Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. EMTEC INC/NJ (5117) 10-Q published on Apr 15, 2013 at 4:42 pm
Reporting Period: Feb 27, 2013
As of August 31, 2012, the Company believed that it was more likely than not that the former shareholders of SDI will exercise the one-time election to put all their restricted common stock to the Company at a fixed price on the third anniversary of the acquisition date, June 4, 2013. Accordingly, the Company has calculated the fair value of the amount due the former shareholders of SDI associated with the put option and reflected this amount as a current liability as of August 31, 2012. In March 2013, the Company entered into an agreement with the former shareholders of SDI to modify certain provisions of the stock purchase agreement, including the date on which former shareholders of SDI could elect to put their restricted stock to the Company. Under the original stock purchase agreement, the one-time put election would occur on the third anniversary of the acquisition date, June 4, 2013. In March 2013, former shareholders of SDI owning 82% of the restricted common stock agreed to defer the one-time put date until June 4, 2015. The put election date for the remaining 18% of the restricted common stock remains June 4, 2013. Accordingly, as of February 28, 2013, the Company will classify 18% of the restricted stock, or $126,000, as a current liability and the remaining 82% of the restricted stock, or $574,000, as a long-term liability.
The Company’s blended effective tax rates for the three months ended February 28, 2013 and February 29, 2012 were 37.9% and 28.6%, respectively, as compared to a statutory rate of approximately 34.0%. The lower effective tax rate for the three months ended February 29, 2012 was primarily related to the warrant liability adjustment for the period that was considered a permanent adjustment for income tax purposes. For the six months ended February 28, 2013 and February 29, 2012, the Company’s effective tax rates were 26.5% and 25.5%, respectively. The lower effective tax rate for the six months ended February 28, 2013 was attributable to a valuation allowance associated with net operating losses generated by the Company’s Canadian subsidiary and partially offset by the warrant liability adjustment. Whereas, the lower effective tax rate for the six months ended February 28, 2012 was the result of the warrant liability adjustment and other permanent differences.
On January 14, 2013, the Borrower entered into a Fourth Amendment to Loan Documents (the “Fourth Amendment”) with PNC. The modifications provided for in the Fourth Amendment, among other things, (1) amend the definition of “EBITDA” for the fiscal quarter ended on November 30, 2012 to add back severance expense incurred during such fiscal quarter associated with a restructuring charge related to the closure of the Company’s Springfield, New Jersey location in an aggregate amount not to exceed $585,000 and to add back for the fiscal quarters ending on February 28, 2013 or May 31, 2013, if included in such period, additional restructuring charges incurred during such quarter or quarters associated with and related to the closure of Borrower’s Springfield, New Jersey location closing in an aggregate amount not to exceed $375,000, including lease termination charges, and (2) amend the definition of “Senior Debt Payments” to include severance expense payments and lease termination payments relating to the closure of the Company’s’ Springfield, New Jersey location (if such payments are associated with the restructuring charges as described above).
Our Federal segment's total revenue decreased by $7.3 million for the quarter ended February 28, 2013 as compared to the same quarter in fiscal 2012. Our consulting and outsourcing revenue decreased by $538,000, or 17.9%, to $2.5 million for the quarter ended February 28, 2013 as compared to $3.0 million for the quarter ended February 29, 2012. As the Federal government has continued to reduce its spending, through facilities consolidation, our consulting and outsourcing business has lost revenue. Our procurement services revenue decreased by $6.7 million, or 47.3%, to $7.5 million for the quarter ended February 28, 2013 as compared to $14.2 million for the quarter ended February 29, 2012. We had one order during the second quarter of 2013 worth over $2 million for which the client has delayed the product delivery date until the third and fourth quarters of fiscal 2013, thus preventing revenue recognition during the quarter even though the client has already paid for this order. Furthermore, the impending effects of sequestration and a shift by the government to move significantly more business to small businesses has negatively impacted our revenue for the second quarter. We believe the move to utilize smaller businesses for purchasing will have a permanent reduction on our future procurement revenues. However, we also believe that the effects of sequestration will only be temporary. We have taken steps to reduce overhead associated with selling and processing our procurement orders.
Aggregate gross profit for our CSLED segment increased $1.5 million, or 12.3%, to $13.7 million for six months ended February 28, 2013 as compared to $12.2 million for the six months ended February 29, 2012. This increase is related to a shift in the mix of our revenues from lower margin staffing business to higher margin consulting and outsourcing. Procurement gross profit increased $814,000 or 34.9% for the six months ended February 28, 2013 as compared to the six months ended February 29, 2012. This increase can be attributed to increased procurement services from our education clients. However, the increase in procurement services from our education clients was at a lower gross margin, which impacted our overall procurement services gross margin for SLED for the six months ended February 28, 2013 as compared to same period for fiscal 2012.