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, 1998
[ ] 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
The number of shares outstanding of the registrant's common stock is
4,989,719(as of February 10, 1999).
Page 1 of 12 pages.
There are no exhibits.
<PAGE>
EVTC,INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
December 31, September 30,
ASSETS
1998 1998
-----------------------------
Current Assets:
Cash and cash equivalents ........... $ 4,477,564 $ 4,511,195
Accounts receivable, net ............ 2,889,851 5,144,724
Due from officer .................... 371,016 200,000
Income taxes receivable ............. 1,405,400 1,423,659
Inventories .................................. 8,615,703 7,236,440
Other current assets ......................... 585,028 442,200
Assets of discontinued operations ............ 1,472,797 1,596,948
---------- ------------
Total current assets .................. 19,817,359 20,555,166
Property and equipment,net ..................... 1,507,593 1,646,941
Goodwill, net .................................. 548,681 560,965
Other Assets ................................... 618,267 797,896
---------- -----------
Total assets .......................... $ 22,491,900 $ 23,560,968
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable ....................... $ 11,992,380 $ 11,992,380
Accounts payable ............................. 2,943,415 2,338,740
Liabilities of discontinued
operations ................................. 355,371 476,687
Accrued liabilities .......................... 903,779 1,643,593
---------- ------------
Total current liabilities ............. 16,194,945 16,451,400
Stockholders' Equity
Common stock ................................. 49,897 49,897
Paid-in-capital .............................. 11,396,532 11,396,532
Retained earnings ............................ (5,149,474) (4,336,861)
---------- -----------
Total stockholders' equity ............ 6,296,955 7,109,568
---------- -----------
Total liabilities and
stockholders' equity ................ $ 22,491,900 $ 23,560,968
========== ============
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
EVTC,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended December 31
1998 1997
-------------------------
Net sales .................................. $ 4,533,038 $ 6,129,375
Cost of sales .............................. 3,253,858 4,631,934
--------- -----------
Gross profit .......................... 1,279,180 1,497,441
Selling, general and
administrative expenses ................. 1,859,303 1,792,528
--------- -----------
Operating income (loss) ............... (580,123) (295,087)
Interest expense ........................... 240,179 251,873
Other income, net .......................... 7,689 14,293
--------- -----------
Income(Loss)from continuing
operations before income taxes ........ (812,613) (532,667)
Income taxes ............................... -- (212,800)
--------- -----------
Discontinued equipment products
operations:
Loss from discontinued operations,
net of income taxes ................... -- (214,045)
--------- -----------
Net income (loss) .......................... $ (812,613) $ (533,912)
============ ============
Income (loss) per share Basic:
Continuing operations ..................... $ (0.17) $ (0.07)
Discontinued operations ................... -- (0.04)
----------- ------------
(0.17) (0.11)
Diluted:
Continuing operations ..................... $ (0.17) $ (0.07)
Discontinued operations ................... -- (0.04)
------------ ------------
(0.17) (0.11)
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
EVTC,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended December 31
1998 1997
------------------------------
Cash Flows From Operating Activities:
Net income (loss) ...................... $ (812,613) $ (319,867)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization .... 157,823 195,455
Changes in assets and liabilities:
Accounts receivable .............. 2,254,873 608,034
Due from officer ................. (171,016) 100,000
Income taxes receivable .......... 18,259
Inventory ........................ (1,379,263) (938,667)
Other current assets ............. (142,828) (113,470)
Other assets ..................... 179,629 24,746
Increase (Decrease) in liabilities:
Assets of discontinued operations 124,151 209,423
Liabilities of discontinued
operations .................... (121,316) (257,778)
Accounts payable and accrued
liabilities .................... (135,139) (359,934)
-------- ---------
Net cash used in
operating activities ......... (27,440) (852,058)
Cash Flows From Investing Activities:
Capital expenditures ................... (6,191) (71,058)
Cash Flows From Financing Activities:
Proceeds from short-term debt .......... -- 20,280
--------- --------
Net (decrease) in cash and
cash equivalents ....................... (33,631) (902,836)
Cash and cash equivalents - Beginning
of period .............................. 4,511,195 2,321,071
-------- ---------
Cash and cash equivalents - End of
period ................................. $ 4,477,564 $ 1,418,235
======== =========
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 month period ended December 31, 1998 and December 31,
1997, respectively, have been made. The results of operations for the
three-month period ended December 31, 1998 are not necessarily indicative of the
results to be expected for the full year.
Note 2. Income Per Share
Net income (loss) per share in the first quarter of fiscal years 1998 and
1999 is computed on the basis of the weighted average number of common shares
outstanding in the period (4,989,719). The effect of dilutive options and
warrants is immaterial.
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 bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured
<PAGE>
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.
Based upon fiscal 1998 losses, management recorded an approximate $3
million valuation allowance for deferred tax assets at September 30, 1998. The
first quarter 1999 operating loss increased the valuation allowance for deferred
tax assets to an approximate $3.3 million. In addition to the $3.3 million in
deferred tax assets, the Company has fiscal 1998 net operating loss
carryforwards for federal income tax purposes of $800,000 which are available to
offset future federal taxable income if any, through 2013. Due to the 100%
valuation allowance placed on these assets, they are reflected at zero value on
the Company's September 30, 1998 and December 31, 1998 Consolidated Balance
Sheets.
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.
<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
period ended December 31, 1998 and should be read in conjunction with the
unaudited condensed financial statements, including notes thereto, included
elsewhere in this Report.
Three months ended December 31, 1998 as compared to the three months ended
December 31, 1997
Revenues for the three-month period ended December 31, 1998 were
approximately $4.5 million, as compared to revenues of approximately $6.1
million for the three-month period ended December 31, 1997, a decrease of
approximately $1.6 million, or 26%. The decrease in sales is primarily
attributed to a continued decline in the amount of R-12 sold during the period.
The decline in R-12 sales during this period is a result of most large
automotive customers delaying their purchasing until the spring and summer
months. The delay in the buying of R-12 is a result of more stable pricing
throughout the year and the continued decline in demand for R-12.
Offsetting the decline in R-12 sales during the quarter is a
significant sales backlog of approximately $1.5 million at December 31, 1998.
During the period ended December 31, 1998, the Company initiated an aggressive
preseason sales program to lock in large customers prior to the start of the
refrigerant season. The Company anticipates that its entire sales backlog at
December 31, 1998 will be shipped and recognized as revenue in the second and
third quarters of fiscal 1999. Gross margin for the three-month period ended
December 31, 1998 represented 28% of revenue compared to 24% for the three-month
period ended December 31, 1997, which also off set the decline in revenue during
the three month period ended December 31, 1998.
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 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
<PAGE>
reclaiming and separation activities will continue to serve as an important
source of R-12, as well as other CFC refrigerants.
The costs of sales for the three month period ended December 31, 1998 were
approximately $3.3 million, as compared to $4.6 million for the three-month
period ended December 31, 1997, a decrease of approximately $1.3 million, or
28%. This decrease is the result of decreased refrigerant sales activity and a
change in product mix for the period.
Selling, general, and administrative expenses for the three-month period
ended December 31, 1998 increased $66,775 from the three-month period ended
December 31, 1997.The increase is primarily attributable to the Company's
increased presence in industry trade shows and the management fees paid to
Colmen Capital Advisors, Inc. The Company's management initiated a cost
reduction program late in the first quarter, resulting in approximately $60,000
in reduced salaries. Management anticipates the cost reduction program to have a
significant impact in the second quarter of fiscal 1999.
Due to losses in fiscal 1998, the Company did not record a tax benefit for
the operating loss for the three month period ended December 31, 1998(See Note 3
- - Income taxes in Notes to the Consolidated Financial Statements). The Company's
management anticipates tax benefits to be recorded in future quarters as net
income is recognized.
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 December 31,
1998 may not necessarily be indicative of the Company's future operating
results.
Liquidity and Capital Resources
The Company had working capital of approximately $3.6 million at
December 31, 1998, 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 a $13.5 million working capital revolving line
of credit obtained from a bank (the "Credit Facility).
<PAGE>
At December 31, 1998, the line of credit advance balance was approximately
$12 million.
Borrowings outstanding under the Credit Facility bear interest at the
bank's prime rate. The Credit Facility is secured by eligible accounts
receivable, eligible inventory and property and equipment. At December 31, 1998
the balance outstanding under the Credit Facility exceeded eligible security by
$897,987. As a result, the Company is not currently able to draw additional
funds under the Credit Facility. The Company has received a non-binding verbal
agreement from the bank to extend the due date for 120 days to allow the Company
to obtain long term permanent financing from another financial institution. 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 120-day extension period. The Company
believes that current cash on hand and cash provided by operations 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 three-month periods ended
December 31,1998 and 1997 was $27,440 and $852,058 respectively. Net cash used
in investing activities was $6,191 and $71,058 for the three-month periods
ending December 31, 1998 and 1997, respectively. Net cash provided by financing
activities was $0 and $20,280 for the three-month periods ending December 31,
1998 and 1997, respectively.
The Company had cash and cash equivalents of $4,477,564 and $4,511,195 at
December 31, 1998 and September 30, 1998, respectively.
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
<PAGE>
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. 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.
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: February 16, 1999 By: /s/ James C. Hellauer
----------------------
James C. Hellauer
Chief Executive Officer
/s/ David Keener
-----------------------
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,477,564
<SECURITIES> 0
<RECEIVABLES> 2,889,851
<ALLOWANCES> 1,512,868
<INVENTORY> 8,615,703
<CURRENT-ASSETS> 19,817,359
<PP&E> 4,805,518
<DEPRECIATION> 3,297,925
<TOTAL-ASSETS> 22,491,900
<CURRENT-LIABILITIES> 16,194,945
<BONDS> 0
0
0
<COMMON> 49,897
<OTHER-SE> 6,247,058
<TOTAL-LIABILITY-AND-EQUITY> 22,491,900
<SALES> 4,533,038
<TOTAL-REVENUES> 4,533,038
<CGS> 3,253,858
<TOTAL-COSTS> 3,253,858
<OTHER-EXPENSES> 1,859,303
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 240,179
<INCOME-PRETAX> (812,613)
<INCOME-TAX> 0
<INCOME-CONTINUING> (812,613)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (812,613)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
