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 March 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. XX Yes No
The number of shares outstanding 7,618,975 May 5, 2001.
PAGE 1 OF 14 PAGES.
THERE ARE NO EXHIBITS.
EVTC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, SEPTEMBER 30,
---------------------------------
ASSETS (UNAUDITED) (AUDITED)
2001 2000
----------- -------------
Current Assets:
Cash and cash equivalents $ 172,632 $ 262,644
Marketable securities 33,992 33,992
Accounts receivable, net 8,367,930 7,085,873
Deferred income taxes 784,617 300,000
Inventories 8,710,872 7,813,674
Other current assets 943,979 588,608
Assets of discontinued operations 269,154 394,523
---------------------------------
Total current assets 19,283,176 16,479,314
Property and equipment, net 5,409,557 5,013,941
Goodwill, net 2,406,953 2,597,573
Investments and other assets 547,710 810,879
---------------------------------
Total assets $27,647,396 $ 24,901,707
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt $ 9,385,328 $ 8,679,977
Accounts payable 5,198,992 2,603,059
Liabilities of discontinued
operations 330,451 353,331
Accrued liabilities 2,638,795 2,290,055
---------------------------------
Total current liabilities 17,553,566 13,926,422
Long term debt 1,626,964 1,563,596
---------------------------------
Total Liabilities 19,180,530 15,490,018
Stockholders' Equity
Common stock 76,190 74,443
Paid-in-capital 15,433,628 15,435,375
Accumulated other comprehensive
income 33,992 33,992
Accumulated deficit (7,076,944) (6,132,121)
---------------------------------
Total stockholders' equity 8,466,866 9,411,689
---------------------------------
Total liabilities and
stockholders' equity $27,647,396 $ 24,901,707
=================================
See Accompanying Notes to Consolidated Financial Statements
(unaudited)
2
EVTC,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31 SIX MONTHS ENDED MARCH 31
-------------------------------- ------------------------------
2001 2000 2001 2000
--------------------------------------------------------------------
Net sales $ 8,858,022 $ 8,909,247 $ 15,116,235 $ 13,684,186
Cost of sales 6,317,268 7,106,330 10,977,713 10,748,104
--------------------------------------------------------------------
Gross profit 2,540,754 1,802,917 4,138,522 2,936,082
Selling, general and
administrative expenses 2,466,427 1,447,827 5,064,676 3,042,278
--------------------------------------------------------------------
Operating income (loss) 74,327 355,090 (926,154) (106,196)
Interest expense 254,044 172,943 505,700 394,376
Other (income) expense, net 171 (8,994) (2,414) 4,435
--------------------------------------------------------------------
INCOME(LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (179,888) 191,141 (1,429,440) (505,007)
Income tax expense (benefit) (60,909) 64,988 (484,617) (171,703)
--------------------------------------------------------------------
Income (loss) from continuing
operations (118,979) 126,153 (944,823) (333,304)
Discontinued equipment products
operations:
Loss from discontinued operations,
net of income taxes -0- -0- -0- -0-
--------------------------------------------------------------------
Net income (loss) $ (118,979) $ 126,153 $ (944,823) $ (333,304)
====================================================================
Income (loss) per share Basic:
Continuing operations $ (0.02) $ 0.02 (0.13) (0.06)
Discontinued operations 0.00 0.00 (0.00) (0.00)
--------------------------------------------------------------------
(0.02) 0.02 (0.13) (0.06)
Diluted:
Continuing operations $ (0.02) $ 0.02 (0.13) (0.06)
Discontinued operations 0.00 0.00 (0.00) (0.00)
--------------------------------------------------------------------
(0.02) 0.02 (0.13) (0.06)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3
EVTC,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED MARCH 31,
2001 2000
------------------------------
Cash Flows From Operating Activities:
Net Loss $ (944,823) $ (333,304)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 619,957 294,866
Provision for bad debts 104,095 106,249
Changes in assets & liabilities:
Accounts receivable (1,386,152) (488,029)
Deferred Income Taxes (484,617) (171,703)
Income taxes receivable -0- 58,108
Inventory (897,198) (3,541,706)
Other assets (310,694) (232,129)
Accounts payable and accrued
liabilities 2,944,673 1,762,273
------------------------------
Net cash used in
continuing operations (354,759) (2,545,375)
Net cash provided by
discontinued operations 102,489 53,357
------------------------------
Net cash used in operating
activities (252,270) (2,492,018)
------------------------------
Cash Flows From Investing Activities:
Proceeds from sale of equipment 9,208 -0-
Loss on retirement of assets (835) -0-
Capital expenditures (878,003) (312,158)
Change in other assets 263,169 (79,027)
Due from Officer -0- 371,016
------------------------------
Net cash used in investing activities (606,461) (20,169)
------------------------------
Cash Flows From Financing Activities:
Net borrowing(repayments) on revolving
credit facility 831,111 (1,666,910)
Proceeds from other debt -0- 750,000
Payments of other debt (62,392) (434,167)
Collection of subscription receivable -0- 594,600
Proceeds from sale of common stock
and options exercised -0- 1,484,100
------------------------------
Net cash provided by financing
activities 768,719 727,623
------------------------------
Net decrease in cash and
cash equivalents (90,012) (1,784,564)
Cash and cash equivalents - Beginning
of period 262,644 2,159,434
------------------------------
Cash and cash equivalents - End of
period $ 172,632 $ 374,870
==============================
See Accompanying Notes to Consolidated Financial Statements (unaudited)
4
EVTC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. 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 Company marketed business to consumer services via the Internet until
its discontinuation in December 2000.
The consolidated financial statements include the financial statements of
EVTC and all of its wholly owned subsidiaries. All significant intercompany
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, 2000, included in the Company's Annual Report on Form 10-K
as filed with the Securities and Exchange Commission ("SEC") on December 29,
2000. 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 six months ended
March 31, 2001 are not necessarily indicative of the results to be expected for
the fiscal year ending September 30, 2001.
NOTE 2. 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 effect is anti dilutive. The average number of common shares
outstanding for the six-month period ending March 31, 2001, and 2000 was
7,473,398 and 6,057,695, respectively. The average number of common shares
outstanding for the three-month period ending March 31, 2001 and 2000 was
7,502,514and 6,318,380, respectively. The effect of dilutive options and
warrants is immaterial.
NOTE 3. INCOME TAXES
In accordance with SFAS 109, the Company uses the asset and liability method to
account for income taxes. Deferred tax assets and liabilities are recognized for
the future tax consequences attributed to differences between the carrying
amounts 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.
5
EVTC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At September 30, 2000, the Company recorded a deferred tax asset of
approximately $3.0 million. This asset consisted mainly of reserves related to
bad debts and inventory reported differently for financial reporting purposes,
as well as net operating loss carryforwards ("NOL's"). Operating losses
sustained in the first six months of fiscal year 2001 resulted in a increase in
the company's deferred tax asset to $3.5 million as of March 31, 2001. Due to
the valuation placed on such assets, they are reflected on our balance sheet at
$0.8 million and $0.3 million on the Company's March 31, 2001 and September 30,
2000 consolidated balance sheets, respectively. The Company has available at
March 31, 2001, NOL's, for federal income tax purposes, of $ 9.0 million which
are available to offset future federal taxable income, if any, through 2020.
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 2001 or the
corresponding period in the prior year.
NOTE 4. INVENTORIES
Inventories are stated at the lower of cost or market and are comprised of the
following:
March 31, 2001 Sept. 30, 2000
----------------- ----------------
Raw Materials $4,833,466 $ 3,264,126
Finished Goods 3,877,406 4,549,548
----------------- --------------
$8,710,872 $ 7,813,674
================= ==============
NOTE 5. DISCONTINUED OPERATIONS
RECYCLING AND RECOVERY EQUIPMENT SEGMENT
During July of 1998, the Company's board of directors adopted a plan to
discontinue its Recycling and Recovery Equipment business segment. The Company
initiated a liquidation program to sell all assets of the segment which is
scheduled to reach its conclusion during the Company's 3rd quarter of fiscal
year 2001.
E-SOLUTIONS MARKETING, INC. SEGMENT
On December 14, 2000, the company's Board of Directors adopted a plan to
discontinue the operations of e solutions Marketing, Inc., which was acquired in
March 2000. The loss on disposal of this segment was recorded in the September
30, 2000 year end financial statements. This segment directly marketed business
to consumer services via the Internet. The Company initiated a plan to liquidate
the tangible assets of this segment as it seeks a strategic alternative for the
business concept which should reach its conclusion during the third quarter of
fiscal year 2001.
For financial statement purposes, the Company accounted for the above segments
as discontinued operations in the fiscal year 2001 and 2000 statements of
operations. Furthermore, the assets and liabilities of the discontinued
operations discussed above have been segregated as of the March 31, 2001 and
September 30, 2000 balance sheet.
EVTC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6
NOTE 6. SUPPLEMENTAL CASH FLOW INFORMATION
The following table reflects the supplemental cash flow information for the
six-month period ending:
March 31, 2001 March 31, 2000
------------------ ------------------
Supplemental disclosures of cash Flow information:
Cash paid during the period for:
Interest $ 505,700 $ 394,376
========== ==========
Income taxes - -
========== ==========
NOTE 7. SEGMENT INFORMATION
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
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 six months ended March 31, 2001, and 2000, respectively.
The Company's reportable segment information for three months ended March 31,
2001 and 2000 is reported as follows:
Refrigerant
Product Ballast Corporate Consolidated
----------- --------- --------- --------------
THREE MONTHS ENDED MARCH 31, 2001:
Revenue from external customers $ 8,029,854 $ 828,168 $ - $ 8,858,022
Segment Income/(Loss) before
Income Taxes 122,417 (12,565) (289,740) (179,888)
THREE MONTHS ENDED MARCH 31, 2000:
Revenue from external customers 7,947,263 961,984 - 8,909,247
Segment Income/(loss) before
Income taxes 478,882 61,714 (349,455) 191,141
The Company's reportable segment information for six months ended March 31, 2001
and 2000 is reported as follows:
7
Refrigerant
Product Ballast Corporate Consolidated
----------- --------- --------- --------------
SIX MONTHS ENDED MARCH 31, 2001:
Revenue from external customers $ 13,392,435 $ 1,723,800 $ -- $ 15,116,235
Segment Income/(Loss) before
Income Taxes (927,610) (4,831) (496,999) (1,429,440)
SIX MONTHS ENDED MARCH 31, 2000:
Revenue from external customers 11,880,123 1,804,063 -- 13,684,186
Segment Income/(loss) before
Income taxes 84,501 98,568 (688,076) (505,007)
NOTE 8. COMMITMENTS & CONTINGENCIES
By virtue of the acquisition of the Company's remaining fifty percent (50%)
interest in Liberty Technologies, Inc. ("Liberty") from Concorde Science and
Technology Corporation ("Concorde"), the Company was obligated, per a provision
in the contract, to issue additional shares to Concorde in the event that the
Company's common stock traded below $5.00 per share on the first year
anniversary of the closing of such transaction. As a result of this provision
the Company issued 174,692 additional shares to Concorde effective March 26,
2001.
In conjunction with the acquisition of Refrigerant Management Services, Inc.
("RMS"), the Company is obligated to offer additional consideration to the
former shareholders of RMS based on achieving certain financial performance
objectives. Although the calculation and settlement of such consideration has
not been completed, management does not believe that such contingent
consideration will have a material impact on the Company's financial statements.
NOTE 9. SUBSEQUENT EVENT
Effective May 14, 2001, the Company's Board of Directors appointed Bob Stephens
Chief Executive Officer, who succeeded George Cannan, Sr., who will remain
Chairman of the Board of Directors and President of Environmental Materials
Corporation, a wholly-owned subsidiary of the Company. As a result of this
change in Senior Management, the Company is in technical violation of one of
the loan covenants on its revolving loan agreement with CIT. The Company just
recently notified CIT of the aforementioned change of management and expects a
formal resolution to this technical issue.
8
EVTC, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SIX MONTHS ENDED MARCH 31, 2001 AS COMPARED TO THE SIX MONTHS ENDED MARCH 31,
2000
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 for their ultimate disposal.
REVENUE
Revenue was $15.1 million for the first six months of fiscal year 2001 an
increase of $1.4 million or 10.5% compared to the same period during the prior
fiscal year. Of the $1.4 million increase in revenue for the first six months of
fiscal year, $2.0 million occurred as a direct result of the inclusion of the
operations of Refrigerant Management Services, Inc. ("RMS") which the company
acquired during May 2000. The increase resulting from the inclusion of RMS was
offset primarily by a decrease of $0.5 million resulting from decreased
preseason selling combined with depressed market prices of R-134a and R-22, two
of the companies core refrigerants. The remaining decrease of $0.1 million was a
result of a decline in revenue generated from the Company's ballast division.
GROSS MARGIN
Gross Margins from the sales of refrigerant and refrigerant related services
increased by $1.2 million during the first six months of fiscal year 2001 to
$4.1 million. Of the $1.2 million increase in gross margin, approximately $1.1
million resulted from incremental gross margin generated from the acquisition of
RMS. During the first six months of fiscal year 2001, a substantial portion of
the revenue generated from the existing RMS operations was service revenue which
typically generates higher gross margins than traditional sales of refrigerant.
Furthermore, sales of refrigerant through the Company's traditional channels
resulted in an increase in the Company's gross margin of $0.2 million. Gross
margin resulting from the processing of lamp ballasts during the first six
months of fiscal year 2001 decreased by approximately $0.1 million compared to
the corresponding period in the prior year.
The gross margin as a percent of sales was 27.4% for the six months ended March
31, 2001 compared to 21.5% from the corresponding period in the prior year. The
increase in gross margin as a percentage of sales occurred, primarily, as a
result of onsite services which were offered through RMS during fiscal year 2001
which were not offered by the Company in the corresponding period in the prior
year. The increase in gross margin as a percentage of sales was offset,
slightly, by a decrease in gross margin from the Company's traditional channels
of refrigerant distribution and because the Company's ballast division continues
to shift its product mix away from PCB ballasts toward the
9
processing of fluorescent lamps and non PCB lamp ballasts both of which,
despite having a longer life cycle than PCB ballasts, generate lower margins.
SELLING, GENERAL & ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses for first six months of
fiscal year 2001 increased 66% to $5.1 million from $3.0 million of SG&A
expenses incurred during the first six months of fiscal 2000. Of the $2.1
million increase in the first six months SG&A expenses, $1.7 million occurred as
a direct result of incremental increased expenses directly related to the
inclusion of Liberty and RMS in our operations. The Company incurred an
additional $0.3 million in SG&A expenses when it consolidated its operations
upon moving to its new facility in Fort Worth, Texas. The remaining increase
SG&A expenses occurred primarily as a result of the Company's ongoing investment
in infrastructure and personnel as Company continues to expand its onsite
service model into additional markets.
INTEREST EXPENSE
Interest expense incurred during the first six months of fiscal year 2001 was
approximately $0.5 million, an increase of approximately $0.1 million or 25%
from the six months of fiscal year 2000. The increase in interest expense
occurred primarily as a result of the increase in variable interest rates for
the six months ending March 31, 2001 compared to the same period during the
prior year, combined with a higher average balance on the Company's revolving
credit agreement. The average balance of the Company's revolving credit
agreement was higher during the first six months of fiscal year 2001 than during
the corresponding period in the prior year, primarily, because the Company
received an infusion of approximately $2.0 million in capital during fiscal year
2000. During the first six months of 2001, the Company has not received any cash
as a result of an equity issuance. In addition, the Company incurred additional
term debt and entered into capital lease agreements to fund certain capital
investments.
INCOME TAX
Our effective income tax rate for the first six months of fiscal year 2001 was
34%. Based on estimates of recoverability of deferred tax assets, the Company
recorded a tax benefit of $0.5 million for the operating loss for the six-month
period ended March 31, 2001. The Company recorded a tax benefit of $0.2 million
for the operating loss for the six months ended March 31, 2000. (See Note 3 -
Income Taxes in Notes to the Consolidated Financial Statements)
THREE MONTHS ENDED MARCH 31, 2001 AS COMPARED TO THE THREE MONTHS ENDED MARCH
31, 2000
REVENUE
Revenue was $8.9 million for the second quarter of fiscal year 2001 relatively
unchanged from the second quarter of fiscal year 2000. Despite generating an
incremental increase of $1.1 million as a result of the inclusion of RMS, the
Company experienced weaker pricing for both R22 and R134a, two of the Company's
core refrigerants when compared to the corresponding period in the prior year.
Furthermore, the Company sold a lower volume of R134a on a preseason basis into
both the stationary market and automotive aftermarket than it sold during the
second quarter of the prior year. In addition, the Company's ballast division
experienced a decrease of $0.1 million.
10
GROSS MARGIN
Gross Margin for the second quarter of fiscal year 2001 was $2.5 million, an
increase of $0.7 million or approximately 38.9%.
Gross Margins from the sales of refrigerant and refrigerant related services
increased by $0.8 million during the second quarter of fiscal year 2001. Of the
$0.8 million increase in gross margin, approximately $0.5 million resulted from
incremental gross margin generated from the acquisition of RMS. During the
second quarter and first six months of fiscal year 2001, a substantial portion
of the revenue generated from the existing RMS operations was service revenue
which typically generates higher gross margins than traditional sales of
refrigerant. Furthermore, sales of refrigerant through the Company's traditional
channels resulted in an increase in the Company's gross margin of $0.3 million.
Gross margin resulting from the processing of lamp ballasts during the second
quarter of fiscal year 2001 decreased by approximately $0.1 million compared to
the corresponding period in the prior year.
Total gross margin as a percentage of sales increased to 28.7% during the second
quarter of fiscal year 2001, compared to 20.2% in gross margin realized during
the corresponding period in the prior year. The increase in gross margin as a
percentage of sales occurred, primarily, as a result of onsite services which
were offered through RMS during fiscal year 2001 which were not offered by the
Company in the corresponding period in the prior year. The increase in gross
margin as a percentage of sales was offset, slightly, by a decrease in gross
margin from the Company's traditional channels of refrigerant distribution and
because the Company's ballast division continues to shift its product mix away
from PCB ballasts toward the processing of fluorescent lamps and non PCB lamp
ballasts both of which, despite having a longer life cycle than PCB ballasts,
generate lower margins.
SELLING, GENERAL & ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses for the second quarter of
fiscal year 2001 increased 70% to $2.5 million from $1.4 million of SG&A
expenses incurred during the second quarter of fiscal 2000. Of the $1.1 million
increase in the second quarter SG&A expenses, $0.8 million occurred as a direct
result of incremental increased expenses directly related to the inclusion of
Liberty and RMS in our operations. The remaining increase SG&A expenses occurred
primarily as a result of the Company's ongoing investment in infrastructure and
personnel as the Company continues to expand its onsite service model into
additional markets.
INTEREST EXPENSE
Interest expense incurred during the second quarter of fiscal year 2001 was
approximately $250,000, an increase of approximately $81,000 or 47% from the
first quarter of fiscal year 2000. The increase in interest expense occurred
primarily as a result of a higher average balance on the Company's revolving
credit agreement. The average balance of the Company's revolving credit
agreement was higher during the second quarter of fiscal year 2001 than during
the corresponding period in the prior year, primarily, because the Company
received an infusion of approximately $2.0 million in capital during fiscal year
2000. During the second quarter of 2001, the Company has not received any cash
as a result of an equity issuance. Furthermore, the Company has incurred
additional term debt and capital leases to fund capital investments during the
third and forth quarters of fiscal year 2000 and the first quarter of fiscal
year 2001 which added incremental interest expense, which was not present during
the corresponding quarter during the prior year.
11
INCOME TAX
Our effective income tax rate for the second quarter of fiscal year 2001 was
34%. Based on estimates of recoverability of deferred tax assets, the Company
recorded a tax benefit of $60,909 for the operating loss for the three-month
period ended March 31, 2001. The Company recorded a tax provision of $64,988
earnings generated during the quarter ending March 31, 2000. (See Note 3 -
Income Taxes in Notes to the Consolidated Financial Statements)
We expect our effective tax rate to remain at approximately 34% for the
remainder of fiscal year 2001. The expected tax rate excluded the impact of
potential mergers and acquisitions. Any tax effects resulting from potential
mergers would be accounted for in the interim quarter in which the transactions
occur. Furthermore, the Company has NOL's, which have a significant value, and
have not been contemplated in the effective tax rate. Our expected rate is based
on current tax law and current estimates of earnings, and is subject to change.
LIQUIDITY AND CAPITAL RESOURCES
The Company is able to fund its normal working capital requirements mainly
through operations or, when necessary, through its utilization of its existing
credit facilities.
EVTC's cash and cash equivalents decreased by approximately $90,000 to $0.2
million at March 31, 2001. The decrease occurred primarily as a result of cash
used in operating and investing activities of $0.9 million, offset by cash
provided by financing activities of $0.8 million.
Net cash used in operating activities was comprised of $0.1 million used to fund
working capital requirements and other activities, and the net loss adjusted for
non-cash items of $0.1 million. Net cash used in working capital and other
activities resulted primarily from an increase in receivables and inventories
offset by changes in accounts payable and accrued liabilities. Accounts
receivable were $8.4 million and $7.1 million at March 31, 2001 and September
30, 2000, respectively. The increase in the Company's accounts receivable
balance was result of a higher level of sales at the end of the second quarter
of 2001, relative to the fourth quarter of 2000 which is a direct result of
seasonal demand of refrigerant. Inventory levels increased to $8.7 million at
March 31, 2001, compared to $7.8 million at September 30, 2000. The increase in
inventory occurred because of an increase in seasonal demand for our refrigerant
products and because of inventory purchased. Such uses of cash in operating
activities were offset by an increase of $0.1 million provided by discontinued
operations.
Net cash used in investing activities during the six months ended March 31, 2001
was approximately $0.6 million. Of the $0.6 million, approximately $0.2 million
were capital improvements to the Company's new facility in Fort Worth, Texas and
the remaining $0.4 million related to new onsite service vehicles and other
smaller capital projects.
Net cash provided by financing activities during the six months ended March 31,
2001 was approximately $0.8 million, representing borrowings against the
Company's revolving credit agreement, net of repayments on various notes
payable.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
12
The principal market risks (i.e., the risk of loss arising from 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 short-term 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 the current variable rate debt and investment levels, a one-point
change in interest rates would impact interest expense by approximately $94,000.
13
EVTC, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Change in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Securities
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Not applicable
There are no exhibits.
14
EVTC, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EVTC, Inc.
Date: May 14, 2001 By: /s/ George Cannan
Chief Executive Officer
/s/ David A. Keener
President
/s/ Timothy J. Hinkhouse
Chief Financial Officer
15