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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
Commission file number: 0-32789
EMTEC, INC.
(Exact name of registrant as specified in its charter)
Delaware 87-0273300
(State of incorporation or organization) (I.R.S. Employer Identification No.)
572 Whitehead Road, Bldg.#1
Trenton, New Jersey 08619
(Address of principal executive offices, including zip code)
(609) 528-8500
(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 by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). ( )Yes ( X ) No
As of October 31, 2004, there were outstanding 7,380,498 shares of the
registrant's common stock.
EMTEC, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2004
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets
September 30, 2004 (Unaudited) and March 31, 2004.................. 1-2
Consolidated Statements of Operations
Three and Six months ended September 30, 2004 (Unaudited)
and 2003 (Unaudited) ................................................ 3
Consolidated Statements of Cash Flows
Six months ended September 30, 2004 (Unaudited)
and 2003 (Unaudited) ................................................ 4
Notes to Consolidated Financial Statements (Unaudited) ............ 5-8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Result of Operations ............................. 9-22
Item 3 - Quantitative and Qualitative Information About Market Risk ......... 23
Item 4 - Controls and Procedures ............................................ 24
PART II - OTHER INFORMATION
Item 5 - Other Information................................................... 25
Item 6 - Exhibits............................................................ 25
SIGNATURES ................................................................. 26
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EMTEC, INC.
CONSOLIDATED BALANCE SHEETS
September 30, March 31,
2004 2004
------------- ---------
(unaudited)
Assets
------
Current Assets
Cash and cash equivalents $ 663,595 $ 4,792
Receivables:
Trade, net 17,808,037 15,206,972
Others 538,431 289,445
Inventories 2,135,378 1,599,166
Prepaid expenses 388,690 396,313
Deferred tax assets 186,368 186,368
----------- -----------
Total Current Assets 21,720,499 17,683,056
--------------------
Property and equipment, net 373,333 387,073
Investment in geothermal power unit, 552,519 569,960
Deferred tax assets 103,813 103,813
Intangible assets 107,163 118,198
Other assets 48,665 46,512
----------- -----------
Total Assets $22,905,992 $18,908,612
------------ =========== ===========
1
The accompanying notes are integral parts of these
consolidated financial statements.
EMTEC, INC.
CONSOLIDATED BALANCE SHEETS
September 30, March 31,
2004 2004
------------- ---------
(unaudited)
Liabilities and Shareholders' Equity
------------------------------------
Current Liabilities
- -------------------
Line of credit $ 3,390,086 $ 2,308,416
Accounts payable 11,238,853 9,295,882
Customer deposits 462,655 332,667
Income Tax Payable 643,574 279,397
Accrued liabilities 1,914,539 2,529,885
Deferred revenues 749,008 853,393
----------- -----------
Total Current Liabilities 18,398,714 15,599,640
-------------------------
Deferred revenue 693,348 714,573
Deferred tax liability 25,924 25,924
----------- -----------
Total Liabilities 19,117,986 16,340,137
----------------- ----------- -----------
Shareholders' Equity
- --------------------
Common stock, $.01 par value; 25,000,000
shares authorized; 7,380,498 shares issued
and outstanding 73,805 73,805
Additional paid-in capital 2,294,805 2,294,805
Accumulated earnings 1,419,397 199,865
----------- -----------
Total Shareholders' Equity 3,788,007 2,568,475
-------------------------- ----------- -----------
Total Liabilities and
Shareholders' Equity $22,905,992 $18,908,612
---------------------- =========== ===========
2
The accompanying notes are integral parts of these
consolidated financial statements.
EMTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------- ---------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenues:
Procurement services $25,386,725 $21,907,100 $50,147,191 $45,637,829
Service and consulting 3,697,004 3,862,066 7,500,745 8,564,092
Geothermal 49,407 45,388 92,035 92,973
----------- ----------- ----------- -----------
Total Revenues 29,133,136 25,814,554 57,739,971 54,294,894
-------------- ----------- ----------- ----------- -----------
Cost of Revenues:
Procurement services 22,732,765 19,749,338 44,701,032 41,440,831
Service and consulting 2,481,041 2,754,636 5,134,511 5,822,416
Geothermal 16,291 12,598 34,076 30,082
----------- ----------- ----------- -----------
Total Cost of Revenues 25,230,097 22,516,572 49,869,619 47,293,329
---------------------- ----------- ----------- ----------- -----------
Gross Profit:
Procurement services 2,653,960 2,157,762 5,446,159 4,196,998
Service and consulting 1,215,963 1,107,430 2,366,234 2,741,676
Geothermal 33,116 32,790 57,959 62,891
----------- ----------- ----------- -----------
Total Gross Profit 3,903,039 3,297,982 7,870,352 7,001,565
------------------ ----------- ----------- ----------- -----------
Operating Expenses:
Selling, general and
administrative 2,857,919 3,379,569 5,838,263 6,584,814
Interest 58,727 73,386 97,557 172,552
----------- ----------- ----------- -----------
Total Operating Expenses 2,916,646 3,452,955 5,935,820 6,757,366
------------------------ ----------- ----------- ----------- -----------
Income (Loss) Before Income Tax Expense 986,393 (154,973) 1,934,532 244,199
Income tax expense (benefit) 370,000 (16,025) 715,000 25,256
----------- ----------- ----------- -----------
Net Income (Loss) $ 616,393 $ (138,948) $ 1,219,532 $ 218,943
=========== =========== =========== ===========
Net Income (Loss) Per Share -
Basic $ .08 $ (.02) $ .17 $ .03
Diluted $ .08 $ (.02) $ .16 $ .03
Weighted Average Number Of
Shares Outstanding {Basic} 7,380,498 7,080,498 7,380,498 7,080,498
Weighted Average Number Of
Shares Outstanding {Diluted} 7,518,706 7,486,765 7,502,749 7,439,898
3
The accompanying notes are integral parts of these
consolidated financial statements.
EMTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended:
-----------------------------
September 30, September 30,
2004 2003
------------- -------------
Cash Flows From Operating Activities
- ------------------------------------
Net income for the six months $ 1,219,532 $ 218,943
Adjustments to Reconcile Net Income To Net
Cash Used In Operating Activities
Depreciation and amortization 186,229 387,683
Deferred income tax - 31,876
Changes In Operating Assets and Liabilities
Increase in receivables (2,850,051) (505,338)
(Increase) Decrease in inventories (536,212) 1,292,858
Decrease (Increase) in prepaid expenses 7,623 (20,188)
(Increase) Decrease in other assets (2,153) 413
Increase in accounts payable 1,942,969 864,197
Increase (Decrease)in customer deposits 129,988 (298,127)
Increase in income tax payable 364,177 -
(Decrease) Increase in accrued liabilities (615,346) 163,028
Decrease in deferred revenue (125,610) (227,316)
----------- -----------
Net Cash (Used In) Provided By
- ------------------------------
Operating Activities (278,854) 1,908,029
-------------------- ----------- -----------
Cash Flows From Investing Activities
- ------------------------------------
Purchases of equipment (144,013) (91,720)
Additional investment in Geothermal Unit - -
Dispose of other assets - -
----------- -----------
Net Cash Used In Investing Activities (144,013) (91,720)
- ------------------------------------- ----------- -----------
Cash Flows From Financing Activities
- ------------------------------------
Net Increase (Decrease) in line of credit 1,081,671 (3,475,808)
Decrease in due to related parties - -
----------- -----------
Net Cash Provided By (Used In)
- ------------------------------
Financing Activities 1,081,671 (3,475,808)
-------------------- ----------- -----------
Net Increase (Decrease) in Cash and Cash
- ----------------------------------------
Equivalents 658,804 (1,659,499)
- -----------
Beginning Cash and Cash Equivalents 4,792 1,792,101
- ----------------------------------- ----------- -----------
Ending Cash and Cash Equivalents $ 663,595 $ 132,602
- -------------------------------- =========== ===========
4
The accompanying notes are integral parts of these
consolidated financial statements.
EMTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and note disclosures
required by generally accepted accounting principles in the United States. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Quarterly results are not necessarily indicative of results for the full year.
For further information, refer to the annual financial statements and notes
thereto included in the Company's Form 10-K for the year ended March 31, 2004.
2. Stock-Based Compensation
The Company did not change to the fair value based method of accounting for
stock-based employees' compensation. Accordingly, the adoption of SFAS No. 148
did not affect the Company's financial condition or results of operations.
However, SFAS No. 148 requires that information be provided as if the Company
had accounted for employee stock options under the fair value method of this
statement, including disclosing pro forma information regarding net income
(loss) and earnings (loss) per share. The Company accounts for stock-based
compensation in accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees," as permitted by SFAS No. 123. Compensation expense for stock
options is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount the employee must pay
to acquire the stock. No compensation cost has been recognized for any option
grants in the accompanying consolidated statements of operations since the price
of the options was set at the quoted market price of Company stock at dates of
grant. The weighted average fair value of all of the employee options was
estimated on the date of grant using the Black-Scholes model. The Company did
not make any stock option grants during the six months ended September 30, 2004
and 2003. Therefore, had the Company applied the fair value recognition
provisions of SFAS No. 123 to stock-based compensation, the Company's net income
(loss) and basic and diluted earnings (loss) per share would have been the same
as the reported amounts.
Option activity is summarized in the following table:
Options outstanding - July 1, 2004 415,228
Activity for the three months ended September 30, 2004:
Options granted -
Options exercised -
Options forfeited or expired 10,000
-----------
Options outstanding - September 30, 2004 405,228
===========
3. Line of Credit
5
On November 21, 2001, the Company entered into a three year $10.0 million
revolving credit facility with Fleet Capital Corporation, formerly Summit
Business Capital Corporation ("Fleet") under which the Company may borrow on 85%
of its eligible trade receivables. Interest on outstanding loans under the
revolving credit facility with Fleet was charged monthly at a fluctuating rate
per annum equal to 0.25% above the prime rate and, at the Company's option,
interest on up to 50% of the outstanding loans may be charged at LIBOR plus
2.75%. The Fleet revolving credit facility is collateralized by a lien upon and
security interest in substantially all of the Company assets. Since current
credit facilities with two of the Company's primary trade vendors (GE Access and
Ingram Micro.) were also collateralized by substantially all of the Company's
assets, Fleet, GE Access and Ingram Micro have entered into intercreditor
agreements, which provide that as regards to these vendors, debt obligations to
Fleet are accorded priority. On November 21, 2001, the Company also entered into
a Wholesale Financing Security Agreement with IBM. This credit facility, which
is collateralized by a $750,000 letter of credit from Fleet in favor of IBM,
affords the Company up to a like amount of credit to purchase products floored
by IBM Global Financing. On January 9, 2002, Fleet issued a $250,000 letter of
credit in favor of the Company's landlord for the Company's New York City
office, as a security deposit for the building lease. On July 1, 2003, Fleet
also issued a $250,000 letter of credit in favor of Selective Insurance
Corporation, as collateral for the performance bond issued to The City of
Philadelphia, one of the Company's customers. The maximum credit facility is
reduced by the outstanding letters of credit.
On October 17, 2003, the Company and Fleet executed an amendment to loan and
security agreement under which the Company may borrow on 80% of its eligible
trade receivables up to $10 million through November 20, 2004. Interest on
outstanding loans was charged monthly at a fluctuating rate per annum equal to
2.00% above the prime rate. The lending agreement contains financial covenants
that require the Company to maintain a maximum leverage ratio, a minimum debt
ratio, and a minimum EBITDA (earnings before interest, taxes, depreciation and
amortization expense).
On April 16, 2004, the Company and Fleet executed another amendment to the loan
and security agreement which permits the Company to obtain up to a $1.0 million
in surety bonding capacity from an insurance company. This amendment reduced the
interest rate from 2.00% above the prime rate to 1.00% above the prime rate.
On November 11, 2004, the Company obtained an extension of the current agreement
for 60 days beginning on November 22, 2004. The Company and Bank of America
Business Capital Corporation (successor by merger to Fleet Capital Corporation),
both believe that this should be sufficient time to reach a final renewal
agreement at mutually agreeable terms. If the Company and Bank of America
Business Capital Corporation are not successful in reaching a final agreement by
January 21, 2005, then the Company will have to find a substitute lender or
obtain another extension.
6
As of September 30, 2004, the Company was in compliance with all its financial
covenants and had a $3,390,086 outstanding balance under the credit facility and
an unused availability of $5,359,914.
4. Trade Receivables
The Company provides an allowance for losses on trade receivables based on a
review of the current status of existing receivables and management's evaluation
of periodic aging of the accounts. Trade accounts receivable consists of the
following:
- --------------------------------------------------------------------------------
September 30, 2004 March 31, 2004
- --------------------------------------------------------------------------------
Trade Receivable $18,246,186 $15,570,374
- --------------------------------------------------------------------------------
Allowance for doubtful accounts (438,149) (363,402)
----------- -----------
- --------------------------------------------------------------------------------
Trade Receivable, net $17,808,037 $15,206,972
----------- -----------
- --------------------------------------------------------------------------------
5. Inventory
Inventories are stated at lower of cost (first-in, first-out) or market. Cost is
based on standard costs generated principally by the most recent purchase price.
The Company provides an inventory reserve for obsolescence and deterioration
based on management's review of product sales. Inventory is recorded on the
balance sheet net of allowances for inventory valuation of $741,605 and $722,551
at September 30, 2004 and March 31, 2004, respectively.
6. Major Customers
Four major customers in the aggregate accounted for approximately 63% and 66% of
the Company's net sales for the three months ended September 30, 2004 and 2003,
respectively. The same four major customers accounted for in the aggregate
approximated 65% and 67% of the Company's net sales for the six months ended
September 30, 2004 and 2003, respectively.
While the Company believes its relationship with these customers will continue,
there can be no assurance that sales to these customers will continue at all or
at the same level.
7. Segment Information
7
The Company has adopted Statements of Financial Accounting Standards No. 131,
"Disclosures about segments of an Enterprise and Related Information,". The
Company's business activities are considered to be in two business segments, our
Information Technology Division and our Geothermal Division.
Summarized financial information relating to the Company's operating
segments are as follows:
For the three months ended September 30: 2004 2003
----------------------------------------------------------------------------
Revenues
--------
Information Technology $29,083,729 $25,769,166
Geothermal 49,407 45,388
----------- -----------
Total Revenues $29,133,136 $25,814,554
-------------- =========== ===========
Operating Profit/(Loss)
-----------------------
Information Technology $ 964,776 $ (172,314)
Geothermal 21,617 17,341
----------- -----------
Net Segment Operating
Income/(Loss) $ 986,393 $ (154,973)
Income Tax (Benefit)Expense 370,000 (16,025)
----------- -----------
Net Income (Loss) $ 616,393 $ (138,948)
=========== ===========
For the six months ended September 30: 2004 2003
-----------------------------------------------------------------------
Revenues
--------
Information Technology $57,647,936 $54,201,921
Geothermal 92,035 92,973
----------- -----------
Total Revenues $57,739,971 $54,294,894
-------------- =========== ===========
Operating Profit/(Loss)
-----------------------
Information Technology $ 1,899,961 $ 209,201
Geothermal 34,571 34,998
----------- -----------
Net Segment Operating
Income $ 1,934,532 $ 244,199
Income Tax Expense 715,000 25,256
----------- -----------
Net Income $ 1,219,532 $ 218,943
=========== ===========
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction
with, and is qualified in its entirety by, the unaudited financial statements,
including the notes thereto, appearing elsewhere in this quarterly report on
Form, 10-Q.
Critical Accounting Policies
Emtec's financial statements are prepared in accordance with accounting
principles that are generally accepted in the United States. The methods,
estimates, and judgments we use in applying our most critical accounting
policies have a significant impact on the results we report in our financial
statements. The Securities and Exchange Commission has defined critical
accounting policies as policies that involve critical accounting estimates that
require (i) management to make assumptions that are highly uncertain at the time
the estimate is made, and (ii) different estimates that could have been
reasonably used for the current period, or changes in the estimates that are
reasonably likely to occur from period to period, which would have a material
impact on the presentation of our financial condition, changes in financial
condition or in result of operations. Based on this definition, our most
critical policies include: revenue recognition, allowance for doubtful accounts,
inventory valuation reserve, the assessment of recoverability of long-lived
assets, the assessment of recoverability of goodwill and intangible assets, and
valuation of deferred tax assets.
o Revenue Recognition
We recognize revenues based upon Staff Accounting Bulletin #101 (SAB
101). SAB 101 states that revenue recognition cannot occur until the earnings
process is complete, evidenced by an agreement between us and the customer,
there has been delivery and acceptance, collectibility is probable, and pricing
is fixed and determinable. If significant obligations remain after delivery,
revenue is deferred until such obligations are fulfilled. Procurement services
represent sales of computer hardware and prepackaged software. Revenue from
consulting and support service contracts are recognized ratably over the
contract or service period. Revenues from manufacturer support service contracts
where the manufacturer is responsible for fulfilling the service requirements of
the customer are recognized immediately on their contract sale date. These
contracts contain cancellation privileges that allow our customer to terminate a
contract with 90 days written notice. In this event, the customer is entitled to
a pro-rated refund based on the remaining term of the contract and we would owe
the manufacturer a pro-rated refund of the cost of the contract. However, we
have experienced no customer cancellations of any significance during our most
recent 3-year history and do not expect cancellations of any significance in the
future. We believe that net revenue reporting for manufacturer support service
contracts is more appropriate.
o Trade Receivables
We maintain allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. We base
our estimates on the aging of our accounts receivable balances and our
historical write-off experience, net of recoveries. If the
9
financial condition of our customers were to deteriorate, additional allowances
may be required. We believe the accounting estimate related to the allowance for
doubtful accounts is a "critical accounting estimate" because changes in it can
significantly affect net income. Allowance for doubtful accounts was $438,149
and $363, 402 as of September 30, 2004 and March 31, 2004, respectively.
o Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Cost is based on standard costs generated principally by the most recent
purchase prices. We provide an inventory reserve for obsolescence and
deterioration based on management's review of the current status of the excess
inventory, its age, and net realizable value based upon assumptions about future
demand and market condition. At September 30, 2004, and March 31, 2004,
inventory reserve was $741,605, and $722,551, respectively.
o Property and Equipment
We estimate the useful lives of property and equipment in order to
determine the amount of depreciation and amortization expense to be recorded
during any reporting period. The majority of our equipment is depreciated over
three years. The estimated useful lives are based on the historical experience
with similar assets as well as taking into account anticipated technological or
other changes. If technological changes were to occur more rapidly than
anticipated or in a different form than anticipated, the useful lives assigned
to these assets may need to be accelerated, resulting in the recognition of
increased depreciation and amortization expense in future periods. We evaluate
the recoverability of our long-lived assets (other than intangibles and deferred
tax assets) in accordance with Statement of Financial Accounting Standard No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"(SFAS No.
144). Long-lived assets are reviewed for impairment under SFAS No. 144 whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. SFAS No. 144 requires recognition of impairment of
long-lived assets in the event that the net book value of such assets exceeds
the future undiscounted net cash flows attributable to such assets. Impairment,
if any, is recognized in the period of identification to the extent the carrying
amount of an asset exceeds the fair value of such asset. Property and equipment
along with their components are as follows:
Original Cost Estimated Life
------------- --------------
Sept. 2004 March 2004 (Years)
----------- ----------- -------
Computer equipment $ 3,781,367 $ 3,643,052 3
Furniture and fixtures 360,205 357,845 5
Leasehold improvements 244,847 244,847 5
Vehicles 80,984 80,984 2
----------- -----------
Total Property and Equipment $ 4,467,403 $ 4,326,728
Less: accumulated depreciation
and amortization (4,094,070) (3,939,655)
----------- -----------
Net book value $ 373,333 $ 387,073
=========== ===========
10
o Goodwill and Intangible Assets
We have adopted Statement of Financial Accounting Standards No. 141
"Business Combinations" and No. 142 "Goodwill and Other Intangible Assets". As a
result, amortization of goodwill was discontinued. Based on the impairment tests
performed during the fiscal year ended March 31, 2004 , we found no impairment
of the remaining goodwill. The next annual impairment test shall be performed
during the fourth quarter of the fiscal year 2005.
We were assigned a contract to supply computer hardware and services to
the State of New Jersey in the August 12, 2002 acquisition of Acentra
Technologies, Inc. This contract was valued at $100,000 in the acquisition.
Amortization expense was expensed based upon then contract term scheduled to end
in May 2004. The contract, which is subject to annual renewal by mutual
agreement, was instead extended by the State of New Jersey through December
2004. The net carrying value for this contract amounted to $0 and $9,091 at
September 30, 2004 and March 31, 2004, respectively.
o Income Taxes
Income taxes are accounted for under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in Emtec's
financial statements or tax returns. In estimating future tax consequences,
Emtec generally considers all expected future events other than the enactment of
changes in tax laws or rates. A valuation allowance is recognized if, on weight
of available evidence, it is more likely than not that some portion or all the
deferred tax assets will not be realized. Income tax expense, as a percentage of
income before taxes, increased for the six months ended September 30, 2004, as
compared to the three months ended September 30, 2003. This increase is a result
of the utilization of approximately $850,000 of federal tax loss carryforwards
during the year ended March 31, 2004. The Company had previously recorded
significant valuation allowances for deferred tax assets, which effectively
reduced the income tax expense percentage during the year ended March 31, 2004.
11
Results of Operations
The following discussion and analysis provides information that
management believes is relevant to an assessment and understanding of our
Results of Operations for the three months ended September 30, 2004, and 2003.
EMTEC, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended September 30,
2004 2003 Change %
- ---------------------------------------------------------------------------------------------------------
Revenues
Procurement services $ 25,386,725 $ 21,907,100 $ 3,479,625 15.9%
Service and consulting 3,697,004 3,862,066 $ (165,062) -4.3%
Geothermal 49,407 45,388 $ 4,019 8.9%
------------ ------------
Total Revenues 29,133,136 25,814,554 $ 3,318,582 12.9%
------------ ------------
Cost of Revenues
Procurement services 22,732,765 19,749,338 $ 2,983,427 15.1%
Service and consulting 2,481,041 2,754,636 $ (273,595) -9.9%
Geothermal 16,291 12,598 $ 3,693 29.3%
------------ ------------
Total Cost of Revenues 25,230,097 22,516,572 $ 2,713,525 12.1%
------------ ------------
Percent of revenues 86.60% 87.22%
Gross Profit
Procurement services 2,653,960 2,157,762 $ 496,198 23.0%
Service and consulting 1,215,963 1,107,430 $ 108,533 9.8%
Geothermal 33,116 32,790 $ 326 1.0%
------------ ------------
Total Gross Profit 3,903,039 3,297,982 $ 605,057 18.3%
------------ ------------
Percent of revenue 32.9% 28.7%
Operating Expenses
Sales, General & Administrative Expenses 2,857,919 3,379,569 $ (521,650) -15.4%
Interest Expense 58,727 73,386 $ (14,659) -20.0%
------------ ------------
Total Operating Expenses 2,916,646 3,452,955 $ (536,309) -15.5%
------------ ------------
Percent of revenue 10.01% 13.38%
Income (Loss) Before Income Tax 986,393 (154,973) $ 1,141,366 -736.5%
Income Tax Expense (Benefit) 370,000 (16,025) $ 386,025 -2408.9%
------------ ------------
Net Income (Loss) $ 616,393 $ (138,948) $ 755,341 -543.6%
============ ============ ============ ======
Income (Loss) Per Share {Basic And Diluted} $ 0.08 $ (0.02)
============ ============
12
Three Months Ended September 30, 2004 Compared to Three Months Ended September
30, 2003.
Total Revenues
Total revenues for our IT business, which includes services and
consulting revenue, and procurement revenues, increased by 12.9% or $3.31
million, to $29.08 million for the quarter ended September 30, 2004, compared to
$25.77 million for the quarter ended September 30, 2003. This increase is
primarily attributable to ongoing computer roll-out projects for various school
districts in Georgia and growth in our commercial customers' IT spending. Even
though computer roll-out projects in the school district in Florida have slowed
during the three months ended September 30, 2004, the overall revenues for the
six months ended September 30, 2004 have increased by approximately $1.1
million, to $7.65 million compared to $6.55 million the six month ended
September 30, 2003.
Procurement revenues increased by 15.9%, or $3.48 million, to $25.39
million for the quarter ended September 30, 2004. This increase is also
attributable to computer roll-out projects for the various school districts in
Georgia and sales growth with various commercial customers.
Services and consulting revenue decreased by 4.3%, or $165,062, to
$3.70 million for the quarter ended September 30, 2004 compared to $3.86 million
for the quarter ended September 30, 2003. This decrease in services and
consulting revenue is mainly due to a slow-down in project start dates with
various state agencies in the State of New Jersey.
Four major customers accounted for in the aggregate approximately 63.0%
and 66.0% of our revenues for the quarter ended September 30, 2004 and 2003,
respectively. We anticipate that these customer concentrations will continue for
the foreseeable future. The loss of any of these customers may cause results of
operations to vary materially from those anticipated.
Geothermal revenues increased by 8.8%, or $4,019, to $49,407 for the
quarter ended September 30, 2004. This increase is mainly attributable to higher
production of steam. Our average geothermal revenue is approximately $45,000 a
quarter. We do not expect any significant change in the average revenue in the
future quarters.
Gross Profit
Aggregate gross profit for our IT business increased by 18.5%, or
$604,731, to $3.87 million for the quarter ended September 30, 2004. This
increase is mainly attributable to computer roll-out projects for various school
districts in Georgia and sales growth in our commercial customer base. Measured
as a percentage of total revenues for our IT business, our overall gross profit
margin increased to 13.3% of total revenues for the quarter ended September 30,
2004 from 12.7% for the quarter ended September 30, 2003.
Gross profit for product sales increased by 23.0%, or $496,198, to
$2.65 million for the quarter ended September 30, 2004 as compared with $2.16
million for the quarter ended September 30, 2003. This increase is mainly
attributable to $3.48 million increase in procurement revenue as discussed above
and an increase in the gross profit margin. Measured as a percentage of
procurement revenues, our gross profit margin increased to 10.5% of
13
procurement revenue for the quarter ended September 30, 2004 from 9.8% for the
quarter ended September 30, 2003. This percentage increase is primarily
attributable to greater selling efforts and favorable price drops by
manufacturers. We can not predict that price drops like these are going to
repeat in the future.
Even though service and consulting revenue decreased by 4.3% for the
quarter ended September 30, 2004, gross profit for service and consulting
increased by 9.8%, or $108,533, to $1.22 million for the quarter ended September
30, 2004 as compared with $1.11 million for the quarter ended September 30,
2002. Measured as a percentage of services and consulting revenues, our gross
margin attributable to services and consulting revenue also increased to 32.9%
of services and consulting revenue for the quarter ended September 30, 2004 from
28.7% for the quarter ended September 30, 2003. These increases are mainly
attributable to higher billing rates (total revenue generated divided by total
billable hours available during the period) and higher utilization rates
(billable hours divided by paid hours) of engineers during this quarter.
We must continue to manage billing rates and utilization rates
effectively to remain competitive. During July 2004, we outsourced our NOC
(Network Operation Center) and Help Desk operations to a third party. By
outsourcing this part of our business, we are able to continue to offer these
strategic services while allowing us to change the high fixed cost structure of
the business to a variable cost structure. Our average costs for NOC and Help
Desk have decreased from approximately $70,000 a month to approximately $28,000
a month starting September 2004.
The geothermal gross profit of $33,116 for the quarter ended September
30, 2004 is consistent with comparable prior period.
Sales, General, and Administrative Expenses
Sales, general and administrative expenses decreased by 15.4%, or
$521,650, to $2.86 million for the quarter ended September 30, 2004. This
decrease is primarily attributable to our continuous focus on cost containment
measures and the following:
o Consolidation of our operations, administrative and inventory
warehousing functions from Mt. Laurel, NJ and Cranford, NJ to Trenton,
NJ.
o Lower bonus accrual charged to sales expenses due to lower earning
share in connection with the earning share agreements with prior three
owners of Acentra Technologies, Inc. and Turnkey Computer Systems, Inc.
These earning share agreements expired on August 31, 2004.
o Much lower depreciation expense due to write-down of NOC and Help Desk
assets during fiscal 2004.
In spite of vigorous cost containment efforts, various factors, such as
retention of employees, costs associated with marketing and selling activities,
costs associated with new
14
Securities and Exchange Commission rules, and insurance markets may increase our
sales, general and administrative expenses and this could have a negative impact
on fiscal year 2005.
Interest expense
Interest expense decreased by 20.0%, or $14,659, to $58,727 for the
quarter ended September 30, 2004 as compared with $73,386 for the quarter ended
September 30, 2003. This decrease is primarily attributable to a lower balance
on our line of credit, and lower days sales outstanding during the period.
Income Taxes
Income tax expense, as a percentage of income before income taxes,
increased for the quarter ended September 30, 2004 to $370,000, as compared to
income tax benefit of $16,025 for the quarter ended September 30, 2003. This
increase is primarily a result of the $1.14 million increase in net income
before income taxes for the quarter ended September 30, 2004 compared to the
quarter ended September 30, 2003.
Net Income
For the three months ended September 30, 2004, net income was $616,396
compared to net loss of $138,948 for the comparable period in 2003, an increase
of 543.6%.
As discussed, the increase in net income is mainly attributable to
computer roll-out projects for various school districts in Georgia, revenue
growth in our commercial customer base as well as continuous cost containment
efforts undertaken by the Company.
15
Six Months Ended September 30, 2003 Compared to Six Months Ended September 30,
2002.
The following discussion and analysis provides information that
management believes is relevant to an assessment and understanding of our
Results of Operations for the six months ended September 30, 2004, and 2003.
EMTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended September 30,
2004 2003 Change %
- ---------------------------------------------------------------------------------------------------
Revenues
Procurement services $50,147,191 $45,637,829 $ 4,509,362 9.9%
Service and consulting 7,500,745 8,564,092 $(1,063,347) -12.4%
Geothermal 92,035 92,973 $ (938) -1.0%
----------- -----------
Total Revenues 57,739,971 54,294,894 $ 3,445,077 6.3%
----------- -----------
Cost of Revenues
Procurement services 44,701,032 41,440,831 $ 3,260,201 7.9%
Service and consulting 5,134,511 5,822,416 $ (687,905) -11.8%
Geothermal 34,076 30,082 $ 3,994 13.3%
----------- -----------
Total Cost of Revenues 49,869,619 47,293,329 $ 2,576,290 5.4%
----------- -----------
Percent of revenues 86.37% 87.10%
Gross Profit
Procurement services 5,446,159 4,196,998 $ 1,249,161 29.8%
Service and consulting 2,366,234 2,741,676 $ (375,442) -13.7%
Geothermal 57,959 62,891 $ (4,932) -7.8%
----------- -----------
Total Gross Profit 7,870,352 7,001,565 $ 868,787 12.4%
----------- -----------
Percent of revenue 13.63% 12.90%
Operating Expenses
Sales, General & Administrative Expenses 5,838,263 6,584,814 $ (746,551) -11.3%
Interest Expense 97,557 172,552 $ (74,995) -43.5%
----------- -----------
Total Operating Expenses 5,935,820 6,757,366 $ (821,546) -12.2%
----------- -----------
Percent of revenue 10.28% 12.45%
Income (Loss) Before Income Tax 1,934,532 244,199 $ 1,690,333 692.2%
Income Tax Expense (Benefit) 715,000 25,256 $ 689,744 2731.0%
----------- -----------
Net Income (Loss) $ 1,219,532 $ 218,943 $ 1,000,589 457.0%
=========== =========== =========== ========
Income (Loss) Per Share Basic $ 0.17 $ 0.03
=========== ===========
Income (Loss) Per Share Diluted $ 0.16 $ 0.03
=========== ===========
Total Revenues
Total revenues for our IT business, which includes services and
consulting revenue, and procurement revenues, increased by 6.4% or $3.45
million, to $57.65 million for the six months ended September 30, 2004, compared
to $54.20 million for the six months ended September 30,
16
2003. This increase is primarily attributable to computer roll-out projects for
various school districts in Georgia, and Florida as well as recent sales growth
in our commercial customer base. Even though computer roll-out projects in the
school district in Florida have slowed during the three months ended September
30, 2004, the overall revenues for the six months ended September 30, 2004 have
increased by approximately $1.1 million compared to the six month ended
September 30, 2003.
Procurement revenues increased by 9.9%, or $4.51 million, to $50.15
million for the six months ended September 30, 2004. This increase is also
attributable to computer roll-out projects for various school districts in
Georgia, and Florida as well as recent sales growth in our commercial customer
base.
Services and consulting revenue decreased by 12.4%, or $1.06 million,
to $7.50 million for the six months ended September 30, 2004 compared to $8.56
million for the six months ended September 30, 2003. This decrease is mainly due
to an over-all decrease in our customer's IT spending particularly with various
state agencies in the State of New Jersey, and our inability to attract new
major customers.
Four major customers accounted for in the aggregate approximately 65%
and 67% of our revenues for the six months ended September 30, 2004 and 2003,
respectively. We anticipate that these customer concentrations will continue for
the foreseeable future. The loss of any one of these customers may cause results
of operations to vary materially from those anticipated.
Geothermal revenues of $92,035 for the six months ended September 30,
2004 is consistent with comparable prior period.
Gross Profit
Aggregate gross profit for our IT business increased by 12.6%, or
$873,719, to $7.8 million for the six months ended September 30, 2004. This
increase is mainly attributable to computer roll-out projects for various school
districts in Georgia and Florida, and sales growth in our commercial customer
base. Measured as a percentage of total revenues for our IT business, our
overall gross profit margin increased to 13.6% of total revenues for the six
months ended September 30, 2004 from 12.9% for the six months ended September
30, 2003.
Gross profit for product sales increased by 29.8%, or $1.25 million,
to $5.45 million for the six months ended September 30, 2004 as compared with
$4.20 million for the six months ended September 30, 2003. This increase is
mainly attributable to the $4.51 million increase in procurement revenue as
discussed above and and increase in the gross profit margin. Measured as a
percentage of procurement revenues, our gross profit margin increased to 10.9%
of procurement revenue for the six months ended September 30, 2004 from 9.2% for
the six months ended September 30, 2003. This percentage increase is primarily
attributable to greater selling efforts and favorable price drops by
manufacturers. We can not predict that price drops like these are going to
repeat in the future.
Gross profit for service and consulting decreased by 13.7%, or
$375,442, to $2.37 million for the six months ended September 30, 2004 as
compared with $2.74 million for the six months ended September 30, 2003. This
decrease is mainly due to an over-all decrease in IT spending
17
particularly with various state agencies in the State of New Jersey, and our
inability to attract new major customers. Measured as a percentage of service
and consulting revenue, our gross margin attributable to service and consulting
revenue decreased to 31.6% of service and consulting revenue for the six months
ended September 30, 2004 from 32.0% for the six months ended September 30, 2003.
This decrease in services and consulting gross margin was mainly due to lower
billing rates (total revenue generated divided by total billable hours available
during the period) and lower utilization rates (billable hours divided by paid
hours) of engineers during this period.
The geothermal gross profit of $57,959 for the six months ended
September 30, 2004 decreased by 7.8%, or $4,932, as compared with $62,891 for
the six months ended September 30, 2003. This decrease is mainly due to higher
operating and maintenance costs paid during this period.
Sales, General, and Administrative Expenses
Sales, general and administrative expenses decreased by 11.3%, or
$746,551, to $5.84 million for the six months ended September 30, 2004. This
decrease is primarily attributable to the following:
o Elimination of non-productive sales staff;
o Eliminated duplication of non-essential administrative support
services.
o Consolidation of our operations, administrative and inventory
warehousing functions from Mt. Laurel, NJ and Cranford, NJ to
Trenton, NJ.
o Lower bonus accrual charged to sales expense due to lower
earning share in connection with the earning share agreements
with prior three owners of Acentra Technologies, Inc. and
Turnkey Computer Systems, Inc. These earning share agreements
expired on August 31, 2004.
o Much lower depreciation expense due to write-down of NOC and
Help Desk assets during fiscal 2004.
In spite of our vigorous cost containment efforts, various factors,
such as retention of employees, costs associated with marketing and selling
activities, costs associated with new Securities and Exchange Commission rules,
and insurance markets may increase our sales, general and administrative
expenses and this could have a negative impact on fiscal year 2005.
Interest expense
Interest expense decreased by 43.5%, or $74,995, to $97,557 for the six
months ended September 30, 2004 as compared with $172,552 for the six months
ended September 30, 2003. This decrease is primarily attributable to a lower
balance on our line of credit, and lower days sales outstanding during the
period.
18
Income Taxes
Income tax expense, as a percentage of income before income taxes,
increased for the six months ended September 30, 2004 to $715,000, as compared
to $25,256 for the six months ended September 30, 2003. This increase is
primarily a result the $1.69 million increase in net income before income taxes
for the six months ended September 30, 2004 compared to the six months ended
September 30, 2003.
Net Income
For the six months ended September 30, 2004, net income was $1.22
million compared to net income of $218,943 for the comparable period in 2003, an
increase of 457.0%.
As discussed, the increase in net income is mainly attributable to
computer roll-out projects for various school districts in Georgia and Florida,
and revenue growth in our commercial customer base as well as continuous cost
containment efforts undertaken by the Company.
Cautionary Statement Regarding Forward-Looking Statements
You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
Securities and Exchange Commission (the "SEC"). In this Quarterly Report, we
state our beliefs of future events and of our future financial performance. In
some cases, you can identify those so-called "forward-looking statements" by
words such as "may," "will," "should," expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of those words and other comparable words. You should be aware that those
statements are only our predictions. Actual events or results may differ
materially. In evaluating those statements, you should specifically consider
various factors, including the risks discussed in this Annual Report for the
year ended March 31, 2004 and other reports or documents that we file from time
to time with the SEC. Those factors may cause our actual results to differ
materially from any of our forward-looking statements. All forward-looking
statements attributable to us or a person acting on our behalf are expressly
qualified in their entirety by this cautionary statement.
Assumptions relating to budgeting, marketing, and other management
decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause us to alter our marketing, capital
expenditure, or other budgets, which may in turn affect our business, financial
position, results of operations, and cash flows.
Factors That May Affect Future Results
Our future operating results may be affected by a number of factors,
including uncertainties relative to national economic conditions, especially as
such factors affect interest rates, business insurance industry factors, our
ability to successfully increase business, and effectively manage expense
margins.
19
Since our inception, we have funded our operations primarily from
borrowings under our credit facility. We are in compliance with the covenants
contained in our loan and security agreement at September 30, 2004. Although we
expect to remain in compliance with the financial covenants, no assurance can be
given. Our loan and security agreement with Fleet Capital is expiring on
November 21, 2004, and we have obtained an extension of the current agreement
for 60 days beginning November 22, 2004. The Company and Bank of America
Business Capital Corporation (successor by merger to Fleet Capital Corporation)
believe that this should be sufficient time to reach a final renewal agreement
at mutually agreeable terms. If the Company and Bank of America Business Capital
Corporation are not successful in reaching a final agreement by January 21,
2005, the Company will have to find a substitute lender or obtain another
extension.
Our credit facilities as of the current date with our primary trade
vendors, GE Access, Ingram Micro, and Tech Data are $6.0 million, $5.0 million
and $2.5 million, respectively. Under these credit lines, we are obligated to
pay each invoice within 30 days from the date of such invoice. These credit
lines could be reduced or eliminated without a notice, and this action could
have a material adverse affect our business, result of operations, and financial
condition.
We must continue to effectively manage expenses in relation to revenues
by directing new business development towards markets that complement or improve
our existing service lines. Management must also continue to emphasize operating
efficiencies through cost containment strategies, reengineering efforts, and
improved service delivery techniques. The most significant cost relating to the
services component of our business is personnel expense, which consists of
salaries, benefits, and payroll related expenses. Thus, the financial
performance of our service business is based primarily upon billing margins
(billable hourly rates less the costs to us of service personnel on an hourly
basis) and utilization rates (billable hours divided by paid hours). The future
success of the services component of our business will depend in large part upon
our ability to maintain high utilization rates at profitable billing margins.
The competition for quality technical personnel has continued to intensify,
resulting in increased personnel costs. This intense competition has caused our
billing margins to be lower than they might otherwise have been. Our utilization
rates for service personnel likely will also be adversely affected during
periods of rapid and concentrated hiring.
Emtec is a systems integrator focused on providing technology solutions
that enable its customers to effectively use and manage their data to grow their
businesses. Our areas of specialization in information technology ("IT")
services include enterprise computing, data communications, data access, network
design, enterprise backup and storage consolidation, managed services and staff
augmentation. While we have offered IT services to our customers since 1983, our
major emphasis on IT consulting and services began in 1995. We have limited
experience in developing, marketing, or providing these services. We cannot
assure that we will be able to successfully market such services to either new
or existing customers, that our services will achieve market acceptance, or that
we will be able to effectively hire, integrate, and manage additional technical
personnel to enable us to perform these services to our customers' expectations
This industry has been characterized by rapid technological advances that have
resulted in frequent introductions of new products, product enhancements and
aggressive pricing practices, which also impacts pricing of service activities.
Our operating results could be
20
adversely affected by industry-wide pricing pressures, the ability to recruit,
train and retain personnel integral to our operations and the presence of
competitors with greater financial and other resources. Also, our operating
results could also be adversely impacted should our company be unable to
effectively achieve the revenue growth necessary to provide profitable operating
margins in various operations. Our plan for growth includes marketing efforts,
acquisitions that expand market share. There can be no assurances these efforts
will be successful, or if successful the timing thereof.
Liquidity and Capital Resources
Cash and cash equivalents at September 30, 2004 of $663,595 represented
an increase of $658,803 from $4,792 at March 31, 2004. We are a net borrower;
consequently, we believe our cash and cash equivalents balance must be viewed
along with the available balance on our line of credit. At September 30, 2004,
our working capital was increased to $3.32 million from $2.08 as of March 31,
2004. This increase in working capital was primarily attributable to net
earnings for the six months ended September 30, 2004.
Since our inception, we have funded our operations primarily from
borrowings under our credit facility. On November 21, 2001, we entered into a
three year $10.0 million revolving credit facility with Fleet Capital
Corporation, formerly Summit Business Capital Corporation ("Fleet"), under which
we may borrow on 85% of our eligible trade receivables. Interest on outstanding
loans under the revolving credit facility with Fleet was charged monthly at a
fluctuating rate per annum equal to 0.25% above the prime rate and, at our
option, interest on up to 50% of the outstanding loans may be charged at LIBOR
plus 2.75%. The Fleet revolving credit facility is collateralized by a lien upon
and security interest in substantially all of our assets. Since current credit
facilities with two of our primary trade vendors (GE Access and Ingram Micro.)
were also collateralized by substantially all of our assets, Fleet, GE Access
and Ingram Micro have entered into intercreditor agreements, which provide that
as regards to these vendors, debt obligations to Fleet are accorded priority. On
November 21, 2001, we also entered into a Wholesale Financing Security Agreement
with IBM. This credit facility, which is collateralized by a $750,000 letter of
credit from Fleet in favor of IBM, affords us up to a like amount of credit to
purchase products floored by IBM Global Financing. On January 9, 2002, Fleet
issued a $250,000 letter of credit in favor of our landlord for our New York
City office, as a security deposit for the building lease. On July 1, 2003,
Fleet also issued a $250,000 letter of credit in favor of Selective Insurance
Corporation, as collateral for the performance bond issued to The City of
Philadelphia, one of our customers. The maximum credit facility is reduced by
the outstanding letters of credit.
On October 17, 2003, Emtec and Fleet executed an amendment to the loan
and security agreement under which we may borrow on 80% of our eligible trade
receivables up to $10 million through November 20, 2004. Interest on outstanding
loans was charged monthly at a fluctuating rate per annum equal to 2.00% above
the prime rate. Prior to October 17, 2003, we were charged monthly at a
fluctuating rate per annum equal to 0.25% above the prime rate.
On April 16, 2004, Emtec and Fleet executed another amendment to the
loan and security agreement which permits us to obtain up to a $1.0 million in
surety bonding capacity from an
21
insurance company. This amendment reduced our interest rate from 2.00% above the
prime rate to 1.00% above the prime rate.
On November 11, 2004, we obtained an extension of the current agreement
for 60 days beginning November 22, 2004. We believe that this should be
sufficient time to reach a final renewal agreement at mutually agreeable terms.
If we are not successful in reaching a final agreement with Bank of America
Business Capital Corporation (successor by merger to Fleet Capital Corporation)
by January 21, 2005, then we will have to find a substitute lender or obtain
another extension.
As of September 30, 2004, we were in compliance with all of our
financial covenants and we had a $3,390,086 outstanding balance under the credit
facility and unused availability of $5,359,514.
At September 30, 2004, our credit facilities with our primary trade
vendors, GE Access, Ingram Micro, and Tech Data were as follows:
o Our credit line with GE Access was $6.0 million, with an
outstanding principal balance of $5.1 million.
o Our credit line with Ingram Micro was $5.0 million, with an
outstanding principal balance of $2.6 million.
o Our credit line with Tech Data was $2.5 million, with an
outstanding balance of $462,000.
Under these credit lines, we are obligated to pay each invoice within
30 days from the date of such invoice.
Capital expenditures of $144,013 during six months ended September 30,
2004 were primarily for the purchase of computer equipment for internal use, and
furniture and fixtures. We anticipate our capital expenditures for fiscal year
ending March 31, 2005 will be approximately $400,000.
Emtec has no arrangements or other relationships with unconsolidated
entities or other persons that are reasonably likely to materially affect
liquidity or the availability of or requirements for capital resources.
We believe that funds generated from operations and bank borrowings
should be sufficient to meet our current operating cash requirements through the
next twelve months, although there can be no assurance that all of the
aforementioned sources of cash can be realized.
22
Item 3. Quantitative and Qualitative Information About Market Risk
We do not engage in trading market risk sensitive instruments and do
not purchase hedging instruments or "other than trading" instruments that are
likely to expose us to market risk, whether interest rate, foreign currency
exchange, commodity price or equity price risk. We have issued no debt
instruments, entered into no forward or future contracts, purchased no options
and entered into no swaps. Our primary market risk exposures are those of
interest rate fluctuations. A change in interest rates would affect the rate at
which we could borrow funds under our revolving credit facility. Our balance on
the line of credit at September 30, 2004 was approximately $3.4 million.
Assuming no material increase or decrease in such balance, a one percent change
in the interest rate would change our interest expense by approximately $34,000
annually.
23
Item 4. Controls and Procedures
Our management carried out an evaluation, with the participation of our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures as of September 30, 2004. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective to ensure that
information required to be disclosed by us in reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported, within the time periods specified in the rules and forms of the
Securities and Exchange Commission.
There has not been any change in our internal control over financial
reporting in connection with the evaluation required by Rule 13a-15(d) under the
Exchange Act that occurred during the quarter ended September 30, 2004 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
24
PART II - OTHER INFORMATION
Item 5. Other Information
On November 11, 2004, we entered into an agreement with Bank of America
Business Capital Corporation (successor by merger to Fleet Capital Corporation)
pursuant to which the termination date of the Loan and Security Agreement
between Bank of America Business Capital Corporation and us was extended through
January 21, 2005. All other material terms of this agreement remain unchanged.
This agreement had been schedule to expire on November 21, 2005.
Item 6. Exhibits
Exhibit 10.1 - Amendment to Loan and Security Agreement dated as of
November 11, 2004, by and between Bank of America Business Capital
Corporation (successor by merger to Fleet Capital Corporation) and
Emtec, Inc.
Exhibit 31.1 - Rule 13a-14(a)/15 d-14(a) Certification of John P.
Howlett, Principal Executive Officer, of Emtec, Inc. dated November 15,
2004.
Exhibit 31.2 - Rule 13a-14(a)/15 d-14(a) Certification of Sam Bhatt,
Principal Financial Officer, of Emtec, Inc. dated November 15, 2004.
Exhibit 32.1 - Section 1350 Certificate of John P. Howlett, Principal
Executive Officer, of Emtec, Inc. dated November 15, 2004.
Exhibit 32.2 - Section 1350 Certificate of Sam Bhatt, Principal
Financial Officer, of Emtec, Inc. dated November 15, 2004
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized
EMTEC, INC.
By: /s/ JOHN P. HOWLETT
------------------------
John P. Howlett
Chairman, and Chief
Executive Officer
(Principal Executive Officer)
By: /s/ SAM BHATT
------------------------
Sam Bhatt
Vice President - Finance
(Principal Financial and
Accounting Officer)
Date: November 15, 2004
26
STATEMENT OF DIFFERENCES
The section symbol shall be expressed as.................................. 'SS'