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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 March 31, 2000
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)
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 May 9, 2000
----- --------------------------------
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 NINE MONTHS ENDED MARCH 31, 2000
(Unaudited)
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DRUMMOND FINANCIAL CORPORATION
Consolidated Balance Sheets
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
-------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,553 $ 4,280
Finance receivables, net - -
Other receivables 5,846 5,450
Due from affiliates 1,430 3,080
Investments 9,597 12,172
Deferred debt issuance costs, net 917 1,017
----------- -----------
$ 26,343 $ 25,999
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued liabilities $ 194 $ 131
Interest payable 938 933
Accrued dividends payable 74 149
Debt 21,515 21,515
----------- -----------
22,721 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 (17,132) (17,483)
----------- -----------
3,622 3,271
----------- -----------
$ 26,343 $ 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 Nine For the Nine
Months Ended Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Revenue
Interest and loan fee income $ 880 $ 733
Gain on securities 1,499 475
Dividend and other 227 225
----------- -----------
2,606 1,433
Costs and expenses
Interest 1,047 1,526
Recovery of credit losses - (846)
General and administrative 982 755
----------- -----------
2,029 1,435
----------- -----------
Income (loss) before income tax expense 577 (2)
Income tax expense 1 1
----------- -----------
Net income (loss) 576 (3)
Accumulated deficit, beginning of period (17,483) (17,519)
Dividends paid and payable (225) (225)
----------- -----------
Accumulated deficit, end of period $ (17,132) $ (17,747)
=========== ===========
Earnings (loss) per share $ 0.13 $ (0.08)
=========== ===========
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 Operations
(Unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Revenue
Interest and loan fee income $ 223 $ 183
Gain on securities 182 90
Dividend and other 73 74
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478 347
Costs and expenses
Interest 303 503
General and administrative 362 203
----------- -----------
665 706
----------- -----------
Net loss (187) (359)
Accumulated deficit, beginning of period (16,871) (17,314)
Dividends payable (74) (74)
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Accumulated deficit, end of period $ (17,132) $ (17,747)
=========== ===========
Loss per share $ (0.10) $ (0.16)
=========== ===========
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 Nine For the Nine
Months Ended Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 577 $ (3)
Adjustments to reconcile net income
(loss) to net cash from operating
activities
Recovery of credit losses - (846)
Gain on investments, net (1,499) (475)
Amortization of deferred debt
issuance costs 100 99
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(822) (1,225)
Changes in non-cash working
capital balances
Receivables (93) 24
Interest receivable (495) (180)
Due from affiliates 870 (2,300)
Interest payable 5 29
Accounts payable and accrued
liabilities 63 (8)
----------- -----------
472 (3,660)
Purchase of trading securities (328) (3,619)
Proceeds from sales of trading
securities 5,373 7,050
----------- -----------
Net cash provided by (used in)
operating activities 4,573 (229)
----------- -----------
Investing activities:
Payments received on loan receivables - 846
Decrease in note receivable, net - 3,119
----------- -----------
Net cash provided by investing
activities - 3,965
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Financing activities:
Decrease in note payable - (2,526)
Dividend (300) (300)
----------- -----------
Net cash used in financing
activities (300) (2,826)
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Net change in cash and cash equivalents 4,273 910
Cash and cash equivalents, beginning
of period 4,280 3,699
----------- -----------
Cash and cash equivalents, end of period $ 8,553 $ 4,609
=========== ===========
Cash paid during the period for:
Interest expense $ 1,002 $ 1,496
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
March 31, 2000
(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 nine months and three months ended March 31,
2000, respectively, were of a normal, recurring nature. The amounts
presented for the nine months and three months ended March 31, 2000,
respectively, 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 nine months and three months ended March
31, 2000 and 1999, respectively. The weighted average number of shares
outstanding was 2,718,600 for the nine months and three months ended March
31, 2000 and 1999, 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
nine months ended March 31, 1999 because their exercise price was greater
than their market price.
Note 3. Adoption of Accounting Standard Regarding Impaired Loans
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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
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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.
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 March 31, 2000. The
Corporation's loan portfolio aggregated $1.3 million in finance receivables
(principal plus interest and reimbursable costs less unamortized commitment
fees) due from a defaulting borrower at March 31, 1999.
-8-
<PAGE> 9
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
nine months and three months ended March 31, 2000, respectively, should be
read in conjunction with the consolidated financial statements and related
notes included elsewhere herein.
Results of Operations - Nine Months Ended March 31, 2000
- --------------------------------------------------------
Revenues for the nine months ended March 31, 2000 increased to $2.6 million
from $1.4 million for the comparative period of 1999, primarily as a result
of a net gain of $1.5 million recognized on securities during the current
period. In the nine months ended March 31, 1999, the Corporation recognized
a net gain on securities of $0.5 million. Revenues from interest and loan
fees increased to $0.9 million for the nine months ended March 31, 2000 from
$0.7 million for the nine months ended March 31, 1999. Revenues from
dividends and other activities were $0.2 million for the nine months ended
March 31, 2000 and 1999, respectively.
Costs and expenses for the nine months ended March 31, 2000 increased to $2.0
million from $1.4 million for the comparative period of 1999. The
Corporation had a recovery of credit losses of $0.8 million in the nine
months ended March 31, 1999 relating to amounts outstanding under a non-
performing loan. General and administrative expenses were $1.0 million for
the nine months ended March 31, 2000, compared to $0.8 million for the
comparative period of 1999.
Interest expense decreased to $1.0 million for the nine months ended March
31, 2000 from $1.5 million for the nine months ended March 31, 1999, as a
result 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 nine months ended March 31,
2000 and 1999, 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 nine months ended March 31, 2000, the Corporation reported net income
of $0.6 million, or $0.13 per share, compared to a net loss of $3,000, or
$0.08 per share, for the nine months ended March 31, 1999.
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Results of Operations - Three Months Ended March 31, 2000
- ---------------------------------------------------------
Revenues for the three months ended March 31, 2000 were $0.5 million,
compared to $0.3 million for the comparative period of 1999. The Corporation
recognized a net gain on securities of $0.2 million in the three months ended
March 31, 2000, compared to $0.1 million in the three months ended March 31,
1999. Revenues from interest and loan fees were $0.2 million and revenues
from dividends and other activities were $0.1 million for the three months
ended March 31, 2000 and 1999, respectively.
Costs and expenses were $0.7 million for the three months ended March 31,
2000 and 1999, respectively. General and administrative expenses were $0.4
million for the three months ended March 31, 2000, compared to $0.2 million
for the three months ended March 31, 1999.
Interest expense decreased to $0.3 million for the three months ended March
31, 2000 from $0.5 million for the three months ended March 31, 1999, as a
result of a lower interest rate on the Corporation's long-term debt resulting
from a restructuring of such debt.
For the three months ended March 31, 2000, the Corporation reported a net
loss of $0.2 million, or $0.10 per share, compared to $0.4 million, or $0.16
per share, for the three months ended March 31, 1999.
Liquidity and Capital Resources
- -------------------------------
The Corporation's cash and cash equivalents at March 31, 2000 were $8.6
million, an increase of $4.3 million from June 30, 1999.
Operating activities provided cash of $4.6 million in the nine months ended
March 31, 2000, compared to using cash of $0.2 million in the nine months
ended March 31, 1999. Net sales of trading securities provided cash of $5.0
million in the nine months ended March 31, 2000, compared to $3.4 million in
the nine months ended March 31, 1999. Repayments on a loan due from an
affiliate provided cash of $0.9 million in the current period, compared to a
loan to an affiliate using cash of $2.3 million in the nine months ended
March 31, 1999.
Investing activities had no effect on cash flows in the nine months ended
March 31, 2000, compared to providing cash of $4.0 million in the nine months
ended March 31, 1999. In the nine months ended March 31, 1999, the
Corporation collected $0.8 million from the estate of a defaulting borrower
relating to a non-performing loan in the amount of $2.1 million. The
borrower had filed a petition for bankruptcy and had ceased to operate. The
Corporation also collected $3.1 million from the partial repayment of an
outstanding note in the nine months ended March 31, 1999.
Financing activities used cash of $0.3 million in the nine months ended March
31, 2000, compared to $2.8 million in the nine months ended March 31, 1999.
The payment of dividends used cash of $0.3 million in the nine months ended
March 31, 2000 and 1999, respectively. Decreased indebtedness used cash of
$2.5 million in the nine months ended March 31, 1999.
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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 March 31, 2000. The
Corporation's loan portfolio aggregated $1.3 million in finance receivables
(principal plus interest and reimbursable costs less unamortized commitment
fees) due from a defaulting borrower at March 31, 1999.
Year 2000
- ---------
The Corporation has not experienced any difficulties associated with the
changeover to the year 2000. While management of the Corporation believes
that it took adequate steps to address the year 2000 issue, and the
Corporation is not aware of any difficulties experienced by its clients
associated with the changeover to the year 2000, there can be no assurance
that difficulties associated with the year 2000 may not arise in the future.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Corporation held its annual meeting of shareholders on January 14, 2000.
At the meeting, Young Soo Ko was re-elected a Class I director of the
Corporation for a three year term to serve until the annual meeting of
shareholders to be held following the fiscal year ending June 30, 2002, or
until his successor is elected and qualified. Of the shares eligible for
voting at the meeting, 4,965,021 shares were voted for Mr. Ko's re-election,
142,800 shares were voted against his re-election or were withheld from
voting and there were no abstentions and broker non-votes. Michael J. Smith
and Oq-Hyun Chin continued their terms as directors of the Corporation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
- ------- -----------
27 Article 5 - Financial Data Schedule for the 3rd 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: May 9, 2000
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 3rd 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> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 8,553
<SECURITIES> 9,597
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,343
<CURRENT-LIABILITIES> 0
<BONDS> 21,515
0
30
<COMMON> 27
<OTHER-SE> 3,565
<TOTAL-LIABILITY-AND-EQUITY> 26,343
<SALES> 0
<TOTAL-REVENUES> 2,606
<CGS> 0
<TOTAL-COSTS> 2,029
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,047
<INCOME-PRETAX> 577
<INCOME-TAX> 1
<INCOME-CONTINUING> 576
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 576
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.13
</TABLE>
