by
adding a new clause 6) to Article SEVENTH as follows:
"6) Meetings of the stockholders may be held at such place, either
within or without the State of Delaware as the By-Laws may provide.
Special meetings of stockholders for any purpose may be held at the
call only of the President, the Secretary or by resolution of the
directors. No action required or permitted to be taken at any annual
or special meeting of stockholders of the Corporation may be taken
without a meeting except upon the written consent of holders of 100%
of the shares of the capital stock of the Corporation entitled to vote
upon such action. In addition to any requirements of law and any other
provisions of the Certificate of Incorporation (and notwithstanding
that a lesser percentage may be specified by law, this Certificate of
Incorporation or otherwise), the affirmative vote of sixty-six and
two-third percent (66 2/3%) of the votes entitled to be cast by all
holders of outstanding capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a
single class, shall be required to amend, alter or repeal or adopt any
provision inconsistent with this paragraph."
32
<PAGE>
AMENDMENT #3 TO THE CERTIFICATE OF INCORPORATION OF CZECH INDUSTRIES, INC.
Effective September 10, 1996
The Certificate of Incorporation of Czech Industries, Inc. (the
"Corporation") is hereby amended by striking out the First Clause of Article
"FOURTH" thereof and by substituting in lieu of said Clause the following:
"1) The total number of shares of common stock which this
corporation is authorized to issue is 10,000,000 shares, par
value $.05 each.
As of the effective time of this amendment to the Certificate
of Incorporation of the corporation, each of five (5) issued
and outstanding shares of Common Stock of the corporation
shall be combined into one (1) share of validly issued, fully
paid and non assessable common stock of the corporation. No
scrip or fractional shares shall be issued by reason of this
amendment."
33
STOCK SALE/PURCHASE AGREEMENT
This Stock Sale/Purchase Agreement (hereinafter "Agreement") is dated October
1, 1996, by and between YSE a.s., Slezska 32, 122 00 Praha 2, Czech Republic
(hereinafter "YSE"), represented by Ing. Petr Kulhanek, General Manager, and
Czech Industries, Inc., 15245 Shady Grove Road, Suite 340, Rockville, MD
20850, U.S.A. (hereinafter "CI"), represented by Peter Schmid, President.
ARTICLE I
Subject of Agreement
1. CI agrees to sell, and YSE agrees to buy, 251,000 (two hundred fifty-one
thousand) shares of the stock of Hotel Fortuna, a.s. Praha, SIN
770940000274 (hereinafter "Hotel Fortuna") which represents the full
controlling interest of CI in Hotel Fortuna;
2. YSE agrees to sell, and CI agrees to buy, 100,000 (one hundred thousand)
ordinary shares of common stock of Ceske energeticke zavody, a.s.
utility company (hereinafter "CEZ"), ISIN CS0008441952;
3. YSE agrees to sell, and CI agrees to buy, 86,570 (eighty-six thousand
five hundred seventy) shares of common stock of the Vodni stavby Praha,
a.s. construction company (hereinafter "VS"), ISIN CS0005020957.
ARTICLE II
Prices and Settlement
1. CI and YSE agree that the total price for the controlling interest in
the Hotel Fortuna is 268,483,000 Kc (two hundred sixty-eight million
four hundred eighty-three thousand Czech korunas), which brings the
price to 1,069.60 Kc per one share;
2. YSE and CI agree that the trading price for the CEZ stock is 1,040 Kc
(one thousand forty Czech korunas) per share, bringing the total for the
VS package to 104,000,000 Kc (one hundred four million Czech Korunas);
3. YSE and CI agree that the trading price for the VS stock be set at 1,900
Kc (one thousand nine hundred Czech korunas) per share, the total for
the VS package being 164,483,000 Kc (one hundred sixty-four million four
hundred eighty-three thousand Czech korunas);
4. In the context of all the factors and circumstances of the
understanding, CI and YSE have agreed that the values of the packages
brought into the deal by the two companies are equal, and that the deal
can be fairly consummated without a need for additional financial, or
monetary, compensation.
ARTICLE III
Transfer of Shares
1. CI admits that the CEZ shares are subject of a pledge till October 31,
1996, and therefore YSE cannot transfer the CEZ shares immediately. YSE
agrees to transfer CEZ shares after their release directly to a CI
account in SCP, or to another account stated in writing by CI. The CEZ
shares transfer will be done by November 5, 1996 at the latest. YSE
herein announces its full ability to cover all financial obligations
toward the Bank for the release of CEZ shares by October 31, 1996;
- 34 -
<PAGE>
2. YSE agrees to transfer the VS shares to the account stated in writing by
CI on October 17, 1996 at the latest;
3. CI agrees to transfer Hotel Fortuna shares to SCP account No.
100031334769 as soon as the 100,000 CEZ shares mentioned in par. 1 above
have been transferred, it means on November 5, 1996;
4. CI understands that the transfer of VS and CEZ shares will be done for
the YSE by the company Stratego Invest, a.s., a member of the Prague
Stock Exchange.
ARTICLE IV
Miscellaneous
1. CI will make, through its Prague Eastbrokers a.s. subsidiary, its best
efforts to help YSE sell the stock of the following companies:
CSAD Cernosice CS0008203055
YSE Profit CZ0009075206
REAS CS0008450953
2. All the deals mentioned above will be confirmed by standard Czech
securities transfer documents ("Konfirmace obchodu");
3. This agreement is executed in two copies for both parties concerned.
Signed in Prague and Vienna, on October 1, 1996
For YSE: For CI:
Ing. Petr Kulhanek Peter Schmid
General Manager President
- 35 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,209,387
<SECURITIES> 7,654,808
<RECEIVABLES> 9,145,572
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,009,767
<PP&E> 21,082,475
<DEPRECIATION> 811,528
<TOTAL-ASSETS> 50,994,025
<CURRENT-LIABILITIES> 13,436,096
<BONDS> 5,632,434
0
0
<COMMON> 143,550
<OTHER-SE> 19,797,251
<TOTAL-LIABILITY-AND-EQUITY> 50,994,025
<SALES> 1,093,716
<TOTAL-REVENUES> 1,590,715
<CGS> 111,801
<TOTAL-COSTS> 1,628,747
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,960
<INCOME-PRETAX> (38,032)
<INCOME-TAX> 0
<INCOME-CONTINUING> (153,225)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (153,225)
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
