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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from...................to......................
COMMISSION FILE NO. 000-22129
EUROTECH, LTD.
--------------
(Exact name of registrant as specified in its charter)
District of Columbia 33-0662435
- -------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10306 Eaton Place
Suite 220
Fairfax, VA 22030
-----------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (703) 352-4399
(Former name, former address and former fiscal year, if
changed since last report)
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 registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
As of August 16, 2002, 72,387,915 shares of common stock, $0.00025 par value,
were outstanding.
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
INDEX TO FORM 10-Q
JUNE 30, 2002
Page Nos.
---------
PART I - FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 1
At June 30, 2002 (Unaudited) and December 31, 2001
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) 2
For the Six Months Ended June 30, 2002 and 2001
For the Period from Inception (May 26, 1995) to
June 30, 2002
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) 3
For the Three Months Ended June 30, 2002 and 2001
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) 4 - 6
For the Six Months Ended June 30, 2002
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 7 - 8
For the Six Months Ended June 30, 2002 and 2001
For the Period from Inception (May 26, 1995) to
June 30, 2002
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 9 - 24
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 25
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 43
PART II - OTHER INFORMATION 43
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
At June 30, At December 31,
2002 2001
------------- -------------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 168,736 $ 465,346
Accounts receivable 13,235 --
Prepaid expenses and other current assets 43,729 253,840
------------- -------------
TOTAL CURRENT ASSETS 225,700 719,186
MACHINERY AND EQUIPMENT - net of accumulated depreciation Of $120,787 and
$92,918 at June 30, 2002 and December
31, 2001, respectively 165,792 193,661
OTHER ASSETS:
Technology rights (EKOR) - net of accumulated amortization
of $4,157,972 and $3,353,203 at June 30, 2002 and
December 31, 2001, respectively 3,889,716 4,694,484
Technology rights (Acoustic Core) - net of accumulated
amortization of $482,527 and $232,527 at June 30, 2002
and December 31, 2001, respectively 2,017,473 2,267,473
Patent costs - net of accumulated amortization of $9,611
and $8,734 at June 30, 2002 and December 31, 2001,
respectively 20,190 21,067
Other assets 206,625 224,039
------------- -------------
TOTAL ASSETS $ 6,525,496 $ 8,119,910
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 759,633 $ 885,207
Current portion of convertible debentures -- 3,000,000
Current portion of notes payable - related parties 202,091 --
Advances on sale of preferred stock 200,000 --
------------- -------------
TOTAL CURRENT LIABILITIES 1,161,724 3,885,207
NOTES PAYABLE - RELATED PARTIES -- 202,091
------------- -------------
TOTAL LIABILITIES 1,161,724 4,087,298
------------- -------------
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
(Notes 4, 5, 6, and 7)
STOCKHOLDERS' EQUITY:
Series A non-voting 3% convertible preferred stock -
$.01 par value; 25,000 and -0- shares authorized at
June 30, 2002 and December 31, 2001, respectively;
20,000 and -0- shares issued and outstanding at
June 30, 2002 and December 31, 2001, respectively 200 --
Preferred stock - $0.01 par value; 4,975,000 and 5,000,000
shares authorized at June 30, 2002 and December 31, 2001,
respectively; -0- shares issued and outstanding -- --
Common stock - $0.00025 par value; 100,000,000 shares
authorized; 75,919,891 shares issued and 72,387,915 shares
outstanding at June 30, 2002; 59,673,377 shares issued
and 56,141,401 outstanding at December 31, 2001 18,982 14,919
Additional paid-in capital 68,482,243 61,998,255
Unearned compensation (221,302) (131,911)
Deficit accumulated during the development stage (54,438,630) (49,370,930)
Treasury stock, at cost; 3,531,976 - shares at June 30, 2002
and December 31, 2001 (8,477,721) (8,477,721)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 5,363,772 4,032,612
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,525,496 $ 8,119,910
============= =============
See accompanying notes to consolidated financial statements
1
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Six Months Ended For the Period
June 30, from Inception
------------------------------ (May 26, 1995) to
2002 2001 June 30, 2002
------------ ------------ -----------------
REVENUES $ 78,821 $ - $ 597,694
------------ ------------ -------------
COSTS AND EXPENSES:
Cost of goods sold 5,807 - 13,967
Research and development 370,564 430,698 8,866,575
Consulting fees 682,008 1,183,282 5,852,950
Compensatory element of stock issuances
pursuant to consulting and other
agreements 584,061 292,800 5,828,715
Debt conversion expenses 390,000 - 390,000
Other general and administrative expenses 2,004,988 1,669,045 14,018,411
Depreciation and amortization 1,083,514 831,602 4,772,453
------------ ------------ -------------
TOTAL COSTS AND EXPENSES 5,120,942 4,407,427 39,743,071
------------ ------------ -------------
OPERATING LOSS (5,042,121) (4,407,427) (39,145,377)
------------ ------------ -------------
OTHER EXPENSES/(INCOME):
Interest expense 29,926 141,638 2,195,078
Interest income (4,347) (65,359) (409,694)
Amortization of deferred and unearned
financing costs - - 13,276,591
Litigation settlement in shares of stock - - 456,278
Other income - - (225,000)
------------ ------------ -------------
TOTAL OTHER EXPENSES 25,579 76,279 15,293,253
------------ ------------ -------------
NET LOSS $(5,067,700) $(4,483,706) $(54,438,630)
============ ============ =============
BASIC AND DILUTED LOSS PER SHARE $ (.08) $ (.11)
============ ============
WEIGHTED AVERAGE COMMON SHARES USED IN BASIC
AND DILUTED LOSS PER SHARE 66,026,267 42,271,772
============ ============
See accompanying notes to consolidated financial statements.
2
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
June 30,
---------------------------------
2002 2001
------------- -------------
REVENUES $ 23,236 $ --
------------- -------------
COSTS AND EXPENSES:
Research and development 144,993 231,961
Consulting fees 299,068 591,576
Compensatory element of stock issuances pursuant to
consulting and other agreements 139,427 254,905
Other general and administrative expenses 904,573 791,112
Depreciation and amortization 541,746 416,036
------------- -------------
TOTAL COSTS AND EXPENSES 2,029,807 2,285,590
------------- -------------
OPERATING LOSS (2,006,571) (2,285,590)
------------- -------------
OTHER EXPENSES/(INCOME):
Interest expense 1,647 81,638
Interest income (1,671) (34,549)
------------- -------------
TOTAL OTHER EXPENSES/(INCOME) (24) 47,089
------------- -------------
NET LOSS $ (2,006,547) $ (2,332,679)
============= =============
BASIC AND DILUTED LOSS PER SHARE $ (.03) $ (.05)
============= =============
WEIGHTED AVERAGE NUMBER OF SHARES USED IN BASIC AND
DILUTED LOSS PER SHARE 68,124,239 49,236,657
============= =============
See accompanying notes to consolidated financial statements.
3
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2002
Series A Non-Voting
3% Convertible
Preferred Stock Common Stock
Date of ---------------------------- -----------------------------
Transaction Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------
For the Six Months Ended June 30, 2002:
- --------------------------------------
Balance - December 31, 2001 -- $ -- 59,673,377 $ 14,919
Issuance of stock on conversion of
convertible debentures including
interest ($.60 per share) 01/02 -- -- 6,000,369 1,500
Value assigned to warrants issued on
conversion of convertible debentures 01/02 -- -- -- --
Issuance of preferred stock
($100 per share) 02/02 10,000 100 -- --
Issuance of stock for price reset 02/02 -- -- 6,000,000 1,500
Value assigned to options issued to
consultants 02/02 -- -- -- --
Modification of warrants issued 02/02 -- -- -- --
Issuance of stock for consulting services
($.55 per share) 03/02 -- -- 3,000 1
Issuance of stock for consulting services
($.64 per share) 03/02 -- -- 3,905 1
Issuance of preferred stock
($100 per share) 03/02 5,000 50 -- --
Value assigned to options issued for
legal services 03/02 -- -- -- --
Offering cost - preferred stock 03/02 -- -- -- --
Issuance of preferred stock
($100 per share) 04/02 5,000 50 -- --
Issuance of stock for price reset 04/02 -- -- 4,350,000 1,088
Issuance of stock for consulting services
($.21 per share) 06/02 -- -- 3,000 1
Issuance of stock for consulting services
($.25 per share) 06/02 -- -- 6,240 2
Value assigned to options issued for
consulting services 06/02 -- -- -- --
Cancellation of warrants issued 06/02 -- -- -- --
Cancellation of shares accrued but not
issued ($.001 per share) 06/02 -- -- (120,000) (30)
Amortization of unearned compensation 06/02 -- -- -- --
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance - June 30, 2002 20,000 $ 200 75,919,891 $ 18,982
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
4
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2002
Treasury Stock Additional
------------------------------- Paid-in Unearned
Shares Amount Capital Compensation
------------- ------------- ------------- -------------
For the Six Months Ended June 30, 2002:
- --------------------------------------
Balance - December 31, 2001 (3,531,976) $ (8,477,721) $ 61,998,255 $ (131,911)
Issuance of stock on conversion of
convertible debentures including interest
($.60 per share) -- -- 3,572,919 --
Value assigned to warrants issued on
conversion of convertible debentures -- -- 390,000 --
Issuance of preferred stock ($100 per share) -- -- 999,900 --
Issuance of stock for price reset -- -- (1,500) --
Value assigned to options issued to
consultants -- -- 490,000 (490,000)
Modification of warrants issued -- -- 77,000 --
Issuance of stock for consulting services
($.55 per share) -- -- 1,649 --
Issuance of stock for consulting services
($.64 per share) -- -- 2,499 --
Issuance of preferred stock ($100 per share) -- -- 499,950 --
Value assigned to options issued for
legal services -- -- 47,250 --
Offering cost - preferred stock -- -- (149,620) --
Issuance of preferred stock
($100 per share) -- -- 499,950 --
Issuance of stock for price reset -- -- (1,088) --
Issuance of stock for consulting services
($.21 per share) -- -- 649 --
Issuance of stock for consulting services
($.25 per share) -- -- 1,595 --
Value assigned to options issued for
consulting services -- -- 66,270 (66,270)
Cancellation of warrants issued -- -- (13,345) 13,345
Cancellation of shares accrued but not
issued ($.001 per share) -- -- (90) --
Amortization of unearned compensation -- -- -- 453,534
Net loss -- -- -- --
------------- ------------- ------------- -------------
Balance - June 30, 2002 (3,531,976) $ (8,477,721) $ 68,482,243 $ (221,302)
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
5
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2002
Deficit
Accumulated
During the
Development
Stage Total
------------- -------------
For the Six Months Ended June 30, 2002:
- --------------------------------------
Balance - December 31, 2001 $(49,370,930) $ 4,032,612
Issuance of stock on conversion of
convertible debentures including interest
($.60 per share) -- 3,574,419
Value assigned to warrants issued on
conversion of convertible debentures -- 390,000
Issuance of preferred stock
($100 per share) -- 1,000,000
Issuance of stock for price reset -- --
Value assigned to options issued to
consultants -- --
Modification of warrants issued -- 77,000
Issuance of stock for consulting services
($.55 per share) -- 1,650
Issuance of stock for consulting services
($.64 per share) -- 2,500
Issuance of preferred stock ($100 per share) -- 500,000
Value assigned to options issued for
legal services -- 47,250
Offering cost - preferred stock -- (149,620)
Issuance of preferred stock
($100 per share) -- 500,000
Issuance of stock for price reset -- --
Issuance of stock for consulting services
($.21 per share) -- 650
Issuance of stock for consulting services
($.25 per share) -- 1,597
Value assigned to options issued for
consulting services -- --
Cancellation of warrants issued -- --
Cancellation of shares accrued but not issued
($.001 per share) -- (120)
Amortization of unearned compensation -- 453,534
Net loss (5,067,700) (5,067,700)
------------- -------------
Balance - June 30, 2002 $(54,438,630) $ 5,363,772
============= =============
See accompanying notes to consolidated financial statements.
6
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended For the Period
June 30, from Inception
------------------------------- (May 26, 1995) to
2002 2001 June 30, 2002
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (5,067,700) $ (4,483,706) $(54,438,630)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,083,514 831,602 4,772,453
Amortization of deferred and unearned
financing costs -- -- 13,276,591
Stock issued for license -- -- 37,500
Compensatory element of stock issuances 584,061 292,800 5,828,715
Modification of warrants issued -- -- 123,500
Debt conversion expenses 390,000 -- 390,000
Issuance of stock in settlement of
litigation -- -- 456,278
Changes in Assets (Increase) Decrease:
Accounts receivable (13,235) -- (13,235)
Prepaid expenses and other current
assets 210,111 (141,054) (43,729)
Other assets 17,414 (8,158) (206,625)
Changes in Liabilities Increase
(Decrease):
Advances from sale of preferred
stock 200,000 -- 200,000
Accrued liabilities 448,845 (535,701) 3,172,471
------------- ------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (2,146,990) (4,044,217) (26,444,711)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures -- (66,233) (286,578)
Patent costs -- -- (31,358)
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES -- (66,233) (317,936)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options -- -- 16,650
Net proceeds from issuance of common stock -- 4,090,000 26,776,970
Net proceeds from issuance of Series A
non-voting 3% convertible preferred stock 1,850,380 -- 1,850,380
Proceeds from exercise of warrants -- 55,000 819,500
Offering costs -- -- (2,898)
Repayment by stockholders -- -- 3,000
Proceeds from Convertible Debentures -- -- 7,000,000
Repayment of Convertible Debentures -- (500,000) (500,000)
Proceeds from notes payable -- -- 450,000
Repayment of notes payable -- -- (400,000)
Proceeds from bridge notes -- -- 2,000,000
Repayments of bridge notes -- -- (2,000,000)
Borrowings from stockholders -- -- 561,140
Repayment to stockholders -- -- (561,140)
Deferred financing costs -- -- (604,150)
Purchase of treasury stock -- -- (8,478,069)
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,850,380 3,645,000 26,931,383
------------- ------------- -------------
(DECREASE) INCREASE IN CASH (296,610) (465,450) 168,736
CASH AND CASH EQUIVALENTS - BEGINNING 465,346 2,932,762 --
------------- ------------- -------------
CASH AND CASH EQUIVALENTS - ENDING $ 168,736 $ 2,467,312 $ 168,736
============= ============= =============
See accompanying notes to consolidated financial statements.
7
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- ------------------------------------------------
For the Six Months Ended For the Period
June 30, from Inception
------------------------------ (May 26, 1995) to
2002 2001 June 30, 2002
------------- ------------- -------------
Cash paid during the period for:
Interest $ -- $ 43,889 $ 824,691
============= ============= ============
Income taxes $ -- $ -- $ --
============= ============= ============
SUPPLEMENTAL DISCLOSURE OF FINANCING INFORMATION:
- ------------------------------------------------
Consulting, legal, financing costs, commissions
and accrued expenses satisfied by issuance of
common stock and stock options $ 149,620 $ -- $ 2,705,353
============= ============= ============
Purchase of license $ -- $ -- $ 37,500
============= ============= ============
Acquisition of technology rights by issuance
of common stock $ -- $ -- $10,547,688
============= ============= ============
Conversion of convertible debentures, and
interest to common stock $ 3,574,419 $ -- $ 5,475,840
============= ============= ============
Notes payable and accrued interest satisfied
by issuance of common stock $ -- $ -- $ 66,489
============= ============= ============
See accompanying notes to consolidated financial statements.
8
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - DESCRIPTION OF COMPANY AND BASIS OF PRESENTATION
Eurotech, Ltd. and Subsidiaries (the "Company") was incorporated under the laws
of the District of Columbia on May 26, 1995. The Company is a development-stage
technology transfer, holding, marketing and management company, formed to
commercialize new or existing but previously unrecognized technologies, with a
particular current emphasis on technologies developed by prominent research
institutes and individual researchers in the United States, former Soviet Union
and in Israel, and to license those technologies for business and other
commercial applications principally in the United States, Western and Central
Europe, Ukraine, and Russia. Since the Company's formation, it has acquired
development and marketing rights to a number of technologies by purchase,
assignments, and licensing arrangements. Our portfolio of technologically
advanced products includes: (a) proprietary materials created to specifically
solve the serious problems of how nuclear and other hazardous wastes are cost
effectively contained, (b) advanced performance materials for use in industrial
products such as coatings and paints, (c) automatic detection of explosives and
illicit materials, and (d) cryptographic systems for secure communications, all
of which can be used in Homeland and Environmental Security. The Company intends
to commercialize its technologies using various financial and transactional
vehicles such as technology transfers, licensing, joint ventures, strategic
alliances, and distribution agreements. To date, the Company has not generated
any substantial revenues from operations.
The accompanying unaudited consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America, which contemplate continuation of the Company as a going concern.
However, for the six months ended June 30, 2002, the Company incurred a net loss
of $5,067,700 and had a working capital deficiency of $936,024. The Company has
limited finances and requires additional funding in order to market and license
its products. There is no assurance that the Company can reverse its operating
losses, or that it can raise additional capital to allow it to continue its
planned operations. The Company has entered into a private equity agreement with
an investor to sell up to $10 million of its common shares over a two year
period. Currently, the Company does not have an effective registration statement
filed with the SEC to enable it to utilize the Private Equity Agreement (see
Note 5). Furthermore, the Company's recent market price and daily volume numbers
have not consistently met the minimum Weighted Average Volume limitation in the
Private Equity Agreement to allow the Company to issue a put to the investor.
The Company has agreed to hold a special meeting of the shareholders of the
Company and recommends that the shareholders vote to approve an increase in the
authorized capital stock of the Company. If the shareholders do not approve a
proposal to increase the authorized capital stock of the Company, the Company
would be unable to sell its common shares to the private equity investor. These
factors raise substantial doubt about the Company's ability to continue as a
going concern.
9
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - DESCRIPTION OF COMPANY AND BASIS OF PRESENTATION (Continued)
These unaudited consolidated financial statements do not include any adjustments
relating to the recoverability of recorded asset amounts that might be necessary
as a result of the above uncertainty.
The Company financed its operations during the six months ended June 30, 2002
through the sale to Woodward LLC of 20,000 Series A 3% Convertible Preferred
shares for $2,000,000. Woodward LLC advanced $200,000 to the Company against the
next installment as of June 30, 2002.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q 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. 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 six-month period ended June 30, 2002
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2002.
The consolidated balance sheet at December 31, 2001 has been derived from the
audited consolidated financial statements at that date, but does not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 2001.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
10
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Consolidation Policy
- --------------------
The accompanying unaudited consolidated financial statements include the
accounts of the Company and a majority-owned subsidiary, Crypto.com, Inc.
("Crypto"). All significant intercompany balances and transactions have been
eliminated.
Equity Method of Accounting for Unconsolidated Foreign Affiliates
- -----------------------------------------------------------------
Investment in companies in which the Company has a 20% to 50% interest and has
the ability to exercise significant influence over operating and financial
policies are accounted for on the equity method. In addition, investments in
Israeli-based technology companies, in which the Company has a 52% to 57%
interest in, have been accounted for under the equity method because the Company
does not have sufficient control in order to consolidate such entities. However,
as of June 30, 2002, such investees do not have any revenue nor any significant
assets and liabilities.
At June 30, 2002, investments in companies accounted for under the equity method
consist of the following foreign companies, which are located in Israel:
Chemonol, Ltd. ("Chemonol") 57%
Rademate, Ltd. ("Rademate") 52%
Comsyntech, Ltd. ("Comsyntech") 52%
Remptech, Ltd. ("Remptech") 50%
Sorbtech, Ltd. ("Sorbtech") 52%
Amsil, Ltd. ("Amsil") 52%
Corpem, Ltd. ("Corpem") 20%
Research and Development
- ------------------------
Research and development expenditures are charged to expense as incurred, unless
they are reimbursed under specific contracts. The Company capitalizes costs
related to acquired technologies that have achieved technological feasibility
and have alternative uses. Acquired technologies, which are in-process at the
date of acquisition or have no alternative uses are expensed as research and
development costs. Losses incurred on the equity basis in the Company's interest
in seven Israeli research and development companies are included in research and
development expense. The Company recognizes its share of losses from Israeli
investees during the quarter that the funding payments are made.
11
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising
- -----------
Advertising costs are charged to operations when incurred. Advertising expense
was $-0-, $2,405, and $11,137, respectively, for the six months ended June 30,
2002, 2001, and for the period from inception (May 26, 1995) to June 30, 2002,
respectively.
Rent Expense
- ------------
Rent expense for all premises operating leases was approximately $127,424 and
$114,124 for the six months ended June 30, 2002 and 2001, respectively.
Reclassifications
- -----------------
Certain prior year balances have been reclassified to conform to the current
year presentation.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
145, "Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections". SFAS No. 145 requires that gains and losses
from extinguishment of debt be classified as extraordinary items only if they
meet the criteria in Accounting Principles Board Opinion No. 30 ("Opinion No.
30"). Applying the provisions of Opinion No. 30 will distinguish transactions
that are part of an entity's recurring operations from those that are unusual
and infrequent that meet the criteria for classification as an extraordinary
item. The Company is required to adopt SFAS No. 145 no later than the first
quarter of fiscal 2003, although early adoption is allowed. The Company has not
yet evaluated the impact from SFAS No. 145 on its financial position and results
of operations.
12
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impact of Recently Issued Accounting Standards (Continued)
- ----------------------------------------------
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullified Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including certain costs incurred in a restructuring." SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. These costs include lease, costs to
consolidate facilities or relocate employees, and certain termination benefits
provided to employees that are involuntarily terminated under the terms of a
one-time benefit arrangement. A fundamental conclusion reached by the FASB in
this statement is that an entity's commitment to a plan, by itself, does not
create a present obligation to others that meets the definition of a liability.
SFAS No. 146 also establishes that fair value is the objective for initial
measurement of the liability. The provisions of this statement are effective for
exit or disposal activities that are initiated after December 31, 2002, with
early application encouraged. The Company has not yet determined the impact of
SFAS No. 146 on its financial position and results of operations, if any.
NOTE 3 - 8% CONVERTIBLE DEBENTURES
On January 9, 2002, the Company converted $3,000,000 principal amount of
February 1998 Convertible Debentures, plus the amount of all accrued and unpaid
interest aggregating $574,419, due February 23, 2002, into 6,000,369 shares of
the Company's common stock in full satisfaction of the debentures. In connection
with the conversion, the Company issued a warrant to purchase 500,000 shares of
common stock at an exercise price of $1.00 per share. The warrants are
exercisable over five years. The warrants were valued at $390,000 based on the
Black-Scholes option pricing model and such amount was recorded as a debt
conversion expense during the three months ended March 31, 2002.
13
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
Accounts payable and other current liabilities consist of the following:
At June 30, 2002 At December 31, 2001
---------------- -------------------
Interest $ 3,460 $ 547,953
Professional fees 287,106 53,475
Consulting fees 241,624 138,420
Other 227,443 145,359
----------- -----------
$ 759,633 $ 885,207
=========== ===========
NOTE 5 - STOCKHOLDERS' EQUITY
Convertible Preferred Stock
- ---------------------------
On February 1, 2002, the Company amended its Articles of Incorporation to
designate 25,000 of its 5,000,000 authorized preferred stock as a "Series A 3%
Convertible Preferred Stock," par value $.01 per share, with a liquidation
preference of $100 per share. In February 2002, the Company entered into a
securities purchase agreement with Woodward LLC to purchase 25,000 Series A 3%
Convertible Preferred shares for $2,500,000. As of June 30, 2002, the Company
has received $2,000,000, less commissions and expenses, and the remaining
balance of $500,000 will be received by November 30, 2002. As of June 30, 2002,
the Company received an advance of $200,000 against the next and final
installment of $500,000.
The holder of the designated series shares is entitled to receive dividends at a
rate of three percent per annum of the liquidation preference of $100 per share,
which is fully cumulative. The dividends on the designated series shares accrue
from the date of issuance of each share and are payable semi-annually on June 30
and December 30 of each year, commencing on June 30, 2002. The dividends on the
designated series shares are payable only when, as and if declared by the Board
of Directors out of funds legally available.
At June 30, 2002, cumulative dividends in arrears on the Series A 3% Convertible
Preferred stock was $20,000.
14
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - STOCKHOLDERS' EQUITY (Continued)
Convertible Preferred Stock (Continued)
- ---------------------------
The holder of the designated series shares has no voting rights. As of September
1, 2002, each designated series share can be converted to fully paid and
non-assessable shares of common stock, at the option of the holder by dividing
$.50 into the liquidation preference. At the Company's option, all accrued or
declared, but unpaid dividends on the designated series shares have the option
to be paid in cash or in common stock. Under a repricing rights agreement dated
February 1, 2002, common shares issued upon conversion are subject to monthly
repricing on or after October 1, 2002, if the average bid price for any lowest
five business days during the repricing period is not equal or greater than
$3.618. For example, if on December 1, 2002 all of the 25,000 preferred shares
were converted into common shares and the put price per share of the Company's
common stock was $.15 per share, or $1.00, or $3.618, then under these
scenarios, the Company would be required to issue the following number of common
shares:
Put Price of Common Stock At
----------------------------------------
$0.15 $1.00 $3.618
------------ ------------ ------------
Initial shares upon conversion 5,000,000 5,000,000 5,000,000
Repricing shares upon conversion 119,068,000 13,090,000 --
------------ ------------ ------------
Total Shares 124,068,000 18,090,000 5,000,000
============ ============ ============
The Company is not obligated to issue any additional shares under this repricing
rights agreement until shareholder approval is received to increase the
authorized shares of common stock to 200,000,000.
Pursuant to a registration rights agreement dated February 1, 2002, the
purchaser of the Series A 3% convertible preferred stock was granted mandatory
registration rights. The Company filed a registration statement with the SEC on
May 24, 2002, which was subsequently withdrawn on June 27, 2002. If the
registration statement covering the registrable securities is not filed in
proper form with the SEC by the required filing date, and does not become
effective after August 20, 2002, the Company will be required to pay certain
penalties to the purchaser. The purchaser agreed to suspend this obligation
until the earlier of the date on which definitive agreements are executed with
respect to the restructuring of certain transactions or September 20, 2002.
15
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - STOCKHOLDERS' EQUITY (Continued)
Convertible Preferred Stock (Continued)
- ---------------------------
Under certain circumstances, the Company, at its option, may redeem the Series A
3% convertible preferred stock at $732.60 per share.
Common Stock Transactions
- -------------------------
On January 9, 2002, the Company issued 6,000,369 shares of its common stock from
the conversion of $3,000,000 principal amount of February 1998 convertible
debentures, plus the amount of all accrued and unpaid interest, totalling
$3,574,419.
During the six months ended June 30, 2002, the Company issued 16,145 shares of
its common stock as consideration for consulting services performed by various
consultants, totalling $6,397.
Amendment to Woodward LLC Agreements
- ------------------------------------
On February 1, 2002, the Company and Woodward LLC entered into an agreement to
extend and modify their existing agreement as further amended and modified
effective as of April 12, 2002 as follows:
The parties have agreed that all repricing periods applicable to the April 2000
Agreement have been satisfied subject to possible future adjustments of the
sixth repricing period in May 2002. There remain three repricing periods from
the March 2001 Agreement which expire in August 2002 as a result of which the
Company may be required to issue to Woodward LLC additional shares of common
stock in the proportion to which the outstanding shares trading during the
specified repricing period below the $3.76 target price. For example, the total
number of shares issuable on account of the three repricing periods would be as
follows: for the first 444,444 shares of common stock subject to repricing an
additional 8,351,000 shares of common stock would be issuable, the second
444,444 shares of common stock subject to repricing an additional 10,696,000
shares of common stock would be issuable and the final 444,445 shares of common
stock subject to repricing an additional 10,696,000 shares of common stock would
be issuable based on the average market price during the repricing period of
$.19, $.15 and $.15, respectively. (The first two repricing periods average
market price during the repricing period were based on actual prices during the
period and the final repricing period average market price is an estimate).
16
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - STOCKHOLDERS' EQUITY (Continued)
Amendment to Woodward LLC Agreements (Continued)
- ------------------------------------
o On February 1, 2002, the Company issued to Woodward LLC 6,000,000 shares of
its common stock in satisfaction of the fourth and fifth repricing period
from the April 2000 Agreement. On April 12, 2002, the Company committed to
issue an additional 6,100,000 shares of its common stock in satisfaction of
the sixth and final repricing period pursuant to the April 2000 Agreement,
of which 4,350,000 shares were issued in April of 2002. If the actual
shares to be issued is less or greater than the 6,100,000 shares the
Company will apply the difference to the next three pricing periods
pursuant to the March 2001 Agreement in three equal installments. It was
determined during May 2002 that the actual number of shares committed was
actually 1,419,991 shares more than should have been committed therefore
each repricing period under the March 2001 agreement will be reduced
473,331 shares.
o The exercise price of the two warrants that were previously issued to
Woodward LLC for 200,000 and 500,000 shares, respectively, was reduced to
$1.00 per share.
o The Company has agreed to authorize and reserve for issuance, free from
pre-emptive rights, 10,000,000 shares of common stock for purposes of
issuance of the shares for the above repricing agreement. Upon the
amendment of its articles of incorporation, the number of shares to be
reserved for this repricing agreement will increase to 20,000,000.
New Equity Agreement
- --------------------
In February of 2002, the Company entered into a Private Equity Agreement with an
investor under which the Company, at its option, could put shares to the
investor to sell up to $10 million of its common shares. The common shares to be
sold must be registered to commence the sales of common stock under this
agreement. Each sale is limited to the lesser of $1 million or two hundred
percent of the weighted average volume for the twenty trading days immediately
preceding the put date and each sale is subject to certain other restrictions.
The initial sale price of the common stock is based on 90% of the average of the
lowest three days closing prices of its common stock during the 10 trading days
immediately following the put date.
17
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - STOCKHOLDERS' EQUITY (Continued)
Warrants
- --------
In January 2002, in connection with the conversion of $3,000,000 principal of
February 1998 convertible debentures, plus the amount of all accrued and unpaid
interest, the Company issued warrants to purchase 500,000 shares of its common
stock at an exercise price of $1.00. The amounts vested immediately and expire
in five years from the grant date. The fair value of stock warrants estimated on
the date of grant using the Black-Scholes option pricing model was $.78, which
was charged to debt conversion expense during the three months ended March 31,
2002.
New Stock Option Plan
- ---------------------
The Company's 2002 Stock Option Plan was adopted by the Board of Directors of
the Company on April 30, 2002 subject to shareholders' approval. Under the
Option Plan, a total of 6,000,000 shares of the Company's common stock, subject
to certain adjustments, are reserved for issuance upon the exercise of options.
The Plan shall be administered by the Board or a Committee, or a combination
thereof, as determined by the Board. The Plan may be administered by different
administrative bodies with respect to different classes of Participants and, if
permitted by the Applicable Laws, the Board may authorize one or more officers
(who may (but need not) be Officers) to grant Options to Employees, Outside
Directors and Consultants.
Options Granted Outside the Plan
- --------------------------------
In February 2002, pursuant to employment agreements, two employees were issued
non-qualified stock options to purchase a total of 2,300,000 common shares at an
exercise price of $.50 per share. The options are exercisable over a ten-year
period.
In February 2002, pursuant to a consulting agreement, a consultant was issued
non-qualified stock options to purchase a total of 1,000,000 common shares at an
exercise price of $.50 per share. The options are exercisable over a ten-year
period. The fair value of stock options estimated on the date of grant using the
Black-Scholes option pricing model was $0.49, or $490,000, of which $272,973 was
charged to operations during the six months ended June 30, 2002.
In March 2002, in connection with legal services provided, the Company issued
the attorney firm options to purchase 225,000 shares of common stock at an
exercise price of $.44. The fair market value of the stock options estimated on
the date of grant using the Black-Scholes option pricing model was $0.21, or
$47,250, which was charged to operations during the six months ended June 30,
2002. The warrants are exercisable over a ten-year period.
18
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - STOCKHOLDERS' EQUITY (Continued)
Options Granted Outside the Plan (Continued)
- --------------------------------
In April 2002, pursuant to a consulting agreement, a consulting company was
issued non-qualified stock options to purchase a total of 249,000 common shares
at an exercise price equal to the average closing bid price of the Company's
shares on three trading days prior to the vesting date. The options are
exercisable over a ten-year period. The fair value of stock options estimated on
the date of grant using the Black-Scholes option pricing model was $57,270, of
which $35,192 was charged to operations during the six months ended June 30,
2002.
In May 2002, pursuant to a consulting agreement, a consultant was issued
non-qualified stock options to purchase a total of 45,000 common shares at an
exercise price of $0.31. The options are exercisable over a ten-year period. The
fair value of the stock options estimated on the date of grant using the
Black-Scholes option pricing model was $0.20, or $9,000, of which $7,218 was
charged to operations during the six months ended June 30, 2002.
Weighted
Weighted Outside the Average
Under the Plans Average Plans Exercise
Stock Options Exercise Price Stock Options Price
-------------- -------------- ------------- --------
Balance at December 31, 2001 1,062,500 $ 1.65 325,000 $ 2.85
Granted -- -- 3,819,000 .49
Exercised -- -- -- --
Cancelled -- -- -- --
---------- --------- ---------- ---------
Balance at June 30, 2002 1,062,500 $ 1.65 4,144,000 $ .67
========== ========= ========== =========
The exercise price for options outstanding as of June 30, 2002 ranged from $0.31
to $4.00.
In compliance with SFAS No. 123, the Company has elected to provide the pro
forma disclosure of net income (loss) and earnings per share as if the fair
value based method had been applied to the Company's financial statements due to
the Company's continuation of its use of APB Opinion No. 25. As such, the
Company's net loss and loss per share for the six months ended June 30, 2002,
adjusted to reflect pro forma amounts, are indicated below:
Three Months Ended
June 30, 2002
--------------
Net loss:
As reported $ (5,067,700)
Pro forma $ (6,194,700)
Basic and diluted loss per share:
As reported $ (0.08)
Pro forma $ (0.09)
19
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - STOCKHOLDERS' EQUITY (Continued)
Options Granted Outside the Plan (Continued)
- --------------------------------
The fair value of stock options granted in 2002 was estimated on the date of
grant using the Black-Scholes option pricing model. The weighted average fair
value and related assumptions were:
June 30, 2002
-------------
Weighted average fair value $0.49
Expected volatility 142.87%
Risk-free interest rate 5.00%
Expected life 10 years
Earnings Per Share
- ------------------
Securities that could potentially dilute basic earnings per share ("EPS") in the
future, and that were not included in the computation of diluted EPS because to
do so would have been anti-dilutive for the periods presented, consist of the
following:
Options to purchase common stock 5,206,500
Warrants to purchase common stock 3,291,333
Repricing rights provisions 30,073,473
25,000 shares of Series A non-voting, 3%
convertible preferred stock based on $.15 price
per share 124,068,000
------------
Total as of June 30, 2002 162,639,306
============
20
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
New Employment Agreement
- ------------------------
On February 28, 2002, the Company entered into an Employment Agreement with it
new Chairman Don Hahnfeldt. Under the terms of the agreement, the Company is to
pay to Mr. Hahnfeldt a salary equal to $15,000 per month, plus benefits. The
agreement is for a term of two years and provides for a severance payment in the
amount of $180,000 and immediate vesting of all stock options in the event his
employment is terminated without cause. Mr. Hahnfeldt was granted options to
acquire 1,000,000 shares of the Company's common stock, of which 500,000 shall
vest immediately and the remaining 500,000 shall vest equally over a 24 month
period beginning March 1, 2002 and are exercisable only in the event that the
Company increases the number of authorized shares of common stock to at least
130,000,000 shares. The options are exercisable at the fair market value at the
date of the grant of $0.50 per share. All stock options expire on February 28,
2012.
On February 28, 2002, the Company entered into an Employment Agreement with it
new President and Chief Executive Officer Todd J. Broms. Under the terms of the
agreement, the Company is to pay to Mr. Broms a salary equal to $210,000 per
year. The agreement is for a term of two years and provides for a severance
payment in the amount of $210,000 and immediate vesting of all stock options in
the event his employment is terminated without cause. Mr. Broms was granted
options to acquire 1,300,000 shares of the Company's common stock, of which
675,000 shall vest immediately and the remaining 625,000 shall vest equally over
a 24 month period beginning March 1, 2002 and are exercisable only in the event
that the Company increases the number of authorized shares of common stock to at
least 130,000,000 shares. The options are exercisable at the fair market value
at the date of the grant of $0.50 per share. The options expire on February 28,
2012.
21
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
New Employment Agreement (Continued)
- ------------------------
On February 28, 2002, the Company entered into a Consulting Agreement with Verdi
Consultants, Inc. Under the terms of the agreement, the Company is to pay to
Verdi Consultants, Inc. a consulting fee equal to $15,000 per month plus
benefits. The agreement is for a term of three years and provides for a
severance payment in the amount of $180,000 and immediate vesting of all stock
options in the event the consulting agreement is terminated without cause. Verdi
Consultants, Inc. was granted options to acquire 1,000,000 shares of the
Company's common stock, of which 125,000 shall vest immediately and the
remaining 875,000 shall vest equally over a 24 month period beginning March 1,
2002 and are exercisable only in the event that the Company increases the number
of authorized shares of common stock to at least 200,000,000 shares. The options
are exercisable at the fair market value at the date of the grant of $0.50 per
share. All stock options expire on February 28, 2012.
New Advisory Agreement
- ----------------------
On April 29, 2002, the Company entered into a six-month advisory agreement with
a consulting company, pursuant to which this entity will assist the Company in
evaluating possibilities for improving capital structure and strategic
alternatives. In addition, the entity, from time to time, may be requested to
assist the Chief Executive Officer of the Company with other activities. The
Company agreed to pay $5,000 per week for the duration of the agreement. The
Company has also agreed to issue the entity non-qualified 10-year stock option
grant to purchase 249,000 shares of the common stock of the Company at the rate
of 41,500 shares for each full calendar month the entity is retained by the
Company. The exercise price is equal to the average closing bid price of the
Company's shares on three trading days prior to its vesting date.
22
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Risk of Environmental Liability; Present Lack of Environmental
- --------------------------------------------------------------
Liability Self Insurance
- ------------------------
The Company's radioactive contaminant technology is subject to numerous national
and local laws and regulations relating to the storage, handling, emission,
transportation and discharge of such materials, and the use of specialized
technical equipment in the processing of such materials. There is always the
risk that such materials might be mishandled, or that there might be equipment
or technology failures, which could result in significant claims for personal
injury, property damage, and clean-up or remediation. Any such claims against
the Company could have a material adverse effect on the Company. The Company
does not presently carry any environmental liability insurance, and may be
required to obtain such insurance in the future in amounts that are not
presently predictable. There can be no assurance that such insurance will
provide coverage against all claims, and claims may be made against the Company
(even if covered by insurance policies) for amounts substantially in excess of
applicable policy limits. Any such event could have a material adverse effect on
the Company.
Concentration of Credit Risk
- ----------------------------
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist principally of cash, which is at one bank. Future
concentration of credit risk may arise from trade accounts receivable. Ongoing
credit evaluations of customers' financial condition will be performed and,
generally, no collateral will be required.
Business Risks
- --------------
The Company requires additional funds to commercialize its technologies and
continue research and development efforts. Until the commencement of sales, the
Company will have no operating revenues, but will continue to incur substantial
expenses and operating losses. No assurances can be given that the Company can
complete development of any technology not yet completely developed or that,
with respect to any technology that is fully developed, products incorporating
the technology can be manufactured on a large scale basis or at a feasible cost.
Further, no assurance can be given that any technology will receive market
acceptance. Being a development-stage entity, the Company is subject to all the
risks inherent in the establishment of a new enterprise and the marketing and
manufacturing of a new product, many of which risks are beyond the control of
the Company.
23
EUROTECH, LTD. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 - SUBSEQUENT ISSUES
On July 3, 2002, Eurotech, Ltd. (the "Company") and Woodward LLC ("Woodward")
signed a non-binding term sheet (the "Term Sheet") revising certain significant
terms of Woodward's current investment in the Company and providing for possible
future funding for Company operations. The Company believes that the proposed
transactions, including termination of Woodward's repricing rights, will allow
it to better pursue long range opportunities. These contemplated transactions
are subject to the execution of definitive documentation.
The Term Sheet provides for the termination of the outstanding repricing rights
associated with that certain Common Stock Purchase Agreement dated as of March
30, 2001 (the "March 2001 Agreement") and that certain Series A Preferred Stock
Securities Purchase Agreement dated as of February 1, 2002 (the "February 2002
Agreement"). Pursuant to the Term Sheet, Woodward will be entitled to receive
14,000,000 shares of common stock with registration rights in satisfaction of
cancelling all outstanding repricing rights associated with the March 2001
Agreement. Woodward will be issued $17,000,000 stated value worth of newly
issued Series B 5% Convertible Preferred Stock ("Series B Preferred Stock") in
satisfaction of cancelling all outstanding repricing rights associated with the
Series A Preferred Stock pursuant to the February 2002 Agreement. The redemption
price will be reset to $100 plus accrued dividends. In addition, Woodward may
purchase an additional $1,300,000 worth of Series B Preferred Stock on a "best
efforts" basis. There is no assurance that the financing will, in fact, occur.
24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following is a discussion of our financial condition, results of our
operations and liquidity. This discussion should be read in conjunction with our
financial statements and notes included in this report, as well as those
included in our Annual Report on Form 10-K for the year ended December 31, 2001.
Certain information in this report, including the following discussion, may
include forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. The Company intends the
disclosures in these sections and throughout the Quarterly Report on Form 10-Q
to be covered by the safe harbor provisions for forward-looking statements. All
statements regarding the Company's expected financial position and operating
results, its business strategy, its financing plans, and the outcome of any
contingencies are forward-looking statements. These statements can sometimes be
identified by the Company's use of forward-looking words such as "may,"
"believe," "plan," "will," "anticipate," "estimate," "expect," "intend" and
other phrases of similar meaning. Known and unknown risks, uncertainties, and
other factors could cause the actual results to differ materially from those
contemplated by the statements. The forward-looking information is based on
various factors and was derived using numerous assumptions.
IMPORTANT FACTORS THAT MIGHT AFFECT OUR BUSINESS, OUR RESULTS OF OPERATIONS AND
OUR STOCK PRICE
Although the Company believes that its expectations expressed in these
forward-looking statements are reasonable, the Company cannot promise that its
expectations will turn out to be correct. The Company's actual results could be
materially different from its expectations due to a variety of factors,
including the following:
o We have incurred substantial operating losses and risk never making any
money.
o We may not, in fact, be able to sell significant quantities or profitably
commercialize any of our technologies. Expressions of interest from
potential customers and ongoing negotiations may not result in actual
agreements or generation of revenues in the time frame we envision, if at
all.
o We may run out of money before we begin to generate cash flow from
operations and we may not be able to obtain needed financing. We have a
current financing agreement with Woodward LLC ("Woodward") pursuant to
which, as of August 16, 2002, $80,000 remains outstanding and a Private
Equity Agreement with Jenks & Kirkland, Ltd. ("J&K") for financing of up to
$10,000,000 over two years, subject to a number of conditions as described
in the section titled "Private Equity Agreement with J&K." Currently, we do
not have an effective registration statement filed with the SEC to enable
us to utilize the Private Equity Agreement. Furthermore, our recent market
price and volume numbers are such that we have not consistently met the
minimum Weighted Average Volume limitation in the Private Equity Agreement
to allow us to issue a Put to J&K. If we do not meet the conditions to
close the remaining $80,000 commitment with Woodward or the Private Equity
Agreement with J&K or are restricted in the amount of financing we can
require J&K to purchase pursuant to the Private Equity Agreement, we will
have difficulty meeting our current monthly operating expenses and may be
forced to go out of business, leaving little or no value for our
shareholders.
o The Company recently signed a non binding term sheet with Woodward to
restructure certain existing financing agreements and provide for a "best
efforts" potential source of funding for the Company for up to $1,300,000
going forward as described in our current report on Form 8-K dated July 3,
2002 (as filed with the SEC on July 8, 2002) (the "Term Sheet"). The Term
Sheet contemplates the negotiation and signing of various definitive
agreements (the "Restructuring Agreements") to, among other things, satisfy
and eliminate the repricing rights associated with the Common Stock
Purchase Agreement between the Company and Woodward dated March 31, 2001
(the "March 2001 Securities Purchase Agreement") by the issuance of
14,000,000 shares of common stock of the Company;
25
satisfaction and elimination of the repricing rights of the common stock,
upon conversion of the Series A 3% Convertible Preferred Stock (the "Series
A Preferred Stock") associated with the Securities Purchase Agreement
between the Company and Woodward dated as of February 1, 2002 (the February
2002 Securities Purchase Agreement") by the issuance of $17,000,000 stated
value of a new class of preferred stock (the "Series B Preferred Stock");
and provide a potential "best efforts" financing where Woodward may
purchase up to $1,300,000 stated value of additional Series B Preferred
Stock. There is a risk that the Restructuring Agreements contemplated by
the Term Sheet will not be completed and that we will still be obligated to
issue substantial amounts of additional shares of common stock to Woodward
pursuant to prior agreements and that we will not receive any additional
financing from Woodward. The Term Sheet and the Restructuring Agreements
are further described in the section titled "Proposed Woodward
Restructuring."
o There is a risk that the Company may not be able to obtain future financing
due to certain rights given to J&K and Woodward, which other investors may
find to be prohibitive. Furthermore, we have committed to issue
substantially all of our currently authorized, but unissued, common stock
to Woodward and J&K and will not be able to obtain future financing without
an increase in our authorized capital, which we plan to propose at a
special meeting of the shareholders sometime in the future.
o Shareholders face substantial dilution of their equity ownership percentage
if our Series A Preferred Stock is converted, if more of our outstanding
options and warrants are exercised, or if more of the shares, that we have
issued during 2001, are repriced or if we have to issue additional shares
to raise capital. The extent of potential dilution depends significantly on
the market price of our outstanding shares and may cause significant
dilution in the value of your investment.
o We face unknown environmental liability risks and we don't carry
environmental liability insurance. Furthermore, environmental regulation in
various countries may prevent the cost-effective application of some or all
of our technologies.
o Department of Commerce controls or other governmental control of our
encryption technology may negatively impact our ability to sell or transfer
our technology.
o We may be subject to significant competition and the existence or
development of preferred technologies, which may keep us from selling our
products and technologies at a profit or at all.
o Certain of our Israel-based technologies are based and primarily dependent
on the efforts of Dr. Figovsky. If Dr. Figovsky were to cease his
association with our affiliated Israeli companies or if Dr. Figovsky were
to die or become incapacitated, this might have an adverse affect on the
research and development and commercialization of certain of our
technologies.
o Our proprietary technology and patents may not give us adequate protection,
therefore others may be able to develop similar technologies or may not
allow us to apply our technologies, either at all or without paying license
fees. Our current financial situation is such that we may have difficulty
paying certain licensing fees for some of our technology, in which case we
may lose the licensing rights to certain of our technologies, including
EKOR(TM).
o Our common stock may cease to be listed on the American Stock Exchange (the
"Amex"), in which case the market liquidity of our common stock would
likely be negatively effected which may make it more difficult for holders
of our common stock to sell their securities in the open market.
Furthermore, if we were delisted from the Amex, then public perception of
the value of our common stock could be materially adversely affected and
any additional financing may become difficult to obtain. In recent
discussions with the Amex, the Amex has expressed concern about several of
our financings with Woodward. The primary concern is the fact that
securities sold to Woodward constitute future priced securities due to the
repricing provisions or a floating conversion rate. The satisfaction and
elimination of all repricing rights pursuant to the Restructuring
Agreements may alleviate some of this concern, but there is still a
potential future priced securities issue with the floating conversion rate
pursuant to the Optional Conversion rights of the Series B Preferred Stock,
which may be issued to Woodward pursuant to the Restructuring Agreements,
if completed. The Amex has also expressed concern about the Company's
compliance with the additional listing application requirements of the
Amex. The Company is working with the Amex in an attempt to
26
alleviate these concerns. However, there is a risk that we may not be able
to satisfy all of the Amex concerns and that, as a result, the Amex may
delist the common stock of the Company. The Company has received no
notification from the Amex that the Company's common stock will be
delisted. Were such an event to occur, the Company would still be a public
company and would be eligible to be listed on the OTC Bulletin Board.
Forward-looking statements included in this Report speak only as of the date of
this Report and we do not undertake any obligation to publicly release any
revisions to any forward-looking statements to reflect events or circumstances
after the date of this Report or to reflect the occurrence of unanticipated
events.
OVERVIEW
Eurotech, Ltd. is a development stage company and corporate asset manager
seeking to acquire, integrate, and optimize a diversified portfolio of
manufacturing and service companies in various markets. Our mission is to build
value in our emerging technologies and in the companies we acquire and own,
providing each with the resources it needs to realize its strategic business
potential. In addition, we manage comprehensive engineering and scientific
development programs designed to identify products and processes that have
unique or superior characteristics with reduced manufacturing and/or use risks.
Our emerging technology business segment develops and markets chemical and
electronic technologies designed for use in Homeland and Environmental Security.
Our portfolio of technologically advanced products includes: (a) proprietary
materials created to specifically solve the serious problems of how nuclear and
other hazardous wastes are cost effectively contained, (b) advanced performance
materials for use in industrial products such as coatings and paints, (c)
automatic detection of explosives and illicit materials, and (d) cryptographic
systems for secure communications, all of which can be used in Homeland and
Environmental Security. We seek to commercialize our technologies using various
financial and transactional vehicles including: technology transfer, licensing,
joint venture, and distribution agreements.
We are not a subsidiary of another corporation, entity, or other person. We hold
a greater than 50% equity interest in several Israeli research and development
companies which may be deemed to be subsidiaries. In addition, we also own a
majority interest in a Delaware corporation, which holds certain encryption
technology assets currently under development, which may also be deemed to be a
subsidiary.
The Company was incorporated under the laws of the District of Columbia on May
26, 1995. Our executive office is located at 10306 Eaton Place, Suite 220,
Fairfax, Virginia 22030. Our website address is: www.eurotechltd.com.
OPERATIONS
The Company's technologies are group into three operational divisions. Those
divisions are as follows:
(i) Nuclear & Environmental Technology Solutions;
(ii) Advanced Performance Materials, and;
(iii) Security & Safeguards.
NUCLEAR AND ENVIRONMENTAL TECHNOLOGY SOLUTIONS (NETS)
NETS has three unique technologies that are actively marketed consisting of a
family of silicon-based geopolymers known as EKOR(TM), a fire-resistant surface
fixative known as Rad-X(TM), and a set of remote sensing technologies for
subsurface investigation. Each technology was introduced to the market in 2001.
All three technologies are aimed at initial opportunities for sale or licensing
within the U.S. Department of Energy ("DOE"). In 2001, this division earned 100%
of the Company's revenues of $18,873.
27
ADVANCED PERFORMANCE MATERIALS (APM)
In 2001, the Company formed the Advanced Performance Materials Division. The
Company's objective was and remains to organize its non-nuclear and non-security
related technologies into a business unit that would provide focus to their
commercialization effort, coordinate on-going R&D related to those technologies,
allow prioritization of marketing efforts in-line with available corporate
resources and provide a managerial structure and point of contact for potential
licensees. Dr. Oleg Figovsky, a renowned Israeli scientist and paid consultant
to the Company, has sold or licensed many of the technologies in our APM
division to the Company through various technology transfer agreements.
The Company initially placed those technologies acquired directly from Dr.
Figovsky in the APM division. In addition, the equity interest owned by the
Company in our seven single technology Israeli startup companies have also been
grouped into the APM division. A majority of these companies have proceeded
through their "incubator stage" and the subject technology is awaiting
commercialization as Eurotech either owns or controls the intellectual property
rights of these entities. However, due to limited working capital, management
decided to temporarily curtail the funding of the operations and further
development of the technologies and related operations for five of the
Israeli-based technology companies.
SECURITY AND SAFEGUARDS (S&S)
The recent events of September 11th have resulted in efforts to create a
governmental agency to monitor Homeland Security. The products of this division
are generally those types of products and technologies, which management
believes, can provide or be a part of cost efficient and reliable solutions to
these Homeland Security needs.
Two products currently under development are: Acoustic Core(TM) and
Electromagnetic Radiography(TM) technologies for "in-situ" detection of various
materials including certain explosives, non-exposed contaminants including
nuclear and other hazardous wastes and sub-terrainian materials, and Crypto.com,
a "cyber-space" security technology which management believes provides a level
of security that exceeds all other computer encryption technologies currently
available to government entities. The organization of these three operational
units recognizes the diverse markets and objectives of our technologies and
allows budgeting and strategic planning to be tightly focused. The following
discussion of our technologies is grouped by division.
NUCLEAR & ENVIRONMENTAL TECHNOLOGY SOLUTIONS (NETS)
EKOR (TM). The NETS Division markets EKOR (TM) primarily in the United States
and to select international customers. Our domestic market will continue to be
dominated by the DOE, but significant potential opportunities will also be
pursued in remediating hazardous waste for private industry. The Company's
commercialization efforts are targeted to key DOE geographic areas including:
The Hanford Reservation (eastern Washington state), Idaho National Environmental
& Engineering Laboratory (INEEL), Rocky Flats Environmental Testing Site
(RFETS), Savannah River Site, Oak Ridge National Laboratory, Ohio Field Office
(Fernald, Mound, Battelle, and Columbus), West Valley (New York), and
Paducah/Portsmouth. Our objective is to show how EKOR's(TM) abilities as a
durable long-term barrier (micro or macroencapsulation) provide DOE with the
tools to accelerate their waste remediation schedules while reducing cost and
containment risk. In addition, there are presently a number of international
opportunities for use of the Company's EKOR (TM) technology. We consistently
monitor international waste remediation programs carefully to assess when to
initiate marketing efforts.
During the first quarter 2002, two significant demonstration contracts were
signed: (1) Amersham Health, a subsidiary of Amersham plc, placed an order for
EKOR (TM) plates that contained varying amounts of neutron-absorbing material.
These plates were to be used in tests at one of Amersham's facilities to
28
evaluate their value at reducing radioactive waste generated in the production
of medical isotopes. The plates were delivered in April and the tests are
scheduled for completion in the fall 2002.
We charged $22,151 for these materials. (2) Battelle Memorial Institute (BMI)
bought over one hundred gallons of EKOR (TM) to be used to stabilize buried
reactor piping that contains internal radioactive contamination for $42,672.
Solidifying of EKOR (TM) within the pipe allows the pipes to be recovered,
handled, and disposed of without risk of spreading the attendant contamination.
This EKOR (TM) was delivered in March 2002 and was applied in late April 2002.
The material solidified within the pipes as planned and BMI has given indication
of future orders for similar applications
A significant potential market for EKOR (TM) is the microencapsulation of highly
toxic wastes being stored by DOE. In the budget request submitted to Congress by
DOE in late January, DOE noted several wastes that posed significant budgetary
and health risks, with schedules for resolution that had inordinately long
timelines. We have met with DOE and several of its prime contractors. In
cooperation with one of those prime contractors and a national laboratory
responsible for nuclear waste form research, Eurotech submitted an unsolicited
proposal to DOE in May that offered to demonstrate EKOR's (TM) value in
decreasing their costs, risks and schedule. DOE's response was to request that
we take our initiative to their relevant field office at Hanford, where
solicitations for proposals are expected to be issued in late 2002. We are
seeking to participate on several teams, which may bid on these solicitations.
Two new opportunities that arose in the second quarter 2002 were the German
Federal facility stabilization initiative and the UK breeder reactor
Decontamination and Decommissioning (D&D). In the German opportunity, EKOR (TM)
is being evaluated for coating effectiveness and the tests should be completed
in third quarter 2002. In the UK program, EKOR (TM) will be tested in third
quarter for efficiency in microencapsultion.
EKOR (TM) products that are mature and are being marketed include Sealer Plus,
Matrix, and Grout. Sealer Plus is a one-part, "turnkey" product, designed for
application by airless sprayer to stabilize certain loose hazards/radioactive
waste on contaminated surfaces. Matrix is a three-part solution tailored for use
in microencapsulating fine particles, small pieces or even slurries. Matrix
cures into a monolith that has extreme resistance to leaching or degradation.
Grout is a three-part solution designed to macroencapsulate-contaminated
surfaces or to form plates or shapes for special applications.
RAD-X (TM) - Rad-X (TM) was introduced in late 2001 as a temporary fixative to
be used to stabilize hazardous waste by decommissioning contractors. Its
advantages are fire resistance and adhesion. DOE has indicated a reduction in
decommissioning activities, but several sites have expressed interest in Rad-X
(TM).
SUBSURFACE REMOTE SENSING TECHNOLOGIES - On September 25, 2001, Eurotech
acquired the worldwide rights to patented remote sensing technologies,
Electromagnetic Radiography (TM) (also known as "EMR(TM)") and Acoustic Core
(TM), from Trylon Metrics, Inc., for 2,500,000 shares of our common stock. EMR
(TM) and Acoustic Core (TM) technologies provide 3D images of subsurface
contaminants with a high degree of discrimination and precision. In addition, we
believe these technologies offer large area coverage at high resolution and are
significantly more cost effective than monitoring methods currently used for
environmental assessments. We believe that this acquisition will both enhance
our ability to market EKOR (TM) products and position Eurotech as a prime
technology source/solution for various environmental markets. EMR (TM) and
Acoustic Core (TM) have been proposed for use to the DOE for work to be
conducted at Hanford and INEEL. We have filed three U.S. patent applications,
which address the use of the technology in marine geophysical exploration for
oil and natural gas. Two large dredging and marine environmental projects based
in the U.S. have been forwarded technical and pricing proposals for use of the
technology in identifying marine sediment contaminants. The U.S. Government
General Accounting Office has identified one of these technologies for near-term
future use in continuing government research for detection and classification of
land mines.
29
We are marketing to U.S. agencies (DOE, DOD and EPA) and companies either
performing work for these agencies or responsible for cleanup activities being
required by these agencies. We seek to enter into licensing, contracted, or
joint venture arrangements to facilitate the implementation of these
technologies.
ADVANCED PERFORMANCE MATERIALS (APM)
HNIPU (Hybrid Non-Isocyanate Polyurethane) - In 1998, we purchased the HNIPU
technology from Dr. Figovsky. We intend to incorporate HNIPU into commercial
coatings, paints, adhesives, and foams as a replacement for conventional
polyurethane binders. Research, development, and sample production activities
have been performed by Chemonol, Ltd. an Israeli start-up company in which
Eurotech holds majority ownership and to which Eurotech has funded these
directed activities.
We are conducting various discussions with multiple domestic and international
parties relating to licensing, selling, and /or joint venturing for developing
and commercializing certain HNIPU technologies and variants therefrom. The
technologies can be used, potentially, for non-toxic and quick-drying industrial
paints and coatings and non-toxic foam products such as, but not limited to,
certain components contained in automotive interiors.
During second quarter 2002, we successfully demonstrated an acrylic version of
HNIPU and produced a number of coated test panels. These panels have been
subjected, to date, in excess of 1,000 hours accelerated weather and UV(B)
exposure with no evidence of physical change. Accelerated weather and UV testing
remains ongoing and we have engaged a respected industry test facility to
independently test acrylic HNIPU samples. We are confident their results will
confirm our testing to date. As a result of these results, we are redoubling our
effort to secure US binder production and have entered into discussion with two
prominent industry resin and binder producers. We are also incorporating our
latest test results into our dialog with leading paint and coating producers.
In addition, during second quarter 2002, we secured HNIPU evaluation agreements
with several industry leaders in the areas of paint and coatings, personal care
products and aerospace applications.
Quarternary Ammonium Silicate (QAS). During the first quarter 2002, we received
a small order, from an organization in China, for 15 gallons of QAS for their
evaluation. The material was produced and delivered on April 28, 2002. Their
evaluation is underway and we remain in contact.
During second quarter 2002, we received an additional inquiry regarding QAS from
an additional China based company as well as inquiries from several US based
firms all proposing novel applications. We are in differing levels of discussion
with these firms and are securing samples for their evaluation.
Rapidly Biodegradable Hydrophobic Material (RBHM). During the first quarter
2002, we received a credible inquiry from a U.S. environmental firm regarding
RBHM and a proposed novel application. We have provided additional technical
detail in response to their inquiry and remain in active dialog. During Second
quarter 2002, we received a credible inquiry from a major US based international
paper product producer. We have secured an agreement for their evaluation of
samples and are arranging for evaluation samples.
OTHER ISRAELI TECHNOLOGIES - We refer you to the description of our business in
Part I, Item 1 of our Annual Report on Form 10-K for the fiscal year ending
December 31, 2001 for a description of each of these technologies other than
those discussed above; they are identified in such report as:
o FIRESIL (TM) (Intumescent Fire-Stop Coating)
30
o SPCE (Sulfochlorinated Polyethylene Coatings)
o Continuous Combustion Synthesis and Continuous Action Reactor
o Cobalt and nickel powders
o Polydiene Urethane Adhesives (Poly-D Adhesives) - Electronic
Glues
o Kauton
o Hypocorr
o Anticorrosive Additives for Polymers (AAdd)
o Liquid Ebonite Mixtures (LEM)
o Rubber Concrete (RubCon)
We had no activity with respect to these technologies during the second quarter
2002.
RISKS RELATING TO OUR INTERESTS IN ISRAEL
Even though a majority of our current developmental efforts are not focused on
our Israel-based subsidiaries, due to the current political and military
developments, we believe that certain risks relating to our limited operations
in Israel should be addressed. Some of the risks that might negatively impact
our Israeli interests include:
o Any future armed conflicts or political instability in the region would
likely negatively affect local business conditions and harm our R&D and
commercialization efforts;
o Our R&D and commercialization efforts may be negatively affected by the
obligation of our personnel or consultants to perform military service,
where reservists may be called to duty in emergency situations;
o There might be changes to the policies underlying the grants our affiliated
Israeli companies have received from the Law for the Encouragement of
Capital Investments, 1959 Government of Israel through the Office of the
Chief Scientist of the Ministry of Industry and Trade, or Chief Scientist;
and
o Certain of our Israel-based technologies are based and primarily dependent
on the efforts of Dr. Figovsky. If Dr. Figovsky were to cease his
association with our affiliated Israeli companies or if Dr. Figovsky were
to die or become incapacitated, this might have an adverse effect on the
R&D and commercialization efforts of certain of our technologies.
SECURITY & SAFEGUARDS DIVISION (S&S)
During the second quarter 2002, we continued to accelerate the development of
our illicit and hazardous materials detection technology, particularly its
plastic explosives detection capability. The fabrication of our Automated Portal
Threat Inspection System, or APTIS(TM), was completed during the month of July,
ahead of schedule. Field Testing (Phase 3 of the development cycle) has begun, a
key component of which is acoustic data acquisition and the performance of blind
testing with surrogate and actual explosives target materials. Empirical data
will be tested against theoretical models to refine the signal processing design
approach. The testing program includes directional targeting on simple models
and omni directional testing on complex models of both benign surrogate
materials and illicit materials of interest. Marketing efforts to commercial and
government security managers continue. A total of six (two in the first quarter
2002) proposals for various applications of Acoustic Core(TM) in support of
Homeland Security have been submitted under Board Area Announcement
solicitations by the DOD. An additional proposal to the National Institute of
Justice was submitted this quarter for national security applications. The
Company is engaged in negotiating a Cooperative Research and Development
Agreement (CRADA) with the Air Force to participate in a program to develop
explosives detection systems for inspection of cargo and vehicles. It is
anticipated that this system will be developed and demonstrated by end of first
quarter 2003.
31
On July 24, 2002 we entered into several agreements to amend certain prototype
technology development agreements with the inventors of APTIS(TM), including
ipPartners, Inc. (the "Consultant"), Trylon Metrics, Inc. and Mr. Robert Tarini
(who is also President of both the Consultant and Trylon Metrics, Inc.), to
allow us to compensate the Consultant with the Company's common stock in lieu of
cash to complete the APTIS(TM) prototypes, as described in our current report on
Form 8-K dated July 24, 2002 (filed with the SEC on August 6, 2002) (the
"Technology and Consulting Agreements").
The Technology Development and Consulting Agreements supercede and replace all
original agreements between the Consultant and the Company regarding APTIS(TM)
Integrated Metal and Explosives Screening Portal Product Development (the
"Portal Project" and also incorporates development of a hand held portable
APTIS(TM) Integrated Metal and Explosives Screening Device (the "Hand Held
Project"). Upon completion of development, the Hand Held Project portable device
should be capable of automated remote standoff detection of explosives found
within shipping containers, vehicles or carried on humans. The Hand Held Project
devise, in its final form, should provide a remote standoff range for detection
of explosives of greater than 50 feet. Such a device would offer the operator
the capabilities of extending threat detection range while increasing personnel
safety and would also offer covert operation. When developed, the Handheld
Project device will complement the capabilities of the Company's Portal Project
explosives detection system currently in development. All Acoustic Core(TM)
products utilize the Company's proprietary and differentiated technology that
has the ability to remotely sense almost any element or compound using a
non-contact inspection methodology.
Pursuant to the Technology Development and Consulting Agreements, the Company
will retain all intellectual property rights related to the Portal Project and
the Hand Held Project and the Consultant will assist the Company with the
research and development and marketing of these projects. In return the Company
will compensate the Consultant for past development services by issuing
4,000,000 shares of the Company's common stock, 2,000,000 shares of which will
be placed in escrow and subject to forfeiture. In addition, as further
compensation for past development services provided by the Consultant, the
Company will reduce the strike price of a warrant previously issued to the
Consultant to purchase up to 60,000 shares of the Company's common stock to
$0.50 per share. The Company has also agreed to pay to the Consultant $12,500
per month until December 2002 for technical and marketing services and an
additional $5,000 per month for technical and marketing services payable to the
Consultant until December 13, 2002. In addition, the Company will reimburse the
Consultant up to $20,000 to cover reasonable and necessary expenses associated
with negotiating and signing the Technology Development and Consulting
Agreements.
If by October 15, 2002 the Consultant has not completed the prototype assemblies
for the Portal Project and demonstrated to the Company's satisfaction the
device's capabilities, then 750,000 shares of the Company's common stock in
escrow will be subject to forfeiture. Furthermore, on January 15, 2003 if the
Consultant has not demonstrated so the Company's satisfaction the prototype of
the Portal Project, then an additional 250,000 shares of the Company's common
stock in escrow will be subject to forfeiture. If by January 15, 2003 the
Consultant has not completed the prototype assemblies for the Hand Held Project
and demonstrated to the Company's satisfaction the device's capabilities, then
750,000 shares of the Company's common stock in escrow will be subject to
forfeiture. Furthermore, on March 15, 2003, if the Consultant has not completed
and demonstrated the prototype of the Hand Held Project, then an additional
250,000 shares of the Company's common stock is subject to forfeiture.
The Company has agreed to register the common stock to be issued to the
Consultant pursuant to the Technology Development and Consulting Agreements with
the SEC for resale by the Consultant at the Company's expense. If the
registration does not occur by October 15, 2002, then the parties will negotiate
a good faith substitute for the shares of the Company's common stock.
CRYPTO.COM - During the first quarter 2002, the Crypto.com algorithm and
software was further developed for telecommunications and commercial encryption
applications. Crypto.com has successfully demonstrated its double-cipher,
keyless transmission encryption system. The Company has been active in
32
individual and combined efforts with Crypto.com and Etelix, Inc., a licensor of
Crypto.com's technology, in marketing to commercial security managers. Eurotech
and Crypto.com intend to continue marketing efforts through 2002 with potential
partners and licensors of the encryption system.
OUR RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001
For the six months ended June 30, 2002 and the six months ended June 30, 2001,
we incurred operating losses of $5,042,121 and $4,407,427 respectively. The
increased losses result principally from increased expenses incurred in the
acquisition and development of our technologies, consulting costs, general and
administrative expenses without an offsetting increase in revenues.
For the six months ended June 30, 2002, we recognized $78,821 in revenue from
operations relating to demonstrations of EKOR (TM) Products. For the six months
ended June 30, 2001, we did not recognize any revenue.
Research and development expenses decreased by $60,134 to $370,564 for the six
months ended June 30, 2002 from $430,698 for the six months ended June 30, 2001.
During the first half 2002, we spent $192,991 on further EKOR (TM) development
and $177,573 to develop other technologies. We continued to fund the
commercialization of EKOR (TM), including variants and product improvements
being further developed, in Russia, by scientists and researchers at Kurchatov
Institute and members of Euro-Asian Physical Society (EAPS).
Consulting expenses decreased by $210,013 to $1,266,069 for the six months ended
June 30, 2002 from $1,476,082 for the six months ended June 30, 2001, which
includes $584,061 for the six months ended June 30, 2002 and $292,800 for the
six months ended June 30, 2001 of compensatory element of stock issuances
pursuant to consulting and other agreements. The decrease in consulting expense
resulted principally from a decrease in the number of consultants working in our
business development area.
Other general and administrative expenses increased by $335,943 to $2,004,988
for the six months ended June 30, 2002 from $1,669,045 for the six months ended
June 30, 2001. The increase is attributable principally to increases in expenses
associated with office rent and employee benefits.
Depreciation and amortization increased by $251,912 to $1,083,514 for the six
months ended June 30, 2002 from $831,602 for the six months ended June 30, 2001,
of which $804,769 in each period was for the amortization of acquired EKOR (TM)
technology rights relating to our November 1999 purchase of technology rights
from the company now called Advanced Technology Industries, Inc. ("ATI"). The
increase is attributable to the amortization expense of $250,000 of acquired
Acoustic Core (TM) technology rights purchased in July 2001 from Trylon Metrics,
Inc.
Other expenses/other income decreased by $50,700 to $25,579 for the six months
ended June 30, 2002 from $76,279 for the six months ended June 30, 2001. Such
amounts are insignificant to total operating results.
THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2001
For the three months ended June 30, 2002 and the three months ended June 30,
2001, we incurred operating losses of $2,006,571 and $2,285,590 respectively.
33
The decreased losses result principally from decreased expenses incurred in the
acquisition and development of our technologies, consulting costs, general and
administrative expenses.
For the three months ended June 30, 2002, we recognized $23,236 in revenue from
operations relating to demonstrations of EKOR (TM) Products and Crypto related
deliverables. For the three months ended June 30, 2001, we did not recognize any
revenue.
Research and development expenses decreased by $86,968 to $144,993 for the three
months ended June 30, 2002 from $231,961 for the three months ended June 30,
2001. During the second quarter, we spent $90,882 on further EKOR (TM)
development and $54,111 to develop other technologies. We continued to fund the
commercialization of EKOR (TM), including variants and product improvements,
being further developed in Russia by scientists and researchers at Kurchatov
Institute and members of Euro-Asian Physical Society (EAPS).
Consulting expenses decreased by $407,986 to $438,495 for the three months ended
June 30, 2002 from $846,481 for the three months ended June 30, 2001, which
includes $139,427 for the three months ended June 30, 2002 and $254,905 for the
three months ended June 30, 2001 of compensatory element of stock issuances
pursuant to consulting and other agreements. The decrease in consulting expense
resulted principally from a decrease in the number of consultants working in our
business development area.
Other general and administrative expenses increased by $113,461 to $904,573 for
the three months ended June 30, 2002 from $791,112 for the three months ended
June 30, 2001. The increase is attributable principally to increases in expenses
associated with office rent and employee benefits.
Depreciation and amortization increased by $125,710 to $541,746 for the three
months ended June 30, 2002 from $416,036 for the three months ended June 30,
2001, of which $402,000 in each period was for the amortization of acquired
EKOR (TM) technology rights relating to our November 1999 purchase of technology
rights from the company now called Advanced Technology Industries, Inc. ("ATI").
The increase is attributable to the amortization expense of $125,000 of acquired
Acoustic Core (TM) technology rights purchased in July 2001 from Trylon Metrics,
Inc.
Other expenses/other income decreased by $47,113 to ($24) for the three months
ended June 30, 2002 from $47,089 for the three months ended June 30, 2001. Such
amounts are insignificant to total operating results.
LIQUIDITY AND CAPITAL RESOURCES
SUMMARY OF WORKING CAPITAL AND STOCKHOLDERS' EQUITY
As of June 30, 2002, we had negative working capital of $936,024 and
Stockholders' Equity of $5,363,772 compared with a negative working capital of
$3,166,021 and stockholders' equity of $4,032,612 as of December 31, 2001.
LIQUIDITY
Since the Company has yet to generate significant revenues from our various
business activities, we are dependent on financing our operating expenses from
issuances of equity or debt securities. As of August 16, 2002, we had $40,179 in
cash and cash equivalents and our current operating expenses are approximately
$280,000 per month. We have a current financing agreement with Woodward,
pursuant to which there is a $80,000 commitment remaining as described in the
section titled "Securities Purchase Agreement with Woodward." If the
Restructuring Agreements with Woodward are finalized and close, we would also
have a potential funding source for up to an additional $1,300,000 on a "best
efforts" basis going forward. Additionally we have a Private Equity Agreement
34
with Jenks & Kirkland, Ltd. for financing of up to $10,000,000 over two years,
subject to a number of conditions as described in the section titled "Private
Equity Agreement with J&K." Currently, we do not have an effective registration
statement filed with the SEC to enable us to utilize the Private Equity
Agreement. Furthermore, our recent market price and volume numbers are such that
we have not consistently met the minimum Weighted Average Volume limitation in
the Private Equity Agreement to allow us to issue a Put to J&K. Even if we meet
all the conditions of the Private Equity Agreement, our current committed
financing would last for, at most, two years. If we do not meet the closing
conditions for the remaining $80,000 commitment pursuant to the February 2002
Securities Purchase Agreement with Woodward and we do not meet the conditions or
are restricted in the amount of financing we can require J&K to purchase
pursuant to the Private Equity Agreement, we will have difficulty meeting our
current monthly operating expenses and may be forced to go out of business,
leaving little or no value for our shareholders. We would have to drastically
reduce our overhead in order to remain in business long enough to hopefully
secure additional financing from another source. Overhead reductions could take
the form of reduced staffing, slowing of certain technology development,
consolidation of Company offices, deferring salaries or issuing warrants or
options in lieu of cash compensation and rationalizing other general overhead
expenses.
We are investigating additional various financing options to meet our short-term
liquidity needs. This effort is impeded by the fact that essentially all of our
outstanding authorized capital is already committed pursuant to the outstanding
financing transactions with Woodward and J&K. We believe our shareholders should
agree to increase our authorized capital at a special meeting of shareholders to
be held later in the year. If our shareholders do vote to increase our
authorized capital, we believe that we should be able to arrange a transaction
or transactions to meet our short-term liquidity needs. However, there can be no
assurances that our shareholders will vote to approve an increase in our
authorized capital or that we will be able to arrange a transaction or
transactions to meet our short-term liquidity needs, in which case we would most
likely be unable to continue in business. Again, depending on the market price
of our outstanding common stock, further financing may cease to be available or
be available only on terms that result in an unacceptable level of dilution.
EXPENSE RATIONALIZATION PROGRAM
On May 31, 2002, the Company issued a press release relating to its "Expense
Rationalization Program," a program designed to reduce overhead costs,
rationalize all company expenses and continue to support the further development
of certain technologies which demonstrate the potential to generate cash flows
from near-term future revenues, outside development funding from the government
or the private sector, or licensing fee income.
The initial phase of the expense rationalization program, that was begun on May
31, 2002, has generated a decrease, to date, of approximately $150,000 in cash
expenses per month, reducing overhead burden from an estimated $430,000 per
month to $280,000 per month. With the cost and expense reductions to-date, the
Company continues to maintain its entire portfolio of technology assets. Cost
savings have been generated through salary, consulting fee and administrative
expense reductions, in addition to an initial realignment of its technological,
sales and marketing resources. This is consistent with the Company's progress
towards commercializing certain of its advanced technologies believed to have
particular relevance in the area of Homeland Security. Further, in connection
with this realignment, the Company has eliminated four full-time equivalent
positions, or approximately 21 percent of its employee and consultant base,
during this phase of rationalizing expenses.
In July 2002, Paul Childress, the Company's Vice President of Nuclear and
Environmental Division, was terminated as part of the Company's Expense
Rationalization Program. Mr. Childress was employed by the Company beginning in
January 2000 to lead the Company's EKOR (TM) commercialization program. His
duties and responsibilities have been assumed by Mr. Don Hahnfeldt, the
Company's Executive Vice President and Chairman of the Board.
35
While the Expense Rationalization Program has been successful to date, the
Company continues to have operating expenses, which requires additional funding
in the future to continue operations without more drastic cost cutting measures.
There is a risk that the Company will be unable to continue licensing fees for
certain of its technologies, including EKOR(TM), in the future, in which case
the Company may lose some of its technology rights. In addition, while the
Company is seeking to obtain releases from terminated employees, these may not
be forthcoming and there may be additional expenses related to these
terminations.
SOURCES OF WORKING CAPITAL
Since our inception, our primary sources of working capital have been net
proceeds from various debt and equity financings. The following is a brief
summary of our existing financing arrangements and a discussion of the Proposed
Woodward Restructuring. We refer you the Management's Discussion and Analysis of
Financial Condition and Results of Operations in Part II Item 7 of our Annual
Report on Form 10-K and the same discussion found in Part I Item 7 of our
Quarterly Report on Form 10-Q for the Quarter ended March 31, 2002 for a more
detailed description of our prior financing agreements and the financing
agreements entered into during the first quarter 2002.
o FEBRUARY 2002 SECURITIES PURCHASE AGREEMENT WITH WOODWARD. To date, we
have raised an aggregate of $2,000,000 of the $2,500,000 commitment
from the issuance of 20,000 shares of Series A Preferred Stock
pursuant to the February 2002 Securities
Purchase Agreement. In addition, the Company has received an advance of
$420,000 from Woodward on the November closing pursuant to the February
2002 Securities Purchase Agreement. If we close the remaining issuances
pursuant to the February 2002 Securities Purchase Agreement, we will raise
an additional $80,000. If the full commitment amount of $2,500,000 pursuant
to the February 2002 Securities Purchase Agreement is sold, the 25,000
shares of Series A 3% Convertible Preferred Stock and accumulated interest
issueable to Woodward LLC will be convertible into approximately 5,150,000
shares of our common stock (assuming accrual of dividends of a period of
one year), as adjusted by certain repricing provisions (if the
Restructuring Agreements are finalized and closed these repricing
provisions will be eliminated).
o PRIVATE EQUITY AGREEMENT WITH J&K. On February 22, 2002, we entered
into a Private Equity Agreement with J&K. Subject to the terms and
conditions of the Private Equity Agreement, Eurotech may, from time to
time at its discretion, sell up to an aggregate of $10 million of its
common stock, par value $.00025 per share, to J&K at a 10% discount to
market prices, which is defined as the average of the lowest Bid
Prices (not necessarily consecutive) for any three Trading Days during
the ten Trading Day period immediately following a Put Date, wherein
the Company has given notice to J&K that it intends to sell its stock.
Our ability to require J&K to purchase shares of our common stock
pursuant to the
Private Equity Agreement is subject to the satisfaction of certain
conditions as follows:
o a registration statement covering the resale of shares of our
common stock purchased under the Private Equity Agreement must
have been declared effective by the SEC and must remain effective
as of each date on which a closing of a purchase and sale of
shares occurs, we do not yet have an effective registration
statement filed as of the date of this report;
o neither we nor J&K can have received notice that the SEC has
issued or intends to issue a stop order or has otherwise suspended
or withdrawn the effectiveness of the registration statement or
has threatened or intends to do so;
o our representations and warranties to J&K contained in the Private
Equity Agreement must be true and correct in all material respects
as of the date they have been made and on each date we issue a Put
Notice, if not specified otherwise in the representation;
36
o we must have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by
the Private Equity Agreement and the related registration rights
agreement between us and J&K and we must not be in default under
any of those agreements;
o no statute, rule, regulation, executive order, decree, ruling or
injunction may be in effect and no proceeding may have been
commenced which affects any of the transactions contemplated by
the Private Equity Agreement;
o since the date of filing of the Company's most recent SEC
Document, no event that had or is reasonably likely to have a
Material Adverse Effect can have occurred;
o for the twenty (20) Trading Days immediately preceding the Put
Date, the Weighted Average Volume of the Common Stock on the
Principal Market shall exceed $50,000. With the current market
price and volume of our common stock, the Company has not
consistently met this minimum Weighted Average Volume limitation.
o the trading of our common stock must not have been suspended by
the SEC, the principal market for our common stock or the National
Association of Securities Dealers and the common stock must be
approved for listing or quotation and must not have been delisted;
o we must not have any knowledge of any event that could reasonably
be expected to cause the registration statement to become
ineffective and is likely to occur within the valuation period
following the Put Notice;
o the maximum number of shares that we might sell under such Put
Notice must not cause the total number of all common shares issued
under the Private Equity Agreement to exceed 9.9% of our total
shares outstanding on the date of each Closing Date; and
o our outside counsel must have delivered an opinion letter that is
typical of "10b-5" letters in form and substance at the time(s)
and in the form specified in the Private Equity Agreement.
We have further agreed:
o not to disclose any material nonpublic information to J&K without
disclosing the information to the public, unless we identify this
information as material nonpublic information and give J&K an
opportunity to accept or refuse the information; and
o to issue, and have issued, a press release describing the material
terms of the Private Equity Agreement as soon as practicable
following the closing date, to file a Current Report on Form 8-K
with the SEC and not to make any other public disclosure related
to the Private Equity Agreement without consent by J&K if not
required by law.
o PROPOSED WOODWARD RESTRUCTURING. On July 3, 2002, we signed a
non-binding term sheet (the "Term Sheet") revising certain significant
terms of Woodward's current investments in the Company and providing
for possible future funding for Company operations. The Company
believes that the proposed transactions - including termination of
Woodward's repricing rights - will allow it to better pursue long
range opportunities and are an affirmation of Woodward's confidence in
the Company and its prospects. These contemplated transactions are
subject to the execution of definitive documentation.
Pursuant to the Restructuring Agreements, the repricing rights
associated with the March 2001 Securities Purchase Agreement will be
satisfied by the commitment to issue Woodward 14,000,000 shares of
common stock. While the repricing rights will be satisfied and
eliminated by this commitment to issue 14,000,000 shares of common
stock, this commitment is subject to a 19.9% cap required by the
listing agreement with the principal market on which the Company's
common stock is listed where Woodward would only have the right to
receive up to 7,205,245 shares of common stock pursuant to the
Restructuring Agreements unless shareholder approval is received to
issue the entire 14,000,000 shares of common stock. Pursuant to the
Restructuring Agreements, the 19.9% cap is only applicable if the
37
primary market on which the Company's common stock is listed has a
rule requiring shareholder approval of any issuance over 20% of the
outstanding common stock as of the date of the applicable financing
agreement. Pursuant to the Term Sheet, the Company has agreed to hold
a special meeting of the shareholders in the future and will request
shareholder approval to issue all 14,000,000 shares to Woodward.
In addition, pursuant to the Restructuring Agreements, the repricing
rights associated with the February 2002 Securities Purchase Agreement
will be satisfied by the issuance of shares of Series B Preferred
Stock with a stated value of $17,000,000. The Series B Preferred Stock
will have a 5% per annum cash or pay-in-kind dividend. The Series B
Preferred Stock will be redeemable by the Company, in full or in part,
at its discretion at par value plus any accrued dividends. The
conversion price of the Series B Preferred Stock will be fixed at
$0.75 per share subject to customary weighted average anti-dilution
provisions. Additionally, after March, 2003, the Company will agree to
exercise optional redemption rights to redeem the then outstanding
Series B Preferred Stock and Series A Preferred Stock and accrued
dividends at the end of each calendar quarter according to the
schedule listed below (the `Scheduled Redemption Amount"). Failure to
redeem the Series B Preferred Stock according to the Scheduled
Redemption Amount listed below does not create a cash obligation to
the Company; rather, the failure to redeem pursuant to the Scheduled
Redemption Amount allows Woodward to exercise its optional conversion
rights. Pursuant to the optional conversion rights, after each quarter
in which the Company fails to redeem according to the Scheduled
Redemption Amount, Woodward will have the right to convert up to 10%
of the original balance of the Series B Preferred Stock at the lower
of the $.75 conversion price, as adjusted, or a 15% discount to the
lowest 3 closing bid prices in 10 trading days (not necessarily
consecutive) prior to the conversion date (the "Optional Conversion
Rights"). Any amount redeemed or converted in excess of the Scheduled
Redemption Amount will be applied to reduce the Scheduled Redemption
Amount of the Series B Preferred Stock in inverse order (applying
first to the $300,000 stated value of the Series B Preferred Stock
remaining from the December 31, 2005 scheduled redemption - the other
$2,500,000 for the December 31, 2005 scheduled redemption is for the
Series A Preferred Stock).
The Scheduled Redemption Amount
-------------------------------
March 31, 2003 - $750,000
June 30, 2003 - $750,000
September 30, 2003 - $750,000
December 31, 2003 - $1,000,000
March 31, 2004 - $1,500,000
June 30, 2004 - $1,500,000
September 30, 2004 - $2,000,000
December 31, 2004 - $2,000,000
March 31, 2005 - $2,500,000
June 30, 2005 - $2,500,000
September 30, 2005 - $2,750,000
December 31, 2005 - $2,800,000
Total: $20,800,000
The Restructuring Agreements will contain cap provisions whereby
Woodward does not have the right to receive shares of our common stock
if such issuance would result in Woodward owning in excess of 9.99% of
the total outstanding shares of the Company at the time of such
issuance. In addition, there will be a separate cap whereby Woodward
does not have the right to receive shares of our common stock is such
issuance would result in Woodward owning in excess of 19.9% of the
common stock outstanding as of the date of the Restructuring
38
Agreements, without shareholder approval if the principal market on
which the Company's common stock is traded requires such shareholder
approval. If the Company does not redeem the Series B Preferred Stock
according to the Scheduled Redemption Amount and Woodward exercises
Optional Conversion Rights, the Company may be required to issue in
excess of the 19.9% cap that will be contained in the Restructuring
Agreements. Therefore, the Company will seek approval to potentially
issue in excess of the 19.9% cap at the upcoming special shareholders
meeting.
Because we have yet to generate any significant revenues from our
operations to date, we are forced to rely on financings to fund our
operations. Since Woodward has been our primary source of funding over
the years and has made numerous efforts to renegotiate and modify
existing agreements to help the Company implement our business plan,
we want to make every effort to satisfy our obligations pursuant to
the Restructuring Agreements, if finalized and closed. In order to
fully comply with our obligations pursuant to the Restructuring
Agreements, if finalized and closed, we will need the shareholder
approval described above. We believe that the Restructuring Agreements
will serve several valuable goals. It eliminates the uncertainty of
our repricing obligations, which were based on target prices of our
common stock. Since the trading price of our common stock fluctuates,
we could not accurately estimate what our obligations pursuant to
these repricing rights would be. Furthermore, the Restructuring
Agreements would buy us some time to implement our business strategy
without the overhang of significant immediate and continuing dilutive
repricing events. In addition, if finalized and closed, the
Restructuring Agreements would provide for a potential additional
$1,300,000 "best efforts' financing where would have the option to
purchase up to $1,300,000 stated value of Series B Preferred Stock. If
our shareholders do not approve the proposals described above, it is
unlikely that Woodward will agree to modify existing financing
agreements in order to support our business strategy or will provide
any additional funding in the future. Without the kind of support the
Company has received in the past from Woodward in the future, we may
soon be forced to go out of business and your investment in us could
be lost.
The Restructuring Agreements have not been finalized due primarily to
the concerns of the Amex about some of the proposed terms of the
Series B Preferred Stock. The proposed terms of the Series B Preferred
Stock may be changed to alleviate the concerns of the Amex and other
terms identified in the Term Sheet may change in the final definitive
agreements represented by the Restructuring Agreements. In connection
with the negotiation with Woodward to finalize the Restructuring
Agreements, Woodward has agreed to suspend certain obligations of the
Company including: the obligation of the Company pursuant to a
Registration Rights Agreement dated February 1, 2002 to file and
obtain effectiveness of a registration statement registering the
common stock underlying the Series A Preferred Stock; and the issuance
of repricing shares pursuant to the Repricing Rights Agreement, dated
February 1, 2002, with respect to the three repricing periods
commencing June 2002 relating to the March 2001 Securities Purchase
Agreement until the earlier of the date on which the definitive
Restructuring Agreements are executed or September 20, 2002.
The perceived risk associated with the possible sale of a large number
of our common stock at prices discounted as they are pursuant to the
Private Equity Agreement and the above described financing agreements
with Woodward, creates a market overhang which could cause some of our
shareholders to sell their stock, thus causing the price of our common
stock to decline. In addition, anticipated downward pressure on our
stock price due to actual or anticipated sales of stock from this
market overhang could cause some institutions or individuals to engage
in short sales of our common stock, which may itself cause the price
of our stock to decline.
o As of June 30, 2002, we had outstanding warrants and options, held by
directors, officers, consultants, and financing sources, to purchase
an aggregate of 8,497,833 shares of our common stock at exercise
prices ranging from $5.00 down to $.31 per share, of which warrants
39
and options to purchase 6,315,833 shares of our common stock were
exercisable as of June 30, 2002. If all of these warrants and options
were exercised for cash instead of pursuant to cashless exercise
provisions, we would realize proceeds of approximately $8,300,000.
This amount would be reduced to approximately $6,387,083 if all the
options and warrants without cashless exercise provisions were
exercised and all the holders of options and warrants with cashless
exercise provisions exercised such cashless exercise rights. It should
be noted that none of the currently outstanding options and warrants
have exercise prices in excess of our current market price; it is
unlikely that any of our outstanding options and warrants will be
exercised until our market price exceeds the exercise price of
outstanding options and warrants.
POTENTIAL SHARE ISSUANCE UNDER REPRICING PROVISIONS
Holders of our common shares are subject to the risk of additional and
substantial dilution due to the repricing provisions in our several agreements
with Woodward if the Restructuring Agreements with Woodward are not finalized
and closed. The agreements pursuant to which we raised, net proceeds of
$6,000,000, $10,687,500 and $2,840,000 from Woodward in April 2000 and March
2001 were modified in February 2001, May 2001, September 2001, December 2001,
February 2002, and April 2002. All three of these agreements, as modified by the
modification agreements, contain repricing provisions that require us to issue
additional shares in the proportion to which the outstanding shares of our
common stock trade during specified time periods at prices below the $3.76
target price specified in the respective agreements as modified to date.
As of the date on which this report is filed, we have already issued to Woodward
an aggregate of 23,638,620 additional shares based on the applicable repricing
provisions. From the March 2001 Securities Purchase Agreement, there remains
three monthly repricing period, which expires in 2002. Pending completion of the
Restructuring Agreements by September 20, 2002, Woodward has suspended the
Company's obligation to issue repricing shares. Because the repricing is based
on the $3.76 target price for the March 2001 Securities Purchase Agreement and a
$3.618 target price for the February 2002 Securities Purchase Agreement compared
to actual market prices of shares, it is impossible to predict exactly how many
more shares we will need to issue to Woodward. If the Restructuring Agreements
are not completed by September 20, 2002, then the Company will be obligated to
issue the June and July repricing shares shown in the table below and obligated
to issue an as yet unknown number of repricing shares pursuant to the August
repricing in connection with the March 2001 Securities Purchase Agreement and
pursuant to the repricing in connection with the February 2002 Securities
Purchase Agreement.
We have calculated some hypothetical examples of potential dilution, taking into
account the impact of the repricing provisions for the March 2001 and February
2002 Securities Purchase Agreements. The following table summarizes the possible
combined dilutive effect of the Woodward repricing provisions. The numbers in
the table assume that the "Assumed Average Market Price During Repricing Period"
shown in the table remains unchanged over a period of eight months. Actual
repricings will be based on actual prices during the respective periods, which
can be expected to fluctuate.
Total Number of Shares
Assumed Average Issuable on Account of Percent of Total No. of
Number of Market Price Repricings Through End Shares Outstanding
Date Shares During Repricing of Respective Repricing (72,387,915)
Period Period *
---------------------- ------------ ------------------- ------------------------- -----------------------------
June 1, 2002 444,444 Actual Average
Market Price of 7,877,539 10.88%
$.19 during
Repricing Period
---------------------- ------------ ------------------- ------------------------- -----------------------------
40
July 1, 2002 444,444 Actual Average
Market Price of 10,222,955 14.12%
$.15 during
Repricing Period
---------------------- ------------ ------------------- ------------------------- -----------------------------
August 1, 2002 444,445 0.30 4,652,602 6.43%
---------------------- ------------ ------------------- ------------------------- -----------------------------
444,445 0.20 7,437,791 10.27%
---------------------- ------------ ------------------- ------------------------- -----------------------------
444,445 0.10 15,793,357 21.82%
---------------------- ------------ ------------------- ------------------------- -----------------------------
* This includes a reduction of 473,330 shares--1,419,991 shares [(6,100,000
committed shares - 4,680,009) divided by three]--for each repricing period
pursuant to the Restated Amendment to Repricing Rights Agreement and Security
Purchase Agreement effective as of April 2002.
Total Number of Shares
Assumed Average Issuable on Account of Percent of Total No. of
Number of Market Price Repricings Through End Shares Outstanding
Date Shares During Repricing of Respective Repricing (72,387,915)
Period Period
------------------------ ----------- ------------------- ------------------------- -----------------------------
October 1, 2002 515,000 0.30 5,695,900 7.87%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.20 8,801,350 12.16%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.10 18,117,700 25.03%
------------------------ ----------- ------------------- ------------------------- -----------------------------
November 1, 2002 515,000 0.30 5,695,900 7.87%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.20 8,801,350 12.16%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.10 18,117,700 25.03%
------------------------ ----------- ------------------- ------------------------- -----------------------------
December 1, 2002 515,000 0.30 5,695,900 7.87%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.20 8,801,350 12.16%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.10 18,117,700 25.03%
------------------------ ----------- ------------------- ------------------------- -----------------------------
January 1, 2003 515,000 0.30 5,695,900 7.87%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.20 8,801,350 12.16%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.10 18,117,700 25.03%
------------------------ ----------- ------------------- ------------------------- -----------------------------
February 1, 2003 515,000 0.30 5,695,900 7.87%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.20 8,801,350 12.16%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.10 18,117,700 25.03%
------------------------ ----------- ------------------- ------------------------- -----------------------------
March 1, 2003 515,000 0.30 5,695,900 7.87%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.20 8,801,350 12.16%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.10 18,117,700 25.03%
------------------------ ----------- ------------------- ------------------------- -----------------------------
April 1, 2003 515,000 0.30 5,695,900 7.87%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.20 8,801,350 12.16%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.10 18,117,700 25.03%
------------------------ ----------- ------------------- ------------------------- -----------------------------
May 1, 2003 515,000 0.30 5,695,900 7.87%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.20 8,801,350 12.16%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.10 18,117,700 25.03%
------------------------ ----------- ------------------- ------------------------- -----------------------------
June 1, 2003 515,000 0.30 5,695,900 7.87%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.20 8,801,350 12.16%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.10 18,117,700 25.03%
------------------------ ----------- ------------------- ------------------------- -----------------------------
July 1, 2003 515,000 0.30 5,695,900 7.87%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.20 8,801,350 12.16%
------------------------ ----------- ------------------- ------------------------- -----------------------------
515,000 0.10 18,117,700 25.03%
------------------------ ----------- ------------------- ------------------------- -----------------------------
41
CRITICAL ACCOUNTING POLICIES
In accordance with recent Securities and Exchange Commission guidance, the
material accounting policies that we believe are the most critical to an
investor's understanding of our financial results and condition and require
management's judgment are discussed below. As a technology company, we believe
our critical accounting policies are those that deal with the value of
technology rights.
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS - We review our long-lived assets
and identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. Our intangible assets are primarily our patents. If such assets
were considered to be impaired, the impairment to be recognized would be
measured by the amount by which the carrying amount of the assets exceeds the
fair market value of the assets.
We evaluate the recoverability of property and equipment and intangibles by
comparing the carrying amount of the asset or group of assets against the
estimated undiscounted future net cash flows expected to result from the use of
the asset or group of assets. If the undiscounted estimated cash flows are less
than the carrying value of the asset or group of assets being reviewed, an
impairment lost would be recorded. The loss would be measured based on the
estimated fair value of the asset or group of assets compared to carrying value.
The estimated fair value would be based on the best information available under
the circumstances, including prices for similar assets and the results of
valuation techniques, including the present value of expected future cash flows
using a discount rate commensurate with the risks involved.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
145, "Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections." SFAS No. 145 requires that gains and losses
from extinguishment of debt be classified as extraordinary items only if they
meet the criteria in Accounting Principles Board Opinion No. 30 ("Opinion No.
30"). Applying the provisions of Opinion No. 30 will distinguish transactions
that are part of an entity's recurring operations from those that are unusual
and infrequent that meets the criteria for classification as an extraordinary
item. The Company is required to adopt SFAS No. 145 no later than the first
quarter of fiscal 2003, although early adoption is allowed.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullified Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including certain costs incurred in a restructuring". SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. These costs include lease, costs to
consolidate facilities or relocate employees, and certain termination benefits
provided to employees that are involuntarily terminated under the terms of a
one-time benefit arrangement. A fundamental conclusion reached by the FASB in
this statement is that an entity's commitment to a plan, by itself, does not
create a present obligation to others that meets the definition of a liability.
SFAS No. 146 also establishes that fair value is the objective for initial
measurement of the liability. The provisions of this statement are effective for
exit or disposal activities that are initiated after December 31, 2002, with
early application encouraged. The Company has not yet determined the impact of
SFAS No. 146 on its financial position and results of operations, if any.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK
The Company does not have any derivative financial instruments as of March 31,
2002. The Company's interest income and expense are sensitive to changes in the
general level of interest rates. In this regard, changes in interest rates can
42
affect the interest earned on the Company's cash equivalents. The Company's
long-term debt has fixed interest rates and the fair value of these instruments
is affected by changes in market interest rates. To mitigate the impact of
fluctuations in interest rates, the Company generally enters into fixed rate
investing and borrowing arrangements. As a result, the Company believes that the
market risk arising from holding of its financial instruments is not material.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) The Series A 3% Convertible Preferred Stock is discussed in this report in
Part 1, Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations under the section titled "February 2002 Securities
Purchase Agreement with Woodward." Additionally, the Articles of Amendment
regarding Series A 3% Convertible Preferred Stock was previously filed on a Form
8-K dated February 1, 2002 and filed with the SEC on March 1, 2002, and is
hereby incorporated herein by reference.
(c) During the second quarter 2002 we sold 5,000 shares of Series A 3%
Convertible Preferred Stock to Woodward to support ongoing operations and
corporate development. This transaction is discussed in detail in this report in
Part 1, Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations under the section titled "February 2002 Securities
Purchase Agreement with Woodward." Additionally, the Securities Purchase
Agreement with Woodward was previously filed on a Form 8-K dated February 1,
2002 and filed with the SEC on March 1, 2002, and is hereby incorporated herein
by reference. In addition, we issued 4,350,000 shares of common stock to
Woodward in partial satisfaction of the sixth and final repricing period
associated with a Repricing Rights Agreement and a Common Stock Purchase
Agreement with Woodward dated April 24, 2000. In addition, on June 2, 2002 we
issued 9,240 shares of common stock to various consultants for services rendered
to the Company. In the case of Woodward, the shares were issued pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended (the Securities Act) and Rule 506 promulgated under the
Securities Act in a private transaction to a sophisticated and "accredited
investor" as that term is defined in Rule 501 promulgated under the Securities
Act and are restricted from transfer unless such transfer is registered under
the Securities Act or made pursuant to an exemption therefrom. In the case of
the issuances to consultants, the shares were issued pursuant to the exemption
from registration provided by Section 4(2) of the Securities Act in a private
transaction to sophisticated investors and are restricted from transfer unless
such transfer is registered under the Securities Act or made pursuant to an
exemption therefrom.
(d) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The dividends accumulated on the Series A 3% Convertible Preferred Stock are
equal to $20,000 for the period ending June 30, 2002 and have been listed in the
financial as in arrears. These dividends accumulate and are not payable until
declared by the Company's Board of Directors or, at the option of the holder,
are payable in cash or shares of the Company's common stock upon conversion of
the Series A 3% Convertible Preferred Stock. Since a dividend has not been
43
declared by the Company's Board of Directors and no shares of Series A 3%
Convertible Preferred Stock have been converted to date, the Company is not yet
under any obligation to pay the $20,000 of accumulated dividends.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Late in the day on Friday, August 16, 2002, Todd J. Broms, a director and the
President and Chief Executive Officer of the Company, notified the Company of
his intention to resign as President and Chief Executive Officer and as a
director of the Company. The Company is in discussions with Mr. Broms regarding
the timing and terms of his departure.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The Exhibits listed in the attached Exhibit Index are filed herewith or
incorporated herein by reference, as indicated in therein.
(b) We filed two Current Reports on Form 8-K during the second Quarter 2002
dated as follows: June 13, 2002 (filed with the SEC on June 17, 2002) and May
17, 2002 (filed with the SEC on the same date). All of these reports were
reported events under Item 5 on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
EUROTECH, LTD.
Aug 19, 2002 /s/ TODD J. BROMS
----------------------------------------------------
Todd J. Broms, President and Chief Executive Officer
Aug 19, 2002 /s/ DR. RANDOLPH A. GRAVES, JR.
----------------------------------------------------
Dr. Randolph A. Graves, Jr., Vice President,
Chief Financial Officer, and Secretary
44
EUROTECH, LTD.
EXHIBIT INDEX
Location
Exhibit No. Description Reference
- ----------- ----------- ---------
2.1 Technology Transfer Agreement dated July 13, 2001, between
Eurotech, Ltd., and Trylon Metrics, Inc., 15
2.1.1 Amendment, dated October 3, 2001, to Technology Transfer
Agreement dated July 13, 2001, between Eurotech, Ltd., and
Trylon Metrics, Inc., 23
3.1.1 Articles of Incorporation of Eurotech, Ltd. and amendment
thereto 1
3.1.2 Articles of Amendment adopted June 20, 2000 and corresponding
Certificate of Amendment dated June 21, 2000 10
3.1.3 Articles of Amendment to the Articles of Incorporation to
state the terms of the Series A 3% Convertible Preferred Stock
dated February 1, 2002 20
3.2.1 Bylaws of Eurotech Ltd. 1
3.2.2 Amendment to Bylaws adopted February 23, 2000 to fix the
number of directors at 5. 9
3.2.3 Amendment to Bylaws adopted on August 27, 2001 to fix the
number of directors at 7. 23
4.1 Form of Common Stock certificate 1
10.1.1 License Agreement dated September 6, 1996 between Euro-Asian
Physical Society and ERBC Holding, Ltd. 1
10.1.2 Sub-License Agreement dated September 16, 1996 between
ERBC Holding, Ltd. and Eurotech, Ltd. 1
10.1.2.1 EKOR Agreement dated as of May 15, 2000 between Euro-Asian
Physical Society and Eurotech, Ltd. Modifying the EKOR license 12
10.1.3 Agreement dated January 28, 1997 between Eurotech, Ltd. and
Kurchatov Research Holdings, Ltd. 1
10.1.4 Memorandum of Intent among Chernobyl Nuclear Power Plant, I.V.
Kurchatov Institute, Ukrstroj and Eurotech, Ltd. 1
10.1.5 Agreement dated December 10, 1996 between Ukrstroj and
Chernobyl Nuclear 10.20.4 Power Plant (in past filings, this
agreement was identified as dated December 6, 1996 when in
fact the agreement is dated December 10, 1996) 1
10.1.6 Agreement dated December 11, 1996 among Ukrstroj, Eurotech,
Ltd. and Euro-Asian Physical Society 1
10.2.1 Technology Purchase Agreement between Eurotech, Ltd. and
Oleg L. Figovsky 2
10.2.2 Technology Purchase Agreement between Eurotech, Ltd. and
Oleg L. Figovsky 2
10.2.3 Technology Purchase Agreement between the Company and
Oleg L. Figovsky 2
10.2.4 Agreement dated February 27, 2000 between Eurotech, Ltd.
and Oleg L. Figovsky (acquisition of the rights to 49% of
net profits) 8
10.3 Preliminary EKOR (Component A)/Block Copolymer manufacturing
licensing agreement between Eurotech, Ltd. and NuSil Technology 9
10.4.1 Agency Contract dated May 19, 2000 between Eurotech, Ltd.
and McPhee Environmental Supply 10
10.4.2 McPhee Environmental Supply Cancellation dated March 14, 2001 12
10.5.1 Share Purchase Agreement dated June 29, 2000 between Zohar
Gendler and Eurotech, Ltd. (Rademate Ltd.) 10
10.5.2 Share Purchase Agreement dated June 29, 2000 between Technion
Entrepreneurial Incubator Co., Ltd. and Eurotech, Ltd.
(Rademate Ltd.) 10
10.5.3 Investment Agreement date July 23, 2000 between Sorbtech Ltd.
and Eurotech, Ltd. (in past filings, this agreement was
identified as "share purchase agreement" when in fact it is
titled "Investment Agreement") 10
10.5.4 Investment Agreement entered into in May, 2000 between
Amsil, Ltd. and Eurotech, Ltd. 10
10.6.1 Form of Agreement among Eurotech, Ltd., V. Rosenband and
C. Sokolinsky, and Ofek Le-Oleh Foundation 2
10.6.2 Equity Sharing Agreement between the Company, V. Rosenband
and C. Sokolinsky 2
10.6.3 Voting Agreement among Eurotech, Ltd., V. Rosenband and
C. Sokolinsky 2
10.7.1 Investment Agreement between Eurotech, Ltd. and Chemonol, Ltd. 2
10.7.2 Equity Sharing Agreement between the Company and Leonid
Shapovalov 2
10.7.3 Voting Agreement between Eurotech, Ltd. and Leonid Shapovalov 2
10.8.1 Agreement between Eurotech, Ltd. and Separator, Ltd. 2
10.8.2 Equity Sharing Agreement between Eurotech, Ltd. and Efim Broide 2
10.8.3 Voting Agreement between Eurotech, Ltd. and Efim Broide 2
10.9.1 Form of Agreement among Eurotech, Ltd., Ofek Le-Oleh
Foundation and Y. Kopit 2
10.9.2 Equity Sharing Agreement among Eurotech, Ltd., Y. Kopit
and V. Rosenband 2
10.9.3 Voting Agreement among Eurotech, Ltd., Y. Kopit and V.
Rosenband 2
10.10 Form of License Agreement between the Company and ERBC
Holdings, Ltd. 2
10.11.1 Cooperation Agreement between Eurotech, Ltd. and
Forschungszentrum Julich GmbH 2
10.11.2 Agreement among Eurotech, Ltd., Forschungszentrum Julich
and two other entities for the testing of EKOR in Germany 7
10.11.3 Letters of cancellation of German EKOR testing agreement 12
10.12.1 Convertible Debenture Purchase Agreement among Eurotech,
Ltd., JNC Opportunity Fund, Ltd. and Diversified Strategies
Fund, L.P. 2
10.12.2 Escrow Agreement among Eurotech, Ltd., JNC Opportunity Fund,
Ltd. and Diversified Strategies Fund, L.P. and Robinson,
Silverman, Pearce, Aronsohn & Berman, LLP 2
10.2.3 Registration rights Agreement among Eurotech, Ltd., JNC
Opportunity Fund, Ltd. and Diversified Strategies Fund, L.P. 2
10.12.4 Form of 8% Convertible Debenture Due November 27, 2000 issued
by Eurotech, Ltd. to JNC Opportunity Fund, Ltd. 2
10.12.5 Form of 8% Convertible Debenture Due November 27, 2000 issued
by Eurotech, Ltd. to Diversified Strategies Fund, L.P. 2
10.12.6 Warrant No. 1 issued by Eurotech, Ltd. to JNC Opportunity
Fund, Ltd. 2
10.12.7 Warrant No. 2 issued by Eurotech, Ltd. to Diversified
Strategies Fund, L.P. 2
10.12.8 Warrant No. 3 issued by Eurotech, Ltd. to Diversified
Strategies Fund, L.P. 2
10.13.1 Convertible Debenture Purchase Agreement between Eurotech,
Ltd. and JNC Opportunity Fund, Ltd. 2
10.13.2 Escrow Agreement among Eurotech, Ltd., JNC Opportunity Fund,
Ltd. and Robinson, Silverman, Pearce, Aronsohn and Berman, LLP 2
10.13.3 Registration Rights Agreement between Eurotech, Ltd. and JNC
Opportunity Fund Ltd. 2
10.13.4 Form of 8% Convertible Debenture Due February 23, 2001 issued
by Eurotech, Ltd. to JNC Opportunity Fund, Ltd. 2
10.13.5 Warrant No. 3 issued by Eurotech, Ltd. to JNC Opportunity Fund
Ltd. 2
10.14.1 Debenture Purchase Agreement between Eurotech, Ltd and JNC
Strategic Fund Ltd. 2
10.14.2 Form of 8% Convertible Debenture No.1 Due July 20, 2001 issued
by Eurotech, Ltd. to JNC Strategic Fund Ltd. 3
10.14.3 Form of 8% Convertible Debenture No.2 Due February 23, 2001
issued by Eurotech, Ltd. to JNC Opportunity Fund, Ltd. 3
10.14.4 Warrant No. 4 issued by Eurotech, Ltd. to JNC Strategic Fund
Ltd. 3
10.14.5 Registration Rights Agreement issued by Eurotech, Ltd. to
JNC Strategic Fund Ltd. 3
10.14.6 Amended and Revised 8% Convertible Debenture No. 1 Due
February 23, 2001 issued by Eurotech, Ltd. to JNC
Opportunity Fund, Ltd. 3
10.14.7 Amended and Revised 8% Convertible Debenture No. 2 Due July
20, 2001 issued by Eurotech, Ltd. to JNC Strategic Fund Ltd. 3
10.14.8 Amended and Revised 8% Convertible Debenture No. 13 Due
November 27, 2000 issued by Eurotech, Ltd. to JNC Opportunity
Fund, Ltd. 3
10.14.9 Amended and Revised 8% Convertible Debenture No.14 due
November 27, 2000 issued by Eurotech, Ltd. to Diversified
Strategies Fund, L.P. 3
10.14.10 Agreement dated February 25, 2000 regarding conversion price 8
10.14.11 Agreement dated February 21, 2001 regarding extension of
maturity 12
10.15.1 Agreement between Eurotech, Ltd. and David Wilkes 3
10.15.2 Secured Promissory Note issued by Eurotech, Ltd. to JNC
Strategic Fund Ltd. 3
10.15.3 Secured Promissory Note issued by Eurotech, Ltd. to David
Wilkes 3
10.15.4 Secured Promissory Note issued by Eurotech, Ltd. to David
Wilkes 3
10.15.5 Escrow Agreement among the Company, JNC Strategic Fund Ltd.
and Encore Capital Management, L.L.C. 3
10.15.6 Security Agreement by Eurotech, Ltd. in favor of JNC Strategic
Fund Ltd. and David Wilkes 3
10.15.7 Warrant issued by Eurotech, Ltd. to JNC Strategic Fund Ltd. 3
10.15.8 Warrant issued by the Company to David Wilkes 4
10.15.9 Form of 8% Convertible Debenture Due Three Years from Original
Issue Date issued by Eurotech, Ltd. to JNC Strategic Fund Ltd. 4
10.15.10 Employment Agreement between Eurotech, Ltd. and Frank Fawcett 4
10.15.10 Disengagement Agreement between Eurotech, Ltd. and Frank Fawcett 7
10.16.1 Employment Agreement between Eurotech, Ltd. and Don V. Hahnfeldt 4
10.16.2 Revised employment agreement between Eurotech, Ltd. and Don V.
Hahnfeldt 7
10.17 Agreement dated September 9, 1999 between Eurotech, Ltd. and
Peter Gulko (acquisition of KRHL shares) 5
10.18.1 Agreement dated as of November 30, 1999 between Eurotech, Ltd.
and Kurchatov Research Holdings, Ltd. 7
10.18.2 Agreement dated June 20, 2000 between Eurotech, Ltd. and
Advanced Technology Industries, Inc. (formerly Kurchatov
Research Holdings, Ltd.) 10
10.19 Agreement dated as of December 15, 1999 between Eurotech, Ltd.
and Spinneret Financial Systems, Inc. 7
10.20.1 Common Stock Purchase Agreement dated December 31, 1999 between
Eurotech, Ltd. and Woodward LLC 7
10.20.2 Warrant issued by Eurotech, Ltd. to Woodward LLC on December 31,
1999 7
10.20.3 Registration Rights Agreement dated December 31, 1999 between
Eurotech, Ltd. and Woodward LLC 7
10.20.1 Commitment Agreement ($22,000,000) between Eurotech, Ltd. and
Woodward LLC 7
10.20.5 Escrow Agreement dated December 31, 1999 among Eurotech, Ltd.,
Woodward LLC and Krieger & Prager 7
10.20.6 Common Stock Purchase Agreement dated as of March 1, 2000
between Eurotech, Ltd. and Woodward LLC 9
10.20.7 Common Stock Purchase Agreement dated as of April 24, 2000
between Eurotech, Ltd. and Woodward LLC 10
10.20.8 Registration Rights Agreement dated as of April 17, 2000
between Eurotech, Ltd. and Woodward LLC 10
10.20.9 Warrant issued by Eurotech, Ltd. to Woodward LLC on June 22,
2000 10
10.20.10 Amendment Agreement dated June 29, 2000 between Eurotech, Ltd.
and Woodward LLC, amending April 24, 2000 Common Stock Purchase
Agreement and Registration Rights Agreement and December 31,
2000 Commitment Agreement 10
10.20.11 Amendment Agreement dated September 28, 2000 between Eurotech,
Ltd. and Woodward LLC, amending March 1, 2000 Common Stock
Purchase Agreement 11
10.20.12 Modification Agreement dated as of February 28, 2001, amending
March 1 and April 24, 2000 Common Stock Purchase Agreements 12
10.20.13 Common Stock Purchase Agreement as of March 30, 2001 between
Eurotech, Ltd. and Woodward LLC 13
10.20.14 Registration Rights Agreement dated as of March 30, 2001
between Eurotech, Ltd. and Woodward LLC 13
10.20.15 Modification Agreement dated as of May 18, 2001, amending
March 1, 2000, April 24, 2000, and March 30, 2001 Common Stock
Purchase Agreements 14
10.20.16 Securities Purchase Agreement as of February 1, 2002 between
Eurotech, Ltd. and Woodward LLC 20
10.20.17 Repricing Rights Agreement dated as of February 1, 2002 between
Eurotech, Ltd. and Woodward LLC 20
10.20.18 Registration Rights Agreement dated as of February 1, 2002
between Eurotech, Ltd. and Woodward LLC 20
10.20.19 Letter Agreement dated December 28, 2001 between Eurotech,
Ltd. and Woodward LLC 20
10.20.21 Private Equity Agreement dated February 22, 2002, between
Eurotech, Ltd. and Jenks & Kirkland, Ltd 21
10.20.22 Registration Rights Agreement dated as of February 22, 2002
between Eurotech, Ltd. and Jenks & Kirkland, Ltd. 21
10.20.23 Restated Amendment To Repricing Rights Agreement And Securities
Purchase Agreement dated as of May 7, 2002 between Eurotech,
Ltd. and Woodward LLC 24
10.21 Technology Acquisition and Development Agreement related to
Cypto.Com, Inc. 9
10.22.1 Investment Banking Consulting Agreement dated January 15, 2001
between Eurotech, Ltd. and Adolph Komorsky Investments, together
with addendum thereto 12
10.22.2 Cancellation of Investment Banking Consulting Agreement dated
March 30, 2001 between Eurotech, Ltd. and Adolph Komorsky
Investments 13
10.23.1 Consulting Agreement as of January 18, 2001 between Eurotech,
Ltd. and Davis Manafort, Inc. 13
10.23.2 Second Consulting Agreement dated April 25, 2001 between
Eurotech, Ltd. and Davis Manafort, Inc. 13
10.24 Consulting Agreement dated April 25, 2001 between Eurotech,
Ltd. and Harborstone Financial Group, Inc. 13
10.25 Consulting Agreement dated March 23, 2001 between Eurotech,
Ltd. and Robert Tarini/ip Partners 13
10.26 Consulting Agreement dated October 22, 2001 between Eurotech,
Ltd. and Race Rock Design Partners 18
10.27 Employment Agreement between Eurotech, Ltd. and Todd J. Broms
dated February 28, 2002 23
10.27.1 Stock Option Grant for Broms Holding LCC dated February 28,
2002 23
10.27.2 Employment Agreement between Eurotech, Ltd. and Don V.
Hahnfeldt dated February 28, 2002 23
10.27.3 Stock Option Grant for Don V. Hahnfeldt dated February 28, 2002 23
10.27.4 Consultant Agreement between Eurotech, Ltd. and Verdi
Consultants, Inc. dated February 28, 2002 23
10.27.5 Stock Option Grant for Verdi Consultants, Inc. dated
February 28, 2002 23
10.27.6 Lease Agreement between SMII FAIRFAX, LLC and Eurotech, Ltd
dated August 30, 2000 23
10.27.7 Consultant Agreement between Eurotech, Ltd. and EB Associates,
LLC dated April 29, 2002 24
10.27.8 Stock Option Grant for EB Associates, LLC dated April 29, 2002 24
10.27.9 Technology Development Agreement between Eurotech, Ltd. and
ipPartners, Inc. dated as of July 24, 2002 27
10.27.10 Acknowledgment and Release Agreement by and between Eurotech,
Ltd, Trylon Metrics, Inc., and ipPartners, Inc. dated as of
July 24, 2002 27
10.27.11 Letter Agreement between Eurotech, Ltd. and Trylon Metrics,
Inc. dated as of July 24, 2002 27
10.27.12 Letter Agreement by and between Eurotech, Ltd., ipPartners,
Inc. and Robert Tarini, individually dated as of July 24, 2002 27
10.27.13 Joint Escrow Instructions Agreement dated July 30, 2002 27
10.27.14 Letter Agreement between Eurotech, Ltd. and Woodward LLC
Suspending Certain Obligations of the Company Pending
Negotiations of Definitive Restructuring Agreement *
10.27.15 Letter Agreement between Eurotech, Ltd. and Spinneret
Financial Services Terminating Spinneret's Fees *
99.1 News Release - EUROTECH, Ltd. Acquires Sub-Surface Remote
Sensing Technology Trylon Metrics 3D Electromagnetic
Radiography(TM) and Acoustic Core(TM) Technologies Complement
Eurotech's EKOR Nuclear Remediation Product 15
99.2 Investment Agreement dated October 2, 2001 between Eurotech,
Ltd. and Jenks & Kirkland, Ltd 16
99.3 Letter to Shareholders from Chairman and President/CEO dated
November 9, 2001 17
99.4 Press Release, dated November 12, 2001 17
99.5 Update Letter to Shareholders from Chairman, dated November
12, 2001 17
99.6 Agreement between Etelix, U.S. ("Etelix") and Crypto.Com
("Crypto") made this 30th day of December, 2001 19
99.7 Modification and Conversion of $3,000,000 Principal Amount
8% Convertible Debentures of Eurotech, Ltd., due February 23,
2002 dated January 9, 2002 19
99.8 Eurotech, Ltd. Press Release dated March 1, 2002 announcing
appointment of Todd J. Broms as President and Chief Executive
Officer 21
99.9 Eurotech, Ltd. Press Release dated March 5, 2002 announcing
financing commitment from Jenks & Kirkland, Ltd. 21
99.10 Transcript of Prepared Speech to be presented at the Annual
Meeting of the Company's Shareholders on March 29, 2002 22
99.11 News Release - Eurotech's CEO, Todd J. Broms, Announces The
Engagement of EB Associates, LLC as Senior Financial Advisor,
Office of the President 24
99.12 News Release - Todd J. Broms, Eurotech's CEO, Issues Shareholder
Update; Company Initiates On-Going Strategic Review of Its
Portfolio of Technology Assets 25
99.13 News Release - Todd J. Broms, Eurotech's CEO, Issues Shareholder
Update; Eurotech Continues Corporate and Financial Restructuring
Initiatives 26
99.14 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 - Mr.
Todd J. Broms, President and Chief Executive Officer *
99.15 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 -
Dr. Randolph A. Graves, Chief Financial Officer and Vice
President *
(for Legend, see next page)
Legend:
- -------
* Filed as an Exhibit to the current filing
1 Incorporated by reference to such Exhibit filed with our registration
statement on Form 10 on file with the SEC, file number 000-22129
2 Incorporated by reference to such Exhibit filed with Pre-Effective
Amendment No. 2 to our registration statement on Form S-1, File No.
333-26673, on file with the SEC
3 Incorporated by reference to such Exhibit filed with our current report
on Form 8-K dated August 3, 1998, on file with the SEC as of August 25,
1998
4 Incorporated by reference to such Exhibit filed with Post-Effective
Amendment No. 1 to our registration statement on Form S-1, File No.
333-26673, on file with the SEC
5 Incorporated by reference to such Exhibit filed by Peter Gulko with his
Statement on Schedule 13D
6 Incorporated by reference to such Exhibit filed with our current report
on Form 8-K as of November 30, 1999, on file with the SEC
7 Incorporated by reference to such Exhibit filed with Post-Effective
Amendment No. 2 to our registration statement on Form S-1, File No.
333-26673, on file with the SEC
8 Incorporated by reference to such Exhibit filed with our annual report
on Form 10-K for the year ended December 31, 1999, on file with the SEC
9 Incorporated by reference to such Exhibit filed with our quarterly
report on Form 10-Q for the quarter ended March 31, 2000, on file with
the SEC
10 Incorporated by reference to such Exhibit filed with our quarterly
report on Form 10-Q for the quarter ended June 30, 2000, on file with
the SEC
11 Incorporated by reference to such Exhibit filed with our quarterly
report on Form 10-Q for the quarter ended September 30, 2000, on file
with the SEC
12 Incorporated by reference to such Exhibit filed with our annual report
on Form 10-K for the year ended December 31, 2000, on file with the SEC
13 Incorporated by reference to such Exhibit filed with our quarterly
report on Form 10-Q for the quarter ended March 31, 2001, on file with
the SEC
14 Incorporated by reference to such Exhibit filed with our quarterly
report on Form 10-Q for the quarter ended June 30, 2001, on file with
the SEC
15 Incorporated by reference to such Exhibit filed on Form 8-K as of
October 5, 2001, on file with the SEC
16 Incorporated by reference to such Exhibit filed on Form 8-K as of
October 11, 2001, on file with the SEC
17 Incorporated by reference to such Exhibit filed on Form 8-K as of
November 13, 2001, on file with the SEC
18 Incorporated by reference to such Exhibit filed with our quarterly
report on Form 10-Q for the quarter ended September 30, 2001, on file
with the SEC
19 Incorporated by reference to such Exhibit filed on Form 8-K as of
December 30, 2001 (filed with the SEC on January 25, 2002)
20 Incorporated by reference to such Exhibit filed on Form 8-K as of
February 1, 2002 (filed with the SEC on March 1, 2002)
21 Incorporated by reference to such Exhibit filed on Form 8-K as of
February 22, 2002 (as filed with the SEC on March 5, 2002)
22 Incorporated by reference to such Exhibit filed on Form 8-K as of March
29, 2002 (filed with the SEC on the same date)
23 Incorporated by reference to such Exhibit filed with our annual report
on Form 10-K for the year ended December 31, 2001, on file with the SEC
24 Incorporated by reference to such Exhibit filed with our annual report
on Form 10-Q for the year ended March 31, 2002, on file with the SEC
25 Incorporated by reference to such Exhibit filed on Form 8-K as of May
17, 2002 (filed with the SEC on the same date)
26 Incorporated by reference to such Exhibit filed on Form 8-K as of June
13, 2002 (filed with the SEC on June 17, 2002)
27 Incorporated by reference to such Exhibit filed on Form 8-K as of 24
July, 2002 (filed with the SEC on August 6, 2002)