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
June 30, 2000
[ ] 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 (Zip Code)
Offices)
(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. [X] Yes [ ] No
The number of shares outstanding of the registrant's common stock is 7,457,283
(as of August 8, 2000).
PAGE 1 OF 18 PAGES.
THERE ARE NO EXHIBITS.
<PAGE>
EVTC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, SEPTEMBER 30,
ASSETS (UNAUDITED)
2000 1999
------------ -------------
Current Assets:
Cash and cash equivalents .................. $ 175,437 $ 2,159,434
Marketable securities ...................... 54,460 54,460
Subscriptions receivable ................... -- 594,600
Accounts receivable, net ................... 9,592,855 7,475,772
Deferred income taxes ...................... 173,130 300,000
Income taxes receivable .................... -- 58,108
Note receivable ............................ -- --
INVENTORIES ................................ 10,147,150 6,805,492
Other current assets ....................... 1,240,230 681,337
Assets of discontinued operations .......... 801,570 1,098,760
------------ ------------
Total current assets ................... 22,184,832 19,227,963
Property and equipment,net ................. 2,929,907 1,401,036
Goodwill, net .............................. 2,958,578 511,829
Investments and other assets ............... 391,659 437,964
DUE FROM OFFICER ........................... -- 371,016
------------ ------------
Total assets ........................... $ 28,464,976 $ 21,949,808
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable to bank ....................... $ 258,283 $ --
Note payable to concorde ................... 65,357 --
Revolving credit line ...................... 9,726,377 9,742,380
ACCOUNTS PAYABLE ........................... 4,506,610 2,387,771
Liabilities of discontinued
operations ............................... 48,484 304,209
Accrued liabilities ........................ 1,934,193 1,137,212
------------ ------------
TOTAL CURRENT LIABILITIES .............. 16,539,304 13,571,572
Stockholders' Equity
Common stock ............................... 74,055 57,825
Paid-in-capital ............................ 15,436,951 12,133,204
Accumulated other comprehensive
income ................................... 54,460 54,460
Retained deficit ........................... (3,639,794) (3,867,253)
------------ ------------
Total stockholders' equity ............. 11,925,672 8,378,236
------------ ------------
Total liabilities and
stockholders' equity ................. $ 28,464,976 $ 21,949,808
============ ============
See Accompanying Notes to Consolidated Financial Statements (unaudited)
2
<PAGE>
EVTC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 NINE MONTHS ENDED JUNE 30
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ......................... $ 12,265,569 $ 12,396,286 $ 25,949,754 27,044,754
Cost of sales ..................... 8,744,267 9,756,612 19,492,370 21,071,454
------------ ------------ ------------ ------------
Gross profit ...................... 3,521,302 2,639,674 6,457,384 5,973,300
Selling, general and
administrative expenses ........ 2,454,290 1,843,450 5,496,568 5,549,284
------------ ------------ ------------ ------------
Operating income (loss) ...... 1,067,012 796,224 960,816 424,016
Interest expense .................. 222,548 317,046 616,924 789,575
Other (income) expense, net ....... (33,694) (37,712) (29,259) (83,955)
------------ ------------ ------------ ------------
INCOME(LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 878,158 516,890 373,151 (281,604)
Income tax expense (benefit) ...... 317,395 -0- 145,692 -0-
------------ ------------ ------------ ------------
Income (loss) from continuing
operations ................... 560,763 516,890 227,459 (281,604)
Discontinued equipment products
operations:
Loss from discontinued operations,
net of income taxes .......... -0- -0- -0- -0-
------------ ------------ ------------ ------------
Net income (loss) ................. $ 560,763 $ 516,890 $ 227,459 $ (281,604)
============ ============ ============ ============
Income (loss) per share Basic:
Continuing operations ............ $ 0.08 $ 0.10 0.04 (0.06)
Discontinued operations .......... 0.00 0.00 0.00 (0.00)
------------ ------------ ------------ ------------
0.08 0.10 0.04 (0.06)
Diluted:
Continuing operations ............ $ 0.07 $ 0.10 0.03 (0.06)
Discontinued operations .......... 0.00 0.00 0.00 (0.00)
------------ ------------ ------------ ------------
0.07 0.10 0.03 (0.06)
</TABLE>
See Accompanying Notes to Consolidated Financial Statements (unaudited)
3
<PAGE>
EVTC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ........................................... $ 227,459 $ (281,604)
Adjustments to reconcile net
loss to net cash used in operating activities:
Depreciation and amortization ......................... 531,203 545,939
Provision for bad debts ............................... 116,664 -0-
Changes in assets and liabilities, net of business acquired:
Accounts receivable ................................... (1,887,404) (2,791,394)
Deferred Income Taxes ................................. 126,870 -0-
Due from officer ...................................... 371,016 (171,016)
Income taxes receivable ............................... 58,108 1,423,659
Inventory ............................................. (3,002,947) (2,525,862)
Other current assets .................................. (456,825) (442,396)
Other assets .......................................... (119,338) 217,998
Accounts payable and accrued
liabilities ......................................... 1,969,658 3,665,928
Assets of discontinued operations ..................... 297,190 330,469
Liabilities of discontinued
operations ......................................... (255,725) (327,634)
----------- -----------
Net cash used in
operating activities .............................. (2,024,071) (355,913)
Cash Flows From Investing Activities:
Capital expenditures ........................................ (556,614) (415,588)
Acquisition of RMS .......................................... (1,419,026) -0-
Advance to Affiliate-PreAcquisition ......................... (1,021,616) -0-
----------- -----------
Net cash used in investing activities ......................... (2,997,256) (415,588)
Cash Flows From Financing Activities:
Proceeds from note payable to bank .......................... 750,000 -0-
Payments on notes payable to bank ........................... (528,917) -0-
Payments on note to Concorde ................................ (21,764) -0-
Net payments on revolving
credit line ............................................ (16,003) (2,000,000)
Collection of subscription receivable ....................... 594,600 -0-
Proceeds from sale of common stock
and options exercised ..................................... 2,259,414 -0-
----------- -----------
Net cash provided by (used in)
Financing activities ........................................ 3,037,330 (2,000,000)
----------- -----------
Net decrease in cash and
cash equivalents ............................................ (1,983,997) (2,771,501)
----------- -----------
Cash and cash equivalents - Beginning
of period ................................................... 2,159,434 4,511,195
----------- -----------
Cash and cash equivalents - End of
period ...................................................... $ 175,437 $ 1,739,694
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements (unaudited)
4
<PAGE>
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, recycling of fluorescent light ballasts and
lamps, and through e-solutions, inc., directly markets business to consumer
services via the internet. 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 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, 1999, included in the Company's Annual Report on Form 10-K
as filed with the Securities and Exchange Commission ("SEC") on January 6, 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.
NOTE 2. RECENT PRONOUNCEMENTS
In June of 1998, the Financial Accounting Standards Board ("FASB") issued,
then subsequently, amended, Statement of Financial Accounting Standards No. 133
("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities. SFAS
133, as amended, is effective for all fiscal years beginning after June 15,
2000. This statement established a new model for accounting for derivatives and
hedging activities. Under SFAS 133, all derivatives must be recognized as assets
and liabilities and measured at fair value. The Company will adopt SFAS 133
effective October 1, 2000. Management does not believe the adoption of SFAS 133
will have a material impact on the consolidated results of operations and
financial position.
NOTE 3. ACQUISITIONS
EVTC has made a number of acquisitions which it accounted for as a purchase
during the nine months ended June 30, 2000. The consolidated financial
statements include the operating results for each business from the date of
acquisition. For each acquisition, the purchase price was allocated to the
identifiable tangible and intangible assets. Excess amounts were allocated to
goodwill and amortized on a straight-line basis over a period not to exceed 15
years.
Effective March 24, 2000, EVTC, through its wholly-owned subsidiary,
e-solutions, acquired afreegift.com, Inc. As a result of this transaction,
e-solutions will directly market business to consumer services through its
getafreegift!com web site which is scheduled to launch in Atlanta as a test
market in late August 2000. The web site will host over twenty consumer brand
and service categories each of which will be anchored by national name brand
sponsors. In this permission based marketing initiative, each brand name sponsor
will provide free gifts in exchange for their personal data profile. The total
5
<PAGE>
consideration paid for getafreegift.com at the time of acquisition was
approximately $1.0 million of which $0.8 million advanced to afreegift prior to
the closing of the transaction and $0.2 million was assumed liabilities. In
addition , the former shareholders of afreegift.com, Inc. have an opportunity to
receive up to 8 million shares of EVTC's common stock if they satisfy certain
financial performance objectives over the following nineteen months.
On April 1, 2000, the Company acquired the remaining 50% interest in Liberty
Technologies International, Inc. ("Liberty") from Concorde Science and
Technology, Inc. ("Concorde"), its previous joint venture partner. As a result
of this transaction, Liberty became a wholly-owned subsidiary of EVTC, which
changed its method of accounting for Liberty from the equity method to the
consolidation method. The acquisition of Liberty enhances the Company's ability
to separate mixed refrigerant, which will facilitate better margin potential and
provide additional streams of revenue which reside outside of the normal
refrigerant market. The total consideration paid by EVTC for the remaining fifty
percent interest in Liberty was approximately $1.6 million of which $0.6 million
was paid by issuing EVTC common stock, $0.4 million in a loan made through cash
advances to the joint venture which occurred in prior periods, and approximately
$0.6 million in assumed liabilities.
Effective May 5, 2000, the Company acquired all the common stock of
Refrigerant Management Services, Inc. ("RMS") of Phoenix, Arizona. By virtue of
this acquisition, EVTC acquired the dominant refrigerant reclaimer and service
provider in the southwestern portion of the United States. Total consideration
for the acquisition of RMS at the date of acquisition was approximately $2.5
million of which approximately $0.5 million was paid in EVTC's common stock,
$1.4 million was paid in cash, and $0.6 million of liabilities were assumed by
the Company. The former shareholders of RMS have rights to additional contingent
consideration if they achieve certain financial objectives over the three year
period following the closing date of the acquisition. EVTC recorded
approximately $1.3 million in intangibles as a result of this transaction.
Pro forma results of operations are presented on an aggregate basis because,
although pro forma effects are material to the financial statements on an
aggregate basis, they do not materially impact the financial statements on an
individual basis. Pro forma revenue, net loss, and loss per share information
are presented for the following nine month periods ending June 30,:
2000 1999
------------- ------------
Revenue ................................... $ 28,097,228 $ 29,556,875
============= ============
Net Loss .................................. $ (795,199) $ (264,556)
============= ============
Loss Per Share ............................ $ (0.11) $ (0.04)
============= ============
The pro forma financial information does not purport to: (1) indicate what the
combined results of operations would have been had the acquisitions occurred at
the beginning of the periods presented or (2) the results of operations that may
be obtained in the future. Additionally, the pro forma financial information
does not reflect any anticipated cost savings resulting from the integration of
the combined companies' operations.
6
<PAGE>
NOTE 4. EARNINGS PER SHARE
Basic earnings per common share is 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. The
average shares of common stock outstanding during the nine month periods ending
June 30, 2000 and 1999 was 6,420,732 and 5,010,719, respectively. The average
number of common shares outstanding for the quarter ending June 30, 2000 and
1999 was 7,391,863 and 5,010,719, respectively. Incremental shares of 496,490
and 448,950 were used in the calculation of diluted earnings per share for the
three months and nine months ended June 30, 2000.
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 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 which includes the enactment date.
At September 30, 1999, 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). Earnings generated during
the first nine months of fiscal year 2000 resulted in a decrease in the
company's deferred to $2.85 million as of June 30, 2000. Due to the valuation
placed on such assets, they are reflected on our balance sheet at $173,130 and
$300,000 on the Company's June 30, 2000 and September 30, 1999, consolidated
balance sheets, respectively. The Company has available at June 30, 2000, NOL's,
for federal income tax purposes, of $7.6 million which are available to offset
future federal taxable income, if any, through 2019.
As a result of the NOL's as discussed above, the Company did not pay cash for
income taxes during the either the first nine months of fiscal 2000 or the
corresponding period in the prior year.
NOTE 6. INVENTORIES
Inventories are comprised of the following:
June 30, 2000 Sept. 30, 1999
-------------- --------------
Raw Materials ............................ $ 3,976,118 $ 2,428,007
Finished Goods ........................... 6,171,032 4,377,485
-------------- --------------
$ 10,147,150 $ 6,805,492
============== ==============
7
<PAGE>
NOTE 7. REVOLVING LINE OF CREDIT AND NOTES PAYABLE
The Company's revolving line of credit and other notes payable consisted of the
following as of:
JUNE 30, 2000 SEPT. 30, 1999
-------------- --------------
Note Payable - Chase Bank ................... $ 221,083 $ 9,742,380
Revolving Credit Agreement - CIT ............. 9,726,377 --
Note Payable - Concorde ...................... 65,357 --
Note Payable - Navistar ...................... 37,200 --
-------------- --------------
Total Notes Payable ................ $ 10,050,017 $ 9,742,380
============== ==============
NOTE PAYABLE CHASE BANK
In December of 1999, the Company entered into an amended and restated promissory
note with Chase Bank in the amount of $750,000. Under the terms of the agreement
the first payment of $371,000 was due on January 31, 2000, with subsequent
payments of $31,583 payable on a monthly basis February 15, 2000, the final
payment of which occurs on January 15, 2001. The note bears the interest rate of
the prime rate plus one and five tenths of a percent (1.5%).
CIT CREDIT FACILITY
During December 1999, the Company entered into a three-year loan agreement with
CIT which provides for borrowings under a $12.3 million credit facility. Under
the terms of the CIT Credit Facility, $0.3 million is secured against certain
existing fixed assets, bears interest at the prime lending rate + six tenths of
one percent and is payable in equal installments over a sixty month period. The
remaining $12.0 million of the credit facility bears the same interest rate as
described above and is payable when the CIT Credit Facility's three year term
expires. However, since the Company uses the credit facility to fund its working
capital needs, it classifies the CIT Credit Facility, in its entirety as a
current liability. The CIT credit facility is subject to certain financial
covenants based on the existing calculated borrowing base and is secured by
certain accounts receivable, inventory and property and equipment.
NOTE PAYABLE - CONCORDE
In connection with the acquisition of the remaining fifty percent interest in
Liberty, effective April 1, 2000, EVTC assumed an $87,121 note payable to
Concorde. This note payable to Concorde bears interest at prime rate and is
payable in twelve equal monthly installments which conclude on March 1, 2001.
The note payable to Concorde is secured by certain fixed assets acquired through
Liberty.
NOTE PAYABLE - NAVISTAR
In connection with the acquisition of RMS, the Company assumed a note payable in
the amount of $37,200 payable to Navistar. The note payable to Navistar bears
interest at a rate nine and five tenths percent (9.5%), and is payable in equal
monthly installments ending November 1, 2000. The note is classified on the
accompanying consolidated balance sheet as a current liability. The note payable
to Navistar is secured by a tank service truck which was purchased by EVTC when
it acquired RMS.
8
<PAGE>
NOTE 8. DISCONTINUED OPERATIONS
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. Management
intended for the disposal of the segment to be completed by June 30, 1999 (the
Phase-Out Period). However, during fiscal 1999 and , again in fiscal year 2000,
those estimates were revised to September 30, 2000. The Company has recasted the
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 the assets and
liabilities of the discontinued segment.
NOTE 9. SUPPLEMENTAL CASH FLOW INFORMATION
The following table reflects the supplemental cash flow information for the nine
month period ending:
<TABLE>
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999
--------------- ---------------
<S> <C> <C>
Supplemental disclosures of cash Flow information:
Cash paid during the period for:
Interest ..................................................... $ 616,924 $ 789,575
=============== ===============
Income taxes ................................................. -- --
=============== ===============
Supplemental schedule of noncash investing and financing activities:
Assumed long term debt & notes payable$ ........................ 124,321 --
=============== ===============
Common stock issued in the in
conjunction with acquisitions ................................ $ 1,048,919 --
=============== ===============
</TABLE>
NOTE 10. SEGMENT INFORMATION
The Company has three reportable operating segments: refrigerant, ballast
recycling, and direct marketing of business to consumer services via the
internet. 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. E-solutions is our segment which directly markets
business to consumer services through the internet. 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 either the three months ended or the nine months
ended June 30, 2000, and 1999, respectively.
The Company's reportable segment information for three months ended June 30,
2000 and June 30, 1999 is reported as follows:
9
<PAGE>
<TABLE>
<CAPTION>
REFRIGERANT
PRODUCT BALLAST E-SOLUTIONS CORPORATE CONSOLIDATED
----------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Three months ended June 30, 2000:
Revenue from external customers . $11,405,910 $859,659 $ -- $ -- $ 12,265,569
Segment Income/(Loss) before
Income Taxes .............. 1,395,089 20,434 (210,551) (326,814) 878,158
Three months ended June 30, 1999
Revenue from external customers . 11,614,467 781,819 -- -- 12,396,286
Segment Income/(loss) before
Income taxes .............. 1,004,965 3,365 -- (491,440) 516,890
</TABLE>
The Company's reportable segment information for the nine months ended
June 30, 2000 and June 30, 1999 is reported as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nine months ended June 30, 2000
Revenue from external customers 23,286,033 2,663,721 -- -- 25,949,754
Segment Income/(loss) before
Income taxes ............ 1,479,590 119,002 (228,149) (997,292) 373,151
Nine Months Ended June 30, 1999
Revenue from external customers 24,382,544 2,662,210 -- -- 27,044,754
Segment Income/(loss) before
Income taxes ............ 907,277 160,777 -- (1,349,658) (281,604)
</TABLE>
NOTE 11. SUBSEQUENT EVENTS
On July 27, 2000, EVTC and Mercury Waste Solutions, Inc. (NASDAQ: MWSI) jointly
announced the execution of a binding letter of intent whereby EVTC agrees to
purchase a controlling interest in MWSI through a friendly tender offer to
acquire up to a maximum of 70% of MWSI's outstanding shares. Pursuant to the
letter of intent, EVTC agreed to commence a cash tender offer to purchase MWSI's
publicly held shares for $2.15 per share and restricted MWSI shares for $1.95 in
cash and $.20 in restricted EVTC Common Stock. Upon consummation of this
transaction, EVTC will own up to 70% (but not less than 50%) of MWSI's
outstanding shares, on a fully diluted basis. The tender offer is being made
subject to MWSI shareholder approval, the completion of due diligence, certain
other related agreements and definitive offering documents to be filed with the
Securities and Exchange Commission.
Effective July 31, 2000, EVTC closed the contract to acquire a warehouse
facility and office space in Fort Worth, Texas where it will consolidate
operations and relocate its corporate headquarters. The total purchase price for
the building was approximately $1.6 million, of which $0.3 million was paid
immediately upon closing, the remainder of which was financed through a note
payable to Heritage Bank.
10
<PAGE>
The note bears interest at the prime lending rate plus one percent (1%) and is
payable in monthly installments of $6,944 plus interest over a fifteen year
period. The note payable to Heritage Bank is secured by the warehouse facility
and office space.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 three reportable operating segments: refrigerant, ballast
recycling, and direct marketing of business to consumer services via the
internet. 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.
REVENUE
Our Revenue was $12.3 million for the third quarter of fiscal year 2000 and
$25.9 million for the first nine months of fiscal 2000, a decrease of $.1
million and $1.1 million, respectively.
Our third quarter revenue generated from the sales of refrigerant were $11.5
million a decrease of $0.1 million from $11.6 million during the corresponding
quarter of the prior year. Refrigerant revenue generated during first nine
months of fiscal 2000 were $23.3 million compared $24.4 million during 1999, or
a decrease of $1.1 million. During both periods, the decrease in revenue
occurred, primarily, as a result of depressed market prices of R-22 and R-134A,
two of our core refrigerants, slightly offset by the inclusion of incremental
revenue generated by our two acquisitions, RMS and Liberty.
Ballast revenue was $0.8 million and $2.6 million for the third quarter and for
the first nine months of fiscal 2000, respectively, which is relatively
unchanged from the corresponding period in the prior year.
GROSS MARGIN
Total gross margin increased by $0.9 million to $3.5 million during the third
quarter of 2000, an increase of 33.4% compared to gross margin generated in the
third quarter of fiscal 1999. Gross Margin for the first nine months of fiscal
year 2000 was $6.5 million and increase of $0.5 million or 8.1% over
corresponding period in fiscal year 1999.
Total gross margin as a percentage of sales increased to 28.7% and 24.9% during
the third quarter and first nine months of fiscal year 2000, respectively,
compared to 21.3% and 22.1% margins realized during the corresponding periods in
the prior year.
Gross margin generated from the sales of refrigerant increased by $0.9 million
and $0.6 million to $3.2 million and $5.4 million for the third quarter and for
the first nine months of fiscal year 2000, respectively. Of the increase in
gross margin, approximately $0.4 million for both periods, resulted from
incremental gross margin generated from the acquisition of RMS, the closing of
which became effective on May 5, 2000. The acquisition of RMS provides an
additional channel of distribution of refrigerant and reclaiming services into
the HVAC industry. Because the RMS business model provides value added services
and complete reclaiming and recovery solutions to its customer base, it realized
significantly higher margins than our traditional core refrigerant sales, which
in turn mitigates, to a certain extent, some of the Company's exposure to
volatile refrigerant pricing conditions. The remaining increase of $0.5 million
and $0.2 in refrigerant margins occurred as a result of higher than normal
demand and prices for R-12 offset slightly by lower than normal prices of R-22
and R-134A.
12
<PAGE>
Gross margin resulting from the processing of lamp ballasts during the third
quarter of 2000 was unchanged from the $0.3 million from the third quarter of
1999 and decreased by approximately $0.1 million to $1.0 million during the
first nine months of fiscal year 2000 as compared to the corresponding period in
fiscal year 1999. The decrease occurred primarily because the ballast division
brokered to unrelated third parties more fluorescent lamps for recycling than
the prior year which negatively impacted the divisions gross margin.
SELLING, GENERAL & ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses for the third quarter of
fiscal year 2000 increased 33.1% to $2.5 million in the third quarter of 2000
compared to $1.8 million of SG&A expenses incurred during the third quarter of
1999. Of the $0.7 million increase in the third quarter SG&A expenses, $0.8
million occurred as a direct result of incremental increased expenses occurred
directly related to the inclusion of afreegift.com, Liberty, and RMS in our
operations, offset slightly by the Company's continued cost reduction
initiatives started in the first quarter of 1999 in all of the Company's other
operating segments.
SG&A expense for the first nine months of fiscal year 2000 decreased by slightly
less than $0.1 million to $5.5 million compared to SG&A expense incurred during
the corresponding period of fiscal year 1999. Despite an increase of
approximately $0.8 million in incremental SG&A expenses incurred as a result of
its acquisitions, the Company more than offset such increases in expenses by
continuing its aggressive cost reduction initiative which it implemented during
the spring of 1999.
INTEREST EXPENSE
Our interest expense incurred during the third quarter of 2000 was approximately
$222,548 a decrease of $94,498 from the third quarter of 1999. Further, our
interest expense incurred during the first nine months of 2000 was $616,924
compared to $789,575 incurred during the corresponding period in the prior
fiscal year, a decrease of $172,651 or approximately 22%. The decrease in our
interest expense over both periods occurred, primarily, because the average
balance on our revolving credit facility was significantly lower in fiscal year
2000 compared to fiscal year 1999.
EARNINGS BEFORE INCOME TAXES
Earnings before income taxes for the third quarter of fiscal year 2000 increased
69.9% or $0.4 million to approximately $0.9 million. Earnings before income
taxes for the first nine months of fiscal year 2000 increased by almost $0.7
million to $0.4 million in earnings compared to losses accumulated in the
corresponding prior period of approximately $0.3 million.
INCOME TAXES
Our effective income tax rate for the third quarter of 2000 and the first nine
months of fiscal year 2000 were 36.1% and 39.0%, respectively. During the
corresponding periods in the prior year, the company did not recognize a
provision for its income taxes during the third quarter of 1999 or a benefit for
the loss it accumulated during the first nine months of 1999.
We expect our effective tax rate to remain at approximately 36% for the
remainder of fiscal year 2000. 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 significant NOL's which have been
significantly value allowed and have
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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 $2.0 million to $0.2 million at
June 30, 2000. The decrease occurred primarily as a result of cash used in
operating activities of $2.0 million and cash used in investing activities of
$3.0 million offset by cash provided by financing activities of $3.0 million.
Net cash used in operations was comprised of $3.2 million used to fund working
capital requirements and other activities, offset in part by net income adjusted
for non-cash items of $1.0 million. Net cash used in working capital and other
activities resulted primarily from an increase in receivables and inventories.
Accounts receivable were $9.6 million and $7.5 million at June 30, 2000 and
September 30, 2000, respectively. Days sales outstanding for the quarter
increased to seventy-one days from fifty-nine days in the fourth quarter of
1999. The increase in days sales outstanding was driven by a higher level of
sales near the end of the current quarter, relative to the fourth quarter of
1999 which is a direct result of seasonal demand of refrigerant. Inventory
levels increased to $10.1 million at June 30, 2000, compared to $6.8 million at
September 30, 1999. The increase in inventory occurred because of an increase in
seasonal demand for our refrigerant products and because of inventory purchased
as a result of the Liberty and RMS acquisitions.
Net cash used in investing activities resulted from the following items. EVTC
paid $1.4 million cash for the acquisition of RMS and used $1.0 million in
advances to companies which EVTC ultimately acquired. In addition, EVTC used
$0.6 million for capital expenditures.
Net cash provided by financing activities during the nine months ended June 30,
2000 was approximately $3.0 million. Of the cash provided by financing
activities, $2.2 million resulted from the issuance of common stock to private
investors, $0.7 million resulted from the exercise in stock options and
warrants. The remaining cash provided from financing activities resulted from
$0.8 million in borrowings resulting from the amendment to the revolving credit
agreement with Chase Bank, offset, partially, by repayments on various notes
payable and revolving lines of credit totaling approximately $0.7 million.
EVTC has made a number of purchase acquisitions during the nine months ended
June 30, 2000. The consolidated financial statements include the operating
results for each business from the date of acquisition.
Effective March 24, 2000, EVTC, through its wholly-owned subsidiary,
e-solutions, acquired afreegift.com, Inc. As a result of this transaction,
e-solutions will directly market business to consumer services through its
getafreegift!com web site. The web site will host over twenty consumer brand and
service categories each of which will be anchored by national name brand
sponsors. In this permission based marketing initiative, each brand name sponsor
will provide free gifts in exchange for their personal data profile. The total
consideration paid for getafreegift.com at the time of acquisition was
approximately $1.0 million of which $0.8 million was paid in cash advances
during fiscal year 2000 prior to closing and approximately $0.2 in liabilities
were assumed. In addition , the former shareholders of afreegift.com, Inc. have
an opportunity to receive up to 8 million shares of EVTC's common stock if they
satisfy certain financial performance objectives over the following nineteen
months.
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On April 1, 2000, the Company acquired the remaining 50% interest in Liberty
from Concorde Science and Technology, Inc. ("Concorde"), its previous joint
venture partner. As a result of this transaction, Liberty became a wholly-owned
subsidiary of EVTC. The acquisition of Liberty enhances the Company's ability to
separate refrigerant, which will facilitate better margin potential and
additional streams of revenue which reside outside of the normal refrigerant
market. The total consideration paid by EVTC for the remaining fifty percent
interest in Liberty was approximately $1.6 million of which $0.6 million was
paid by issuing EVTC common stock, $0.4 million in loan made through cash
advances to the joint venture which occurred in prior periods, and approximately
$0.6 million in liabilities were assumed.
Effective May 5, 2000, the Company acquired all the common stock of Refrigerant
Management Services, Inc. ("RMS") of Phoenix, Arizona. By virtue of this
acquisition, EVTC acquired the dominant refrigerant reclaimer and service
provider in the southwestern portion of the United States. Total consideration
for the acquisition of RMS at the date of acquisition was approximately $2.5
million of which approximately $0.5 million was paid in EVTC's common stock,
$1.4 million was paid in cash, and $0.6 million of liabilities were assumed by
the Company. The former shareholders of RMS have rights to additional contingent
consideration if they achieve certain financial objectives over the two year
period following the closing date of the acquisition.
In April of 2000, the Company announced the signing of a formal letter of intent
to acquire Mercury Technologies International, LP. (MTI), a national mercury and
lamp recycling company headquartered in Allentown, Pennsylvania with regional
processing facilities located in Pennsylvania, Florida and southern California.
Under the terms of the letter of intent MTI will receive an undisclosed amount
of cash, stock and notes at closing. The letter of intent also provides for
additional contingent consideration to be based on achieving certain financial
objectives.
On July 27, 2000, EVTC and Mercury Waste Solutions, Inc. (NASDAQ: MWSI) jointly
announced the execution of a binding letter of intent whereby EVTC agrees to
purchase a controlling interest in MWSI through a friendly tender offer to
acquire up to a maximum of 70% of MWSI's outstanding shares. Pursuant to the
letter of intent, EVTC agreed to commence a cash tender offer to purchase MWSI's
publicly held shares for $2.15 per share and restricted MWSI shares for $1.95 in
cash and $.20 in restricted EVTC Common Stock. Upon consummation of this
transaction, EVTC will own up to 70% (but not less than 50%) of MWSI's
outstanding shares, on a fully diluted basis. The tender offer is being made
subject to MWSI shareholder approval, the completion of due diligence, certain
other related agreements and definitive offering documents to be filed with the
Securities and Exchange Commission.
Effective July 31, 2000, EVTC closed the contract to acquire a warehouse
facility and office space in Fort Worth, Texas where it will consolidate
operations and relocate its corporate headquarters. The total purchase price for
the building was approximately $1.6 million, of which $0.3 million was paid
immediately upon closing, the remainder of which was financed through a note
payable to Heritage Bank. The note bears interest at the prime lending rate plus
one percent (1%) and is payable in monthly installments of $6,944 plus interest
over a fifteen year period. The note payable to Heritage Bank is secured by the
warehouse facility and office space.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
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 $90,000.
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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
Effective May 5, 2000, the Company, announced the acquisition of
Refrigerant Management Services, Inc. of Phoenix Arizona (RMS). RMS is the
dominant refrigerant reclaimer and service provider in the South Western portion
of the United States with operations in Phoenix, Tucson, Los Angeles, San Diego
and Western Michigan
On July 27, 2000, Environmental Technologies, Corp. (EVTC) and Mercury
Waste Solutions, Inc. ( MWSI) jointly announced the execution of a binding
letter of intent whereby EVTC agrees to purchase a controlling interest in MWSI
through a friendly tender offer to acquire up to a maximum of 70% of MWSI's
outstanding shares. Pursuant to the letter of intent, EVTC agreed to commence a
cash tender offer to purchase MWSI's publicly held shares for $2.15 per share
and restricted MWSI shares for $1.95 in cash and $.20 in restricted EVTC Common
Stock. Upon consummation of this transaction, EVTC will own up to 70% (but not
less than 50%) of MWSI's outstanding shares, on a fully diluted basis. The
tender offer is being made subject to MWSI shareholder approval, the completion
of due diligence, certain other related agreements and definitive offering
documents to be filed with the Securities and Exchange Commission. Certain
members of MWSI's management and board of directors have entered or will enter
into agreements under which they have agreed to tender shares held by them into
the offer that would ensure that at least 50% of MWSI's outstanding shares are
tendered to EVTC. Following the completion of the tender offer, EVTC intends to
consummate a second-step merger whereby it will contribute its ballast and
fluorescent lamp recycling division to MWSI in exchange for MWSI common stock.
There are no exhibits.
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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: August 11, 2000 By: /s/ GEORGE CANNAN
Chief Executive Officer
/s/ DAVID A. KEENER
President
/s/ TIMOTHY J. HINKHOUSE
Chief Financial Officer
