As filed with the Securities and Exchange Commission on May 11, 1999
Registration No.__________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act
of 1934
EURO TRADE & FORFAITING, INC.
(Exact name of registrant as specified in its charter)
UTAH 87-0571580
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4835 NORTH O'CONNOR, SUITE 134-136 IRVING, TEXAS 75062
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (817)267-1866
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
N/A N/A
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
EURO TRADE & FORFAITING, INC.
FORM 10
TABLE OF CONTENTS
PAGE
----
ITEM 1. Business...........................................................3
ITEM 2. Financial Information.............................................15
ITEM 3. Properties........................................................23
ITEM 4. Security Ownership of Certain Beneficial
Owners and Management...........................................24
ITEM 5. Directors and Executive Officers..................................25
ITEM 6. Executive Compensation............................................26
ITEM 7. Certain Relationships and Related Transactions....................27
ITEM 8. Legal Proceedings.................................................27
ITEM 9. Market Price of and Dividends on Registrant's
Common Equity and Related Stockholder Matters...................27
ITEM 10. Recent Sales of Unregistered Securities...........................28
ITEM 11. Description of Registrant's Securities to be
Registered......................................................29
ITEM 12. Indemnification of Directors and Officers.........................30
ITEM 13. Financial Statements and Supplementary Data.......................31
ITEM 14. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..........................31
ITEM 15. Financial Statements and Exhibits.................................32
Signatures .................................................................S-1
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FORM 10
ITEM 1. Business
History of Business
Euro Trade & Forfaiting, Inc. (the "Company") was incorporated as
Rotunda Oil and Mining, Inc. on November 19, 1980 under the laws of the State of
Utah. The Company was originally formed to engage in the oil and gas, uranium
and hard rock mining business for profit. Within approximately two years, the
Company abandoned its pursuit of mining interest and remained inactive for
several years. In approximately 1996, the Company became engaged in the
development of the "Gas Hands" product. Gas Hands is a moist towelette to be
sold at gasoline service stations and convenience stores and is used to remove
and clean gasoline odors and residue from the customers' hands as they refuel.
The Company entered into a license agreement with the inventor of Gas Hands and
in September 1997, sold an exclusive distributorship for the product in the
Nevada and Arizona markets. However, in 1998 the project was abandoned and all
rights to the Gas Hands product were assigned by the Company.
On November 20, 1998 the Company entered into an Acquisition Agreement
and Plan of Reorganization (the "Agreement") with Euro Trade & Forfaiting
Company Limited, a privately held limited company based in, London, England
("Euro Trade Limited"). Pursuant to the Agreement, the Company acquired 100% of
the capital stock of Euro Trade Limited for 11,000,000 shares of Company's
authorized but previously unissued common stock. The acquisition was accounted
for as a recapitalization of Euro Trade Limited and all of Euro Trade Limited's
common shares were converted into shares of the Company. Euro Trade Limited
became a wholly owned subsidiary of the Company and the Company also changed its
name to Euro Trade & Forfaiting, Inc.
Euro Trade Limited was organized in the United Kingdom on February 25,
1997, for the purpose of servicing trade financing activities in the business
world. Euro Trade Limited's core business is based on non-recourse financing of
trade receivables. Euro Trade generates revenues by arranging and taking into
its portfolio non-recourse trade finance transactions and selling them into the
secondary market. These receivables are known as "forfaiting assets."
Euro Trade Limited was originally founded primarily to service the $1.5
billion trade finance requirements of its founding shareholders. In February
1997 Multikarsa Investama ("Multikarsa") established Euro Trade Limited with a
capitalization of $25 million dollars. Multikarsa is a holding company with
interests in many international companies. Euro Trade Limited's founders
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intended that business not only would support the import-export requirements of
companies wherein Multikarsa had a financial interest, but also develop a
separate trade finance activity. When the problems of the Asian emerging market
economies developed in the third and fourth quarters of 1997, Euro Trade Limited
shifted its focus to trade finance activity, drawing increasingly on the
contacts and trade finance experience of its management team.
Upon the closing of the Agreement and the exchange of 100% of the
shares of Euro Trade Limited for the Company's common stock, Multikarsa assigned
all rights to its shares to two separate investment companies, Collingwood
Investments Limited, a Bahamas company, and North Cascade Limited, a British
Virgin Island company. Thereafter, Multikarsa, as an entity, had no direct
ownership or management control in the Company.
Description of Business
The Company's primary business is trade finance. The Company employs
banking professionals with experience across a broad range of disciplines. These
professionals structure customized trade finance solutions for the Company's
clients, both importers and exporters. The Company is actively engaged in the
business of forfaiting trade receivables (see below), arranging debt for equity
swaps and debt for commodity swaps.
Although the Company's central businesses are in structured and
non-recourse trade financing of trade receivables, it has also begun refinancing
distressed trade debt held by international banks and financial institutions.
The Company has arranged and closed transactions exceeding $200 million since it
commenced dealing in trade receivables in 1997. Management believes that the
Company was not affected as severely as many of its competitors by the
deterioration in world economic conditions during 1997 and 1998. However, the
economic events did cause management to lower market valuations of some of some
of the assets it held, and made loss provisions of $5.7 million in 1998.
Services provided by the Company are detailed below.
Forfaiting
The Company's primary business is forfaiting. Forfaiting involves the
refinancing of trade receivables on a discount basis without recourse to the
previous holder. This financial service is available in all major currencies for
export contracts in excess of $250,000. Depending on transaction parameters,
such as country and bank risk, the financing periods range between a few months
and several years.
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The Company's primary market forfaiter is responsible for all normal
due diligence including documentary checks, and for ensuring that the
transaction is a bona fide and negotiable transaction. Forfaiting requires the
participants to act as principals and not brokers. This is necessary because of
the documentary complexity of each transaction and the impossibility of matching
buyers in the secondary market and sellers in the primary market in a time
efficient fashion.
The forfaiting market relates more to the individuals involved than to
the corporate or banking entities for whom they work. The Company estimates that
300 organizations, mainly international banks with departments of between five
and twenty people, participate in this aspect of trade finance. Bills of
exchange or promissory notes, referred to as assets, are placed in the secondary
market with over 1,000 banks and similar financial institutions participating
worldwide.
Forfaiting is based on non-recourse financing of trade receivables.
Non-recourse, in this instance, means that each purchaser of the assets in turn
relies on the ultimate obligor and gives up the right normally associated with
trade finance of having recourse to the previous holder. Its principal
characteristics are as follows:
* Transactions are normally comprised of bills of exchange drawn and
accepted under a letter of credit or promissory notes issued by an
importer. Bills of exchange are negotiable instruments drawn on the
importer/obligor by the exporter and returned to the exporter as the
payment mechanism for the underlying obligation of the importer. The
usual size of transaction ranges from $l,000,000 to $5,000,000.
* Bills of exchange or promissory notes are normally "avaled" by the
importer's bank. An aval is a guarantee, usually a bank guarantee that
is separate from the underlying trade contract. Bills of exchange are
usually issued in hard currencies such as U.S. Dollars, Deutsch Marks
and other recognized currencies.
* A series of notes are issued in relation to each export transaction.
These notes typically mature at six monthly intervals over periods from
six months to five years. Due to increasingly difficult market
conditions, the Company trades in shorter term trade letters of credit,
generally six to twelve months.
* Bills of exchange or promissory notes are priced relative to the
average life London Interbank Offering Rate (LIBOR), plus a margin to
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reflect the credit risk and are discounted through maturity. This is an
imperfect market however, and two-way prices are not quoted.
Income from forfaiting comes from fees relating to the negotiation of
the transaction and capital gains on the sale of the assets. Capital gains are
the result of an improvement in the perceived credit risk or because of a
downward movement in interest rates during the period the assets are held in the
portfolio. The Company also earns a yield over and above the carrying costs of
the assets to maturity. The Company, through its team of professional bankers,
believes that it has established good relationships with banks and corporations
in Europe and the Far East.
Structured Trade and Commodity Finance
The Company's other core business is the pre-export and specialized
financing of commodities to well established small and medium size trading
companies. The Company may arrange financing for trade from and to countries
where traditional trade financing arrangements are not available.
The Company works with traders and manufacturers world-wide to provide
'pre' and 'post' shipment financing in emerging markets. Pre-shipment financing,
short-term funding to finance the inventory and production costs includes
tolling facilities, pre production finance, ex-works, on rail, in-warehouse and
on-board financing. The Company also participates in structured trade and
commodity transactions with banks and financial institutions.
Trade finance is an area of economic activity that has enjoyed
consistent growth over the last 50 years. However, the Company's management
knows of no statistics on this part of the trade finance market reflecting
either the volume of transaction or the market share of individual participants.
In the 1960's and 1970's the source of bills of exchange or promissory notes in
this market was from capital goods' exporters in Europe. These assets entered
the secondary market either through the exporter's bank, or in some countries,
through brokers. In recent years the market has developed to source paper from
the developing markets and to deal with other forms of financial transactions
not necessarily trade related. Trade finance is unregulated in the United
Kingdom, and is less subject to rescheduling when a creditor country has
external payment problems. Furthermore, trade related assets are usually priced
at a premium, compared to other financial assets with a similar risk profile.
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Distressed Debt Refinancing
The Company has launched a program to arrange the purchase of prime
bank obligations at prices significantly higher than their present market value.
The primary purpose of these purchases is for swapping into equities or
commodities that the Company has purchased at a deep discount to the market. The
difference between the purchase price for the prime bank obligations, although
greater than the normal market value, and the sale or swap price at current
market value of the basket of equities or commodities which the Company obtained
at lower prices, generates the profit margin for the Company.
Market Background
Management believes that it is generally known that since the autumn of
1997, the global economy has experienced tremendous turmoil. This has especially
effected the emerging markets. Many analysts forecast that, in the coming year
there will be a slowdown in economic growth for both the developed and the
developing markets. This can already be seen in the reduction in capital goods'
exports from the stronger economies to the emerging markets. Also, many emerging
market exporters have been impacted and are experiencing a sharp fall in their
export prices. The major world financial markets reflect these events and
international financial institutions, such as the International Monetary Fund
("IMF") and the World Bank, have only a limited ability to deal with the
problems created in the current economic climate. Adding to the uncertainty is
the introduction of a major New World currency, the Euro.
Market Outlook
The Company's management believes that there is an increasing need for
banking institutions to support the stability of developed and developing
economies and help maintain their most important trade relationships. As the
distressed emerging economies seek to trade their way out of recession, they
will put particular emphasis on building and maintaining solid trade finance
facilities. Meanwhile there has been a reduced interest in emerging market
financial paper in banking and equity investment institutions. This is expected
to remain at a reduced level for at least the next year.
The Company believes the likelihood of reduced interest rates in
several of the major currencies will increase, as the fear of inflation becomes
less of a concern than the stability of the financial markets. Investment in
emerging markets will continue to be revalued at lower levels, and should
therefore give rise to higher yields. Many banks in emerging markets are likely
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to sell their international assets to increase their liquidity as they face the
need to make higher provisions on their domestic loan portfolios. Primary
commodity exporters in particular will need to manage their liquidity more
stringently.
In countries such as Japan and Korea, capital goods' exporters and
their banks may seek to liquidate some of their trade receivables in order to
provide working capital for their ongoing businesses.
Employees
As of the date hereof, the Company employed eight full-time
individuals, consisting of one executive officer, three market traders and four
office staff personnel. In addition to its full-time employees, the Company may
use the services of consultants on a contract basis as necessary. Management
considers the relations between the Company and its employees to be good.
Competition
To the best knowledge of the Company, the only other publicly held
company in this market is London Forfaiting Company PLC. This company has a
capital base of over $264 million, a staff of 200 and turnover in 1998 of about
$2.8 billion. This company is the only public source of financial information in
this industry and is arguably the biggest participant. Other major competitors
in this market include Standard Bank London Ltd., Westdeutsche Landesbank
(formerly West Merchant Bank), HSBC and Deutsche Bank.
Proposed Developments
The Company has existing contacts in the primary market and
distribution to the secondary market for both of its core businesses, structured
trade and commodity finance and non-recourse finance. The Company intends to
apply its skills in trade finance selectively to both expand these core
businesses and develop new niche businesses that have been identified as natural
extensions of the core business. Management believes that these developments
would:
* Take advantage of the present world economic situation and the
existing perceived weakness of the competition, to develop the primary
market penetration of the core businesses. This would give the Company
the opportunity to earn higher fees and capital gains by dealing direct
with capital goods' and commodity exporters in countries where the
local banking system may be too illiquid to provide more traditional
methods of financing. Initially the Company would market direct from
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London to the European market and establish regional offices to
identify and develop relationships with exporters in Asia and the
Americas. These regional offices would also establish relationships
with a limited number of local banks and brokers with good local
corporate contacts. As a first step, the Company is presently
negotiating a joint venture in the Far East.
* Develop the structured trade and commodity finance operation
concentrating on both high value products and markets where traditional
finance methods are not available. Management will focus on established
smaller and medium sized trading companies and undertake only the most
secure transactions. Transactions, such as pre-export finance and
countertrade can lead to high margin banking returns and fee income.
However these transactions are often complex and require flexible and
innovative financing arrangements.
* Enable the Company to purchase trade receivable assets at favorable
prices from distressed banks in certain developing countries and
liquidate these investments, either through arranging structured trade
finance deals or undertaking debt/equity swap business. This is similar
to re-scheduled debt developed in Latin America and Poland during the
mid 1980's. This business may concentrate initially on countries such
as Indonesia where the Company has strong existing relationships.
Although many of these activities are primarily fee generating, profits
will also be made from participating in the underlying transactions.
The Company has been advised that its core businesses do not require
supervision from the Financial Services Authority. However some of the
proposed development activities may require clearance from or
supervision by the United Kingdom regulatory authorities.
Operations and Finance
Management believes that it is important to maintain a system of
internal controls to manage and communicate with the Company's traders. An
experienced trader in the Company can complete an average of about two
transactions per week. Speed of reaction to change and new business inquiry is a
key ingredient to success in this market, which requires short reporting lines
and a pro-active credit research function.
The Company's trading teams use their skills and experience to source,
price and structure transactions and to develop secondary market buyers. This
ability to place an asset in the secondary market plays an important part in
reducing many of the risks associated with carrying the assets in the portfolio,
including asset concentration and interest rates.
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The potential profitability of the Company's transactions are
influenced by the credit research function. In addition to reviewing
"counterparty" (a buyer or seller of assets or obligations with another party)
and individual credit risks, credit research maintains a constant review of
emerging market risks. Researchers must be able to identify improving and/or
deteriorating economic situations to ensure that purchases and sales of assets
are made in a timely fashion. Also, in order to minimize interest rate risk,
researchers also provide advice on the interest rate outlook for the world's
major currencies.
Trading limits, internal controls and accounting principals that have
been adopted by the Company are similar to those applicable to a small merchant
bank. Valuation of assets in the Company's portfolio, which assets are typically
unquoted and trade only in a limited market, necessarily depends on input from
the Company's directors. Management must also keep current internal financial
information concerning the Company's business including normal budgeting
procedure and production of daily and monthly management accounting data.
The size of the Company's portfolio varies considerably from
month-to-month depending on both deal flow and the Company's views on the
interest rate and macro economic outlooks. Management believes, base on past
experience, that in the primary market, the holding period for assets is often
two to three months before an asset can be safely and profitably sold. This
reality determines the minimum level of the Company's portfolio. Size of the
portfolio is also constrained by the need to act within prudent leverage limits.
Risk Management
General
Trade finance is one of the oldest banking finance activities. Risks
associated with the Company's business are those most usually associated with
and undertaken within a bank. Therefore, control mechanisms for monitoring and
limiting these risks are based on controls that would be expected of a small
merchant banking operation. However it must be emphasized that due to the
trading nature of the Company's business, it must rely on its speed of reaction
to customer inquiry and changes in market conditions to achieve profitability.
These prerequisites require a flexible management structure with short reporting
lines.
Because the Company is not a deposit taking institution and trades only
with professional counterparties, the Financial Services Authority's ("FSA")
banking supervision department does not monitor its business. In the event the
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Company begins dealing in financial instruments such as bonds and equities,
management believes that the Company's business would become under the
supervision of the FSA.
Risk Categories
* Transactional. Non-recourse trade finance purchases are frequently made
"subject to documentation" and sometimes pay under reserve before the
documentation is finally approved. This requires the Company to have good
technical skills, financial reliability and probity of its counterparties. It is
also common practice to commit to purchase a transaction from an exporter at a
pre-determined rate of interest and to hold the commitment open for a period to
allow the exporter to negotiate its contract with the importer. These
commitments are fee earning and require the Company to take an informed view of
the interest rate outlook in the particular currency concerned. The primary
forfaiter also has the duty to know his customer and ensure that the underlying
transaction is bona fide. In the event of fraud, the "non-recourse" element of
the transaction is nullified and each party may proceed against the person from
whom they purchased the commitment. Each transaction has different documentation
covering such matters as the importer's legal right to import the equipment and
to finance the deal. The primary forfaiter will need to check the importer's
bank's ability to guarantee the transaction and the confirmation that the
financial obligation of the importer and his bank are abstract from the
performance of the underlying contract for delivery of goods.
* Portfolio Management. The Company's portfolio of trading assets is made up
of bills of exchange, promissory notes and other negotiable trade finance
instruments denominated in "hard" currencies. The great majority of these
instruments are purchased on the basis of discounting through to maturity for
periods of six months to five years. Prudent management demands that currency
and interest rate risks are minimized. The Company assesses these credit risks
on a daily basis to ensure that the it buys into improving risk categories and
sells assets in potentially deteriorating categories early to avoid potential
illiquidity. In addition to the day-to-day maintenance of the trading assets
portfolio, it is necessary to maintain adequate liquidity to purchase new
transactions as they arise. Although the Company's capital base provides
underlying funding for the portfolio, it is important to maintain adequate
funding facilities to permit prudent planning for such an operation. Management
believes that this is approximately three times its capital and reserves. In
difficult market conditions, it may be necessary to seek secured credit lines or
to maintain a higher level of short-term liquidity.
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* Contingent Liabilities. It is common market practice from time-to-time to
issue confirmations of letters of credit and to enter into "repo" facilities
with other market participants to borrow or lend transactions. These reciprocity
arrangements make it possible for the parties to spread and share the risk. Such
arrangements are only entered into with known and reliable counterparties.
* Structured Trade Finance. This activity is primarily fee based and
therefore less reliant on using the Company's balance sheet. Many of the
transactions are secured by cash deposits, liens over the assets being financed,
or a third party letter of credit. However, the business does involve the
Company in several contingent liabilities related to both the clients'
management skills and experience in performing their contractual obligations and
the reliability of the documentation.
Internal Controls
* Transaction Approval. All existing or potential new counterparties are
subjected to a credit approval procedure by the Company's research department.
Credit limits are then established for the counterparty. These limits will be
authorized by two signatories including one from the research department and at
least one other designated signatory. A form will evidence each inquiry
concerning a potential transaction. All written indication quotations in
response to an inquiry must be signed by at least two designated signatories.
All firm quotes must be signed by at least one designated signatory and may only
be given after the credit has been approved (see below). After the purchase of
the transaction has been approved and the commitment confirmed to the seller by
at least one designated signatory, the underlying internal accounting
documentation must be signed by at least two designated signatories. All
correspondence confirming the sale of assets must be signed by at least one
designated signatory.
* Credit. All new deal "inquiries" are copied to the credit research
department for appraisal. In the highly competitive non-recourse market, speed
of response to inquiries is critical to success in bidding for transactions. The
three main areas of risk to be appraised are (i) country risk, (ii) bank risk,
and (iii) on an infrequent basis, corporate risk. Credit limits are established
for certain countries and for banks within those countries to provide the
trading desk with guidelines for transactions up to a certain size. The research
facility has access to up-to-date information regarding current situation in all
relevant countries and maintains a database on banks within those countries.
This information is augmented by the appointment of selected advisors covering
countries of particular interest and by regular appraisal visits. Once the
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creditworthiness of a transaction is investigated, the trading team approves the
transaction and then the head of trading must approve the transaction based on
salability. This procedure is designed to guard against an illiquid portfolio.
* Structured Trade Finance. The credit research department analyzes each
transaction and the individual risk components are assessed. Research of the
prospective transaction, a designated signature from the trading team and credit
approval must be completed before a commitment is made to the client.
* Portfolio Management. The research department maintains a continuous
review of all risks pertaining to the portfolio as well as an active review of
emerging markets generally. They seek to identify as early as possible both
improving and deteriorating risks and advise the trading team accordingly.
Country and bank credit limits for the trading team are adjusted on a day-to-day
basis and authorized in writing by the head of research and a designated
signatory. All new inquiries are evaluated against existing portfolio assets as
to profitability. The interest rate risk arising from the fixed interest nature
of the portfolio assets are minimized both by constant turnover and, where
deemed prudent, by entering into interest rate swaps or forward rate agreements
for the relevant currencies. The heads of trading and research make decisions on
interest rate swaps and forward rate agreements on a day-to-day basis and,
currencies are considered in light of interest rate trends. Management believes
that it is not cost effective to hedge the portfolio. All currency exposure on
the portfolio is matched daily either through borrowings or through currency
swaps. The Board reviews the outstanding commitments to purchase new deals, on a
daily basis to ensure that adequate room exists in the portfolio to fulfill
these obligations. This may require existing assets to be sold. The Board also
needs to ensure that adequate liquid resources exist to finance the purchase of
new deals in all market circumstances.
* Treasury. The trading team is informed daily of upcoming asset purchases
and sales in order to plan the necessary financing and foreign exchange cover.
The treasury back-up team checks all treasury transactions initiated by the
treasurer. Confirmations of individual treasury transactions are sent to
counterparties daily. All payment and receipt instructions are confirmed by a
secure coded telex and independently checked by a signatory outside the treasury
requirements. The accounts department provides daily treasury position sheets.
The treasury back up team reconciles the bank accounts on a weekly basis which
requires a designated signatory.
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Finance
The basis of the production of all day-to-day management accounting
information relating to the trading activities is the "Rohirst" (trade name)
software program. This program has been developed to not only undertake the
onerous calculations needed to price the purchase and sale of deep discounted
assets, but also to provide daily summaries of the following:
* Detailed listing of deals by obligator including exposure
reports.
* Interest accruals on both assets and borrowings.
* Control account summaries.
Maturity Reports Covering Both Assets and Borrowings
The Company' secretary/treasurer is responsible for preparing budgets
and profit forecasts in conjunction with the Board. All portfolio risk exposure
and treasury positions are prepared daily and profit and loss accounts,
including updates of market values, are produced monthly.
Financial Information About Geographic Areas
The Company's operations are conducted within one business segment, the
financing of international trade credit for financial institutions and operating
companies. All of the Company's total business operations are conducted outside
of the United States.
The Company's operation are conducted in the United Kingdom. Trading is
conducted through financial institutions in other countries.
The composition of the notes by country of the issuing financial
institution is as follows:
Country Year end from inception
June 30, 1998 February 25 to
June 30 1997
- --------------------------------------------------------------------------------
Turkey 5.7% 80.3%
Russia 8.6 -
Ukraine 5.0 -
Czech Republic 11.6 -
Indonesia 57.8 -
Nigeria 11.3 -
Thailand - 12.5
Japan - 7.2
Total 100.0% 100.0%
- --------------------------------------------------------------------------------
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ITEM 2. Financial Information
Selected Financial Data
The selected consolidated financial data set forth below have been
derived from the Company's financial statements. This data should be read in
conjunction with the Company's consolidated financial statements and notes
thereto, with Management's Discussion and Analysis of Financial Condition, and
with the other financial information of the Company included elsewhere herein.
The selected consolidated statements of operations data for the six
month period ended December 31, 1998 and years ended June 30, 1998 and 1997, and
the selected consolidated balance sheet data as of December 31, 1998, June 30,
1998 and 1997 are derived from and are qualified by reference to, the audited
financial statements of the Company appearing elsewhere in this registration.
The results of operations are not necessarily indicative of results to be
expected for any future period.
Consolidated Statement of Operations:
(Dollars in Thousands)
Six Months
Ended Year Ended June 30, 1998
December 31, --------------------------------------------
1998 1998* 1997* 1996 1995 1994
-------- -------- -------- -------- -------- ------
Revenue $ 3,770 $ 5,216 $ 460 $ -0- $ -0- $ -0-
Operating Expenses 1,324 3,258 88 -0- -0- -0-
Loss Provisions 6,950 68
Net Income (Loss) 2,446 (4,922) 304 -0- (3) (3)
Consolidated Balance Sheets:
(Dollars in Thousands)
Six Months
Ended Year Ended June 30, 1998
December 31, ---------------------------------------------------------
1998 1998* 1997* 1996 1995 1994
-------- -------- -------- -------- -------- --------
Current Assets $ 31,638 $ 34,040 $ 9,453 $ -0- $ -0- $ -0-
Total Assets 35 35,516 9,456
Current Liabilities 12,123 15,177 9,152
Long Term Debt 34 27 -0-
Common Stock 17 9,250 9,250 19 19 19
Paid in Capital 25,263 750 750 36 36 36
Retained Deficit (2,309) (4,688) 304 (55) (55) (52)
* Effect given to the recapitalization as if it had occurred
July 1, 1996.
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Rotunda Oil & Mining, Inc. was a development stage company
from its inception at November 19, 1980 until its acquisition of
Euro Trade Limited on November 20, 1998.
Euro Trade Limited was chartered in the United Kingdom on February 25,
1997 and operated as a United Kingdom limited company until it was acquired on
November 20, 1998. The Company and its subsidiary were recapitalized into a new
corporate structure on November 20, 1998. The transactions were accounted for as
a statutory merger. On the date of the acquisition, Rotunda Oil & Mining, Inc.
had substantially the same consolidated net worth as Euro Trade Limited prior to
the reorganization.
Subsequent to the acquisition, the Company raised funds through a
private placement offering pursuant to an exemption contained in regulation D,
Rule 504, promulgated under the Securities Act of 1933, as amended. The Company
sold 3,979,750 shares at a price of $.05 per share. The offering was closed on
December 2, 1998.
On December 14 1998, John Vowell, the Managing Director of the Company,
exercised warrants for 750,000 shares of the Company's common stock under an
employee stock-compensation plan regulated in the United Kingdom.
Management's Discussion and Analysis of Financial condition and
Results of Operations
The following information should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this
Form 10.
Rotunda Oil & Mining Company was a development stage company in 1996.
Euro Trade Limited began operations on February 25, 1997. Inclusion of financial
information prior to February 1997 is not believed to be material and is
therefore omitted.
Results of Operations
Acquisitions
The Company continues to pursue strategic alternatives to maximize the
value of its portfolio of businesses. Some of these alternatives have included,
and will continue to include selective acquisitions, divestitures and sales of
certain assets. The Company has provided, and may from time to time in the
future, provide information to interested parties regarding portions of its
businesses for such purposes.
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The following table sets forth the percentage relationship to total
revenues of principal items contained in the Company's Consolidated Statements
of Operations for the six month period ended December 30, 1998 and the two most
recent fiscal years ended June 30, 1998 and 1997. It should be noted that
percentages discussed throughout this analysis are stated on an approximate
basis.
Six Months Ended
December 31, December 31,
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
Total revenue .......... 100% 100% 100% 100%
Costs of Revenues
Interest ............. 11 8 21 --
Provisions for Losses. -- -- 133 15
Gross Profit (Loss) .... 89 92 (54) 85
Selling, General and
Administrative Expenses 24 19 42 19
Net Income (Loss) ...... 65 73 (96) 66
For the six month period ended December 31, 1998 compared to the six month
period ended December 31, 1997.
The Company (Euro Trade Limited) began operations on February 25, 1997.
For the period ended December 31, 1997 the Company generated $4.0 million in
revenue, $2.5 million from interest and fees, and $1.5 from the sale of
portfolio assets.
For the period ending December 31, 1998 the Company generated $3.7
million in revenue, $2.0 million from interest and fees, and $1.7 from the sale
of portfolio assets. The volume of operating revenues was reduced because of the
reduction of assets resulting from loan losses and asset sales.
Cost of revenue consisted solely of interest of $303 and $404 thousand
dollars in the period ending December 31, 1997 and 1998 respectively. The 33%
increase for the 1998 period was due to higher interest costs.
Selling general and administrative expenses were principally from
selling costs and related salaries and costs. Selling general and administrative
expenses were $780 and $920 thousand in the period ending December 31, 1997 and
1998 respectively. The 18% increase for the 1998 period was attributed to
increased employee costs due to an expansion of staff. Expenses in the
succeeding periods will be substantially higher primarily due to increased
selling volume and related expenses.
-17-
For the year ended June 30, 1998 compared to the year ended June 30, 1997.
Revenues for 1998 increased to $5.2 million from $1.4 million in 1997
on annualized basis. Sales increased primarily due to implementation of the
Company's fundamental operating plan.
Cost of revenue for 1998 increased to $8.0 million from $68,000 in 1997
on an annualized basis. The increases in cost of revenues reflect the increased
operating activity and $7.0 million in loan loss reserves charged to income.
Depreciation expense was $20,000 in 1998.
Selling, administrative and general expenses for 1998 increased to $2.2
million in 1998 from $88,000 in 1997 also due to the increased operating
activity in 1998. These expenses are primarily personnel and occupancy costs.
Interest expense increased to $1.1 million in 1998 from $0 in 1997
reflecting the implementation of management's operation plan and increased
operating activity.
No net tax provision has been made for 1998 or 1997 respectively, based
on pre-tax operation losses. The Company pays taxes under both the United
Kingdom and United States tax laws.
Net loss in 1998 totaled $4.9 million or $.20 per share of common
stock. Net income in 1997 totaled $304 thousand or income of $.01 per share of
common stock.
Liquidity and Capital Resources
Short term trading investments and related short-term borrowings are
reported as cash flow from operating activities. Working capital accounts
(excluding cash short term investments, short term borrowings and current
maturities of long term debt) increased by $20 million including an increase of
$13.6 million of forfaiting assets before $7.0 million in allowances for loan
losses due to the financial crisis in Russia and Asia. Trade payables decreased
$917,000 due to $25 million from the initial capitalization of Euro Trade. Net
cash flow from financing activities totaled $6.6 million net of Euro Trade's
credit arrangements with financial institutions. $27 thousand of long-term debt
was utilized for purchase of office equipment.
Inflation
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
-18-
Year 2000
Year 2000 issues may arise if computer programs have been written using
two digits (rather than four) to define the applicable year. Thus, on January 1,
2000 any clock or date recording mechanism including date sensitive software
that uses only two digits to represent the year, may recognize a date of 00 as
1900 instead of 2000. This could result in a system failure or miscalculations
causing disruption of operations, including among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activity.
Management believes that the Company's equipment currently in operation
including fax machines and personal computers, will function properly with
respect to dates in the year 2000. It is the Company's policy that all equipment
and software purchased will be year 2000 compliant.
Failure to correct a year 2000 problem could result in an interruption
of certain normal business activities or operations. Management does not expect
any issues that would cause such an interruption. The Company believes that
interruption from year 2000 problems will be minimal. The Company has not
developed any contingent plans regarding failure of any year 2000 operation of
the business. No substantial capital and maintenance expenditures will be
required to maintain and, or, upgrade operating facilities to remain competitive
and to comply with environmental requirements. The Company is not subject to the
Clean Air Act or its amendment of 1990.
The Company is in the process of contacting all of it significant
business contacts to determine the extent to which the Companies interface with
the contacts make it vulnerable to any third party failure to make their own
systems year 2000 compliant. At this time, the Company cannot estimate the
effect, if any, that non-compliant systems at these entities will have on the
Company's business, operating results and financial condition.
The total cost associated with required modifications to become year
2000 compliant is not expected to be material to the Company's financial
condition or results of operations. No funds are currently being provided to the
project.
Risk Factors and Cautionary Statements
This registration statement contains certain forward-looking
statements. The Company wishes to advise readers that actual results may differ
substantially from such forward-looking statements. Forward-looking statements
-19-
involve risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements, including, but
not limited to, the following: trading market risks, currency fluctuations, wold
economic conditions and risks generally associated with the trading of financial
instruments.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per Share" and
Statement of Financial Accounting Standards No. 129 "Disclosures of Information
About an Entity's Capital Structure." SFAS No. 128 provides a different method
of calculating earnings per share than is currently used in accordance with
Accounting Principles Board Opinion No. 15, "Earnings Per Share." SFAS No. 128
provides for the calculation of "Basic" and "Dilutive" earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. SFAS No. 129 establishes standards for
disclosing information about an entity's capital structure. SFAS No. 128 and
SFAS No. 129 are effective for financial statements issued for periods ending
after December 15, 1997. Their implementation is not expected to have a material
effect on the financial statements.
The FASB has also issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributors to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that displays with the same prominence as other financial
statements. SFAS No. 131 supersedes SFAS No. 14 "Financial Reporting for
Segments of a Business Enterprise." SFAS No. 131 establishes standards on the
way that public companies report financial information about operating segments
in annual financial statements and requires reporting of selected information
about operating segments in interim financial statements issued to the public.
It also establishes standards for disclosure regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of a company about which separate financial information is available
-20-
that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance.
SFAS 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and requires comparative information for
earlier years to be restated. Management believes that the implementation of the
new standards will not have a material effect on the Company's financial
statements.
The FASB has also issued SFAS No 132. "Employers' Disclosures about
Pensions and other Postretirement Benefits," which standardizes the disclosure
requirements for pensions and other Postretirement benefits and requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis. SFAS No. 132 is effective
for years beginning after December 15, 1997 and requires comparative information
for earlier years to be restated, unless such information is not readily
available. Management believes the adoption of this statement will have no
material impact on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivatives as assets or liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Management believes the adoption of this
statement will have no material impact on the Company's financial statements.
Quantitative And Qualitative Disclosures About Market Risk
Foreign Currency Exchange Rate Risk
The Company is subject to the risk of price fluctuations related to
anticipated revenues, operating costs and expenditures incurred in currencies
other than US dollars. The Company has not generally used derivative instruments
to manage this risk.
Equity Price Risk
The Company is not currently subject to equity price risk resulting
from investments in marketable equity securities of unrelated parties. Any
future investments will be accounted for in accordance with Statement of
-21
Financial Accounting Standards No. 115. Accounting for Certain Investments in
Debt and Equity Securities "SFAS 115".
The Company has financed its operations primarily through private sales
of equity and short-term bank loans. For the six months ended December 31, 1998
the Company raised $198,987.50 in cash from the sale of its stock through a
private placement offering pursuant to an exemption contained in regulation D,
Rule 504 promulgated under the Securities Act of 1933, as amended. The Company
collected $25 million in cash from the sale of stock in the prior year. For the
year ended June 30, 1998 and the period from inception (February 25, 1997) to
June 30, 1997 the Company secured Bank debt of $6.5 million and $6.3 million
respectively. At December 31, 1998 the Company had outstanding warrants for
1,750,000 shares of its stock that had been paid for in a previous period.
At December 31, 1998 the Company's principal source of liquidity was
$21.8 million in cash of which $4.2 million is held as compensating balances on
Bank debt of $10.8 million. At December 31, 1998 the Company had no material
long-term debt or long term commitments.
In the six months ended December 31, 1998 cash provide by operations
was $4.8 million due to net income for the period of $2.4 million and an
increase of other assets of $2.0 million. The Company had an accumulated deficit
at December 31, 1998 of $2.3 million. The Company did not provide for any
additional loan losses in the unaudited results for the six months ended
December 31, 1998. Management believes that reserves accrued in the prior
periods are adequate to provide for loan losses in the existing forfaiting asset
portfolio.
There can be no assurance that either the net income for the period or
the current loan loss provisions are indicative of future operations. There are
no assurances that continuing financing will be available at terms favorable to
the Company. The Company has no current plans to raise capital from the sale of
its stock.
Interest Rate Risk
The Company is subject to the effects of interest rate fluctuations on
its financial instruments. A sensitivity analysis of the projected incremental
effect of a hypothetical 10% change in 1998 year-end interest rates on the fair
value of its financial instruments is provided in the following table.
-22-
Dollars in Thousands
Fair
Carrying Market Incremental (1)
Value Value Incr./(Decr.)
------- ------- -------
Financial assets:
Investment in Forfaiting Assets $14,644 $14,432 $ (212)
Financial liabilities:
Fixed-rate and variable rate debt
( all due within one year) $12,832 $12,941 $ 109
(1) Reflects a 10 % increase in interest rate of financial assets and a 10%
decrease in interest rates of financial liabilities.
Fair value of cash and cash equivalents, receivables, short-term
borrowings, accounts payable, accrued interest and variable- rate long-term debt
approximate their carrying values. These items are relatively insensitive to
changes in interest rates due to the short-term maturity of the instruments or
the variable nature of underlying interest rates. Accordingly, these items have
been excluded from the above table.
At June 30, 1998, the Company's operating portfolio included forfaiting
assets totaling $14.6 million after allowance for $7.0 million loan reserves.
The fair value of these instruments will increase or decrease as a result of
changes in market interest rates. The Company accounts for these financial
instruments in accordance with SFAS 107. Accordingly, each year the Company
adjusts the balances of its portfolio to fair market value. With any resulting
adjustment being charged or credited to income as an unrealized loss or gain and
included in cost of revenue. Realized gains and losses resulting from the
disposition of such assets are recorded as income in the period during which
such disposition takes place. During 1998 the Company realized gains of $780
thousand and unrealized losses of $7.0 million in connection with its forfaiting
asset portfolio. The Company provides no assurance that these results are
representative on a going forward basis.
The Company's exposure to increases in interest rates that might result
in a corresponding decrease in the fair value of its forfaiting assets portfolio
could have an unfavorable effect on the Company's results of operations and cash
flows.
ITEM 3. Properties
The Company leases office facilities located at 4835 North O'Connor,
Suite 134-136, Irving, Texas 75062, which it shares with other businesses. The
facility represents the Company's principal offices in the United States.
-23-
The Company's principal operations are located in London where the
Company lease the entire third floor of 9 King Street, London EC2V 8EA, United
Kingdom. The facility consists of 2,900 square feet of office space and is
leased pursuant to a ten year lease that commenced in March 1997. The lease is
subject to a rent review after five years. Currently, annual payments on the
property including rent, property taxes and service charge amount to $173
thousand per year. The Company has office equipment with a net book value of $74
thousand. Management believes that its present office facilities are adequate
for the Company's current business operations.
ITEM 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, to the best knowledge of
the Company as April 30, 1999, with respect to each person known by the Company
to own beneficially more than 5% of the Company's outstanding common stock, each
director and all directors and officers as a group, and is adjusted to reflect
the one (1) share for one hundred (100) shares reverse stock split effected by
the Company on November 20, 1998.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class(1)
- ------------------- -------------------- -----------
John Vowell * 750,000 4.4%
9 King Street
London EC2V 8EA
United Kingdom
Collinwood Investments Ltd. 4,400,000(2) 26.0%
East Hill Street
P.O. Box 3944
Bahamas
North Cascade Limited 6,600,000(3) 39.0%
Trident Chambers
P.O. Box 146
Road Town BVI
All directors and executive
officers as a group 750,000 4.4%
(3 persons in group)
- ---------------------------------------------------
* Director and/or executive officer
Note: Unless otherwise indicated in the footnotes below, the Company has been
advised that each person above has sole voting power over the shares
indicated above.
(1) As of April 30, 1999, there were 16,945,224 shares of common stock
outstanding.
(2) The directors of Collingwood Investments Limited are Colin Pearse and
Richard Baker and the secretary and principal shareholder is Richard
Baker.
-24-
(3) The director of North Cascade Limited is Robert Griffin and the
Secretary and principal shareholder is Richard Tanner.
ITEM 5. Directors and Executive Officers
As of the date hereof, the executive officers and directors of the
Company are as follows:
Name Age Position
Charles Sekar ...................41 Chairman of the Board and
director
John Vowell......................35 President, C.E.O. and Managing
Director
Mukesh Pancholi..................41 Secretary/Treasurer and director
- ----------
All directors hold office until the next annual meeting of stockholders
and until their successors have been duly elected and qualified. There are no
agreements with respect to the election of directors. The Company has not
compensated its directors for service on the Board of Directors or any committee
thereof, but directors are reimbursed for expenses incurred for attendance at
meetings of the Board of Directors and any committee of the Board of Directors.
Executive officers are appointed annually by the Board of Directors and each
executive officer serves at the discretion of the Board of Directors. The
Executive Committee of the Board of Directors, to the extent permitted under
Utah law, exercises all of the power and authority of the Board of Directors in
the management of the business and affairs of the Company between meetings of
the Board of Directors.
The business experience of each of the persons listed above during the
past five years is as follows:
Chandra Sekar has been the Chairman of the Company's Board of Directors
since 1997. During this period and since 1992, Mr. Sekar has also served as
executive administrator of Polysindo UK Limited. Mr. Sekar holds a Bachelor of
Industrial & System Engineering and a Master of Industrial & System Engineering
from Bandung Institute of Technology. Prior to 1992, he was associated with PT.
Caltex Pacific Oil Company in Indonesia, a joint venture among oil companies.
John Vowell is the President and Managing Director of the Company
responsible for day-to-day trading and administration activities and for
monitoring the Company's overall trading and investment portfolio exposures. He
also assists the forfaiting trading desk and in planning marketing strategy to
-25-
corporations and banks for both forfaiting and structured trade and commodity
finance transactions. Prior to joining Euro Trade Limited in 1997, Mr. Vowell
was a Senior Manager at Standard Bank London Limited from 1994 to 1997. He was
on of three founder members of the banks forfaiting team in London and developed
an active primary and secondary trading book. He was responsible for the
development and planning of the structured trade and commodity finance
department. From 1988 to 1994, Mr. Vowell was Assistant Manager of Trade Finance
for Sumitomo Bank Ltd. Mr. Vowell attended the St. Phillip Howard Secondary
School in Poplar, London from 1975 to 1980, but he does not hold any college
degrees.
Mukesh Pancholi joined Euro Trade Limited in 1997 and is the Company's
Secretary responsible for processing various forms of Trade Finance transactions
and other document controls. He is a member of the Credit Committee and
participates in all credit meetings with respect to approval of deals. Mr.
Pancholi is involved with marketing and developing customer relationships and
maintaining and developing existing and new banking relationships. He holds a
graduate diploma in Mathematics from DeMontfort University. Prior to joining the
Company, he was employed at Longulf Trading (UK) Limited from 1994 to 1997. His
responsibilities included processing various forms of trade finance transactions
and acting in a support role to the commodity trading desk. From 1988 to 1994 he
was an account officer at BCCI International, Swiss Cottage Branch.
ITEM 6. Executive Compensation
The Company does not have a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers or directors, nor
has the Company entered into employment contracts with any of the aforementioned
persons.
Cash Compensation
The following table sets forth all cash compensation paid by the
Company for services rendered to the Company for the fiscal years ended June 30,
1998 and 1997, to the Company's Chief Executive Officer.
Summary Compensation Table
Other All
Annual Other
Name and Compen- Compen-
Principal Position Year Salary Bonus sation sation
- ------------------ ---- ------ ----- ------ ------
John Vowell 1998 $228,000 $220,000 $-0- $ 20,000
C.E.O 1997 -0- -0- -0- -0-
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ITEM 7. Certain Relationships and Related Transactions
During the past two fiscal years, except as set forth below there have
been no transactions between the Company and any officer, director, nominee for
election as director, or any shareholder owning greater than five percent (5%)
of the Company's outstanding shares, nor any member of the above referenced
individuals' immediate family.
On December 14 1998, John Vowell, The Managing Director, of the
Company, exercised warrants for 750,000 shares of the Company's common stock
under an employee stock compensation Plan Regulated in the United Kingdom.
ITEM 8. Legal Proceedings
There are presently no material pending legal proceedings to which the
Company or any of its subsidiaries is a party or to which any of its property is
subject and, to the best of its knowledge, no such actions against the Company
are contemplated or threatened.
ITEM 9. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
No shares of the Company's common stock have previously been registered
with the Securities and Exchange Commission (the "Commission") or any state
securities agency or authority. The Company intends to make an application to
Nasdaq for the Company's shares to be quoted on The Nasdaq Stock Market. The
Company's application to the Nasdaq will consist of current corporate
information, financial statements and other documents as required by the
Securities Exchange Act of 1934, as amended, including this Registration
Statement. Inclusion on The Nasdaq Stock Market permits price quotations for the
Company's shares to be published by such service.
The Company's common stock is currently quoted on the OTC Bulletin
Board ("OTCBB") under the symbol "ETFC". For an extended period of time prior to
December 1998, there was not an established trading market for its common stock
nor was there a record of any significant trading in the public market.
As of April 30, 1999 there were approximately 410 holders of record of
the Company's common stock, which figure does not take into account those
shareholders whose certificates are held in the name of broker-dealers or other
nominees.
-27-
The Company's common stock has been trading on the OTCBB since
approximately December 3, 1998. The following table sets forth the range of high
and low bid prices of the common stock for each calendar quarterly period since
the fourth quarter of 1998 as reported by the National Quotation Bureau, Inc.
("NQB"). Prices reported by the NQB represent prices between dealers, do not
include retail markups, markdowns or commissions and do not represent actual
transactions.
High Low
---- ---
1998
Fourth Quarter $ 18.00 $ 1.00
1999
First Quarter $ 35.00 $ 5.25
Second Quarter* $ 18.00 $ 3.00
- --------------
o Through April 30, 1999.
Dividend Policy
The Company has not declared or paid cash dividends or made
distributions in the past, and the Company does not anticipate that it will pay
cash dividends or make distributions in the foreseeable future. The Company
currently intends to retain and invest future earnings to finance its
operations.
ITEM 10. Recent Sales of Unregistered Securities
Securities sold by the Company within the past three years that were
not registered under the Securities Act include sales of new issue common stock.
Subsequent to the acquisition Euro Trade Limited, the Company raised funds
through a private placement offering pursuant to an exemption contained in
Regulation D, Rule 504, promulgated under the Securities Act of 1933, as
amended. The Company sold 3,979,750.00 shares at a price of $.05 per share
raising a total of $198,987.50 out of an aggregate offering price of
$287,500.00. The offering was self-issued by the Company and was closed on
December 2, 1998. None of the securities issued were in exchange for property,
services, or other securities, and the new securities were the result from the
modification of outstanding securities. There were no underwriting discounts or
commissions.
On December 14 1998, John Vowell, the Managing Director of Euro Trade
exercised warrants for 750,000 shares of the Company's common stock under an
employee stock compensation Plan Regulated in the United Kingdom. The exercise
price for the shares was $.001 per share. This issuance was not registered with
the Commission because it was believed to be exempt form the registration
requirements of the Act under Section 4(2) of the Act.
-28-
The shares of the Company's common stock issued pursuant to the
acquisition of Euro Trade Limited also were not registered with the Commission
because it was believed to be exempt form the registration requirements of the
Act under Section 4(2) of the Act.
The following table sets forth information concerning the Company's use
of proceeds following the sale of shares pursuant to Regulation D.
Aggregate Offering Price of Securities
Private Placement Offered pursuant to
Rule 504...................................................... $287,500
Convertible Securities......................................... $1,750
Total.......................................................... $289,250
Expenses:
Transfer Agent Fees............................................ $1,500
Printing & Engraving........................................... $1,500
Legal Fees..................................................... $2,000
Total.......................................................... $5,000
Adjusted Gross Proceeds to Euro Trade.......................... $284,250
Use of Adjusted Gross Proceeds:
Acquisition expense Rotunda Oil & Mining....................... $142,250
Working Capital................................................ $85,000
Provisions for foreign currency
transactions.................................................. $57,000
Total.......................................................... $284,250
- -----------
Item 11. Description of Registrant's Securities to be Registered
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock,
par value $.001 per share, of which 16,945,224 shares are issued and outstanding
as of the date hereof. On November 20, 1998, the Company effected the one (1)
share for one hundred (100) shares reverse stock split of its common Stock. All
references to the Company's common stock herein are in post-split shares. All
shares of Common Stock have equal rights and privileges with respect to voting,
liquidation and dividend rights. Each share of Common Stock entitles the holder
thereof to (i) one non-cumulative vote for each share held of record on all
matters submitted to a vote of the stockholders; (ii) to participate equally and
to receive any and all such dividends as may be declared by the Board of
Directors out of funds legally available therefor; and (iii) to participate pro
-29-
rata in any distribution of assets available for distribution upon liquidation
of the Company. Stockholders of the Company have no preemptive rights to acquire
additional shares of Common Stock or any other securities. The Common Stock is
not subject to redemption and carries no subscription or conversion rights. All
outstanding shares of Common Stock are fully paid and non-assessable.
Item 12. Indemnification of Directors and Officers.
As permitted by the provisions of the Utah Revised Business Corporation
Act (the "Utah Act"), the Company has the power to indemnify an individual made
a party to a proceeding because they are or were a director, against liability
incurred in the proceeding, if such individual acted in good faith and in a
manner reasonably believed to be in, or not opposed to, the best interest of the
Company and, in a criminal proceeding, they had no reasonable cause to believe
their conduct was unlawful. Indemnification under this provision is limited to
reasonable expenses incurred in connection with the proceeding. The Company must
indemnify a director or officer who is successful, on the merits of otherwise,
in the defense of any proceeding or in defense of any claim, issue, or matter in
the proceeding, to which they are a party to because they are or were a director
of officer of the Company, against reasonable expenses incurred by them in
connection with the proceeding or claim with respect to which they have been
successful. Pursuant to the Utah Act, the Company's Board of Directors may
indemnify its officers, directors, agents, or employees against any loss or
damage sustained when acting in good faith in the performance of their corporate
duties.
The Company may pay for or reimburse reasonable expenses incurred by a
director, officer employee, fiduciary or agent of the Company who is a party to
a proceeding in advance of final disposition of the proceeding provided the
individual furnishes the Company with a written affirmation that their conduct
was in good faith and in a manner reasonably believed to be in, or not opposed
to, the best interest of the Company, and undertake to repay the advance if it
is ultimately determined that they did not meet such standard of conduct.
Also pursuant to the Utah Act, a corporation may set forth in its
articles of incorporation, by-laws or by resolution, a provision eliminating or
limiting in certain circumstances, liability of a director to the corporation or
its shareholders for monetary damages for any action taken or any failure to
take action as a director. This provision does not eliminate or limit the
liability of a director (i) for the amount of a financial benefit received by a
director to which they are not entitled; (ii) an intentional infliction of harm
on the corporation or its shareholders; (iii) for liability for a violation of
-30-
Section 16-10a-842 of the Utah Act (relating to the distributions made in
violation of the Utah Act); and (iv) an intentional violation of criminal law.
To date, the Company has not adopted such a provision in its Articles of
Incorporation, By-Laws, or by resolution. A corporation may not eliminate or
limit the liability of a director for any act or omission occurring prior to the
date when such provision becomes effective. The Utah Act also permits a
corporation to purchase and maintain liability insurance on behalf of its
directors, officers, employees, fiduciaries or agents.
Item 13. Financial Statements and Supplementary Data
The Company's consolidated financial statements as of and for the six
month period ended December 31, 1998 and the fiscal years ended June 30, 1998
and 1997, have all been examined to the extent indicated in their report by Marc
Lumer & Company, independent certified public accountants, and have been
prepared in accordance with generally accepted accounting principles and
pursuant to Regulation S-X as promulgated by the Securities and Exchange
Commission. The aforementioned financial statements are included herein in
response to Item 13 of this Form 10.
ITEM 14. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
In January 1999, the Company's Board of Directors made the decision to
change independent accountants. Previously the Company used as its independent
accountants the firm of Jones, Jensen & Company ("JJ&Y"). The Company has
engaged as its new auditors Marc Lumer & Company. Euro Trade Limited is audited
in the United Kingdom by Andrew Murray and Company, Chartered Accounts.
Hollander Lumer LLP has audited Euro Trade Limited since its inception for its
financial statements that are presented in conformity with United States
generally accepted accounting principles ("GAAP").
The Company is not aware of any disagreement with its former auditors
JJ&C or any adverse opinion, disclaimer of opinion, modification or
qualification contained in any financial report prepared by JJ&C for the past
two years.
-31-
ITEM 15. Financial Statements and Exhibits
(a) The following financial statements have been included under
Item 13 hereof:
(i) Consolidated Financial Statements for the six month
period ended December 31, 1998 and the fiscal years
ended June 30, 1998 and 1997.
(ii) Consolidated Proforma Financial Statements for the
years ended June 30, 1998 and 1997 and for the six
months ended December 31, 1998 and 1997
(b) EXHIBITS
The following exhibits are filed with this Registration Statement:
Exhibit No. Exhibit Name
- ----------- ------------
2.1 Acquisition Agreement and Plan of Reorganization with
Euro Trade & Forfaiting Company Limited
3.1 Articles of Incorporation and Amendments thereto
3.2 By-Laws of Registrant
4. See Exhibit No. 3.1, Articles of Incorporation,
Article VI
27. Financial Data Schedule
- ----------------
-32-
EURO TRADE & FORFAITING, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS...........................1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets for June 30, 1998 and 1997
and for December 31, 1998 (Unaudited).................................2
Statements of Operation for the Years Ended June 30, 1998 and 1997 and
for the Six Months Ended December 31, 1997
and 1998 (Unaudited)..................................................3
Statement of Stockholder Equity.......................................4
Statement of Cash flows for the Years Ended June 30, 1998
and 1997 and for the Six Months Ended December 31, 1998 (Unaudited)...5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.................................6
MARC LUMER & COMPANY Certified Public Accounts
Cerified Public Accountant Management Consultants
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
Euro Trade & Forfaiting, Inc.
Ihave audited the accompanying consolidated balance sheets of Euro Trade &
Forfaiting, Inc. ("The Company") as of June 30, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of The
Company's management. My responsibility is to express an opinion on these
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Euro Trade &
Forfaiting, Inc. and subsidiary as of June 30, 1998 and 1997 and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting.
San Francisco, California
April 25, 1999
234 Front Street, Suite 300 San Francisco, CA 94111 (415)362-7807
Fax:(415)982-3543
EURO TRADE & FORFAITING, INC.
BALANCE SHEETS
(In Thousands)
June 30, June 30, December 31,
1998 1997 1998
-------- -------- --------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 18,873 $ 1,367 $ 21,842
Interest receivable 523 86 467
Forfaiting assets (net of allowance) 14,644 8,000 9,329
-------- -------- --------
TOTAL CURRENT ASSETS 34,040 9,453 31,638
PROPERTY AND EQUIPMENT - NET 93 3 74
OTHER ASSETS 1,383 -- 3,392
-------- -------- --------
TOTAL ASSETS $ 35,516 $ 9,456 $ 35,104
======== ======== ========
LIABILITY AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and bank overdrafts $ 1,963 $ 2,880 $ 1,266
Accrued expenses 382 22 100
Loans payable:
Bank 12,832 -- 10,755
Related party -- 6,250 --
Deferred revenue -- -- 2
-------- -------- --------
TOTAL CURRENT LIABILITIES 15,177 9,152 12,123
-------- -------- --------
NOTE PAYABLE - NON CURRENT 27 -- 34
-------- -------- --------
COMMITMENT -- -- --
-------- -------- --------
TOTAL LIABILITIES 15,204 9,152 12,157
-------- -------- --------
STOCKHOLDERS' EQUITY
Preferred Stock, par value $1 authorized,
issued and outstanding 15,000 shares 15,000 15,000 0
Common Stock, Par value $1, authorized
10,000 shares; Issued 9,250 shares and
outstanding 750 shares 9,250 9,250 17
Additional paid-in capital 750 750 25,263
Retained earnings (deficit) (4,688) 304 (2,309)
Receivable from stockholder -- (25,000) (24)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY 20,312 304 22,947
-------- -------- --------
TOTAL LIABILITY AND STOCK-
HOLDERS' EQUITY $ 35,516 $ 9,456 $ 35,104
======== ======== ========
See accompanying notes and Accountant's Report.
Page 2
EURO TRADE & FORFAITING, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
(In Thousands)
Year Ended Six Months Ended
June 30, December 31,
1998 1997 1998 1997
-------- -------- -------- --------
(Unaudited)(Unaudited)
REVENUE $ 5,216 $ 460 $ 3,770 $ 4,036
COST OF REVENUES
Interest 1,088 0 404 303
Provisions for losses 6,950 68 -- --
-------- -------- -------- --------
TOTAL COST OF REVENUE 8,038 68 404 303
-------- -------- -------- --------
GROSS PROFIT (LOSS) (2,822) 392 3,366 3,733
Selling, general and administrative 2,170 88 920 780
-------- -------- -------- --------
NET INCOME (LOSS) $ (4,992) $ 304 $ 2,446 $ 2,953
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE $ (.20) $ .01 $ .14 $ .12
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
SHARES EQUIVALENTS
OUTSTANDING 25,000 25,000 16,945 25.000
======== ======== ======== ========
See accompanying notes and Accountant's Report.
Page 3
EURO TRADE & FORFAITING, INC.
STATEMENT OF STOCKHOLDER EQUITY
(In Thousands)
Common Stock Preferred Stock Paid-in Retained Receivable
Shares Amount Shares Amount Capital Earnings Stockholder Total
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE, June 30, 1996 0 $ 0 0 $ 0 $ 0 $ 0 $ 0 $ 0
Stock Issued 9,250 9,250 15,000 15,000 750 (25,000) 0
Net income -- -- -- -- -- 304 -- 304
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE, June 30, 1997 9,250 9,250 15,000 15,000 750 304 (25,000) 304
Payment received on
Stockholder receivable -- -- -- -- -- -- 25,000 25,000
Net loss -- -- -- -- -- (4,992) -- (4,992)
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE, June 30, 1998 9,250 9,250 15,000 15,000 750 (4,688) 20,312
Options Exercised 750 750 -- -- (750) -- -- --
Exchange:
Euro Trade shares acquired (10,000) (10,000) (15,000) (15,000) 25,000 -- -- --
New Rotunda shares issued 11,750 12 -- -- -- -- -- 12
Recapitalization 195 -- -- -- 43 (67) -- (24)
Exercise of option 1,000 1 -- -- 24 -- (24) 1
Sale of shares for cash 4,000 4 -- -- 196 -- -- 200
Net income -- -- -- -- -- 2,446 -- 2,446
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE,
December 31, 1998 (unaudited) 16,945 $ 17 -- $ -- $ 25,263 $ (2,309) $ (24) $ 22,947
======== ======== ======== ======== ======== ======== ======== ========
See accompanying notes and Accountant's Report.
Page 4
EURO TRADE & FORFAITING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998 (UNAUDITED)
June 30, June 30, December 31,
1998 1997 1998
--------- --------- ---------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Purchase of forfaiting assets $(216,984) $ (10,865) $ (22,368)
Proceeds from sales and maturity
of forfaiting assets 203,391 2,797 27,673
Net income (loss) from operations (4,992) 304 2,446
Depreciation 42 -- -- 19
Loan loss reserves 6,950 68 --
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
(Increase) decrease in:
Interest receivable (437) (86) 56
Other assets (1,383) -- (2,009)
Increase (decrease) in:
Accounts payable and overdrafts (917) 2,880 (697)
Accrued expenses 360 22 (282)
--------- --------- ---------
NET CASH (USED IN) PROVIDED
BY OPERATING ACTIVIES (13,970) (4,880) 4,838
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from banks (repayment) 6,582 6,250 (2,077)
Equipment financing 27 -- 7
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 6,609 6,250 (2,070)
--------- --------- ---------
CASH FLOWS FROM INVESTING
Purchase of equipment (133) (3) --
Sale of securities 25,000 -- 201
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 24,867 (3) 201
--------- --------- ---------
INCREASE IN CASH 17,506 1,367 2,969
CASH AT BEGINNING OF PERIOD 1,367 -- 18,873
--------- --------- ---------
CASH AT END OF PERIOD $ 18,873 $ 1,367 $ 21,842
========= ========= =========
See accompanying notes and Accountant's Report.
Page 5
EURO TRADE & FORFAITING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
NOTE A ORGANIZATION AND ACCOUNTING BASIS
Rotunda Oil and Mining, Inc., incorporated under the Laws of Utah on November
19, 1980, was a development stage company until November 20, 1998 when it
acquired Euro Trade & Forfaiting Co. Limited in exchange for substantially 100%
all of its outstanding shares. See Note B.
As a result of the merger, Rotunda Oil and Mining, Inc. changed its name to Euro
Trade & Forfaiting, Inc. (The Company) on December 1, 1998.
Euro Trade & Forfaiting Co. Limited is a wholly owned subsidiary, incorporated
under the laws of United Kingdom on February 25. 1997.
Significant Accounting Policies Basis Of Consolidation
- ------------------------------------------------------
The consolidated financial statements include the accounts of the company and
its wholly owned subsidiary. The company is engaged in a single line of business
as a financier in connection with international trade and the arrangement and
syndication of transferable export letters of credit. Any pre-consolidation
inter-company balances have been eliminated.
Accounting Method
- -----------------
The Company maintains its books on the accrual basis of accounting.
Cash and Cash Equivalents
- -------------------------
The Company considers all purchases from financial institutions of highly liquid
debt instruments with maturities of three months or less to be cash equivalents.
Compensating Balances
- ---------------------
Cash in the amount of $4.2 million was on deposit in financial institutions
subject to compensating balance agreements for loans. See Note F.
The Company borrows the funds necessary to purchase forfaiting assets. The
lenders require that cash be deposited in interest bearing accounts until the
corresponding loan matures.
Collateral
- ----------
The Company reports assets it has pledged as collateral in secured borrowing and
other arrangements when the secured party cannot sell or re-pledge the assets or
Euro Trade can substitute collateral or otherwise redeem it on short notice.
Page 6
EURO TRADE & FORFAITING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
NOTE A ORGANIZATION AND ACCOUNTING BASIS (Continued)
Transactions of Foreign Currencies
- ----------------------------------
The Company and its subsidiary treat the U.S. dollar as their functional
currency. Accordingly, gains and losses resulting from the translation of
accounts designated in other than the functional currency are reflected in the
determination of net income.
At June 30, 1998, monetary assets and liabilities of The Company are denominated
in the following currencies:
U.S. Pounds Deutsche
Total Dollars Sterling Marks
----- ------- -------- -----
Cash and Equivalents 100% 91 -- 9
Forfaiting Assets 100% 20 -- 80
Current Liabilities 100% 99 1 --
At June 30, 1997, monetary assets and liabilities of The Company are denominated
in the following currencies:
Total Dollars Sterling Marks
----- ------- -------- -----
Cash and equivalents 18,873 18,221 157 495
Forfaiting Assets 15,904 13,203 1,790 911
Current Liabilities 15,176 12,230 1,959 988
Financial instruments are valued at fair value as determined by management.
U.S. Pounds Deutsche
Total Dollars Sterling Marks
----- ------- -------- -----
Cash and Equivalents 100% 96 1 3
Forfaiting Assets 100% 83 11 6
Current Liabilities 100% 80 13 7
Page 7
EURO TRADE & FORFAITING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
NOTE A ORGANIZATION AND ACCOUNTING BASIS (Continued)
Income Taxes
- ------------
The Company and its subsidiary will not be included in a consolidated federal
income tax return filed by the parent. Federal income taxes are calculated as if
the companies filed on a separate return basis, and the amount of current tax or
benefit calculated is either remitted to or received from The Company. The
amount of current and deferred taxes payable or refundable is recognized as of
the date of the financial statements, using currently enacted tax laws and
rates. Deferred tax expenses of benefits are recognized in the financial
statements for the changes in deferred tax liabilities or assets between years.
Depreciation
- ------------
Depreciation is calculated to write down the cost of tangible fixed assets to
their residual values over the period of their estimated useful lives using the
straight line method as follows:
Computer Equipment 3 years
Furniture, Fixtures and Fittings 4 years
Net Income Per Share
- --------------------
Net income per share is computed using the weighted average number of common
shares and common share equivalents outstanding during the respective periods.
Common shares equivalents consist of The Company's preferred stock and shares
issuable upon the exercise of stock options. All stock options have been treated
as if they were outstanding for all periods.
Related Parties
- ---------------
The Company paid salaries and director fees of $ 531,747 to a principal employee
and director. The Company paid management fees of $25,190 and $0l in fiscal 1998
and 1997, respectively, to Norfil Ltd., a company controlled by the then
majority shareholder.
Stock Option Plans
- ------------------
In 1997 Euro Trade established a stock option plan for the Managing Director. In
accordance with British law, the shares are purchased and held in treasury until
the options are exercised.
Page 8
EURO TRADE & FORFAITING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
NOTE A ORGANIZATION AND ACCOUNTING BASIS (Continued)
Forfaiting Transactions
- -----------------------
Proprietary transactions are recorded on the trade date. Profits and loss
arising from sales entered into for the account and risk of the subsidiary are
recorded on the settlement date basis.
Amount receivable and payable for forfaiting transactions that have not yet
reached their contractual settlement date are recorded net on the balance sheet.
Fair Value of Financial Instruments
- -----------------------------------
The carrying value of financial instruments such as cash and cash equivalents
and accrued interest income approximate their fair market value using the
specific identification method.
Revue Recognition
- -----------------
Interest income on forfaiting assets is recognized based on principal amounts
outstanding, at applicable interest rates. Accrual of interest on loans is
discontinued (non-accrual status when reasonable doubt exists as to the full,
timely collection of interests or principle, or when payment of principle or
interest is past due 90 days, unless the loan is currently in the process of
collection. When a loan is placed on non-interest income in the current period,
income recognition on such loans is on the cash basis, unless the reasonable
doubt is reversed. All cash receipts on reasonable doubt loans are applied to
the principal balance.
Because forfaiting assets typically mature in less than one year, the company's
policy is to recognize fees and costs associated with these assets in the year
received or paid.
Allowance for Loan Losses
- -------------------------
Management makes regular credit reviews of the forfaiting portfolio on an
individual loan basis. Past experience, current economic conditions, and
problems associated with specific lenders, are all factors in determining the
adequacy of the allowance balance. The allowance is increased by provision
charged to operating expense and by recoveries on loans previously charged off,
and reduced by charge-offs.
Page 9
EURO TRADE & FORFAITING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
NOTE A ORGANIZATION AND ACCOUNTING BASIS (Continued)
Interim Financial Information (Unaudited)
- -----------------------------------------
The accompanying unaudited financial statements as of December 31, 1998 and for
the six months ended December 31, 1998 and 1997 have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, all adjustments (consisting only of normal,
recurring adjustments) necessary for a fair presentation, have been included
except loan loss reserves. Results for the interim periods are not necessarily
indicative of the results to be expected for a full year.
Accrued Compensated Absences
- ----------------------------
The Company has not established a policy with respect to compensated absences.
Accordingly, no accrual has been made as prescribed by Statement of Financial
Accounting Standards No. 43.
Use of Estimates
- ----------------
The preparation of the financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from those
estimates.
NOTE B REORGANIZATION
The following are the principal terms with respect to the exchange of shares of
capital stock of Euro Trade & Forfaiting, Inc. (The Company), a Utah corporation
(formerly Rotunda Oil and Mining, Inc.) for the shares of Euro Trade &
Forfaiting Co. Limited (Euro Trade) a United Kingdom corporation.
Pre-Exchange Capitalization
- ---------------------------
On November 10, 1998, The Company declared a reverse stock split of 1 for 1,000
of the outstanding shares. As a result, 19.5 million outstanding shares were
reduced to 195 thousand outstanding shares.
Euro Trade issued 15 million preferred shares and 9.2 million common shares for
cash on February 25, 1997. An option for .8 million shares of the common stock
was issued on the same date and funded as required by United Kingdom law.
The option was exercised immediately prior to the exchange.
Page 10
EURO TRADE & FORFAITING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
NOTE B REORGANIZATION (Continued)
Equity Conversion Mechanics
- ---------------------------
At the closing of the exchange, The Company issued and exchanged 11.8 million
shares of restricted Rule 144 common stock for all of the outstanding common and
preferred shares of Euro Trade.
After the closing, two options were granted for .5 million shares of the
company's common stock at a price of $.025. The options were exercised
immediately. Approximately $500 was paid for each option. The remaining $12,000
is due June 30, 1999.
Additionally, The Company issued an aggregate of 4 million new shares of common
stock at $.05 per share.
The Company will hold the shares of Euro Trade, which will continue to operate
as a subsidiary.
Post Exchange Capitalization
- ----------------------------
After the exchange and the subsequent offering of 5 million shares of common
stock, the capitalization consisted of 16.9 million shares of common stock of
which 11.8 million are restricted.
Basis of Consolidation
- ----------------------
The accompanying financial statements have been prepared to give effect to the
exchange completed on November 20, 1998. The two companies in the exchange are:
Euro Trade & Forfaiting, Inc., a Utah corporation,
(formerly Rotunda Oil and Mining, Inc.), "The Company"
Euro Trade & Forfaiting Co. Limited
a United Kingdom corporation, "Euro Trade"
After the exchange, The Company owned all of the outstanding shares of Euro
Trade. The exchange is accounted for as if The Company purchased Euro Trade for
stock. All assets are reflected at historical cost. For purposes of the proforma
statement of stockholders' equity, multiple transactions are considered to have
taken place concurrently.
Page 11
EURO TRADE & FORFAITING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
NOTE C PROPERTY AND EQUIPMENT
Property and equipment consists of office furniture and computer equipment as
follows:
Cost $ 136 $ 3 $ 136
Less: Accumulated depreciation 43 - 62
------ ------ ------
$ 93 $ 3 $ 74
====== ====== ======
Depreciation expense $ 43 $ 0 $ 19
====== ====== ======
NOTE D INCOME TAX
The Company has cumulative losses at June 30, 1998 and 1997 and December 31,
1998, that could result in a net operating loss carryforwards for federal income
and United Kingdom tax purposes. Ownership changes in The Company may result in
an annual limitation on the utilization of operating loss carryforwards.
NOTE E FORFAITING ASSETS
Forfaiting is a method of financing international trade. The Company purchases
from an exporter the debt due by an importer when credit is required. The debt
is usually evidenced by a series of negotiable financial instruments such as
promissory notes or by deferred payment letters of credit opened by a bank. The
notes are usually guaranteed by a bank in the importer's country and, subject to
the quality of the guarantor, become marketable amongst international banks and
other financial institutions. In forfaiting, the notes are purchased without
recourse to the exporter.
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, Disclosure about Fair
Value of Financial Instruments. The estimated fair value amounts have been
determined by The Company and independent experts using available market
information and appropriate valuation methodologies.
The fair value of the non-impaired financial instruments approximate carrying
value due to the short-term maturity of the instruments. The fair values of the
non-impaired financial instruments are $12,508,906 and $8,000,362 at June 30,
1998 and June 30, 1997, respectively.
The following disclosure of the financial instruments which are impaired is made
in accordance with the requirements of SFAS No. 118, Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures. The carrying values of
the impaired financial instruments are measured at market value.
Page 12
EURO TRADE & FORFAITING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
NOTE E FORFAITING ASSETS (Continued)
The market value of the impaired financial instruments is as follows:
1998 1997
----------- -----------
Recorded investments in impaired financial instruments $ 9,765,425 $ 0
Less allowance for losses (7,018,259) 0
----------- -----------
Market value of impaired financial instruments $ 2,747,166 $ 0
=========== ===========
Average recorded investment in
impaired financial investments 0 0
=========== ===========
The activity in the allowance for losses account is as follows:
Beginning balance $ 0 $ 0
Additions charged to operations 7,018,259 0
----------- -----------
Ending balance $ 7,018,259 $ 0
=========== ===========
The Company does not accrue interest on its impaired financial instruments.
Therefore, no interest income was recognized during the impairment period. Any
cash receipts on these financial instruments are recorded as income when
collected.
The composition of the notes by country of issuers bank was:
June 30, June 30,
Country 1998 1997
------- --------- ---------
Turkey 5.7% 80.3%
Russia 8.6 --.--
Ukraine 5.0 --.--
Czech Republic 11.6 --.--
Indonesia 57.8 --.--
Nigeria 11.3 --.--
Thailand --.-- 12.5
Japan --.-- 7.2
--------- ---------
Total 100% 100%
========= =========
Page 13
EURO TRADE & FORFAITING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
NOTE F SHORT TERM BORROWING
Short-term borrowing consisted of the following:
June 30, December 31,
1998 1997 1998
---- ---- ----
(Unaudited)
Loans payable to banks $12,832 $ 0 $10,755
Loans payable to related parties 0 6,250 0
Interest paid on short term borrowings for the periods ended June 30, 1998 and
1997, and December 31, 1998 was $1.1 million, $0 and $388, respectively.
At June 30, 1997, The Company had a non-interest bearing loan from a company
related to the stockholder.
Weighted average interest rates on short term borrowing from banks was 6.6% for
the year ended June 30, 1998.
The Company had immaterial long term debt in conjunction with the purchase of
office equipment.
NOTE G FOREIGN EXCHANGE
The Company is subject to foreign exchange risk through future foreign currency
cash flow as movement in currency exchange rates impact: 1) the U.S. dollar
value of foreign currencies and 2) the U.S. dollar value of cost incurred in
foreign currencies.
Foreign exchange gains included in the consolidated financial statements at June
30, 1998 and 1997 and December 31, 1998 were $0, $242,000 and $3,000
(unaudited), respectively.
NOTE H COMMITMENTS
At June 30, 1998, The Company had a commitment to purchase $11.4 million in
forfaiting assets. The Company was also a guarantor to a transaction amounting
to $.8 million at June 30, 1998. The fee earned was recorded in the period the
guarantee was given.
NOTE I MINIMUM FUTURE RENTALS
The Company occupies premises provided under month-to-month agreement.
Page 14
EURO TRADE & FORFAITING, INC.
CONSOLIDATED PROFORMA
FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
AND FOR THE SIX MONTHS
ENDED DECEMBER 31, 1998 AND 1997
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS...........................1
FINANCIAL STATEMENTS
Consolidated Proforma Balance Sheets at June 30, 1998 and 1997
and at December 31, 1998..............................................2
Consolidated Proforma Statements of Operation for the Years Ended June
30, 1998 and 1997 and for the Six Months Ended
December 31, 1998 and 1997............................................3
Consolidated Proforma Statement of Stockholder Equity for the Years
Ended June 30, 1998 and 1997 and for the Six Months Ended
December 31, 1998 and 1997............................................4
NOTES TO CONSOLIDATED PROFORMA FINANCIAL STATEMENTS............................5
MARC LUMER & COMPANY Certified Public Accounts
Cerified Public Accountant Management Consultants
ACCOUNTANT'S REPORT
To the Board of Directors
Euro Trade & Forfaiting, Inc.
(formerly Rotunda Oil and Mining, Inc.)
I have compiled the accompanying consolidated proforma balance sheet of Euro
Trade & Forfaiting, Inc. (a Utah corporation) (formerly Rotunda Oil and Mining,
Inc.) as of June 30, 1998 and 1997 and December 31, 1998, and the related
consolidated proforma statements of operations and stockholders' equity for the
years ended June 30 1998 and 1997 and the six months ended December 31, 1998 and
1997, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
The consolidated proforma financial statements give effect to the acquisition by
Euro Trade & Forfaiting, Inc. (The Company) of all of the outstanding shares of
Euro Trade & Forfaiting Co. Limited (Euro Trade) pursuant to an exchange
agreement set forth herein and in the notes to the financial statements. This
proforma information has been prepared using the historical financial
information of both entities. The proforma financial data is provided for
comparative purposes only and does not purport to be indicative of the results
which would have been obtained if the share exchange transaction had been
effected on the date indicated or of those results which may be obtained in the
future.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and accordingly, do not express
an opinion or any other form of assurance on them except that the financial
statements of Rotunda Oil and Mining, Inc. were audited by another accountant at
June 30, 1998 and 1997 and the financial statements of Euro Trade were audited
by me at June 30, 1998 and 1997.
Management has elected to omit the statement of cash flows and notes to
financial statements (except as described above) required by generally accepted
accounting principles. If the statement of cash flows and footnotes were
included in the financial statements, they might influence the user's conclusion
about The Company's financial position, results of operations and cash flows.
Accordingly, these financial statements are not designed for those who are not
informed about such matters.
234 Front Street, Suite 300 San Francisco, CA 94111 (415)362-7807
Fax:(415)982-3543
April 25, 1999
San Francisco, California
EURO TRADE & FORFAITING, INC.
(Formerly Rotunda Oil and Mining , Inc.)
CONSOLIDATED PROFORMA BALANCE SHEETS
(In Thousands)
June 30, June 30, December 31,
1998 1997 1998
-------- -------- --------
ASSETS
CURRENT ASSETS
Cash $ 18,875 $ 1,367 $ 21,842
Interest receivable 523 86 467
Forfaiting assets (net of allowance) 14,644 8,000 9,329
-------- -------- --------
TOTAL CURRENT ASSETS 34,042 9,453 31,638
PROPERTY AND EQUIPMENT - NET 93 3 74
OTHER ASSETS 1,383 -- 3,392
-------- -------- --------
TOTAL ASSETS $ 35,518 $ 9,456 $ 35,104
======== ======== ========
LIABILITY AND STOCKHOLDER'S EQUITY
LIABILITIES
Accounts payable and bank overdrafts $ 1,973 $ 2,880 $ 1,266
Accrued expenses 383 107 100
Loans payable12,832 6,250 10,755
Deferred revenue 2 -- 2
-------- -------- --------
TOTAL CURRENT LIABILITIES 15,190 9,237 12,123
-------- -------- --------
NOTE PAYABLE - NON CURRENT 26 -- 34
-------- -------- --------
TOTAL LIABILITIES 15,216 9,237 12,157
-------- -------- --------
STOCKHOLDERS' EQUITY
Common Stock, par value $.001 per share; authorized
50,000 shares, issued and outstanding 11,195 at
June 30, 1998 and 1997 and 16,195 at December 31,
1998 (unaudited) 12 12 17
Receivable from stockholder (12) (24)
Additional paid-in capital 25,044 55 25,263
Retained (deficit) income (4,754) 164 (2,309)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY 20,302 219 22,947
-------- -------- --------
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 35,518 $ 9,456 $ 35,104
======== ======== ========
See accompanying notes and Accountant's Report.
Page 2
EURO TRADE & FORFAITING, INC.
(Formerly Rotunda Oil and Mining , Inc.)
CONSOLIDATED PROFORMA STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997 AND FOR
THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(In Thousands)
Year Ended Six Months Ended
June 30, December 31,
1998 1997 1998 1997
-------- -------- -------- --------
REVENUE $ 5,217 $ 460 $ 3,770 $ 4,036
COST OF REVENUES
Interest 1,003 85 404 303
Provisions for losses 6,951 68 -- --
-------- -------- -------- --------
TOTAL COST OF REVENUE 7,954 153 404 303
-------- -------- -------- --------
GROSS PROFIT (LOSS) .. (2,737) 307 3,366 3,733
Selling, general and administrative 2,181 88 921 780
-------- -------- -------- --------
OPERATING INCOME (LOSS) (4,918) 219 2,445 2,953
PROVISION FOR TAXES
ON INCOME -- -- -- --
-------- -------- -------- --------
NET INCOME $ (4,918) $ 219 $ 2,445 $ 2,953
======== ======== ======== ========
LOSS (PROFIT) PER SHARE $ (.44) $ .02 $ .15 $ .26
======== ======== ======== ========
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 11,195 11,195 16,195 11,195
======== ======== ======== ========
See accompanying notes and Accountant's Report
Page 3
EURO TRADE & FORFAITING, INC.
(Formerly Rotunda Oil and Mining , Inc.)
CONSOLIDATED PROFORMA STATEMENT OF STOCKHOLDER EQUITY
(In Thousands)
Additional Retained
Common Stock Paid-in Earnings Receivable
Shares Amount Capital (Deficit) Stockholder Total
-------- -------- -------- -------- -------- --------
BALANCE, June 30, 1996 19,522 $ 19 $ 36 $ (55) $ -- $ --
Reverse split (19,327) (19) 19 -- -- --
Exchange of shares 11,750 12 -- -- (12) --
Net income -- -- -- 219 -- 219
-------- -------- -------- -------- -------- --------
BALANCE, June 30, 1997 11,945 12 55 164 (12) 219
Receipt of cash for sale of shares -- -- 24,989 -- 12 25,001
Net loss -- -- -- (4,918) -- (4,918)
-------- -------- -------- -------- -------- --------
BALANCE, June 30, 1998 11,945 12 25,044 (4,754) -- 20,302
Sales of shares for cash 5,000 5 219 -- (24) 200
Net income -- -- -- 2,445 -- 2,445
-------- -------- -------- -------- -------- --------
BALANCE, December 31, 1998 (unaudited) 16,945 $ 17 $ 25,263 $ (2,309) (24) $ 22,947
======== ======== ======== ======== ======== ========
See accompanying notes and accountant's report.
Page 4
EURO TRADE & FORFAITING INC.
(Formerly Rotunda Oil and Mining , Inc.)
NOTES TO CONSOLIDATED PROFORMA FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997 AND FOR
THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
NOTE A REORGANIZATION
The following are the principal terms with respect to the exchange of shares of
capital stock of Euro Trade & Forfaiting, Inc. (The Company), a Utah corporation
(formerly Rotunda Oil and Mining, Inc.) for the shares of Euro Trade &
Forfaiting Co. Limited (Euro Trade), a United Kingdom corporation.
Pre-Exchange Capitalization
- ---------------------------
In November, 1998, The Company declared a reverse stock split of 1 for 1,000 of
the outstanding shares. As a result 19.5 million outstanding shares were reduced
to 195 thousand outstanding shares.
Euro Trade issued 15 million preferred shares and 9.2 million common shares for
cash on February 25, 1997. An option for .8 million shares of the common stock
was issued on the same date and funded as required by United Kingdom law.
The option was exercised immediately prior to the exchange.
Equity Conversion Mechanics
- ---------------------------
At the closing of the exchange, The Company issued and exchanged 11.8 million
shares of restricted Rule 144 common stock for all of the outstanding common and
preferred shares of Euro Trade.
After the closing two options were granted for .5 million shares of the
company's common stock at a price of $.025. The options were exercised
immediately. Approximately $500 was paid for each option. The remaining $12,000
is due June 30, 1999.
Additionally, The Company issued an aggregate of 4 million new shares of common
stock at $.05 per share.
The Company will hold the shares of Euro Trade, which will continue to operate
as a subsidiary.
Post Exchange Capitalization
- ----------------------------
After the exchange and the subsequent offering of 5 million shares of common
stock, the capitalization consisted of 16.9 million shares of common stock of
which 11.8 million are restricted.
Page 5
EURO TRADE & FORFAITING INC.
(Formerly Rotunda Oil and Mining , Inc.)
NOTES TO CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997 AND FOR
THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
NOTE B BASIS OF CONSOLIDATION
The accompanying financial statements have been prepared to give effect to the
exchange completed on November 20, 1998. The two companies in the exchange are:
Euro Trade & Forfaiting, Inc., a Utah corporation,
(formerly Rotunda Oil and Mining, Inc.) "The Company"
Euro Trade & Forfaiting Co. Limited, a United Kingdom corporation,
"Euro Trade"
After the exchange, The Company owned all of the outstanding shares of Euro
Trade. The exchange is accounted for as if The Company purchased Euro Trade for
stock. All assets are reflected at historical cost. For purposes of the proforma
statement of stockholders' equity, multiple transactions are considered to have
taken place concurrently.
As noted in the Accountant's Report, the financial statements of Rotunda Oil and
Mining, Inc. were audited at June 30, 1998 and 1997 by other auditors.
Page 6
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
EURO TRADE AND FORFAITING, INC.
(Registrant)
Date: May 11, 1999 By: /S/ JOHN VOWELL
--------------------------------
John Vowell, President, Chief
Executive Officer and Director
S-1