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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 MARCH 31, 2002
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 (I.R.S. Employer
of 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
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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 May 14, 2002
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Common Stock, $0.001 22,240,724
par value
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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
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ITEM 1. FINANCIAL STATEMENTS
EURO TRADE & FORFAITING, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
2
EURO TRADE & FORFAITING, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
MARCH 31, 2002 JUNE 30, 2001
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ASSETS
Current assets
Cash and cash equivalents $ 17,089 $ 16,535
Forfaiting assets 1 1
Investments 7,904 7,295
Note receivable - affiliate 5,000 5,000
Interest receivable 185 223
Deposits and other current assets 421 920
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$ 30,600 $ 29,974
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and other accrued
expenses $ 864 $ 490
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Total liabilities 864 490
Shareholders' equity
Common stock 22 22
Additional paid-in capital 35,139 35,139
Deficit (5,425) (5,677)
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Total shareholders' equity 29,736 29,484
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$ 30,600 $ 29,974
============== =============
The accompanying notes are an integral part of these financial statements.
3
EURO TRADE & FORFAITING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED
MARCH 31, 2002 MARCH 31, 2001
-------------- --------------
Revenue $ 1,145 $ (603)
Expenses
Interest - 25
General and administrative 1,289 1,481
Foreign currency transaction losses (gains) (396) 373
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893 1,879
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Net income (loss) $ 252 $ (2,482)
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Basic and diluted earnings (loss) per share $ 0.01 $ (0.12)
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Weighted average number of common shares
outstanding (in thousands) 22,241 21,182
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The accompanying notes are an integral part of these financial statements.
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EURO TRADE & FORFAITING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 2002 MARCH 31, 2001
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Revenue $ 361 $ (626)
Expenses
General and administrative 505 402
Foreign currency transaction losses 289 564
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794 966
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Net loss $ (433) $ (1,592)
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Basic and diluted loss per share $ (0.02) $ (0.06)
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Weighted average number of common shares
outstanding (in thousands) 22,241 25,310
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The accompanying notes are an integral part of these financial statements.
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EURO TRADE & FORFAITING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED
MARCH 31, 2002 MARCH 31, 2001
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Cash Flows from Operating Activities
Net income (loss) $ 252 $ (2,482)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Investment income (loss) (299) 1,177
Changes in current assets and liabilities:
Interest receivable 38 111
Forfaiting assets - 3,616
Accounts payable and other accrued expenses 374 (20)
Purchase of investments (6,738) (3,179)
Proceeds from sale of investments 6,428 177
Other 499 (592)
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Net cash provided by (used in)
operating activities 554 (1,192)
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Cash Flows from Investing Activities
Purchase of available for sale securities - (427)
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Net cash used in investing activities - (427)
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Cash Flows from Financing Activities
Loan repayment to banks - (3,681)
Change in restricted cash balances - 1,139
Repurchase of common shares - (500)
Issuance of common shares and warrants - 10,557
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Net cash provided by financing activities - 7,515
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Net increase in cash and cash equivalents 554 5,896
Cash and cash equivalents, beginning of period 16,535 16,338
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Cash and cash equivalents, end of period $ 17,089 $ 22,234
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The accompanying notes are an integral part of these financial statements.
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EURO TRADE & FORFAITING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
Note 1. Basis of Presentation
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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
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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 nine months and three months ended
March 31, 2002 and 2001, respectively, because the warrants to purchase common
shares were anti-dilutive.
Note 3. Forfaiting Assets
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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
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Certain comparative figures have been reclassified to conform with the current
period's presentation.
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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 nine month and three month periods ended March
31, 2002 should be read in conjunction with the consolidated financial
statements and related notes included in this quarterly report.
Results of Operations - Nine Months Ended March 31, 2002
----------------------- -------------------------------------
Revenues for the nine month period ended March 31, 2002 increased to $1.1
million from $(0.6) million for the comparative period of 2001, primarily as a
result of an increase in investment income.
Expenses for the nine month period ended March 31, 2002 decreased to $0.9
million from $1.9 million in the comparative period of 2001, primarily as a
result of foreign currency transaction gains and reduced forfaiting activities
during the current period.
The Company had net income of $0.3 million, or $0.01 per share, for the nine
month period ended March 31, 2002, compared to a net loss of $2.5 million, or
$0.12 per share, for the comparative period of 2001.
No tax provision has been made for the nine month period ended March 31, 2002,
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 March 31, 2002
----------------------- --------------------------------------
Revenues for the three month period ended March 31, 2002 increased to $0.4
million from $(0.6) million for the comparative period of 2001, primarily as a
result of an increase in investment income.
Expenses for the three month period ended March 31, 2002 decreased to $0.8
million from $1.0 million for the comparative period of 2001, primarily as a
result of reduced foreign currency transaction losses during the current period.
The Company had a net loss of $0.4 million, or $0.02 per share, for the three
month period ended March 31, 2002, compared to $1.6 million, or $0.06 per share,
for the comparative period of 2001.
No tax provision has been made for the three month period ended March 31, 2002,
based on expected tax liability for the fiscal year.
Liquidity and Capital Resources
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The Company had working capital at March 31, 2002 of $29.7 million, compared to
$29.5 million at June 30, 2001. Cash and cash equivalents increased to $17.1
million at March 31, 2002 from $16.5 million at June 30, 2001. At March 31,
2002, the Company had total assets of $30.6 million and
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total shareholders' equity of $29.7 million, compared to total assets of $30.0
million and total shareholders' equity of $29.5 million at June 30, 2001.
Net cash provided by operating activities for the nine month period ended March
31, 2002 was $0.6 million, compared to operating activities using cash of $1.2
million in the same period of 2001. Net purchases of investments used cash of
$0.3 million in the current period, compared to $3.0 million in the comparative
period of 2001. Forfaiting activities did not provide any cash during the
current period, compared to providing cash of $3.6 million in the comparative
period of 2001. An increase in accounts payable and accrued expenses provided
cash of $0.4 million in the current period, compared to a decrease in same using
cash of $20,000 in the comparative period of 2001. A decrease in other current
assets provided cash of $0.5 million in the current period, compared to an
increase in same using cash of $0.6 million in the comparative period of 2001.
Net cash used in investing activities in the current period was nil compared to
$0.4 million in the comparative period of 2001, primarily due to purchases of
securities.
Net cash provided by financing activities for the nine month period ended March
31, 2002 was nil, compared to $7.5 million in the same period in 2001, primarily
due to the share issuance completed in November 2000.
Foreign Currency
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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 March 31, 2002, approximately 75% 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 have been no material changes in market risk since June 30,
2001.
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PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's annual report of Form 10-K for the fiscal
year ended June 30, 2001 for information concerning legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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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: May 14, 2002
EURO TRADE & FORFAITING, INC.
By: /s/ Michael J. Smith
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Michael J. Smith
President and Chief
Executive Officer
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