SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-16123
-----------------
NEWTEK CAPITAL, INC.
--------------------
(Exact name of registrant as specified in its charter)
New York 11-3504638
------------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Hempstead Turnpike, East Meadow, NY 11554
---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 390-2260
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 ninety days.
Yes x No
------ ------
As of November 10, 2000, 21,290,861 shares of Common Stock were issued
and outstanding.
1
<PAGE>
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) as of September 30, 2000 and
December 31, 1999.............................................. 3
Consolidated Statements of Operations (Unaudited) for the Three-Month
and Nine-Month Periods Ended September 30, 2000 and 1999...... 4
Consolidated Statements of Cash Flows (Unaudited) for the Three-Month
and Nine-Month Periods Ended September 30, 2000 and 1999...... 5
Notes to Unaudited Consolidated Financial Statements................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.........................................................14
PART II. OTHER INFORMATION
-----------------
Item 2. Changes in Securities and Use of Proceeds............................14
Item 4. Submission of Matters to a Vote of Securities Holders................14
Item 5. Other Matters........................................................14
Item 6. Exhibits and Reports on Form 8-K.....................................16
SIGNATURES....................................................................17
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEWTEK CAPITAL, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
---------------------------------------
SEPTEMBER 30, DECEMBER 31,
2000 1999
---- ----
A S S E T S
-----------
Cash and cash equivalents $22,444,693 $25,454,016
Prepaid expenses and other assets 191,769 212,802
Investments in qualified businesses 14,509,142 8,275,000
Other investments 547,750 --
Credits in lieu of cash 14,615,891 10,963,593
Structured insurance product 2,526,420 1,759,493
Prepaid insurance 8,261,299 7,971,411
Property and equipment, net 533,476 8,714
----------- -----------
Total assets $63,630,440 $54,645,029
=========== ===========
LIABILITIES AND STOCKHOLDERS'/MEMBERS' EQUITY
---------------------------------------------
Liabilities:
Accounts payable and accrued expenses $ 923,617 $ 1,199,479
Notes payable- other 660,273 250,000
Loans payable - members 351,000 21,000
Note payable - bank -- 725,358
Notes payable - insurance 5,500,000 4,000,000
Mortgages payable 381,339 --
Deferred tax liability 2,285,129 --
Interest payable 38,658,194 31,583,438
Notes payable - certified investors 3,869,683 2,618,716
----------- -----------
Total liabilities 52,629,235 40,397,991
----------- -----------
Minority interest 3,871,750 5,938,111
----------- -----------
Commitments and contingencies
Stockholders'/Members' equity:
Common Stock 428,368 --
Additional Paid-In Capital 5,199,259 --
Retained Earnings 1,501,828 --
Members' equity -- 8,308,927
----------- -----------
Stockholders'/Members' equity 7,129,455 8,308,927
----------- -----------
Total liabilities and stockholders'/
members' equity $63,630,440 $54,645,029
=========== ===========
See accompanying notes to these consolidated financial statements.
3
<PAGE>
NEWTEK CAPITAL, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
Revenue:
<S> <C> <C> <C> <C>
Income from tax credits $ 3,435,542 $ 5,368 $ 3,652,298 $ 365,698
Consulting fee income 7,068 48,823 34,260 118,500
Interest and dividend income 527,912 194,934 1,552,850 382,941
----------- ----------- ----------- -----------
Total revenue 3,970,522 249,125 5,239,408 867,139
----------- ----------- ----------- -----------
Expenses:
General and administrative 1,278,911 318,150 3,373,339 735,631
Interest 2,797,913 656,205 5,298,886 1,325,113
----------- ----------- ----------- -----------
Total expense 4,076,824 974,355 8,672,225 2,060,744
----------- ----------- ----------- -----------
Loss before other than temporary decline
in value of investments, extraordinary
gain (loss) on defeasance of debt,
provision for income tax,
and minority interest (106,302) (725,230) (3,432,817) (1,193,605)
Other than temporary decline
in investments (336,050) -- (936,050) --
Extraordinary gain (loss) on
defeasance of debt -- -- 431,881 (16,819)
----------- ----------- ----------- -----------
Loss before provision for income tax and
minority interest (442,352) (725,230) (3,936,986) (1,210,424)
Provision for income tax 2,285,129 -- 2,285,129 --
----------- ----------- ----------- -----------
Net loss before minority interest (2,727,481) (725,230) (6,222,115) (1,210,424)
Minority interest in loss 927,708 356,380 2,221,849 699,098
----------- ----------- ----------- -----------
Net loss $(1,799,773) $ (368,850) $(4,000,266) $ (511,326)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
4
<PAGE>
NEWTEK CAPITAL, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2000 1999
------------ -------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (4,000,266) $ (511,326)
Adjustments to reconcile net loss
to net cash used in operating activities:
Extraordinary gain (loss) on defeasance
of debt (431,881) 16,819
Other than temporary decline
in value of investments 936,050 --
Income from tax credits (3,652,298) (365,698)
Deferred income taxes 2,285,129
Depreciation and other amortization 4,137 1,705
Accretion of interest income (105,495) (77,202)
Accretion of interest expense 5,019,930 1,320,009
Minority interest included in loss (2,221,849) (699,098)
Changes in assets and liabilities:
Prepaid insurance (222,648) (3,245,204)
Prepaid expenses and other assets 16,031 4,352
Accounts payable and accrued expenses (251,385) (4,358)
------------ ------------
Net cash used in operating activities (2,624,545) (3,560,001)
------------ ------------
Cash flows from investing activities:
Purchase of structured insurance product (661,432) --
Investments in qualified businesses (10,630,942) (625,000)
Return of principal - qualified investments 3,460,750 --
Other investments (320,000) --
Return of principal - other investments 125,000 --
Cash received from Rexx acquisition 143,790
Capital expenditures (28,898) --
------------ ------------
Net cash used in investing activities (7,911,732) (625,000)
------------ ------------
</TABLE>
(continued)
5
<PAGE>
NEWTEK CAPITAL, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
-------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
---------- -----------
Cash flows from financing activities:
<S> <C>
Proceeds of note payable - bank -- 525,358
Payment of note payable - bank (725,358) --
Proceeds from issuance of note payable - certified investors 1,251,630 --
Proceeds from issuance of long-term debt 7,284,518 37,530,430
Payments for defeasance of long-term debt (3,228,175) (23,127,927)
Proceeds from issuance of warrants 403,348 1,700,371
Payments for deferred financing costs (44,771) (163,221)
Net proceeds from issuance of common stock 2,962,762 --
Contributions from minority interests -- 175,000
Distributions to stockholders/members (707,000) (166,507)
Loans payable - stockholders/members 330,000 121,000
------------ ------------
Net cash provided by
financing activities 7,526,954 16,594,504
------------ ------------
Net increase (decrease) in cash
and cash equivalents (3,009,323) 12,409,503
Cash and cash equivalents -
beginning of period 25,454,016 1,567,138
------------ ------------
Cash and cash equivalents - end of period $ 22,444,693 $ 13,976,641
============ ============
Supplemental disclosure of non-cash financing activities:
---------------------------------------------------------
Issuance of the following in partial payment for insurance:
Notes $ 1,500,000 $ --
============ ============
Warrants $ 56,020 $ 549,198
============ ============
Conversion to stock of Notes Payable-Other $ 250,000 $ --
============ ============
</TABLE>
See accompanying notes to these consolidated financial statements.
6
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
On September 19, 2000 Newtek Capital, Inc. (the "Company) acquired the
controlling interests in the underlying entities listed below and accordingly
consolidates the financial statements of these entities with its own (see Note
5). Additionally, on September 20, 2000, the Company's common stock began
trading on the American Stock Exchange under the symbol "NKC". The Company was
formed on June 29, 1999 under the name Whitestone Holdings, Inc. and changed its
name to Newtek Capital, Inc. on January 18, 2000, and the underlying entities
comprise: BJB Holdings, Inc. ("BJB"), Wilshire Holdings I, Inc., Wilshire
Holdings II, Inc., Newtek Securities, LLC, Rexx Environmental Corp. (see Note
5), Whitestone Capital Markets, Inc., The Whitestone Group, LLC ("TWG"),
Wilshire Advisers, LLC ("WA") and Wilshire NY Advisers II ("WAII"), certified
capital companies ("Capco") in New York, Wilshire Partners, LLC ("WP") a Capco
in Florida, Wilshire Investors, LLC ("WI") a Capco in Wisconsin, and Wilshire
Louisiana Advisers, LLC("WLA") a Capco in Louisiana (the Capco entities are,
collectively, the "Capcos"). TWG acts as an investment adviser and manager to
the aforementioned Capcos as well as a merchant bank and provides investment
banking and business development services including general business consulting
services, strategic planning, due diligence, merger and acquisition analysis,
technology design and implementation support, joint venture negotiations and
litigation support services. All significant intercompany balances and
transactions are eliminated in consolidation.
The following is a summary of each Capco, state of certification and date
of certification:
Capco State of Certification Date of Certification
----- ---------------------- ---------------------
WA New York May 1998
WP Florida December 1998
WI Wisconsin October 1999
WLA Louisiana October 1999
WA II New York April 2000
In general, the Capcos issue debt and equity instruments, generally warrants
("Certified Capital"), to insurance company investors ("Certified Investors").
The Capcos then make targeted investments, ("Investments in Qualified
Businesses", as defined under the respective state statutes), with the Certified
Capital raised. Such investments may be accounted for as either consolidated
subsidiaries, under the equity method or cost method of accounting, or as notes
receivable, depending upon the nature of the investment and the Company's and/or
the Capco's ability to control or otherwise exercise significant influence over
the investee. Each Capco has a contractual arrangement with the particular state
that legally entitles the Capco to receive (or, earn) tax credits from the state
upon satisfying quantified, defined investment percentage thresholds and time
requirements. In order for the Capcos to maintain their state-issued
certifications, the Capcos must make Investments in Qualified Businesses in
accordance with these requirements. Each Capco also has separate, legal
contractual arrangements with the Certified Investors obligating the Capco to
pay interest on the aforementioned debt instruments whether or not it meets the
statutory requirements for Investments in Qualified Businesses. The Capco can
satisfy this interest payment, at the Capco's discretion, by delivering tax
credits in lieu of paying cash. The Capcos legally have the right to deliver the
tax credits to the Certified Investors. The Certified Investors legally have the
right to receive and use the tax credits and would, in turn, use these tax
credits to reduce their respective state tax liabilities in an amount generally
between 100% and 110% of their certified investment. The tax credits can be
utilized over a ten-year period at a rate of 10% per year and in some instances
are transferable and can be carried forward.
The accompanying financial statements have been prepared without audit and do
not include all footnotes and disclosures required under generally accepted
accounting principles. Management believes that the results herein reflect all
adjustments which are, in the opinion of management, necessary to fairly state
the results and current financial condition of the Company for the respective
periods. All such adjustments reflected herein are of a normal, recurring
nature. These financial statements should be read in conjunction with the
Company's financial statements contained in its Form S-4 for its year ended
December 31, 1999, and its Form 10-Q for June 30, 2000.
7
<PAGE>
NOTE 2 - PRIVATE PLACEMENT OF COMMON STOCK
During the three-month period ended September 30, 2000, the Company sold 222,600
shares of its common stock in private transactions, with net proceeds totaling
approximately $1,113,000. In addition, in October 2000, the Company sold 86,400
shares of its common stock in private transactions, with net total proceeds of
approximately $432,000.
NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES
Investments in Qualified Businesses (Note 1) represent notes receivable (debt
investments) and investments in the equity of non-public companies. Debt
investments are accounted for as held-to-maturity securities and are recorded at
amortized cost, less any write-downs for other than temporary declines in the
value of such investments. Investments in the equity of non-public companies are
accounted for under the equity or cost method, as appropriate. Preferred stock
and preferred membership interests are accounted for using the equity or cost
method, as appropriate. The following table is a summary of such investments as
of September 30, 2000, shown separately between their debt ($11,190,142) and
equity ($3,319,000) components (for a total non-consolidated Investment in
Qualified Businesses of $14,509,142), and all terms of each are summarized.
There are no expiration dates on any of the financial instruments, unless
disclosed.
8
<PAGE>
<TABLE>
<CAPTION>
DEBT Date of Maturity Original Stated Principal Amount
Investee Type Investment Date Principal Amount Interest Rate September 30, 2000
-------- ---- ---------- ---- ---------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
1-800GiftCertificate (4) Debt 07/99 09/15/00 $ 300,000 8.75% $ 294,928
Transworld Business Brokers, Inc. Debt 11/99 11/23/01 $ 350,000 6.00% $ 250,000
Transworld Business Brokers, Inc. Debt 11/99 11/23/01 $ 3,150,000 5.25% $ 3,150,000
Raising Cain Debt 3/00,
4/00, Prime +
5/00 Various $ 315,000 1.00% $ 49,231
Data-Tel of Louisiana Debt 03/00 Various $ 513,000 Prime + $ 76,748
1.00%
Gino's Seafood Debt 3/00,
4/00 Various $ 517,942 Prime + $ 86,692
1.00%
Steve Kent Trucking Debt 3/00,
5/00 Various $ 747,000 Prime + $ 123,024
1.00%
Gerace Auto Parts Debt 4/00 Various $ 810,000 Prime + $ 132,540
1.00%
Tari's School of Dance Debt 5/00 Various $ 189,000 Prime + $ 31,500
1.00%
Embosser's Sales and Service Debt 8/00 Various $ 495,000 Prime + $ 81,529
1.00%
CB Real Net, LLC Debt 02/01/00 Various $ 2,500,000 Various $ 2,500,000
Down to Earth Technologies, LLC Debt 12/99,
8/00 02/16/01 $ 550,000 9.00% $ 50,000
Merchant Data Systems Sales Debt 10/99 04/15/01 $ 3,500,000 9.00% $ 3,163,950
and Marketing
Merchant Data Systems, Inc. Debt 8/00 1/11/02 $ 100,000 10.00% $ 100,000
Multi-Media Distribution Corp. Debt 06/00 06/14/02 $ 1,000,000 10.00% $ 1,000,000
AIDA, LLC Debt 8/00 On demand $ 100,000 10.00% $ 100,000
TOTAL DEBT INVESTMENTS $15,136,942 $11,190,142
=========== ===========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
EQUITY Limited
Liability
Company Original Cost Basis
Date of Type of Common Stock Membership Investment September 30,
Investee Investment Investment Equivalents (1) Share Ratio Amount 2000
-------- ---------- ---------- --------------- ----------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Options for
Cedric Kushner Boxing, 11/17/98 Common Stock(2) 3 N/A $0 $ 0
Inc.
Class A
1800Gift Certificate 07/15/99 Preferred Stock 3,159 N/A $2,604 $ 2,604
Class B
1800 Gift Certificate 07/15/99 Preferred Stock 113,140 N/A $22,396 $ 22,396
Warrants for
CB Real Net, LLC 02/01/00 Membership NA 40.00% $0 $ 0
Interest(3)
Merchant Data Systems Membership
Sales and Marketing, LLC 10/21/99 Interest NA 50.00% $0 $ 0
Membership
BizBroker Net, LLC 11/23/99 Interest NA 50.00% $0 $ 0
Membership
Down to Earth 12/15/99 Interest NA 50.00% $0 $ 0
Technologies, LLC
Multi-Media Distribution 6/14/00 Common Stock 66,000 N/A $200,000 $200,000
Corp.
Starphire Technologies, Preferred NA 50.00% $1,400,000 $1,400,000
LLC 08/25/00 Membership
Interest w/
voting rights
Niche Directories, LLC 09/25/00 Preferred NA 37.50% $ 794,000 $ 794,000
Membership
Interest w/
voting rights
Merchant Data Systems, 09/13/00 Preferred Stock
Inc. /Common Stock 3,500,000 35% $ 900,000 $ 900,000
TOTAL EQUITY INVESTMENTS $3,319,000 $ 3,319,000
========== ===========
TOTAL DEBT AND EQUITY INVESTMENTS $18,455,942 $14,509,142
=========== ===========
</TABLE>
(1) Common Stock Equivalents reflect conversion of all financial instruments
into common stock.
(2) Expires four years from date of investment and has a $.01 exercise price.
(3) Expires five years from date of investment and has a $.01 exercise price.
(4) Maturity date extended to September 15, 2001.
10
<PAGE>
Investments in notes receivable (debt investments) from affiliated companies
accounted for under the equity method amounted to $9,113,950 at September 30,
2000. Additionally, the Company's investment balance in the equity of each of
these investees is $3,094,000 at September 30, 2000. The Company has not
recorded its share of the losses in the investees either because the investment
account is zero, or the investee's net assets are greater than Newtek's
preferred interests.
The Company has not guaranteed any obligation of these investees, and the
Company is not otherwise committed to provide further financial support for the
investees. Periodically, the Company evaluates each of its individual
investments for potential impairment in value. Should the Company determine that
an impairment exists and it is deemed to be other than temporary, the Company
will write down the recorded value of the asset to its estimated fair value and
record a corresponding charge in the statement of operations. At June 30, 2000,
the Company had determined that there was an other than temporary decline in the
value of its investments in debt instruments issued by Down To Earth
Technologies and Transworld Business Brokers, Inc. of $500,000 and $100,000,
respectively. Accordingly, at June 30, 2000 and for the three-month period then
ended, the Company wrote down the value of these investments and recorded a
corresponding charge of $600,000. At September 30, 2000, the Company has
determined that there is other than temporary decline in the value of its
investments in debt instruments issued by Merchant Data Systems Sales &
Marketing, LLC of $336,050. Accordingly, at September 30, 2000 and for the
three-month period then ended, the Company has written down the value of these
investments and recorded a corresponding charge of $336,050.
NOTE 4 - FORMATION OF NEW CAPCO
In October 2000, the Company received funding from Certified Investors of
approximately $4,248,000 for a newly formed CAPCO, Wilshire Louisiana Partners
II. In this connection, the Company issued notes and warrants to the Certified
Investors and allocated the proceeds received to such instruments.
NOTE 5 - ACQUISITION OF REXX ENVIRONMENTAL CORP.
On September 19, 2000, the Company completed its acquisition of Rexx
Environmental Corp. ("Rexx") The acquisition of Rexx was completed immediately
following Rexx's sale of Watkins Contracting, Inc., its sole operating business.
The sale of Watkins Contracting and the acquisition of Rexx by the Company were
approved by Rexx's shareholders on September 19, 2000. Pursuant to the
acquisition, Rexx shareholders received one share of Newtek Capital common stock
in exchange for each share of Rexx common stock held. The Company issued
2,467,576 shares of common stock in exchange for 100% (2,467,576 shares) of Rexx
stock. This transaction has been accounted for as a recapitalization, whereby
Newtek has recorded the monetary assets and liabilities of Rexx at their
historical values (which were not material to the Company), with the net asset
value recorded as a credit to stockholders' equity.
Additionally, on September 19, 2000, the Company issued 18,823,285 shares of
common stock for 100% of the BJB Holdings shares which owns the equity and
member interests of the underlying entities. The Company's principal
stockholders were the principal owners of BJB Holdings and the underlying
entities. As a result, Newtek has recorded the assets acquired and liabilities
assumed at their historical values. In connection with the transaction, Newtek
has recorded a deferred tax liability of $2,285,129, resulting from the
cumulative temporary book/tax differences from the underlying CAPCO
subsidiaries' activities. In addition, the underlying members' equity of the
underlying entities was converted to stockholders' equity and at September 30,
2000 are as follows:
Common Stock $ 428,368
Additional Paid in Capital 5,199,259
Retained Earnings 1,501,828
---------
Total Stockholders' Equity $7,129,455
==========
NOTE 6 - EARNINGS PER SHARE
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". Basic
earnings per share is computed based on the weighted average number of common
shares outstanding during the period. The dilutive effect of common stock
equivalents and convertible preferred stock is included in the calculation of
11
<PAGE>
diluted earnings per share only when the effect of their inclusion would be
dilutive. The effect of convertible preferred stock using the "if-converted"
method and the dilutive effect of common stock equivalents were anti-dilutive
for the three and nine months ended September 30, 2000 and, therefore, have been
excluded from the calculation of diluted earnings per share.
The calculations of Net Income (Loss) Per Share were:
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
Basic
Net (loss) $ (1,799,773) $ (368,850) $ (4,000,266) $ (511,326)
------------ ------------ ------------ ------------
Outstanding Shares 18,836,663 18,250,000 18,545,479 18,250,000
------------ ------------ ------------ ------------
Basic and Diluted $ (.10) $ (.02) $ (.22) $ (.03)
------------ ------------ ------------ ------------
(No dilutive securities)
NOTE 7 - SUBSEQUENT EVENTS
In October 2000, the Company through two of its Capcos invested $1,000,000 in
AIDA, LLC, a New York based software/platform development company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Three Months Ended September 30, 2000 compared to Three Months Ended September
30, 1999
Revenues increased by approximately $3,721,000, to $3,971,000 for the three
months ended September 30, 2000, from $249,000 for the three months ended
September 30, 1999. Income from tax credits increased by approximately
$3,430,000. This increase was attributable to the $3,327,000 in tax credits
recognized in September 2000, due to the Company's meeting investment thresholds
mandated by the various state Capco statutes. Interest and dividend income
increased by approximately $332,000, to $528,000 for the three months ended
September 30, 2000, from $195,000 for the three months ended September 30, 1999.
This increase was primarily due to additional investments made over the
comparable prior period.
General and administrative expenses increased by approximately $961,000 to
$1,279,000 for the three months ended September 30, 2000, from $318,000 for the
three months ended September 30, 1999, due to increased staffing and
professional fees (legal and accounting) attributable to the increased size and
number of capcos and the acquisition of Rexx. Interest expense increased by
approximately $2,142,000, to $2,798,000 for the three months ended September 30,
2000, from $656,000 for the three months ended September 30, 1999, which was
attributable to the issuance of notes to certified investors relating to the
formation of capcos during the prior 12 months.
Nine Months Ended September 30, 2000 compared to Nine Months Ended September 30,
1999
Revenues increased by approximately $4,372,000, to $5,239,000 for the nine
months ended September 30, 2000, from $867,000 for the nine months ended
September 30, 1999. Income from tax credits increased by $3,287,000. This
increase was attributable to the recognition of the tax credit revenue in the
third quarter of 2000 of approximately $3,327,000 due to the Company's meeting
investment thresholds mandated by various state Capco statutes. Interest and
dividend income increased by approximately $1,170,000, to $1,553,000 for the
nine months ended September 30, 2000, from $383,000 for the nine months ended
September 30, 1999. This increase was primarily due to additional investments
made over the comparable prior period. Consulting fee income decreased by
approximately $84,000 due to the decrease in consulting related activity.
12
<PAGE>
General and administrative expenses increased by approximately $2,638,000, to
$3,373,000 for the nine months ended September 30, 2000, from $735,000 for the
nine months ended September 30, 1999, due to increased staffing and professional
fees (legal and accounting) attributable to the increased size and number of
capcos and the acquisition of Rexx. Interest expense increased by approximately
$3,974,000, to $5,299,000 for the nine months ended September 30, 2000, from
$1,325,000 for the nine months ended September 30, 1999, which was attributable
to the issuance of notes to certified investors relating to the formation of
capcos during the prior 12 months.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through the issuance of notes to
Certified Investors through the capco program. To date, the Company has received
approximately $87,000,000 in proceeds from the issuance of long-term debt
through the capco programs. The Company's principal capital requirements have
been to fund the defeasance of the principal amount of notes issued to the
Certified Investors, the acquisition of Capco insurance policies, the
acquisition of partner companies interests, funding of other investments, and
working capital needs resulting from increased operating and business
development activities of its partner companies.
Net cash used in operating activities for the nine months ended September 30,
2000 of approximately $2,624,000 resulted primarily from net losses of
$4,000,000, offset by the non-cash interest expense of approximately $5,020,000
and non-cash income tax expense of approximately $2,285,000, and the non-cash
$936,000 other than temporary decline in value of investments. It was also
affected by the approximately $2,222,000 portion of the minority interest loss,
the approximately $3,652,000 in non-cash income from tax credits, and the
approximately $432,000 in non-cash gain on defeasance of debt. In addition, the
Company had a decrease in components of working capital of $474,000 (primarily
the decrease in prepaid insurance $222,000 and a decrease in accounts payable
and accruals of $251,000).
The other than temporary decline in the value of the Company's investment in
Down to Earth Technologies as of June 30, 2000 of $500,000 was based upon the
poor operating results that it was experiencing and, in particular, the loss of
an expected contract. Subsequently, the chief executive officer of Down to Earth
Technologies and the Company agreed that he should be replaced. At present, the
Company is providing extensive managerial advice and assistance to Down to Earth
Technologies in an effort to recover its investment.
Net cash used in investing activities for the nine months ended September 30,
2000 of approximately $8,056,000 resulted primarily from approximately
$10,631,000 in additional qualified investments made in the period and offset by
repayments on the debt investments of $3,461,000. The Company also funded
$320,000 in other investments, and paid approximately $661,000 for a structured
insurance product to defease its debt in one of the capcos.
Net cash provided by financing activities for the nine months ended September
30, 2000 was approximately $7,671,000, primarily attributable to the
approximately $4,056,000 in net proceeds from the issuance of long term debt net
of defeasance and approximately $2,962,000 in private placement of stock during
the nine months ended September 30, 2000.
The Company believes that its cash and cash equivalents, its anticipated cash
flow from operations, its ability to access private and public debt and equity
markets, and the availability of funds under its existing credit agreements will
provide it with sufficient liquidity to meet its short and long-term capital
needs.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements.
Additional written or oral forward-looking statements may be made by the Company
from time to time in filings with the Securities and Exchange Commission or
otherwise. The words "believe," "expect," "seek," and "intend" and similar
expressions identify forward-looking statements, which speak only as of the date
the statement is made. Such forward-looking statements are within the meaning of
that term in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements may
include, but are not limited to, projections of income or loss, expenditures,
acquisitions, plans for future operations, the results of corrective actions
taken to address problems in partner companies, financing needs or plans
relating to services of the Company, as well as assumptions relating to the
foregoing. Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in, contemplated
by or underlying the forward-looking statements.
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<PAGE>
The Company does not undertake, and specifically disclaims, any obligation to
publicly release the results of revisions which may be made to forward-looking
statements to reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company monitors whether material changes in market risk have occurred since
year-end. Although the Company is unable to predict future changes in market
rates and their impact on the Company's profitability, the Company does not
believe that a decrease in market rates of interest would have a material effect
on its assets.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On September 18, 2000, the Company completed the sale of 222,600 shares of
its Common Stock at a price of $5.00 per share. In addition, in the same
offering, warrant for the purchase of an additional 86,400 shares were sold at
the same price and, in October, were exercised for additional proceeds to the
Company of $432,000.
No underwriter was used and all sales were to family and friends of the
management, directors or employees of the Company. The offer was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
(d) All proceed are to be used for general corporate purposes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) Action by Consent of all shareholders executed as of September 8, 2000 in
lieu of an annual meeting of shareholders.
(b) Three (3) directors, constituting the entire membership of the Board of
Directors, were reelected for one (1) year terms; they are Jeffrey G.
Rubin, Barry Sloane, and Brian A. Wasserman.
(c) In conjunction with the acquisition of BJB Holdings, Inc. by a subsidiary
of the Company, the replacement of the BJB Holdings, Inc. 2,000 Stock
Incentive and Deferred Compensation Plan with the equivalent Newtek
Capital, Inc. 2,000 Stock Incentive and Deferred Compensation Plan was
approved.
(d) Not applicable.
ITEM 5. OTHER INFORMATION
On September 18, 2000 the Board of Directors of the Company elected expanded the
membership of the Board and elected Messrs. Matthew Burns, John Cox and Steven
A. Shenfeld to one year terms to expire at the next annual meeting of
shareholders.
On September 19, 2000 the Company completed its acquisitions of REXX
Environmental Corporation ("REXX") and BJB Holdings, Inc.
The following unaudited pro forma condensed consolidated statement of operations
for the nine-month period ended September 30, 2000 consolidates the unaudited
condensed consolidated statements of operations of REXX (which reflects the sale
of Watkins Contracting, Inc. and the costs and expenses associated with that
transaction), and the unaudited consolidated statement of operations of the
Company (which had prior thereto combined the historical financial statements of
BJB Holdings, Inc. and its subsidiaries with its own) for the nine-month period
ended September 30, 2000, giving effect to the acquisition of REXX and the costs
and expenses associated with that transaction.
This information should be read together with the historical consolidated
financial statements and notes of the Company.
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NEWTEK CAPITAL, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
REXX Newtek/REXX Pro
Pro Forma Newtek Forma
Continuing Historical Pro Forma Adjustments Continuing
Operations Consolidated Debit Credit Operations
-------------- ------------ ----- ------ ----------
<S> <C> <C> <C> <C> <C>
Revenue $ -- $ 5,239 $ -- -- $ 5,239
Operating expenses 535 3,373 -- -- 3,908
--------- --------- -------- -------- --------
Income (loss) from operations (535) 1,866 -- -- 1,331
Other expenses
Interest expense -- 5,299 -- -- 5,299
Loss before other than temporary
decline in value of investments,
extraordinary gain on defeasance of
debt, provision for income taxes and
minority interest --------- --------- -------- -------- --------
(535) (3,433) -- -- (3,968)
Other than temporary decline in
value of investments -- (936) -- -- (936)
Extraordinary gain on defeasance of
debt -- 432 -- -- 432
Impairment of property (280) (280)
------------- --------------- ------------- ----------- ----------------
Loss before provision for income (815) (3,937) -- -- (4,752)
taxes
Provision for income taxes 6 2,285 -- -- 2,291
Net loss before minority interest (821) (6,222) -- -- (7,043)
Minority interest -- 2,222 -- 2,222
Net loss $ (821) $ (4,000) $ -- $ -- $(4,821)
========= ========= ====== ======= =======
Per share data:
--------- --------- ------ ------ -------
Basic and diluted loss per share $ (0.33) $ (0.21) $ (0.23)
========= ======== =======
Weighted average number of shares
outstanding 2,467,576 18,823,285 21,290,861
</TABLE>
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10 - 2000 Stock Incentive and Deferred Compensation Plan
Exhibit 27 - Financial Data Schedule (SEC use only)
(b) Registrant filed on October 4, 2000 a Report on Form 8-K to report
consummation of: (1) its acquisition of REXX Environmental
Corporation, (2) its acquisition of BJB Holdings, Inc., and (3)
issuance of a total of 20,971,861 shares of its Common Stock in the
two acquisitions.
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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.
NEWTEK CAPITAL, INC.
Date: November 14, 2000 /s/ Barry Sloane
-----------------------------------------------
Barry Sloane
Chairman of the Board, Chief Executive Officer,
and Secretary
Date: November 14, 2000 /s/ Brian A. Wasserman
----------------------------------------------
Brian A. Wasserman
Treasurer, Chief Financial Officer, and
Director
Date: November 14, 2000 /s/ Giuseppe Soccodato
-----------------------------------------------
Giuseppe Soccodato
Controller and Chief Accounting Officer
17
