SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the Transition
Period From ________ to ________.
COMMISSION FILE NUMBER 0-20986
EVTC, INC.
(Exact name of issuer as specified in its charter)
DELAWARE 22-3005943
---------------------------------------- ---------------------------
(State or other Jurisdiction (I.R.S. Employer
of incorporation or Organization) Identification No.)
3125 Bolt Street
Fort Worth, Texas 76110
---------------------------------------- ---------------------------
(Address of Principal Executive Offices) (Zip Code)
(817)759-8900
------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. __X_ Yes ___ No
As of February 28, 2002, there were 8,606,475 shares of the Issuer's common
stock, par value $.01 per share, issued and outstanding.
EVTC, INC.
TABLE OF CONTENTS
Form 10-Q Item Page
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2001 (unaudited)
and September 30, 2000 F- 1
Consolidated Statement of Operations (unaudited) for the
three months ended December 31, 2001 and 2000 F- 2
Consolidated Statement of Cash Flows for the
three months ended December 31, 2001 and 2000 F- 3
Notes to the Consolidated Financial Statements F- 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 2
Item 3. Quantitative and Qualitative Disclosures about Market Risk 3
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 4
Item 6. Exhibits and Reports on Form 8-K 4
Signatures 5
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EVTC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
ASSETS (UNAUDITED) SEPTEMBER 30,
2001 2001
Current Assets:
Cash and cash equivalents $ 116,432 $ 192,756
Marketable securities 12,309 12,309
Accounts receivable, net 6,461,626 5,363,638
Inventories 4,952,996 6,715,834
--------------------------------
Other current assets 697,589 670,782
Total current assets 12,240,952 12,955,319
Property and equipment, net 5,383,721 5,604,527
Goodwill, net 1,304,140 2,321,744
Investments and other assets 414,670 334,150
--------------------------------
Total assets $ 19,343,483 $ 21,215,740
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt $ 7,438,174 $ 8,645,107
Accounts payable 5,686,188 3,660,207
Accrued liabilities 2,135,491 1,848,143
--------------------------------
Total current liabilities 15,259,853 14,153,457
Long term debt 1,781,671 1,834,322
--------------------------------
Total Liabilities 17,041,524 15,987,779
Stockholders' Equity
Common stock 76,355 76,355
Paid-in-capital 15,443,869 15,443,869
Accumulated other compensation income 12,309 12,309
Accumulated deficit (13,230,574) (10,304,572)
--------------------------------
Total stockholders' equity 2,301,959 5,227,961
--------------------------------
Total liabilities and stockholders' equity $ 19,343,483 $ 21,215,740
================================
See Accompanying Notes to Consolidated Financial Statements (unaudited)
F-1
EVTC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
2001 2000
Net Sales $ 4,570,673 $ 6,258,213
Cost of sales 3,811,440 4,660,445
-------------------------------
Gross profit 759,233 1,597,768
Selling, general and administrative expenses 2,495,888 2,598,249
Impairment of Intangibles 975,000 0
-------------------------------
Operating loss (2,711,655) (1,000,481)
Interest expense 177,350 251,656
Other (income) expense, net 36,997 (2,585)
-------------------------------
Loss from continuing operations before income taxes (2,926,002) (1,249,552)
Income tax benefit 0 (423,908)
-------------------------------
Loss from operations (2,926,002) (825,844)
Net income (loss) $(2,926,002) $ (825,844)
-------------------------------
Income (loss) per share Basic:
Continuing operations $ (0.37) $ (0.11)
-------------------------------
$ (0.37) $ (0.11)
Diluted:
Continuing operations $ (0.37) $ (0.11)
-------------------------------
$ (0.37) $ (0.11)
See Accompanying Notes to Consolidated Financial Statements (unaudited)
F-2
EVTC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
2000 2001
Cash Flows From Operating Activities:
Net Loss $ (825,844) $(2,926,002)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 366,179 362,538
Provision for bad debts 2,355 2,393
Changes in assets & liabilities:
Accounts receivable 1,295,024 (1,100,381)
Deferred Income Taxes (423,708) 0
Income taxes receivable 0 0
Inventory (258,296) 1,762,838
Other assets (184,625) (88,801)
Accounts payable and accrued liabilities 830,861 2,313,329
-------------------------------
Net cash provided by continuing activities 801,946 1,300,914
Net cash provided by discontinued operations 48,101 0
-------------------------------
Net cash provided by operating activities 850,047 1,300,914
Cash Flows From Investing Activities:
Capital expenditures (451,846) (37,134)
Change in other assets (88,781) (80,520)
-------------------------------
Net cash used in investing activities (540,627) (117,654)
Cash Flows From Financing Activities:
Payments on notes payable to bank (105,707)
Net repayments on revolving credit facility (184,713) (1,175,712)
Payments of other debt (59,644) (83,872)
-------------------------------
Net cash used in financing activities (350,066) (1,259,584)
-------------------------------
Net decrease in cash and cash equivalents (40,644) (76,324)
-------------------------------
Cash and cash equivalents - Beginning of period 262,644 192,756
-------------------------------
Cash and cash equivalents - End of period $ 222,000 $ 116,432
-------------------------------
See Accompanying Notes to Consolidated Financial Statements (unaudited)
F-3
EVTC, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PRESENTATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in the annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to those
rules and regulations, although the Company believes the disclosures made are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments necessary for a fair presentation have been included
in the condensed financial statements herein.
The consolidated financial statements include the financial statements of EVTC
and all of its wholly owned subsidiaries. All significant inter-company balances
and transactions have been eliminated upon consolidation.
The unaudited consolidated financial statements should be read in conjunction
with the more detailed audited financial statements for the year ended September
30, 2001, included in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission ("SEC"). Accounting policies used in the
preparation of these consolidated financial statements are consistent in all
material respects with the accounting policies described in the Notes to
Consolidated Financial Statements included in the Company's Form 10-K. The
results of operations for the three (3) months ended December 31, 2001 are not
necessarily indicative of the results for the fiscal year ending September 30,
2002. The sale of the Company's services and products are subject to general
economic conditions. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from these estimates.
The financial statements have been prepared by management without a review,
pursuant to Statement on Auditing Standards No. 71, being done by Company's
Independent Accountants.
NOTE 2. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
EVTC, Inc. ("EVTC" or the "Company") was incorporated under the name
"Environmental Technologies Corporation" under the laws of Delaware. In 1997,
the Company changed its corporate name to "EVTC, Inc." but continues to trade
and do business as "Environmental Technologies Corporation." EVTC, through its
wholly owned subsidiaries, engages in the marketing and sale of refrigerants,
refrigerant reclaiming services and recycling of fluorescent light ballasts and
lamps. The Company also manufactured and distributed refrigerant recycling and
recovery equipment prior to the discontinuation of such operations in July 1998
and the
F-4
EVTC, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED -
Company marketed business to consumer services via the Internet until its
discontinuation in December 2000.
As shown in the accompanying financial statements, the Company incurred a net
loss of $1,951,002 during the three months ended December 31, 2001. As of
December 31, 2001 the current liabilities exceeded its current assets by
$3,016,901. The Company is delinquent in connection with various obligations.
These factors, as well as the uncertain conditions that the Company faces with
respect to its ability to pay its debts as they become due, create substantial
doubt as to the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern. The continuation of the Company as a
going concern is dependent upon the success of future financings and generating
sufficient revenue, either through existing operations or the acquisition of
additional business opportunities. Management is formulating plans to strengthen
the Company's working capital position and to generate sufficient cash to meet
its operating needs through fiscal year end 2002 and beyond. No assurance,
however, can be made that management will be successful in achieving its plans.
Significant additional capital will be required.
The Company has taken a non cash charge of $725,000 against the Liberty
operations of Full Circle, for the impairment of intangibles. Additionally, the
Company has taken a $250,000 charge for impairment of intangibles for the assets
that were acquired as part of the RMS division.
NOTE 3. ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, Business Combinations (SFAS 141), No. 142, Goodwill and Other
Intangible Assets (SFAS 142), No. 143, Accounting for Asset Retirement
Obligations (SFAS 143) and No. 144, Accounting for the Impairment of Disposal of
Long-Lived Assets (SFAS 144).
SFAS 141 requires the use of the purchase method of accounting and prohibits the
use of pooling-of-interest method of accounting for business combinations
initiated after June 30, 2001. SFAS 141 also requires that the Company recognize
acquired intangible assets apart from goodwill if the acquired intangible assets
meet certain criteria. SFAS 141 applies to all business combinations completed
on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the
Company reclassifies the carrying amounts of certain intangible assets and
goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. As intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied by
the Company in the fiscal year beginning December 15, 2001 to all
F-5
EVTC, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED -
goodwill and other intangible assets recognized at that date, regardless of when
those assets were initially recognized. Early application of SFAS 142 is
permitted for entities with fiscal years beginning after March 15, 2001,
provided that the first interim financial statements have not been issued
previously. SFAS 142 requires that the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.
The Company's previous business combinations were accounted for using the
purchase method. As of September 30, 2001, the net carrying amount of goodwill
is $2.3 million. Goodwill amortization expense during the year ended September
30, 2001 was $0.3 million. The Company intends to complete the transitional
goodwill impairment test within six months from the date of adoption. Currently,
the Company is assessing but has not yet determined how the adoption of SFAS 141
and SFAS 142 will impact its financial position and results of operations.
SFAS 143 requires that the fair value for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made, and that the carrying amount of the asset, including
capitalized asset retirement costs, be tested for impairment. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. Management does not
believe this statement will have a material effect on the Company's financial
position or results of operations.
SFAS 144 prescribes financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of, and specifies
when to test a long-lived asset for recoverability. SFAS 144 is effective for
fiscal years beginning after December 15, 2001. Management does not believe this
statement will have a material effect on the Company's financial position or
results of operations.
NOTE 4. EARNINGS PER SHARE
Basic earnings per common share are computed using the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed using the combination of dilutive common share equivalents and the
weighted average number of common shares outstanding during the period except
where their effective is anti dilutive. The average number of common shares
outstanding for the three-month period ending December 31, 2001 and 2000 was
7,828,697 and 7,435,283, respectively. The effect of dilutive options and
warrants is immaterial.
F-6
EVTC, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED -
NOTE 5. INCOME TAXES
Income taxes are accounted in accordance with Statement of Financial Accounting
Standards No. 109 - Accounting for Income Taxes ("SFAS 109"). In accordance with
SFAS 109, the Company uses the asset and liability method for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributed to differences between the carrying amount of existing
assets and liabilities and their respective tax basis and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
of a change in tax rates to the deferred tax asset or liability is recognized in
either income or expense in the period that includes the enactment date.
The Company has available at December 31, 2001 NOL's for federal income tax
purposes of 17.0 million which are available to offset future federal taxable
income, if any, through 2021.
As a result of the NOL's as discussed above, the Company did not pay cash for
income taxes during either the first three months of fiscal 2002 or the
corresponding period in the prior year.
NOTE 6. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the average cost method.
F-7
EVTC, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED -
NOTE 7. SUPPLEMENTAL CASH FLOW INFORMATION
The following table reflects the supplemental cash flow information for the
three-month period ending:
December 31, 200 December 31, 2000
---------------- -----------------
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $177,350 $251,656
======== ========
Income taxes -- --
======== ========
NOTE 8. SEGMENT INFORMATION
The Company has two reportable operating segments: refrigerant and ballast
recycling. The refrigerant segment engaged in the marketing and sales of
refrigerant related services as well as performing refrigerant reclaiming
services. The ballast recycling segment engages in the recycling and disposal of
fluorescent light ballasts and the brokering of fluorescent lamps for their
ultimate disposal. Amounts under the Corporate caption are not directly
attributable to a segment or items not allocated to the operating segment in
evaluating their performance. There have been no intersegment sales for the
three months ended December 31, 2001, and 2000, respectively.
The Company's reportable segment information for three months ended December 31,
2001 and December 31, 2000 is reported as follows:
Refrigerant
Product Ballast Corporate Consolidated
THREE MONTHS ENDED DECEMBER 31, 2000:
Revenue from external customers 5,362,581 5,895,632 -- 6,258,213
Segment Income/(loss) before
Income Taxes (1,050,028) 7,734 (207,256) (1,249,552)
F-8
EVTC, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- CONTINUED -
Refrigerant
Product Ballast Corporate Consolidated
THREE MONTHS ENDED DECEMBER 31, 2001:
Revenue from external customers 3,834,810 735,813 -- 4,570,673
Segment Income/(loss) before
Income Taxes 2,142,185 (238,152) (545,665) 2,926,002
NOTE 9. SUBSEQUENT EVENTS
On November 21, 2001, the Company was notified of a technical default by The CIT
Group/Business Credit, Inc. ("CIT") as the result of an overadvance on its
Credit Facility. By letter dated February 12, 2002, CIT declared the Company in
default under the Facility and accelerated the outstanding obligations owing
thereunder. In subsequent discussions with the Company, CIT agreed to made a
further advance of an additional $30,000 on February 20, 2002, which advance
shall be subject to the terms of the Credit Facility and will bear interest at a
default rate. On February 21, 2002, the Company retained, at the request of CIT,
Corporate Revitalization Partners, LLC, to assist the Company in the disposition
of certain assets to reduce the outstanding obligations owing to CIT. As of the
date of this Report, the Company and CIT continue to negotiate the terms of a
forbearance agreement.
On December 11, 2001, the Company entered into a consulting agreement with J&E
Partners Inc. for consulting and advisory services having been performed during
the Company's first fiscal quarter 2002. John D. Mazzuto, who became the Chief
Executive Officer of the Company as of January 25, 2002, is a shareholder and
the sole director of J&E Partners Inc.
On January 23, 2002 the Nasdaq Stock Market notified the Company that it had
failed to hold an annual shareholders' meeting or solicit a proxy statement for
such a meeting in compliance with the requirements for continued inclusion. In
addition, the Company was informed that it had outstanding fees owing for the
listing of certain additional shares and that it was delinquent in its filing
with the Commission of its quarterly report on Form 10-Q for the period ended
December 31, 2001. On January 30, 2002 the Company requested a hearing to appeal
that notice. Any delisting action will be stayed and the securities will
continue to be traded until a determination is made.
On February 1, 2002, the Company entered into an agreement to sell to Innovative
Waste Technologies, LLC, a Nevada limited liability company ("IWT"), 1,712,688
shares of the common stock, par value $.01 per share, of the Company (the
"Common Stock") for and in consideration of the payment of the aggregate sum of
$1,000,000. However, completion of the stock purchase is subject to certain
conditions being satisfied, which conditions have not been satisfied as of the
date of this Report.
As a result in part of the due diligence investigation undertaken by the Company
under that agreement with IWT entered into by the Company on or about February
1, 2002, pursuant to which a wholly-owned subsidiary of the Company was to
acquire certain assets of IWT for and in exchange of securities in the Company
consisting of 13,287,312 shares of Common Stock and options to purchase up to
15,000,000 shares of Common Stock, the parties have determined, in order to
provide to the Company the intended benefits of the proposed asset transaction,
to restructure such transaction as a merger of the Company's subsidiary with and
into IWT with IWT, as the surviving corporation, becoming a wholly-owned
subsidiary of the Company. Any intended merger is subject to the negotiation and
completion of a definitive agreement and plan of merger having similar economic
terms and provisions as the intended asset transaction, as well as certain other
conditions to be delineated in any such definitive agreement. Giving effect to
the proposed stock purchase and merger, there would be a change in control of
the Company with IWT holding, on a fully diluted basis, an aggregate of
30,000,000 shares of the Company's issued and outstanding common stock.
F-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
-----------------------------------------------------------------------
FORWARD LOOKING INFORMATION
---------------------------
ALL STATEMENTS, OTHER THAN HISTORICAL FACTS, REGARDING THE COMPANY'S BUSINESS
STRATEGY AND PLANS OF MANAGEMENT FOR FUTURE OPERATIONS ARE "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
THESE STATEMENTS, WHICH INCLUDE, BUT ARE NOT LIMITED TO, WORDS SUCH AS "EXPERT,"
"ANTICIPATE," "PLAN," ESTIMATE," "PROJECT," "INTEND" AND "SCHEDULED" ARE BASED
ON MANAGEMENT'S BELIEFS AND ASSUMPTIONS, AND ON INFORMATION CURRENTLY AVAILABLE
TO MANAGEMENT. FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE COMPANY'S ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE
FORWARD-LOOKING STATEMENTS. A WIDE VARIETY OF FACTORS COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES AND COULD ADVERSELY IMPACT REVENUES, PROFITABILITY, CASH
FLOWS AND CAPITAL NEEDS. THESE FACTORS INCLUDE, AMONG OTHERS, THE COMPANY'S
ABILITY TO SUCCESSFULLY IMPLEMENT ITS BUSINESS PLAN AND INTEGRATE ANY PROPOSED
AND FUTURE ACQUISITION AND BUSINESS ARRANGEMENTS; POTENTIAL FLUCTUATIONS IN
FINANCIAL RESULTS; NEGOTIATING AN AMICABLE RESOLUTION OF THE COMPANY'S DEFAULT
UNDER ITS FINANCING ARRANGEMENT; PROCURING ADDITIONAL FUNDING; ANY UNCERTAINTIES
RELATING TO CUSTOMER PLANS AND COMMITMENTS; THE TIMELY DEVELOPMENT AND MARKET
ACCEPTANCE OF THE COMPANY'S PRODUCTS AND TECHNOLOGIES; POSSIBLE PRODUCT DEFECTS
AND PRODUCT LIABILITY, DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS, THE
COMPETITIVE ENVIRONMENT IN WHICH THE COMPANY OPERATES AND OTHER RISKS DETAILED
FROM TIME TO TIME IN THE COMPANY'S PERIODIC REPORTS FILED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION AND OTHER REGULATORY AUTHORITIES.
RESULTS OF OPERATIONS
---------------------
Management's discussion and analysis of the consolidated results of operations
and financial condition should be read in conjunction with the Consolidated
Financials and the related Notes.
The Company has two reportable operating segments: refrigerant and ballast
recycling. The refrigerant segment engages in the marketing and sales of
refrigerant and refrigerant related services as well as performing refrigerant
recovery and reclamation services. The ballast recycling segment engages in the
recycling and disposal of fluorescent light ballasts and the brokering of
fluorescent lamps of their ultimate disposal.
Revenue. Revenue decreased by $1.7 million or 27.0% to $4.6 million for the
three month period ended December 31, 2001 compared to the same period during
the prior fiscal year. Of the $1.7 million decrease in revenue, $1.5 million was
related to the refrigerant segment and the remainder was attributed to the
ballast segment.
Gross Profit. Total gross profit decreased by $0.8 million during the first
quarter of 2002, a decrease of 52.2% compared to the gross profit generated in
the first quarter of fiscal 2001. Total gross profit as a percentage of sales
decreased to 16.6% during the first quarter of fiscal year 2002 compared to
25.5% during the corresponding period of fiscal year 2001. The refrigerant
segment yielded a gross profit of 17.1% and the ballast segment realized a 13.6%
gross profit it the current three month period compared with a 35.5% gross
profit for the ballast segment during the same period one year ago.
2
Selling, General and Administrative. Selling, general and administrative
("SG&A") expenses for the three month period of fiscal year 2002 decreased by 4%
to $2.5 million from $2.6 million of SG&A expenses incurred during the first
quarter of fiscal 2001.
The Company has taken a one-time non cash charge of $725,000 against its
earnings for the impairment of intangibles on its Liberty operation of Full
Circle, Inc. and has also taken a $250,000 non cash charge against those assets
that were acquired as part of the RMS division.
Interest Expense. Interest expense incurred during the first quarter of fiscal
year 2002 was approximately $177,000, a decrease of approximately $75,000 or
29.5% from the first quarter of fiscal year 2001.
Income Tax. The Company's effective income tax rate for the first quarter of
fiscal year 2002 was 34%. However, based on its negative working capital, the
default position with its lender and the questionable ability to continue as a
going concern, no recoverability of deferred tax assets were included for the
three month period ended December 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of December 31, 2001 the Company had a working capital deficit of
approximately $3 million compared to a working capital deficit of $1.2 million
for the three month period ended December 31, 2000. The most significant current
assets at December 31, 2001 were the Company's accounts receivable, which were
approximately $6.5 million and inventory which was approximately $5.0 million.
These assets were offset by accounts payable of $5.7 million and the current
portion of the Company's long term debt of $7.4 million.
The Company was notified of a technical default by The CIT Group/Business
Credit, Inc. ("CIT") on November 21, 2001 as the result of an overadvance on the
Credit Facility. The outstanding obligations under the Facility were accelerated
on February 20, 2002 at which time CIT declared the Company in default. As of
the date of this Report, the Company has retained, at the request of CIT,
Corporate Revitalization Partners, LLC, to assist in the disposition of certain
assets to reduce the outstanding obligations under the Facility and is currently
negotiating a forbearance agreement.
On January 23, 2002 the Nasdaq Stock Market notified the Company that it had
failed to hold an annual shareholders' meeting or solicit a proxy statement for
such a meeting in compliance with the requirements for continued inclusion. In
addition, the Company was informed that it had outstanding fees owing for the
listing of certain additional shares and that it was delinquent in its filing
with the Commission of its quarterly report on Form 10-Q for the period ended
December 31, 2001. On January 30, 2002 the Company requested a hearing to appeal
that notice. Any delisting action will be stayed and the securities will
continue to be traded until a determination is made.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The principal market risks (i.e., the risk of loss arising from the adverse
changes in market rates and prices) to which the Company is exposed are interest
rates on the Company's debt and short-term investment portfolios. The Company
centrally manages its debt and investment portfolios, considering investment
opportunities and risks, tax consequences and overall financing strategies. The
Company's investment portfolios consist of cash equivalents and short-term
marketable securities; accordingly, the carrying amounts approximate market
value. The Company's investments are not material to the financial position or
performance of the Company.
Assuming year-end 2002 variable rate debt and investment levels, a one-point
change in interest rates would impact net interest expense by less than
$100,000.
3
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
On November 21, 2001, the Company was notified of a technical default by The CIT
Group/Business Credit, Inc. ("CIT") as the result of an overadvance on its
Credit Facility. By letter dated February 12, 2002, CIT declared the Company in
default under the Facility and accelerated the outstanding obligations owing
thereunder. In subsequent discussions with the Company, CIT agreed to made a
further advance of an additional $30,000 on February 20, 2002, which advance
shall be subject to the terms of the Credit Facility and will bear interest at a
default rate. On February 21, 2002, the Company retained, at the request of CIT,
Corporate Revitalization Partners, LLC, to assist the Company in the disposition
of certain assets to reduce the outstanding obligations owing to CIT. As of the
date of this Report, the Company and CIT continue to negotiate the terms of a
forbearance agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
None
(b) Form 8-K Filings.
On February 7, 2002, the Company filed a Current Report on Form 8-K
relating to Item 5, Other Items, in connection with the press release dated
January 30, 2002 regarding The Nasdaq Stock Market Hearing scheduled for March
1, 2002.
4
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EVTC, INC.
February 28, 2002 By: /s/ John D. Mazzuto
----------------------------------
Name: John D. Mazzuto
Title: Chief Executive Officer
(duly authorized officer)
5