10-Q 1 doc1.txt 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 --- --- 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)

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)

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)

The accompanying notes are an integral part of these financial statements. EURO TRADE & FORFAITING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)

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 ----------------- 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:

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

EURO TRADE FORFAITING INC 10-Q