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 31,1999
[ ] 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.)
121 South Norwood Drive
Hurst, Texas 76053
- --------------------------- ---------------------------
(Address of Principal Executive Offices) (Zip Code)
(817) 282-0022
--------------------------------------------------------
(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
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
The number of shares outstanding of the registrant's common stock is
5,010,719 (as of May 12,1999).
Page 1 of 14 pages.
There are no exhibits.
<PAGE>
EVTC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, September 30,
ASSETS
1999 1998
---------------------------
Current Assets:
Cash and cash equivalents ......... $ 3,328,183 $ 4,511,195
Accounts receivable, net .......... 6,269,170 5,144,724
Due from officer .................. 371,016 200,000
Income taxes receivable ........... 1,373,659 1,423,659
Inventories ................................ 8,497,790 7,236,440
Other current assets ....................... 481,364 442,200
Assets of discontinued operations .......... 1,361,293 1,596,948
--------- ----------
Total current assets ................ 21,682,475 20,555,166
Property and equipment, net .................. 1,442,226 1,646,941
Goodwill, net ................................ 536,397 560,965
Other Assets ................................. 591,150 797,896
--------- -----------
Total assets ........................ $24,252,248 $23,560,968
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable ................... $ 11,992,380 $ 11,992,380
Accounts payable ......................... 4,498,919 2,338,740
Accrued liabilities ...................... 1,187,344 1,643,593
Liabilities of discontinued operations.... 262,531 476,687
---------- -----------
Total current liabilities ......... 17,941,174 16,451,400
Stockholders' Equity
Common stock ............................. 49,897 49,897
Paid-in-capital .......................... 11,396,532 11,396,532
Retained deficit ......................... (5,135,355) (4,336,861)
---------- -----------
Total stockholders' equity ........ 6,311,074 7,109,568
---------- -----------
Total liabilities and
stockholders' equity ............ $ 24,252,248 $ 23,560,968
========== ============
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
EVTC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31 Six Months Ended March 31
1999 1998 1999 1998
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ......................... $ 10,115,430 $ 8,335,314 $ 14,648,468 $ 14,464,689
Cost of sales ..................... 8,060,984 6,787,975 11,314,842 11,419,909
---------- --------- ---------- ----------
Gross profit ...................... 2,054,446 1,547,339 3,333,626 3,044,780
Selling, general and
administrative expenses ........ 1,846,531 2,264,945 3,705,834 4,057,473
---------- --------- ---------- ---------
Operating income (loss) ...... 207,915 (717,606) (372,208) (1,012,693)
Interest expense .................. 232,350 260,942 472,529 512,815
Other income, net ................. 38,554 91,834 46,243 106,127
---------- -------- --------- ---------
Income (loss) from continuing
operations before income taxes 14,119 (886,714) (798,494) (1,419,381)
Income tax benefit ................ -0- (357,249) -0- (570,049)
---------- -------- --------- ---------
Income (loss) from continuing
operations ................... 14,119 (529,465) (798,494) (849,332)
Discontinued equipment products
operations:
Loss from discontinued operations,
net of income taxes .......... -0- (207,246) -0- (421,291)
--------- --------- -------- --------
Net income (loss) ................. $ 14,119 $ (736,711) $ (798,494) $ (1,270,623)
========= ========= ======== =========
Income (loss) per share Basic:
Continuing operations ............ $ 0.00 $ (0.11) (0.16) (0.17)
Discontinued operations .......... 0.00 (0.04) (0.00) (0.08)
--------- --------- -------- ----------
0.00 (0.15) (0.16) (0.25)
Diluted:
Continuing operations ............ $ 0.00 $ (0.11) (0.16) (0.17)
Discontinued operations .......... 0.00 (0.04) (0.00) (0.08)
--------- -------- -------- ---------
0.00 (0.15) (0.16) (0.25)
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
EVTC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended March 31
1999 1998
-------------------------
Cash Flows From Operating Activities:
Net income (loss) from continuing
operations ....................... $ (798,494) $ (849,332)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization .... 360,452 391,389
Changes in assets and liabilities:
Accounts receivable .............. (1,124,446) (1,671,160)
Due from officer ................. (171,016) 100,000
Income taxes receivable .......... 50,000
Inventory ........................ (1,261,350) 20,048
Other current assets ............. (39,164) 865,070
Other assets ..................... 206,746 (234,814)
Increase (Decrease) in liabilities:
Accounts payable and accrued
liabilities .................... 1,703,930 10,479
Assets of discontinued operations 235,655 177,472
Liabilities of discontinued
operations .................... (214,156) (217,664)
Net cash used in
operating activities ......... (1,051,843) (1,408,512)
Net Cash Used in Investing Activities:
Capital expenditures ................... (131,169) (186,255)
Net Cash Provided By Financing Activities:
Proceeds from short-term debt .......... -- 1,192,280
Net decrease in cash and
cash equivalents ....................... (1,183,012) (402,487)
---------- ---------
Cash and cash equivalents - Beginning
of period .............................. 4,511,195 2,321,071
--------- ---------
Cash and cash equivalents - End of
period ................................. $ 3,328,183 $ 1,918,584
========= =========
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
EVTC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Nature Of Business And Significant Accounting Policies
EVTC, Inc. (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." The Company is engaged 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.
The consolidated financial statements include the financial statements of
EVTC, Inc. and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
The financial information furnished herein has not been audited by
independent accountants; however in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the financial position, results of operations and cash flows of
the Company for the three and six month periods ended March 31,1999 and March
31,1998, respectively, have been made. The results of operations for the
six-month period ended March 31, 1999 are not necessarily indicative of the
results to be expected for the full year.
Note 2. Income Per Share
Net income (loss) per share for the first six months and for the second
quarter of fiscal years 1998 and 1999 is computed on the basis of the weighted
average number of common shares outstanding in the period (5,010,719). Options
and warrants were not included in the calculation of diluted earnings per share
for the three-month period ending March 31, 1998 and the six month periods
ending March 31, 1999 and 1998 because their effect is anti-dilutive.
Note 3. Income Taxes
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable 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 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 on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
At September 30, 1998 the Company recorded a deferred tax asset of $3
million. This asset consisted mainly of reserves relating to bad debts and
inventory reported differently for financial reporting and tax purposes, as well
as net operating loss carryforwards. Operating losses sustained in the first six
months of fiscal 1999 increased the deferred tax asset to approximately $3.3
million at March 31, 1999. Based on estimates of recoverability of the deferred
tax asset at September 30, 1998 and March 31, 1999, the Company has recorded
valuation allowances of $3 million and $3.3 million respectively. Due to the
100% valuation allowance placed on these assets, they are reflected at zero
value on the Company's September 30, 1998 and March 31, 1999 consolidated
balance sheet. The Company has available at September 30, 1998 net operating
loss carryforwards, for federal income tax purposes, of $592,512 which are
available to offset future federal taxable income, if any, through 2013.
Note 4. Discontinued Operations
During July 1998, the Company's Board of Directors adopted a plan to
discontinue its Recycling and Recovery Equipment business segment. The Company
has initiated a liquidation program to sell all assets of the segment.
Management intends for the disposal of the segment to be completed by June 30,
1999 (the Phase-Out Period). The Company has recasted the accompanying
consolidated statements of operations to present the operating results of the
Recycling and Recovery Equipment business segment as discontinued operations.
The accompanying consolidated balance sheets segregate assets and liabilities of
the discontinued segment. Assets and liabilities of the discontinued Recycling
and Recovery Equipment business segment are as follows:
3/31/99 9/30/98
Assets
Accounts receivable $ 295,288 $ 130,000
Inventories ....... 1,036,005 1,436,948
Equipment and other 30,000 30,000
----------
$1,361,293 $1,596,948
Liabilities
Accounts Payable .. 147,222 165,000
Accrued Liabilities 115,309 311,687
----------
$ 262,531 $ 476,687
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The Company's fiscal year-end is September 30.
The following discussion of results of operations for the three-month and
six month periods ended March 31, 1999 and 1998 should be read in conjunction
with the unaudited condensed financial statements, including notes thereto,
included elsewhere in this Report.
Three months ended March 31, 1999 as compared to the three months ended March
31, 1998
Revenues for the three-month period ended March 31, 1999 were approximately
$10.1 million, as compared to revenues of approximately $8.3 million for the
three-month period ended March 31, 1998, an increase of approximately $1.8
million, or 21%. The increase in sales is primarily attributed to an increase in
the amount of R-134a sold during the period as the demand for R-134a continues
to increase, as a replacement for R-12, and the increased pre-season sales of
R-22. Sales of refrigerant R-12 continue to provide a significant portion of the
Company's revenues, although its relative percentage is declining. The decline
in R-12 sales is primarily attributed to the significant increase in the demand
for R-134a, the replacement for R-12, and the Company's increasing emphasis on
refrigerant reclaiming and commercial refrigerant sales. The Company's ability
to maintain its current level of R-12 and R-134a sales for the foreseeable
future will be dependent, to a large extent, upon the availability of adequate
sources of supply. The Company is not dependent on any one source of refrigerant
for its supply of R-12 or R-134a refrigerant and historically has purchased from
a number of manufacturers and suppliers. The Company's refrigerant reclaiming
and separation activities will continue to serve as an important source of R-12,
as well as other CFC refrigerants.
Offsetting the decline in R-12 sales during the quarter is a significant
sales backlog of approximately $2.3 million at March 31, 1999. During the period
ended March 31, 1999, the Company continued an aggressive preseason sales
program to lock in large customers prior to the start of the refrigerant season.
The Company anticipates that its current sales backlog at March 31, 1999 will be
shipped and recognized as revenue in the third quarter of fiscal 1999.
The costs of sales for the three month period ended March 31, 1999 were
approximately $8.1 million, as compared to $6.8 million for the three-month
period ended March 31, 1998, an increase of approximately $1.3 million, or 19%.
This increase is the result of increased refrigerant sales activity. Gross
margin for the three-month period ended March 31, 1999 represented 20% of
revenue compared to 18% for the three-month period ended March 31, 1998, due to
a change in product mix and increase in price of R-134a.
Selling, general, and administrative expenses for the three-month period
ended March 31, 1999 decreased $418,414 from the three-month period ended March
31, 1998. The decrease is primarily attributable to the Company's cost reduction
program initiated late in the first quarter, resulting in approximately $200,000
in reduced marketing, distribution, and administrative expenses related to Full
Circle, Inc., the Company's refrigerant reclaiming subsidiary. Management
anticipates the cost reduction program to have a continuing impact in the third
quarter of fiscal 1999.
In fiscal 1998 the Company recorded an income tax benefit only to the
extent the Company was able to carry operating losses back to offset prior year
income. No tax benefit was recorded for operating losses sustained in the six
months ended March 31, 1999 based on management estimates of the recoverability
of the deferred tax asset related to those losses. Due to losses in fiscal 1998
and the first quarter of fiscal 1999, the Company did not record a tax liability
for the operating profit for the three month period ended March 31, 1999(See
Note 3 Income taxes in Notes to the Consolidated Financial Statements). The
Company's management does not anticipate a tax liability to be recorded in
future quarters of the fiscal year, as net income is recognized, based on the
Company's $592,512 net operating loss carryforward.
The Company's operating results vary from period to period as a result of
weather conditions and the availability and price of refrigerant products
(virgin and reclaimable). The Company's business has historically been seasonal
in nature with peak sales of refrigerants occurring in the second and third
fiscal quarters. Accordingly, the first and fourth fiscal quarters of the
Company's operations have been characterized by inventory build-up and seasonal
operating losses resulting in periodic operating cash flow short falls. The
Company's results of operations for the three-month period ended March 31, 1999
may not necessarily be indicative of the Company's future operating results.
Six months ended March 31, 1999 as compared to the six months ended March 31,
1998
Revenues for the six-month period ended March 31, 1999 were approximately
$14.6 million as compared to revenues of approximately $14.4 million for the
six-month period ended March 31, 1998, an increase of approximately 1.2%. The
increase in revenue was primarily attributed to an overall increase in
refrigerant repackaging and refrigerant reclaiming revenues. Sales of R-134a
increased for the period as the demand for R-134a continued to increase, as
replacement for R-12. The decline in R-12 sales during the first six months is a
result of most large automotive customers delaying their purchasing until spring
and summer months. The delay in buying of R-12 is a result of more stable
pricing throughout the year and the continued decline in demand for R-12, as it
is replaced by R-134a. Since the cessation of production of CFC chemicals at
December 31, 1995, the Company has sought to broaden its revenue base and to
increasingly emphasize R-134a and other non-CFC refrigerants.
In addition to the Company's continued efforts in the refrigerant
repackaging, refrigerant reclaiming and ballast recycling industries, the
Company operates LTI, the nation's largest mixed refrigerant processing
facility. LTI continues to contribute earnings and was a major source of both
CFC and non-CFC refrigerants.
The costs of sales for the six-month period ended March 31, 1999 were
approximately $11.3 million as compared to approximately $11.4 million for the
six-month period ended March 31, 1998, an increase of approximately $100,000 or
approximately .9 of 1%. The decrease is primarily attributable to improved gross
margins on R-134a refrigerant sales and the change in refrigerant reclaiming
product mix.
Selling and administrative expenses decreased to $3.7 million for the
six-month period ended March 31, 1999 from $4.0 million for the period ended
March 31, 1998, a 8.7% decrease. The decrease was attributable primarily to the
cost reduction programs implemented by the reclaiming and ballast recycling
operations.
The Company generated a net loss during the six-month period ended March
31, 1999 of approximately $798,000 as compared to a net loss of $1,419,000
during the six-month period ended March 31, 1998, a 43% improvement.
Over the past year world wide production capacity of refrigerant R-134a has
been significantly reduced. This has caused a shortage in availability of
refrigerant R-134a, which is a major raw material product for the Company's
refrigerant repackaging operations. Due to the industry shortage of R-134a and
the Company's varied product mix and the seasonality of refrigerant revenues,
the Company's results may not be necessarily an indication of the Company's
future operating results.
Liquidity and Capital Resources
The Company had working capital of approximately $3.7 million at March 31,
1999, as compared to working capital of approximately $4.1 million at September
30, 1998. The Company relies on its bank debt as a source of funds for
operations. The Company has financed its working capital requirements through
operating cash flow and working capital loans obtained from a bank (the "Credit
Facility). At March 31, 1999, the loan advance balance was approximately $12
million.
Borrowings outstanding under the Credit Facility bear interest at the
bank's prime rate plus one and one half percent. The Credit Facility is secured
by eligible accounts receivable, eligible inventory and property and equipment.
At March 31, 1999 the balance outstanding under the Credit Facility was
less than the eligible security by $752,393 based on the borrowing base formula.
In addition, the Company has received an extension of it's lending agreement
with the bank through the end of August and the lending agreement provides up to
$1,500,000 of additional financing to the Company in order to accommodate the
Company's seasonal purchasing requirements. The Company is negotiating with a
number of other banks and financial institutions to refinance the existing bank
note payable and provide the Company with a long-term credit facility. Based on
negotiations to date and its operating and financial forecast for 1999, Company
management believes they will be able to obtain replacement financing within the
next 90 days. The Company believes that current cash on hand, cash provided by
operations, and the additional $1,500,000 bank availability is sufficient to
fund the Company's working requirements until permanent long term financing is
secured. Should the Company not succeed in refinancing the Credit Facility, the
bank has the option to demand payment. The Company may not have the financial
resources available to meet such a demand. The inability of the Company to
refinance its existing indebtedness could have a material adverse effect on the
Company's financial position, results of operations and liquidity.
Net cash used by operating activities for the six-month periods ended March
31, 1999 and 1998 was $1,051,843 and $1,408,512 respectively. The primary uses
of cash related to the $1.2 million increase in refrigerant inventory to support
sales during the next six months of 1999, and the $1.1 million increase in
accounts receivable associated with the increased revenues during the three
months ending March 31, 1999. Net cash used in investing activities for capital
expenditures were $131,169 and $186,255 for the six-month periods ending March
31, 1999 and 1998, respectively. Net cash provided by financing activities was
$0 and $1,192,280 for the six-month periods ending March 31, 1999 and 1998,
respectively. The Company had cash and cash equivalents of $3,328,183 and
$4,511,195 at March 31, 1999 and September 30, 1998, respectively.
The Company appeared at a hearing before a panel authorized by the NASDAQ
Board of Directors and presented the panel with its plan for achieving
compliance with applicable NASDAQ requirements as to price per share and market
cap as calculated by NASDAQ. It is expected that the NASDAQ will notify the
Company of its decision within 60 to 90 days. The Company believes it is
currently in compliance with NASDAQ requirements.
As of the date of this report, other than as set forth in this Report, the
Company has no material commitments for capital expenditures, including in
connection with research and development, acquisition of plant and equipment,
additional employees or increases to inventory.
Year 2000
The Company continues to assess the potential issues and costs associated
with the year 2000 and believes that its cost to address such issues would not
be material. The Company has implemented a plan to review year 2000 compliance
of all accounting and operations systems. The Company is in the process of
reviewing year 2000 compliance issues with its vendors, suppliers, and
customers. During the period ending March 31, 1999 the Company upgraded it's
accounting systems to be year 2000 compliant. During the third and fourth
quarter of this fiscal year, the Company will complete its compliance
resolutions of operational systems for year 2000. At the present time, the
Company believes that costs or consequences of an incomplete or untimely
resolution would not result in the occurrence of a material event or uncertainty
reasonably likely to have a material adverse effect on the Company.
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 the current variable rate debt and investment levels, a one-point
change in interest rates would impact net interest expense by approximately
$120,000.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
On February 1, 1999, the Company filed Form 8-K
reporting the dismissal of KPMG Peat Marwick, LLP as its
auditors. As reported, there were no disagreements with KPMG Peat
Marwick, LLP regarding accounting procedures and practices.
There are no exhibits.
<PAGE>
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, 1999 By: /s/ James Hellauer
---------------------
James Hellauer
President
/s/ Darrell E. Brown
----------------------
Darrell E. Brown
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,328,183
<SECURITIES> 0
<RECEIVABLES> 6,269,170
<ALLOWANCES> 1,475,587
<INVENTORY> 8,497,790
<CURRENT-ASSETS> 21,682,475
<PP&E> 4,200,203
<DEPRECIATION> 2,757,977
<TOTAL-ASSETS> 24,252,248
<CURRENT-LIABILITIES> 17,941,174
<BONDS> 0
0
0
<COMMON> 49,897
<OTHER-SE> 6,261,177
<TOTAL-LIABILITY-AND-EQUITY> 24,252,248
<SALES> 10,115,430
<TOTAL-REVENUES> 10,115,430
<CGS> 8,060,984
<TOTAL-COSTS> 8,060,984
<OTHER-EXPENSES> 1,846,531
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 232,350
<INCOME-PRETAX> 14,119
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,119
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
