<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 001-12212
DRUMMOND FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-4426690
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6 Rue Charles-Bonnet, 1206 Geneva, Switzerland
(Address of principal executive offices)
(41 22) 818 2999
(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 November 11, 1999
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Common Stock, $0.01 2,718,600
par value
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FORWARD-LOOKING STATEMENTS
Statements in this report, to the extent that they are not based on historical
events, constitute forward-looking statements. Forward-looking statements
include, without limitation, statements regarding the outlook for future
operations, forecasts of future costs and expenditures, evaluation of market
conditions, the outcome of legal proceedings, the adequacy of reserves, or
other business plans. Investors are cautioned that forward-looking statements
are subject to an inherent risk that actual results may vary materially from
those described herein. Factors that may result in such variance, in addition
to those accompanying the forward-looking statements, include changes in
interest rates, prices, and other economic conditions; actions by competitors;
natural phenomena; actions by government authorities; uncertainties associated
with legal proceedings; technological development; future decisions by
management in response to changing conditions; and misjudgments in the course
of preparing forward-looking statements.
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
DRUMMOND FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
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DRUMMOND FINANCIAL CORPORATION
Consolidated Balance Sheets
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1999 June 30, 1999
------------------ -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,058 $ 4,280
Finance receivables, net - -
Other receivables 5,897 5,450
Due from affiliates 3,080 3,080
Investments 11,797 12,172
Deferred debt issuance costs, net 983 1,017
------------ ------------
$ 25,815 $ 25,999
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued liabilities $ 53 $ 131
Interest payable 1,342 933
Accrued dividends payable 224 149
Debt 21,515 21,515
------------ ------------
23,134 22,728
SHAREHOLDERS' EQUITY
Capital stock
Preferred stock, $0.01 par value
5,000,000 shares authorized
3,000,000 shares issued and outstanding 30 30
Additional paid-in capital 5,970 5,970
------------ ------------
6,000 6,000
------------ ------------
Common stock, $0.01 par value
10,000,000 shares authorized
2,718,600 shares issued and outstanding 27 27
Additional paid-in capital 14,727 14,727
------------ ------------
14,754 14,754
------------ ------------
Deficit (18,073) (17,483)
------------ ------------
2,681 3,271
------------ ------------
$ 25,815 $ 25,999
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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DRUMMOND FINANCIAL CORPORATION
Consolidated Statements of Operations
(Unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenue
Interest and loan fee income $ 429 $ 243
(Loss) gain on securities (375) 921
Dividend and other 76 76
------------ ------------
130 1,240
Costs and expenses
Interest 442 532
General and administrative 201 293
------------ ------------
643 825
------------ ------------
Operating (loss) income (513) 415
Income tax expense 1 1
------------ ------------
Net (loss) income (514) 414
Accumulated deficit, beginning
of period (17,483) (17,519)
Dividends payable (76) (76)
------------ ------------
Accumulated deficit, end of period $ (18,073) $ (17,181)
============ ============
(Loss) earnings per share $ (0.22) $ 0.12
============ ============
Weighted average number of
shares outstanding 2,718,600 2,718,600
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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DRUMMOND FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Operating activities:
Net (loss) income $ (514) $ 414
Adjustments to reconcile net (loss)
income to cash flows from operating
activities
Loss (gain) on investments, net 375 (921)
Amortization of deferred debt
issuance costs 33 33
------------ ------------
(106) (474)
Changes in non-cash working capital
balances
Receivables (97) (26)
Interest receivable (350) (76)
Due from affiliates - (1,200)
Interest payable 408 (892)
Accounts payable and accrued
liabilities (77) 41
------------ ------------
(222) (2,627)
Purchase of trading securities - (113)
Proceeds from sales of trading
securities - 4,222
------------ ------------
Net cash (used in) provided
by operating activities (222) 1,482
------------ ------------
Investing activities:
Net cash from
investing activities - -
------------ ------------
Financing activities:
Decrease in note payable - (2,526)
------------ ------------
Net cash used in financing
activities - (2,526)
------------ ------------
Net change in cash and cash
equivalents (222) (1,044)
Cash and cash equivalents, beginning
of period 4,280 3,699
------------ ------------
Cash and cash equivalents, end of
period $ 4,058 $ 2,655
============ ============
Cash paid during the period for:
Interest expense $ - $ 1,424
Income taxes $ 1 $ 1
</TABLE>
The accompanying notes are an integral part of these financial statements.
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DRUMMOND FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
September 30, 1999
(Unaudited)
Note 1. Basis of Presentation
- ------------------------------
The accompanying financial statements of Drummond Financial Corporation (the
"Corporation") are unaudited. However, in the opinion of management, they
include all adjustments necessary for a fair presentation of the financial
position, results of operations and cash flows of the Corporation for the
specified periods.
All adjustments made during the three months ended September 30, 1999 were of
a normal, recurring nature. The amounts presented for the three months ended
September 30, 1999 are not necessarily indicative of the results of operations
for a full year. Additional information is contained in the audited
consolidated financial statements and accompanying notes included in the
Corporation's annual report on Form 10-K for the fiscal year ended June 30,
1999, and should be read in conjunction with such annual report.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
Note 2. Earnings (Loss) Per Share
- ----------------------------------
Basic earnings (loss) per share is calculated by dividing the net income or
loss available to common shareholders by the weighted average number of common
shares outstanding during the three months ended September 30, 1999 and 1998,
respectively. The weighted average number of shares outstanding was 2,718,600
for the three months ended September 30, 1999 and 1998, respectively.
Diluted earnings per share takes into account common shares outstanding and
potentially dilutive common shares. Warrants have not been reflected as
exercised for purposes of computing the diluted earnings per share for the
three months ended September 30, 1998 because their exercise price was greater
than their market price.
Note 3. Adoption of Accounting Standard Regarding Impaired Loans
- -----------------------------------------------------------------
Under the provisions of the Financial Accounting Standards Board ("FASB")
Statement No. 114, "Accounting by Creditors for Impairment of a Loan", when a
loan is impaired as defined in the statement, a lender shall measure
impairment at the present value of expected future cash flows discounted at
the loan's effective interest rate, or as a practical expedient, based on a
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. The Corporation has adopted a measurement method on
a loan-by-loan basis. By definition, the Corporation's non-performing loans
are impaired. A specific reserve is established for each impaired loan equal
to the amount by which the Corporation's recorded investment in the loan
exceeds the net present value of the loan determined in accordance with FASB
Statement No. 114.
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The Corporation continued to apply FASB Statement No. 5 "Accounting for
Contingencies" to provide an allowance on a pool of unimpaired loans.
The Corporation fully settled its loan portfolio during the fiscal year ended
June 30, 1999, and had no loan commitments at September 30, 1999. The
Corporation's loan portfolio aggregated $2.1 million in finance receivables
(principal plus interest and reimbursable costs less unamortized commitment
fees) due from a defaulting borrower at September 30, 1998.
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PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of Drummond Financial Corporation (the "Corporation") for the
three months ended September 30, 1999 should be read in conjunction with the
consolidated financial statements and related notes included elsewhere herein.
Results of Operations - Three Months Ended September 30, 1999
- -------------------------------------------------------------
Revenues for the three months ended September 30, 1999 decreased to $0.1
million from $1.2 million for the comparative period of 1998, primarily as a
result of a net loss of $0.4 million recognized on securities during the
current period. In the three months ended September 30, 1998, the Corporation
recognized a net gain of $0.9 million on securities. Revenues from interest
and loan fees increased to $0.4 million for the three months ended September
30, 1999 from $0.2 million for the three months ended September 30, 1998, as a
result of interest on an outstanding note. Revenues from dividends and other
activities were $0.1 million for the three months ended September 30, 1999 and
1998, respectively.
Costs and expenses for the three months ended September 30, 1999 decreased to
$0.6 million from $0.8 million for the three months ended September 30, 1998,
as a result of a reduction in interest expense and lower general and
administrative expenses. General and administrative expenses decreased to
$0.2 million for the three months ended September 30, 1999 from $0.3 million
for the three months ended September 30, 1998.
Interest expense decreased to $0.4 million for the three months ended
September 30, 1999 from $0.5 million for the three months ended September 30,
1998, because of a lower interest rate on the Corporation's long-term debt
resulting from a restructuring of such debt.
No income tax provision was recognized for the three months ended September
30, 1999 and 1998, respectively, except for the payment of a minimum tax of
$1,000. The Corporation has deferred tax benefits with respect to net
operating loss carry-forwards which have not been recognized as there is no
assurance that they will be realized.
For the three months ended September 30, 1999, the Company reported a net loss
of $0.5 million, or $0.22 per share, compared to net earnings of $0.4 million,
or $0.12 per share, for the three months ended September 30, 1998.
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Liquidity and Capital Resources
- -------------------------------
The Corporation's cash and cash equivalents at September 30, 1999 were $4.1
million, a decrease of $0.2 million from June 30, 1999.
Cash used by operating activities for the three months ended September 30,
1999 was $0.2 million, compared to cash provided by operating activities of
$1.5 million for the three months ended September 30, 1998. Net sales of
trading securities provided cash of $4.1 million in the three months ended
September 30, 1998. A decrease in accounts payable and accrued liabilities
used cash of $0.1 million in the three months ended September 30, 1999,
compared to an increase in same providing cash of $41,000 in the three months
ended September 30, 1998. An increase in receivables used cash of $0.1
million in the three months ended September 30, 1999, compared to $26,000 in
the three months ended September 30, 1998.
Investing activities had no effect on cash flows in the three months ended
September 30, 1999 and 1998, respectively.
Financing activities had no effect on cash flows in the three months ended
September 30, 1999. In the three months ended September 30, 1998, financing
activities used cash of $2.5 million, primarily as a result of decreased
indebtedness.
In August 1999, the Corporation entered into a debt restructuring agreement
with the holder of its long-term debt, MFC Bancorp Ltd., pursuant to which the
rate of interest on such debt was reduced to 5% per annum from 8.75% and the
debt was secured by fixed liens upon the assets of the Corporation.
The Corporation anticipates that its cash, investments on hand and interest
income will be sufficient to service the Corporation's debt costs and cover
the day-to-day general and administrative expenses of the Corporation during
the short-term.
Finance Receivables
- -------------------
The Corporation fully settled its loan portfolio during the fiscal year ended
June 30, 1999, and had no loan commitments at September 30, 1999. The
Corporation's loan portfolio aggregated $2.1 million in finance receivables
(principal plus interest and reimbursable costs less unamortized commitment
fees) due from a defaulting borrower at September 30, 1998.
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<PAGE> 10
Year 2000
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Many of the world's computer systems currently record years in a two-digit
format. These computer systems will be unable to properly interpret dates
beyond the year 1999, which could lead to business disruptions and is commonly
referred to as the "Year 2000" issue. Based on its current information,
management of the Corporation has determined that the Year 2000 issue will not
pose significant operational problems for its computer systems as it only
utilizes commercially available software and personal computers, which are
Year 2000 compliant. The total cost to the Corporation of Year 2000
compliance activities has not been and is not currently anticipated to be
material to its financial position or results of operations in any given year.
In addition, management of the Corporation has initiated communications with
clients to ascertain their Year 2000 readiness and develop contingency plans
as required, and management intends to address this issue with any prospective
client. The determination by management and costs relating to the Year 2000
issue are based on management's best estimates, which were derived utilizing
numerous assumptions of future events. However, there can be no assurance
that these estimates will be achieved and actual results could vary materially
from those anticipated.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Reference is made to the Corporation's annual report on Form 10-K for the year
ended June 30, 1999 for information concerning market risk.
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PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Corporation's annual report on Form 10-K for the year
ended June 30, 1999 for information concerning certain legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
- ------- -----------
27 Article 5 - Financial Data Schedule for the 1st Quarter
2000 Form 10-Q.
(b) Reports on Form 8-K
None.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 11, 1999
DRUMMOND FINANCIAL CORPORATION
By: /s/ Michael J. Smith
---------------------------------------------
Michael J. Smith, President, Chief
Executive Officer and Chief Financial Officer
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EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Article 5 - Financial Data Schedule for the 1st Quarter
2000 Form 10-Q.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES INCLUDED IN THIS FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,058
<SECURITIES> 11,797
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,815
<CURRENT-LIABILITIES> 0
<BONDS> 21,515
0
30
<COMMON> 27
<OTHER-SE> 2,624
<TOTAL-LIABILITY-AND-EQUITY> 25,815
<SALES> 0
<TOTAL-REVENUES> 130
<CGS> 0
<TOTAL-COSTS> 643
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 442
<INCOME-PRETAX> (513)
<INCOME-TAX> 1
<INCOME-CONTINUING> (514)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (514)
<EPS-BASIC> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
