UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 000-26031
EURO TRADE & FORFAITING, INC.
(Exact name of Registrant as specified in its charter)
UTAH 87-0571580
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 1620, 400 BURRARD STREET, VANCOUVER, BRITISH COLUMBIA, CANADA V6C 3A6
(Address of principal executive offices)
(604) 683-5767
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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. Yes X No
----- -----
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:
Class Outstanding at February 13, 2002
----- ---------------------------------
Common Stock, $0.001 22,240,724
par value
FORWARD-LOOKING STATEMENTS
Statements in this report, to the extent that they are not based on historical
events, constitute forward-looking statements. Forward-looking statements
include, without limitation, statements regarding the outlook for future
operations, forecasts of future costs and expenditures, evaluation of market
conditions, the outcome of legal proceedings, the adequacy of reserves, or other
business plans. Investors are cautioned that forward-looking statements are
subject to an inherent risk that actual results may vary materially from those
described herein. Factors that may result in such variance, in addition to
those accompanying the forward-looking statements, include changes in interest
rates, prices, and other economic conditions; actions by competitors; natural
phenomena; actions by government authorities; uncertainties associated with
legal proceedings; technological development; future decisions by management in
response to changing conditions; and misjudgments in the course of preparing
forward-looking statements.
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
EURO TRADE & FORFAITING, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2001
(UNAUDITED)
EURO TRADE & FORFAITING, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
DECEMBER 31, 2001 JUNE 30, 2001
----------------- -------------
ASSETS
Current assets
Cash and cash equivalents $ 16,209 $ 16,535
Forfaiting assets 1 1
Investments 7,821 7,295
Note receivable - affiliate 5,000 5,000
Interest receivable 229 223
Deposits and other current assets 1,850 920
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$ 31,110 $ 29,974
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and other
accrued expenses $ 941 $ 490
------------ ----------
Total liabilities 941 490
Shareholders' equity
Common stock 22 22
Additional paid-in capital 35,139 35,139
Deficit (4,992) (5,677)
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Total stockholders' equity 30,169 29,484
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$ 31,110 $ 29,974
============ ==========
The accompanying notes are an integral part of these financial statements.
EURO TRADE & FORFAITING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- -----------------
Revenue $ 784 $ 23
Expenses
Interest - 25
General and administrative 784 1,079
Foreign currency transaction gains (685) (191)
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99 913
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Net income (loss) $ 685 $ (890)
========== ==========
Basic and diluted earnings
(loss) per share $ 0.03 $ (0.05)
========== ===========
Weighted average number of
common shares outstanding
(in thousands) 22,241 19,163
========== ===========
The accompanying notes are an integral part of these financial statements.
EURO TRADE & FORFAITING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- -----------------
Revenue $ (76) $ (2)
Expenses
Interest - 1
General and administrative 499 605
Foreign currency transaction
loss (gains) 321 (31)
--------- ---------
820 575
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Net loss $ (896) $ (577)
========= =========
Basic and diluted loss per share $ (0.04) $ (0.03)
========= =========
Weighted average number of
common shares outstanding
(in thousands) 22,241 21,380
========= =========
The accompanying notes are an integral part of these financial statements.
EURO TRADE & FORFAITING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- -----------------
Cash Flows from Operating Activities
Net income (loss) $ 685 $ (890)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Investment (income) loss (216) 219
Changes in current assets and liabilities:
Interest receivable (6) 143
Forfaiting assets - 3,608
Accounts payable and other accrued expenses 451 40
Purchase of investments (6,738) (1,855)
Proceeds from sale of investments 6,428 177
Other (930) (254)
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Net cash provided by (used in)
operating activities (326) 1,188
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Cash Flows from Investing Activities
Net cash provided by
investing activities - -
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Cash Flows from Financing Activities
Loan repayments to banks - (3,681)
Change in restricted cash balances - 1,139
Issuance of common shares and warrants - 10,557
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Net cash provided by
financing activities - 8,015
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Net increase (decrease) in cash
and cash equivalents (326) 9,203
Cash and cash equivalents, beginning of period 16,535 16,338
---------- -----------
Cash and cash equivalents, end of period $ 16,209 $ 25,541
========== ===========
The accompanying notes are an integral part of these financial statements.
EURO TRADE & FORFAITING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The interim period consolidated financial statements contained herein include
the accounts of Euro Trade & Forfaiting, Inc. and its subsidiaries
(collectively, the "Company").
The interim period consolidated financial statements have been prepared by the
Company pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosure
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such SEC rules and regulations. The interim period
consolidated financial statements should be read together with the audited
financial statements and the accompanying notes included in the Company's
latest annual report on Form 10-K for the fiscal year ended June 30, 2001.
In the opinion of the Company, the unaudited consolidated financial statements
contained herein contain all adjustments necessary to present a fair statement
of the results of the interim periods presented.
NOTE 2. (LOSS) EARNINGS PER SHARE
Basic (loss) earnings per share is computed by dividing (loss) income available
to common shareholders by the weighted average number of common shares
outstanding in the period.
Diluted (loss) earnings per share takes into consideration common shares
outstanding (computed under basic (loss) earnings per share) and potentially
dilutive common shares. The potentially dilutive common shares did not have
an impact on diluted earnings per share for the six months and the three months
ended December 31, 2001 and 2000, respectively, because the warrants to purchase
common stock were anti-dilutive.
NOTE 3. FORFAITING ASSETS
Forfaiting is a method of financing international trade. The Company purchases
from an exporter the debt due from an importer when credit is required. The
debt is usually evidenced by a series of negotiable financial instruments such
as promissory notes or by deferred payment letters of credit opened by a bank.
The notes are usually guaranteed by a bank in the importer's country and,
subject to the quality of the guarantor, become marketable amongst international
banks and other financial institutions. In forfaiting, the notes are purchased
without recourse to the exporter.
Management makes regular credit reviews of the forfaiting portfolio on an
individual loan basis. Past experience, current economic conditions and problems
associated with borrowers are all factors in determining the adequacy of the
allowance for losses. The allowance is increased by provision charged to
operating expense, and reduced by recoveries and charge-offs.
NOTE 4. RECLASSIFICATIONS
Certain comparative figures have been reclassified to conform with the current
period's presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion and analysis of the financial condition and results of
operation of the Company for the six month and three month periods ended
December 31, 2001 should be read in conjunction with the consolidated financial
statements and related notes included elsewhere herein.
RESULTS OF OPERATIONS - SIX MONTHS ENDED DECEMBER 31, 2001
Revenues for the six month period ended December 31, 2001 increased to $0.8
million from $23,000 for the comparative period of 2000, primarily as a result
of an increase in investment income.
Expenses for the six month period ended December 31, 2001 decreased to $99,000
from $0.9 million in the comparative period of 2000, primarily as a result of a
reduction in general and administrative expenses and an increase in foreign
currency transaction gains.
The Company had net income of $0.7 million, or $0.03 per share, for the six
month period ended December 31, 2001, compared to net loss of $0.9 million, or
$0.05 per share, for the comparative period of 2000.
No tax provision has been made for the six month period ended December 31, 2001,
based on expected tax liability for the fiscal year. The Company is subject to
the tax laws of both the United Kingdom and the United States.
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 2001
Revenues for the three month period ended December 31, 2001 decreased to
$(76,000) from $(2,000) for the comparative period of 2000, primarily as a
result of investment loss in the current period.
Expenses for the three month period ended December 31, 2001 increased to $0.8
million from $0.6 million in the comparative period of 2000, primarily as a
result of foreign currency transaction losses.
The Company had a net loss of $0.9 million, or $0.04 per share, for the three
month period ended December 31, 2001 compared to a net loss of $0.6 million, or
$0.03 per share, for the comparative period of 2000.
No tax provision has been made for the three month period ended December 31,
2001, based expected tax liability for the fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 2001 increased to $30.2 million from $29.5
million at June 30, 2001, primarily as a result of earnings in the current six
month period.
Net cash used in operating activities for the six month period ended December
31, 2001 was $0.3 million, compared to net cash provided by operating activities
of $1.2 million in the same period in 2000. This was due primarily to a
decrease in forfaiting activities in the current period.
Net cash used by investing activities for the six month period ended December
31, 2001 and 2000, respectively, was nil.
Net cash provided by financing activities for the six month period ended
December 31, 2001 was nil, compared to $8.0 million in the same period in 2000,
primarily as a result of the share issuance completed in November 2000.
Cash and cash equivalents decreased to $16.2 million at December 31, 2001 from
$16.5 million at June 30, 2001.
At December 31, 2001, the Company had total assets of $31.1 million and
stockholders' equity of $30.2 million, compared to total assets of $30.0 million
and total stockholders' equity of $29.5 million at June 30, 2001.
FOREIGN CURRENCY
Substantially all of the Company's operations are conducted in international
markets and its consolidated financial results are subject to foreign currency
exchange rate fluctuations. As at December 31, 2001, approximately 80% of the
Company's cash and cash equivalents were denominated in euros.
Since a substantial portion of the Company's revenues and assets are denominated
in foreign currencies, the financial position of the Company for any given
period, when reported in U.S. dollars, can be significantly affected by the
exchange rates prevailing during that period.
The Company does not currently enter into any currency hedging arrangements for
exchange rate fluctuations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the Company's annual report on Form 10-K for the year ended
June 30, 2001 for information concerning market risk. The Company is of the
opinion that there were no material changes in market risk since June 30, 2001.
PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's annual report on Form 10-K for the fiscial
year ended June 30, 2001 for information concerning legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its annual meeting of shareholders on December 18, 2001. At
the meeting, Michael J. Smith, James Carter, Slobodan Andjic and Simon Law were
elected directors of the Company, as follows:
ABSTENTIONS AND
VOTES FOR VOTES WITHHELD BROKER NON-VOTES
--------- -------------- ----------------
Michael J. Smith 15,565,337 - -
James Carter 15,565,337 - -
Slobodan Andjic 15,565,337 - -
Simon Law 15,565,337 - -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
None.
(B) REPORTS ON FORM 8-K
None.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: February 13, 2002
EURO TRADE & FORFAITING, INC.
By: /s/ Michael J. Smith
-------------------------------------
Michael J. Smith, President and Chief
Executive Officer