<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999 or
---------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file numbers 0-26072 and 814-00157
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Walnut Financial Services, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Utah 87-0415597
- ------------------------------------------------ --------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8000 Towers Crescent Drive, Suite 1070
Vienna, Virginia 22182
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(Address of Principal Executive Offices) (Zip Code)
(703) 448-3771
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
N/A
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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
--- ---
As of October 29, 1999, the Registrant had 3,350,533 shares of common
stock, $.01 par value per share, issued and outstanding.
<PAGE> 2
WALNUT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Page Number
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<S> <C>
Part I - Financial Information
Item 1. Financial Statements 3
Consolidated Statements of Assets and Liabilities as of September 30, 3
1999 and December 31, 1998
Investments in Securities as of September 30, 1999 4
Consolidated Statements of Operations for the Nine Months and Three 5
Months ended September 30, 1999 and 1998
Consolidated Statements of Changes in Net Assets for the Nine Months 6
ended September 30, 1999 and 1998
Consolidated Statements of Cash Flows for the Nine Months ended September 7
30, 1999 and 1998
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits Required by Item 601 and Reports on 17
Form 8-K
Signatures 18
Exhibits 19
Exhibit 27.1
</TABLE>
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
WALNUT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
------------ ------------
<S> <C> <C>
Assets:
Investments at Market or Fair Value:
Marketable equity securities (cost of $1,211,000 in 1999 and
$1,080,000 in 1998 ) $ 1,485,000 $ 5,132,000
Non-marketable equity securities (cost of $12,827,000 in 1999
and $13,483,000 in 1998) 7,532,000 7,287,000
Non-marketable debt securities (cost of $1,413,000 in 1999
and $1,418,000 in 1998) 723,000 723,000
Partnership Interests (cost of $1,762,000 in 1999 and
$1,762,000 in 1998) 1,760,000 1,894,000
------------ ------------
Total portfolio securities 11,500,000 15,036,000
Cash and cash equivalents 661,000 140,000
Other assets 244,000 146,000
------------ ------------
Total assets 12,405,000 15,322,000
Liabilities:
Margin payable to brokers 0 1,692,000
Notes payable to banks 725,000 1,025,000
Notes payable to related parties 700,000 700,000
Accounts payable, accrued expenses and other current
liabilities 314,000 600,000
Accrued officer's compensation 395,000 300,000
Debentures payable 1,500,000 2,000,000
------------ ------------
Net assets $ 8,771,000 $ 9,005,000
============ ============
Preferred stock, no stated value, 1,000,000 shares authorized, no
shares issued
Common stock, $.01 par value, 50,000,000 shares authorized,
3,350,533 and 3,301,863 issued and outstanding $ 198,000 $ 198,000
Additional paid in capital 19,137,000 19,137,000
Accumulated deficit:
Net investment loss (15,182,000) (14,293,000)
Net realized gain on investment 13,293,000 9,628,000
Net unrealized depreciation of investments (8,675,000) (5,665,000)
------------ ------------
Net assets applicable to outstanding common shares (equivalent to $2.62
and $2.73 per share based on 3,350,533 and 3,301,863 outstanding common
shares at September 30, 1999 and December 31, 1998, respectively) $ 8,771,000 $ 9,005,000
============ ============
</TABLE>
<PAGE> 4
WALNUT FINANCIAL SERVICES, INC.
INVESTMENTS IN SECURITIES
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
Common and Preferred Stocks -
Healthcare - 21%
American Psych Systems, Inc. 122,950 $ 350,000
Greystone Medical Group, Inc. 200,000 40,000
HP America Inc. 66,667 0
I-Flow Corporation 300,000 1,260,000
Ivonyx Group Services, Inc. 100,000 100,000
Mariner Post-Acute Network (formerly Paragon Health) 140,757 56,000
Med Images, Inc. 241,530 454,000
MHM Services, Inc. 131,955 66,000
Rainbow Medical, Inc. 25,000 50,000
Sovereign Medical Acquisition Corp. -Common 4,000 24,000
Sovereign Medical Acquisition Corp. -Units 3,333 20,000
-----------
2,420,000
-----------
High technology - 4%
Logic Devices Incorporated 25,300 68,000
Madison Info. Tech. - Preferred A 60,000 150,000
Madison Info. Tech. - Preferred B 60,000 150,000
Thermo Information Solutions, Inc. 10,000 90,000
J.L. Wickham Co., Inc. -Common 250,696 0
J.L. Wickham Co., Inc. -Preferred 281,788 0
-----------
458,000
-----------
Communications - 9%
International Business Network 70,000 105,000
Trans Global Services, Inc. 73,739 68,000
Vision III Imaging, Inc. 10,835 867,000
-----------
1,040,000
-----------
Biotechnology - 5%
BioHorizons Implant Systems, Inc. 193,934 300,000
Metatech Corp. 14,817 0
Optiva Corporation 30,039 188,000
Osteoimplant Technology, Inc. 80,000 1,000
Vaxgen, Inc. 8,400 119,000
-----------
608,000
-----------
Environmental - 0%
Clean America Corp. 59,375 0
Inorganic Recycling, Inc. 10,000 0
-----------
0
-----------
Finance - 32%
Inland Financial Corp. (wholly-owned subsidiary) 100 1,330,000
Pacific Financial Services, Inc. (wholly-owned subsidiary) 300 2,353,000
-----------
3,683,000
-----------
Other - 7%
Automotive Performance Group 50,000 50,000
Linter's, Inc. 42,784 75,000
Esynch Corp. (formerly SoftKat, Inc.) - Common 36,585 161,000
Esynch Corp. (formerly SoftKat, Inc.) - Preferred 120,000 123,000
VINnet Holdings, Inc. - Common 25,000 125,000
VINnet Holdings, Inc. - Preferred A 180 180,000
VINnet Holdings, Inc. - Preferred B 37,643 94,000
-----------
808,000
-----------
Total common and preferred stocks (cost $14,038,000) 9,017,000
Debt securities - 6%
Inland Financial (wholly-owned subsidiary) 500,000
Pacific Financial (wholly-owned subsidiary) 200,000
TCOM Services, Inc. 0
VINnet Holding, Inc. 23,000
-----------
Total debt securities (cost $1,413,000) 723,000
-----------
Partnership interests - 16%
Universal Partners, L.P. (majority-owned subsidiary) 1,760,000
-----------
Total partnership interests (cost $1,762,000) 1,760,000
-----------
Total - 100% (cost $17,213,000) $11,500,000
===========
</TABLE>
<PAGE> 5
WALNUT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment income:
Interest income 58,000 77,000 14,000 10,000
Dividend income 0 3,000 0 0
----------- ----------- ----------- -----------
Total income 58,000 80,000 14,000 10,000
Expenses:
Interest expense 208,000 415,000 58,000 108,000
General and administrative 739,000 931,000 121,000 263,000
----------- ----------- ----------- -----------
Net investment (loss) before taxes (889,000) (1,266,000) (165,000) (361,000)
Income tax benefit 0 193,000 0 (169,000)
----------- ----------- ----------- -----------
Net investment (loss) (889,000) (1,073,000) (165,000) (530,000)
----------- ----------- ----------- -----------
Realized and unrealized gains on investments:
Realized gain on sale of investments
before income tax 3,665,000 395,000 (357,000) (773,000)
Income tax provision 0 (158,000) 0 309,000
----------- ----------- ----------- -----------
Net realized gain on sale of investments 3,665,000 237,000 (357,000) (464,000)
----------- ----------- ----------- -----------
Unrealized appreciation (depreciation)
on investments before income tax (3,010,000) (4,117,000) 770,000 (2,312,000)
Income tax benefit 0 0 0 (722,000)
----------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation) on investments (3,010,000) (4,117,000) 770,000 (3,034,000)
----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses) on investments 655,000 (3,880,000) 413,000 (3,498,000)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ (234,000) $(4,953,000) $ 248,000 $(4,028,000)
=========== =========== =========== ===========
Gain (Loss) per share - basic and diluted $ (0.07) $ (1.58) $ 0.07 $ (1.28)
----------- ----------- ----------- -----------
Weighted average shares outstanding 3,350,533 3,141,971 3,350,533 3,148,471
=========== =========== =========== ===========
</TABLE>
<PAGE> 6
WALNUT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Decrease in net assets resulting from operations:
Net investment loss $ (889,000) $ (1,073,000)
Net realized gains on investments 3,665,000 237,000
Net unrealized depreciation on investments (3,010,000) (4,117,000)
------------ ------------
(234,000) (4,953,000)
------------ ------------
Increase in net assets resulting from capital share transactions:
Issuance of 39,022 shares of common stock for Pacific Financial
Services, Inc. 0 300,000
Expenditures attributable to issuance of common stock 0 (74,000)
------------ ------------
0 226,000
Total increase (decrease) in net assets (234,000) (4,727,000)
------------ ------------
Net assets at beginning of period 9,005,000 16,674,000
------------ ------------
Net assets at end of period $ 8,771,000 $ 11,947,000
============ ============
</TABLE>
<PAGE> 7
WALNUT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net decrease in net assets resulting from operations $ (234,000) $(4,953,000)
Adjustments to reconcile net increase (decrease) in net assets
resulting from operations to net cash provided by operating
activities:
Net unrealized depreciation of investments 3,010,000 4,117,000
Net realized gain on investments (3,665,000) (395,000)
Change in net deferred tax liability 0 (44,000)
Changes in assets and liabilities:
Other assets (98,000) (151,000)
Other liabilities (191,000) (95,000)
----------- -----------
Net cash used in operating activities (1,178,000) (1,521,000)
----------- -----------
Cash flows from investing activities:
Purchases of common stock, healthcare 0 (362,000)
Purchases of common stock, high tech 0 (300,000)
Purchases of common stock, bio tech 0 (300,000)
Purchases of common stock, communications 0 (125,000)
Purchases of common stock, other 0 (100,000)
Purchase of equity and debt securities, wholly-owned subsidiary (143,000) (2,159,000)
Proceeds from sale of general partnership interest 0 122,000
Proceeds from sale of common stock, healthcare 4,031,000 1,914,000
Proceeds from sale of common stock, biotech 201,000 0
Proceeds from sale of common stock, communications 10,000 0
Proceeds from sale of common stock, high tech 92,000 33,000
Proceeds from sale of common stock, other 0 53,000
Expenditures attributable to issuance of common stock 0 (75,000)
Collections from debt securities 0 200,000
----------- -----------
Net cash provided by investing activities 4,191,000 (1,099,000)
----------- -----------
Cash flows from financing activities:
Borrowings (repayments) of short term debt (300,000) (724,000)
Borrowings from (repayments to) related parties 0 (200,000)
Increase (decrease) in margin accounts (1,692,000) (687,000)
Repayments of long term debt (500,000) (2,000,000)
----------- -----------
Net cash (used in) provided by financing activities (2,492,000) (3,611,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 521,000 (6,231,000)
Cash and cash equivalents, beginning 140,000 6,479,000
----------- -----------
Cash and cash equivalents, end $ 661,000 $ 248,000
=========== ===========
Supplemental Information:
Cash paid for interest $ 268,000 $ 415,000
=========== ===========
Issuance of common stock and warrants for equity in wholly owned
subsidiary $ 0 $ 300,000
=========== ===========
</TABLE>
<PAGE> 8
WALNUT FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION.
The accompanying consolidated financial statements as of September 30,
1999 are unaudited; however, in the opinion of the management of Walnut
Financial Services, Inc., a Utah corporation (the "Company"), such statements
include all adjustments (consisting of normal recurring accruals) necessary to
present a fair statement of the information presented therein. The balance sheet
at December 31, 1998 was derived from the audited financial statements at such
date.
Pursuant to accounting requirements of the Securities and Exchange
Commission ("SEC") applicable to quarterly reports on Form 10-Q, the
accompanying financial statements and these notes do not include all disclosures
required by generally accepted accounting principles for audited financial
statements. Accordingly, these statements should be read in conjunction with the
Company's most recent audited financial statements included in its Form 10-K for
the fiscal year ended December 31, 1998.
Results of operations for interim periods are not necessarily
indicative of those to be achieved for fiscal years.
The Company has determined it is required to present its financial
statements in accordance with generally accepted accounting principles and SEC
regulations in the format applicable to investment companies, which generally
means that investments are reported at fair market value rather than cost,
including wholly-owed subsidiaries.
2. ORGANIZATION.
The Company is a closed-end management investment company, which
elected on October 15, 1997 to be regulated as a Business Development Company
("BDC") under the Investment Company Act of 1940 (as amended, the "Investment
Company Act"). As such, the Company, among other requirements, is required to
invest at least 70% of its total assets in certain prescribed "Eligible Assets,"
which generally include securities of privately-held companies and cash items,
government securities and high-quality short-term debt. As of September 30,
1999, the Company had three primary business focuses: (i) investing in start-up
and early stage development companies; (ii) operating an investment vehicle that
specializes in bridge financing to small- to medium-sized companies; and (iii)
providing accounts receivable factoring services to small- and medium-sized
businesses. The Company engages in its investment business through its
wholly-owned subsidiary, Walnut Capital Corp., a Delaware corporation ("Walnut
Capital"), which was formed in 1980 for the purpose of operating as a Small
Business Investment Company (an "SBIC") under the Small Business Investment Act
of 1958 (as amended, the "SBIA") and is subject to regulations promulgated by
the Small Business Administration (the "SBA") pursuant to the provisions of the
SBIA. In the past, the Company also made investments through its wholly-owned
subsidiary, Walnut Funds, Inc., a Delaware corporation ("Walnut Funds"), which
has an ownership interest in and indirectly provides investment management
services to Walnut Growth Partners Limited Partnership, an Illinois limited
partnership ("Walnut Growth"), a $30 million investment fund. Walnut Growth did
not make any investments in 1998, has not made any investments in 1999, and the
Company does not expect Walnut Growth to make any future investments. The
Company pursues its bridge financings through its wholly-owned subsidiary,
Universal Bridge Fund, Inc., a Delaware corporation ("Universal Bridge").
Universal Bridge owns 50% of the outstanding general partnership interests and
approximately 83% of the limited partnership interests of Universal Partners,
L.P., an Illinois limited partnership ("UPLP"), which was established in 1994.
The Company
<PAGE> 9
engages in its accounts receivable factoring service business through its two
wholly-owned subsidiaries; Pacific Financial Services Corp., a Washington
corporation ("Pacific Financial"), which was acquired in January 1998, and
Inland Financial Corp., a Washington corporation ("Inland Financial") which was
acquired in October 1998. The Company engaged in the human resources and quality
assurance consulting business through its wholly-owned subsidiary, Walnut
Consulting, Inc., a Delaware corporation ("Walnut Consulting"), during 1997 and
1998. The operations of Walnut Consulting were not significant to the revenues
of the Company. As a result of the technical nature of the Investment Company
Act, the Company's wholly-owned subsidiaries, Walnut Capital, Walnut Funds and
Universal Bridge, also have each elected to be regulated as a BDC. On September
28, 1997, the Company sold all of the outstanding stock of its wholly-owned
subsidiary, NFS Services, Inc., a Delaware corporation ("NFS"), which performed
consulting and asset recovery services.
On October 27, 1997, the Company initiated a private placement to
accredited investors (the "1997 Private Placement") of a minimum of 50, and a
maximum of 80, units (the "Units") at $50,000 per Unit. Each Unit consisted of
8,333 shares of Common Stock and 5,833 Class A Redeemable Common Stock purchase
warrants (a "Class A Warrant" and collectively, the "Class A Warrants").
Pursuant to the 1997 Private Placement, the Company issued 666,667 shares of
Common Stock and 466,667 Class A Warrants for gross proceeds of $4,000,000. The
Company used a portion of the proceeds of the 1997 Private Placement to acquire
all of the issued and outstanding capital stock of Pacific Financial Services
Corporation. Also on December 18, 1997, the Company consummated the sale of an
additional 166,667 Class A Warrants to certain investors for $100,000.
On January 28, 1998, the Company acquired all the outstanding common
stock of Pacific Financial for $3,000,000 consisting of $1,500,000 in cash,
39,022 shares of the Company's common stock valued at $300,000, $300,000 in
short term notes and $900,000 in notes payable January 2, 2002. The $300,000
short-term notes were paid at the Pacific closing in accordance with the terms
of the acquisition agreement. The remaining notes are guaranteed by the Company
and bear interest at 8%. Pacific is in the business of accounts receivable
factoring in the Northwest United States.
On October 19, 1998, the Company acquired Inland Financial through the
merger of a newly formed, wholly owned subsidiary of the Company with and into
Inland Financial with Inland Financial continuing after such merger as the
surviving corporation. Upon consummation of the merger, the Company received all
the outstanding shares of capital stock of the surviving corporation and the
former shareholders of Inland Financial received in the aggregate $650,000 in
cash, 153,393 shares of the Company's common stock valued at $650,000, and
$150,000 in short term notes. The short-term notes are guaranteed by the Company
and bear interest at 8% per annum. Such shareholders are eligible to receive
additional payments of cash, notes and stock of the Company valued at up to
$950,000, based on the net income performance of Inland through April 2000.
Inland is in the business of accounts receivable factoring in the Northwest
United States.
On January 22, 1999, the Company effected a one-for-six reverse stock
split (the "Reverse Stock Split") of its Common Stock, pursuant to shareholder
approval granted at the annual meeting of the shareholders of the Company held
on January 20, 1999. Fractional shares held by any holder of Common Stock after
aggregating all of such holder's shares were rounded up to the nearest whole
share. Immediately following the effectiveness of the Reverse Stock Split, after
giving effect to the rounding up of fractional shares, there were 3,350,533
issued and outstanding shares of Common Stock. All share amounts, price and
other material terms described herein for the Common Stock and options and
warrants exercisable therefor give effect to the Reverse Stock Split regardless
of the date with respect to which such share amounts, price or other terms are
being described.
<PAGE> 10
The Company has entered into an Amended and Restated Agreement and Plan
of Merger dated as of August 5, 1999 (the "Merger Agreement"), with Tower Hill
Securities, Inc., a New York corporation ("Tower Hill"), and Tower Hill
Acquisition Corp., a New York corporation and a wholly owned subsidiary of the
Company ("Acquisition Corp."), pursuant to which Acquisition Corp. will merge
with and into Tower Hill, with Tower Hill continuing as the surviving
corporation and a wholly-owned subsidiary of the Company (the "Merger"). In
addition, the Merger Agreement provides for: (i) the private placement of up to
3,432,500 shares of the Company's common stock, $.01 par value per share, at a
price of $2.00 per share; (ii) the issuance of warrants to purchase up to
1,000,000 shares of the Company's common stock, $.01 par value per share, at an
exercise price of at least $3.00 per share and (iii) the issuance of warrants to
purchase up to 1,000,000 shares of the Company's common stock, $.01 par value
per share, at an exercise price of at least $4.00 per share (collectively, the
"Capital Investment").
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
PRINCIPLES OF CONSOLIDATION. The financial statements of the Company
include the accounts of the Company, Walnut Funds, Walnut Consulting and
Universal Bridge. Investments in Pacific Financial and Inland Financial are
recorded at costs which approximate fair market value. Intercompany transactions
and balances have been eliminated in consolidation.
NET INCOME (LOSS) PER SHARE. Net income (loss) per share is computed
based on the weighted-average number of shares outstanding for each period.
Common stock equivalents have been considered where they are not anti-dilutive.
All share and per share amounts have been retroactively adjusted to account for
the Reverse Stock Split.
4. RELATED PARTY TRANSACTIONS.
The Company and its subsidiaries retain a law firm at which a Company
officer is of counsel. Payments of $142,000 were paid to such firm by the
Company and Walnut Capital during the nine months ended September 30, 1999 for
reimbursement of expenses and legal services incurred. Such expenses and fees
were incurred in connection with normal business activities and costs associated
with the Annual Meeting Proxy Statement and the Reverse Stock Split.
In April 1997, the Company received an unsecured loan from a related
party in the amount of $400,000. Such loan bears interest at 9.5% per annum. The
loan was to be repaid in four quarterly installments commencing March 31, 1998.
The first and second installments were paid on April 1, 1998 and July 1998,
respectively. The third and forth payments which were due on October 1, 1998 and
January 1, 1999, respectively, have been deferred, and the Company is allowed to
defer further principal payments provided that quarterly interest is paid on the
outstanding balance.
In connection with the transaction through which the Company acquired
Inland Financial, Inland Financial borrowed $293,000 from two related parties.
The Company issued to each entity a promissory note, which originally matured on
October 19, 1999 but for which the maturity date has been extended to November
1, 1999. The promissory notes bear interest at a rate of 16% per year payable
quarterly.
5. RECENT DEVELOPMENTS.
The Company has called a special meeting (the "Special Meeting") of its
stockholders at 8 a.m. Eastern Time on November 1, 1999 and solicited the
proxies of its stockholders to vote at the Special Meeting. At the Special
Meeting, the stockholders of the Company will be asked to consider and vote upon
the issuance of shares of the common stock, $.01 par value per share, of the
Company in connection with the Merger, the Capital Investment and related
matters. If the foregoing actions are approved at the Special Meeting, then the
Company expects to consummate such transactions as promptly as possible
thereafter. If the Merger is consummated, it is expected to be accounted for as
a reverse acquisition.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As previously indicated, the Company reports the results of its
operations as an investment company rather than as an operating company. Because
of such reporting, the Company's consolidated financial statements include the
operating results only of the Company, Walnut Capital and Universal Bridge. For
all subsidiaries other than Walnut Capital and Universal Bridge, the Company
reports only the fair value of its investments therein as of the date of such
information. The only operating activity of Universal Bridge is recording the
change in fair value of its investment in UPLP.
The Company separately discusses and analyzes the results of operations
and the liquidity and capital resources of the Company (excluding Walnut
Capital) and Walnut Capital. The Company is required by regulations promulgated
by the SBA to separately present such information for Walnut Capital in its
Annual Reports on Form 10-K and is utilizing the same reporting format in this
Quarterly Report on Form 10-Q. The results of operations of the Company
(excluding Walnut Capital) and Walnut Capital for a particular period in the
aggregate represent the consolidated results of operations of the Company for
such period before adjustments to reflect intercompany transfers and other
adjustments all made in accordance with generally accepted accounting
principles.
Certain statements contained in this Quarterly Report on Form 10-Q
which are not historical facts are forward-looking statements that are subject
to risks and uncertainties that could cause actual results to differ materially
from those set forth in or implied by such forward-looking statements. These
risks and uncertainties include the Company's entry into new commercial
businesses, the risk of obtaining financing, and other risks described in the
Company's filings with the SEC.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998.
Results of Walnut Capital's Operations for the Nine Months Ended
September 30, 1999 and 1998. Walnut Capital had realized gain income of
$3,665,000 for the nine months ended September 30, 1999, compared to $352,000
for the nine months ended September 30, 1998. The realized gains for the nine
months ended September 30, 1999 resulted predominately from the sale of shares
of First Health Group, Inc. (formerly HealthCare COMPARE Corp.) and Multimedia
Games, Inc.
Interest expense for the nine months ended September 30, 1999 was
$150,000 as compared to $286,000 for the same period in 1998. The decrease of
$136,000 or 48% in interest expense is attributable to a repayment of $2,000,000
of debentures to the SBA (the "Walnut Debentures") on June 1, 1998, and a
reduction in margin payable to brokers. An additional $500,000 of Walnut
Debentures was repaid on September 24, 1999. This payment did not significantly
decrease Walnut Capital's interest expense for the nine months ended September
30, 1999. General and administrative expenses for the nine months ended
September 30, 1999 was $424,000 as compared to $495,000 for the nine months
ended September 30, 1998.
Unrealized depreciation on investments before income tax for the nine
months ended September 30, 1999 was $2,875,000 as compared to $3,553,000 for the
same period in 1998. The unrealized depreciation on investments before income
tax for the nine months ended September 30, 1999 is primarily the result of the
recognition of amounts previously recorded as unrealized gains on investments
before income tax attributable to First Health Group, Inc. securities.
Results of the Operations of the Company (excluding Walnut Capital) for
the Nine Months Ended September 30, 1999 and 1998. The Company had general and
administrative costs of $315,000 for the nine months ended September 30, 1999 as
compared to $360,000 for the nine months ended September 30, 1998. For the nine
months ended September 30, 1999, the unrealized depreciation attributable to the
<PAGE> 12
Company's wholly-owned subsidiary, Universal Bridge, and its majority owned
subsidiary, UPLP, was $134,000.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998.
Results of Walnut Capital's Operations for the Three Months Ended
September 30, 1999 and 1998. Walnut Capital had a realized loss of $357,000 for
the three months ended September 30, 1999, compared to a loss of $773,000 for
the three months ended September 30, 1998. The realized losses for the three
months ended September 30, 1999 due predominately from the sale of shares of
Logic Devices Incorporated and Trans Global Services, Inc.
Interest expense for the three months ended September 30, 1999 was
$49,000 as compared to $77,000 for the same period in 1998. The decrease of
$28,000 or 36% in interest expense is attributable to a repayment of $2,000,000
of the Walnut Debentures on September 1, 1998, and a reduction in margin payable
to brokers. The additional $500,000 of Walnut Debentures repaid on September 24,
1999 did not have a significant effect on Walnut Capital's interest expense for
the three months ended September 30, 1999. General and administrative expenses
for the three months ended September 30, 1999 was $88,000 as compared to
$170,000 for the three months ended September 30, 1998.
Unrealized appreciation on investments before income tax for the three
months ended September 30, 1999 was $839,000 as compared to $2,111,000
unrealized depreciation on investments for the same period in 1998. The
appreciation in 1999 was the result of reversing previously recorded unrealized
losses when the losses were realized with the sale of Logic Devices Incorporated
and Trans Global Services shares. The depreciation in 1998 was primarily due to
a decrease in the valuation of First Health Choice Securities.
Results of the Operations of the Company (excluding Walnut Capital) for
the Three Months Ended September 30, 1999 and 1998. The Company had interest
income of $19,000 and general and administrative costs of $211,000 for the three
months ended September 30, 1999 as compared to $16,000 and $257,000,
respectively, for the three months ended September 30, 1998. The $46,000
decrease in general and administrative costs is due to a decrease in legal fees.
For the three months ended September 30, 1999, the unrealized depreciation
attributable to the Company's wholly-owned subsidiary, Universal Bridge and its
majority owned subsidiary, UPLP, was $69,000, compared to $82,000 for the same
period in 1998.
LIQUIDITY AND CAPITAL RESOURCES.
Liquidity and Capital Resources of Walnut Capital. As part of the SBIC
program, Walnut Capital has, from time to time, issued $12 million of Walnut
Debentures, of which Walnut Debentures in the principal amount of $8 million
were repaid prior to 1998. Additional Walnut Debentures in the principal amount
of $2 million was repaid on June 1, 1998. Walnut Debentures in the principal
amount of $1.5 million were outstanding as of September 30, 1999. Such Walnut
Debentures were originally issued in September 1989, bore interest at a rate of
8.80% per annum, payable semi-annually, and due on September 1, 1999. Pursuant
to the terms of an agreement that Walnut Capital executed with the SBA in
September 1999, Walnut Capital paid only $500,000 of the amount due by the
original maturity date and the maturity of the remainder of the Walnut
Debentures was extended to December 1, 1999, subject to the SBA's right to
demand earlier repayment. These Walnut Debentures will bear interest at a rate
of 6.75% per annum rather than 8.80% per annum.
The Walnut Debentures prohibit the distribution of earnings or other
assets of Walnut Capital to the Company, except for distributions made out of
undistributed realized earnings computed in
<PAGE> 13
accordance with SBA regulations. For so long as any indebtedness under the
Walnut Debentures remains outstanding, Walnut Capital is prohibited from
repurchasing or converting any of its equity (but not debt) securities or paying
dividends (including dividends to the Company) without the consent of the SBA.
In addition, Walnut Capital is prohibited from incurring any secured
indebtedness, except for the $5,765,000 of secured indebtedness that was
outstanding at April 8, 1994. There are no limitations on the amount of
unsecured indebtedness Walnut Capital can incur.
Additionally, Walnut Capital reduced its broker margin account by $1.7
million and increased its cash and cash equivalents by $1.4 million in the first
quarter of 1999. The source of funds were primarily from the sale of First
Health Group, Inc. (formerly HealthCare COMPARE Corp.) securities, creating a
realized capital gain of approximately $4 million in the first quarter of 1999.
Walnut Capital has cash and a broker margin account available to repay the $2
million of Walnut Debentures due September 1, 1999.
In 1998, the SBA issued a finding that Walnut Capital had violated
Section 107.700, by purchasing securities from a big business as defined in the
SBA regulations. The Company believes the SBA is in error in its interpretation
of this finding, by including shares held by employees of the seller as being
affiliated with such seller. The SBA has also informed Walnut Capital that it is
in violation of section 107.503(c) and 107.650 and valuation guidelines for
SBICs. The Company disagrees with the SBA's interpretation of the requirements
and the matter is being discussed with the SBA. The SBA also found Walnut
Capital in violation of Section 107.825(e), purchase of securities from
non-issuers. The Company believes this finding to be inconsistent with actions
taken by the SBA in the past, and has entered into discussions with the SBA to
clarify the issue. The SBA, if it finally determines that Walnut Capital did
violate any of the foregoing regulations, may declare a default under the
outstanding $1,500,000 of Walnut Debentures. Further, Walnut Capital has not
filed its Form 468 for the year ended December 31, 1998. This report was due on
March 31, 1999. Management believes that none of these findings will have
material effect on Walnut Capital, or the Company as a whole, and believes that
if the maturity of the Walnut Debentures is accelerated, it will have sufficient
funds available from existing sources of liquidity to satisfy its repayment
obligations.
In April 1997, Walnut Capital received an unsecured loan from The
Holding Company ("THC"), a company for which Burton W. Kanter, a director of the
Company, serves as President, in the amount of $400,000. The loan bears interest
at 9.5%. The loan was to be repaid in four installments each following the end
of each of the fiscal quarters of the Company in 1998 with the first installment
to be paid on April 1, 1998. The first and second installments were paid on
April 1, 1998 and July 1998, respectively. The third and fourth payment which
were due on October 1, 1998 and January 1, 1999 have been deferred and the
Company is allowed to delay further principal payments provided that quarterly
interest is paid on the outstanding balance. The Company has been current in all
of its interest payment to THC, and this loan had a principal balance of
$200,000 as of September 30, 1999.
Liquidity and Capital Resources of the Company (excluding Walnut
Capital). On August 31, 1995, the Company established a $4 million line of
credit with American National Bank and Trust Company of Chicago ("ANB"). This
line was replaced as of September 8, 1996 with a term loan of $2,850,000. A
principal payment of $575,000 was made on March 31, 1997 and the balance was due
on July 31, 1997. This loan was renewed and amended to provide quarterly
principal payments of $250,000 commencing on December 31, 1997 with a maturity
date of June 30, 1999. On December 31, 1998, this bank loan was further amended
to require an immediate principal payment of $100,000 and quarterly principal
payments thereafter and it has an amended maturity date of December 31, 1999.
Following the principal payment required on such date, the loan had a principal
balance of $725,000 on September 30, 1999. The interest rate associated with
this loan is ANB's base rate plus 2% (10.5% as of September 30, 1999). Two
Directors of the Company personally guarantee the loan.
<PAGE> 14
In connection with the transaction through which the Company acquired
Inland Financial, Inland Financial borrowed $250,000 from the Kanter Family
Foundation, an entity affiliated with the Company, and $43,000 from Windy City,
Inc., an entity affiliated with the Company, in October 1998. The Company issued
to each entity a promissory note, which originally matured on October 19, 1999,
but for which the maturity date has been extended to November 1, 1999. The
promissory notes bear interest at a rate of 16% per year, which is payable
quarterly. These loans are unsecured.
The Company guarantees the indebtedness of each of Pacific Financial
and Inland Financial under their respective revolving lines of credit. Subject
to certain conditions, Inland Financial is permitted to borrow up to $2,500,000
under its credit facility and Pacific Financial is permitted to borrow up to
$1,000,000 under its credit facility. The Company's guarantee of each facility
is a guarantee of payment and not a guarantee of collection.
The Company has paid no cash dividends since its inception and it is
unlikely that any cash dividend will be paid in the future. The declaration in
the future of any cash or stock dividends will be at the discretion of the
Company's Board of Directors depending upon the earnings, capital requirements
and financial position of the Company, general economic conditions and other
pertinent factors. Unless otherwise approved by the SBA, Walnut Capital is
prohibited from making any dividend or other cash advance to the Company. Inland
Financial is prohibited from making any dividends to the Company without the
consent of Inland Financial's lender under the terms of a revolving credit
facility. Pacific Financial is prohibited from making any dividends to the
Company without the consent of Pacific Financial's lender under the terms of a
revolving credit facility.
INVESTMENT PORTFOLIO CHANGES.
The sale of certain portfolio investments resulted in unrealized
depreciation and realized gains during the nine months ended September 30, 1999
as follows:
Unrealized Appreciation
(Depreciation) Realized Gain (Loss)
----------------------- --------------------
First Health Group
(formerly HealthCare
COMPARE Corp.) $(4,069,000) $4,020,000
Trans Global Services, Inc. (358,000)
Logic Devices Incorporated (171,000)
Optiva Corporation 116,000
Multimedia Games, Inc. 2,000 3,000
Vaxgen, Inc. 55,000
<PAGE> 15
The Company's equity investments that appreciated/(depreciated) in value during
the nine months ended September 30, 1999 were as follows:
<TABLE>
<CAPTION>
Unrealized Appreciation (Depreciation)
--------------------------------------
<S> <C>
I-Flow Corporation $898,000
American Psych Systems, Inc. 200,000
Mariner Post-Acute Network
(formerly Paragon Health) (615,000)
Automotive Performance Group (50,000)
Optiva Corporation 133,000
Logic Devices Incorporated 233,000
Esynch Corp. (formerly SoftKat, Inc.) 121,000
Trans Global Services, Inc. 299,000
HP America Inc. (67,000)
Vaxgen, Inc. 57,000
Others (18,000)
</TABLE>
There were unrealized losses of ($134,000) recorded in connection with
Universal Bridge's partnership interest in UPLP.
YEAR 2000 COMPLIANCE.
The year 2000 creates the potential for date related data to cause
computer processing errors or system shut-downs because computer-controlled
systems have historically used two digits rather than four to define years.
Computer programs that contain time data sensitive software may recognize a date
using two digits of "00" as the year 1900 rather than the year 2000. The
miscalculations and systems failures that may be caused by such date
misrecognition could disrupt the operations of the Company or its portfolio
companies. Since this risk relates to computer-controlled systems, the year 2000
issue affects computer software, computer hardware, and any other equipment with
imbedded technology that involves date sensitive functions.
The Company has assessed the scope of its year 2000 problems and
remediated such problems for each of its internal computer software programs and
its computer hardware. The Company spent no amounts to modify or replace its
internal computer software program and its computer hardware, including to
upgrade software and to modify maintenance agreements in the quarter ended
September 30, 1999. Through September 30, 1999, it has spent $15,000 in
aggregate for such upgrades and modifications. The Company does not believe that
it has machinery with embedded computer technology or that it relies upon any
supplier that is material to its business. Since it believes its assessment and
remediation efforts have been completed, the Company has not developed any
contingency plans in the event it or any of its subsidiaries experiences year
2000 problems and it does not expect to expend any material amounts on such
remediation in the future. However, if the Company has failed to properly assess
any of the year 2000 problems or failed to fully remedy any identified year 2000
problems of its computer hardware or computer software programs, the Company may
be forced to spend more on such remediation in the future and the Company's
operations may be adversely affected.
Since the Company does not control its portfolio companies (other than
wholly-owned subsidiaries which are accounted for as portfolio companies because
the Company reports its financial results as an investment company), it has not
attempted to dictate assessment, remediation or contingency planning for such
companies, though Company representatives on the boards of directors of
portfolio companies have participated in such boards' oversight of those
companies' year 2000 efforts.
<PAGE> 16
Each portfolio company's year 2000 efforts are necessarily directed by such
companies' management and boards of directors. Furthermore, the Company has
invested in many private companies which are not obligated to inform the Company
about their year 2000 efforts. If any portfolio company fails to timely assess
or remediate its year 2000 problems, the value of the Company's investment in
such portfolio company may be adversely impacted. The aggregate value of
Company's portfolio could be materially adversely impacted if a number of
portfolio companies experience year 2000 problems or significant costs to avoid
or remediate such problems. The Company does not expect to know the impact of
the year 2000 problem on the aggregate value of its portfolio until after
January 1, 2000. None of the Company's computer systems are interrelated with
those of any of its portfolio companies.
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently involved as plaintiff or defendant in any
material legal actions.
ITEM 5. OTHER INFORMATION
The Company has entered into the Merger Agreement with Tower Hill and
Acquisition Corp., a wholly owned subsidiary of the Company, pursuant to which
the Merger will be consummated in which Acquisition Corp. will merge with and
into Tower Hill, with Tower Hill continuing as the surviving corporation and a
wholly-owned subsidiary of the Company. In addition, the Merger Agreement
provides for the Capital Investment, which is comprised of: (i) the private
placement of up to 3,432,500 shares of the Company's common stock, $.01 par
value per share, at a price of $2.00 per share; (ii) the issuance of warrants to
purchase up to 1,000,000 shares of the Company's common stock, $.01 par value
per share, at an exercise price of at least $3.00 per share and (iii) the
issuance of warrants to purchase up to 1,000,000 shares of the Company's common
stock, $.01 par value per share, at an exercise price of at least $4.00 per
share.
The Company has called a Special Meeting of its stockholders at 8 a.m.
Eastern Time on November 1, 1999 and solicited the proxies of its stockholders
to vote at the Special Meeting. At the Special Meeting, the stockholders of the
Company will be asked to consider and vote upon the issuance of shares of the
common stock, $.01 par value per share, of the Company in connection with the
Merger, the Capital Investment and related matters. If the foregoing actions are
approved at the Special Meeting, then the Company expects to consummate such
transactions as promptly as possible thereafter. The Company expects to use a
portion of the Capital Investment to reduce the Company's outstanding
indebtedness. Upon the consummation of the Merger, the board of directors of the
Company will be expanded to nine members, three of which will be current
directors of the Company. The remainder of the Company's current directors will
resign and those vacancies will be filled by individuals not currently
affiliated with the Company.
Under the rules of the Nasdaq Stock Market, the Merger is deemed to be
both a change of control and a change of business of the Company, which requires
the Company reapply to list its common stock in order to maintain the listing of
the common stock on The Nasdaq National Market. However, the Nasdaq staff
believes that the Company does not currently meet The Nasdaq National Market
initial listing criteria. Therefore, the Company's common stock is subject to
being delisted from The Nasdaq National Market upon the consummation of the
Merger. The Company has appealed the decision of the Nasdaq staff not to
maintain the listing of the common stock to a Nasdaq Listing Qualifications
Panel in accordance with Nasdaq rules. The Company's common stock will remain
listed on The Nasdaq National Market, without restriction, during the pendency
of the appeal.
Since there can be no assurance that the Company's appeal will be
successful, the Company has also filed an application to have its common stock
listed on the Nasdaq SmallCap Market. The Company currently does not meet the
minimum bid price requirement for initial listing on The Nasdaq SmallCap
Market, but the Company hopes to receive an exception for this deficiency from
the Nasdaq staff.
There can be no assurance that the Company will either maintain its
listing on the Nasdaq National Market or successfully list its common stock on
The Nasdaq SmallCap Market.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.1 - Financial Data Schedule
(b) The Company filed a Current Report on Form 8-K dated August 5,
1999
<PAGE> 18
SIGNATURES
In accordance with 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.
WALNUT FINANCIAL SERVICES, INC.
(Registrant)
Date: October 29, 1999 /s/ Joel S. Kanter
------------------------------------------
Joel S. Kanter
President (Principal Executive Officer)
Date: October 29, 1999 /s/ Robert F. Mauer
------------------------------------------
Robert F. Mauer
Treasurer (Principal Financial and
Accounting Officer)
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<S> <C>
2.1 Amended and Restated Agreement and Plan of Merger dated as of August 5,
1999 by and among Walnut Financial Services, Inc., Tower Hill
Acquisition Corp. and Tower Hill Securities, Inc. (1)
3.1 Articles of Incorporation of Walnut Financial Services, Inc., as
amended. [3.1](2)
3.2 Bylaws of Walnut Financial Services, Inc. [3.2](3)
10.1 The Walnut Capital Corporation 1987 Stock Option Plan. [10.6](3)
10.2 The NFS Services, Inc. 1989 Incentive Stock Option Plan. [10.7](3)
10.3 The NFS Services, Inc. (Utah) 1994 Incentive Stock Option Plan, as
amended. [10.8](4)
10.4 Agency Agreement dated October 10, 1997 between Walnut Financial
Services, Inc. and Walsh Manning Securities, LLC. [10.9](5)
10.5 Stock Purchase Agreement dated January 2, 1997 between Jeffrey B.
Pyatt, Paul J. Zeman, Thomas Maurice, Walnut Financial Services, Inc.
and Pacific Financial Services Corp. [10.10](4)
27.1 Financial Data Schedule.
99.1 Class A Warrant Agreement dated October 15, 1997 between Walnut
Financial Services, Inc. and Corporate Stock Transfer, Inc. [99.1](5)
99.2 Registration Rights Agreement dated December 18, 1997 between Walnut
Financial Services, Inc., various purchasers of stock and warrants and
Walsh Manning Securities, LLC. [99.2](5)
</TABLE>
- -------------------
[ ] Exhibits so marked have been previously filed with the SEC as exhibits
to the filings shown below under the exhibit numbers indicated
following the respective document description and are incorporated
herein by reference.
(1) Previously filed as Exhibit A to the Registrant's Definitive Proxy
Statement on Schedule 14A dated September 30, 1999 and filed with the
SEC September 30, 1999.
(2) Previously filed as an Exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.
(3) Previously filed as an Exhibit to the initial filing of the
Registrant's Registration Statement on Form 10 dated May 10, 1995 as
filed with the SEC on May 11, 1995.
(4) Previously filed as Exhibit B to the 1997 Proxy Statement of Walnut
Financial Services, Inc. filed with the SEC on October 30, 1997.
(5) Previously filed as an Exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 17,213,000
<INVESTMENTS-AT-VALUE> 11,500,000
<RECEIVABLES> 0
<ASSETS-OTHER> 905,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,405,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,634,000
<TOTAL-LIABILITIES> 3,634,000
<SENIOR-EQUITY> 198,000
<PAID-IN-CAPITAL-COMMON> 19,137,000
<SHARES-COMMON-STOCK> 3,351,000
<SHARES-COMMON-PRIOR> 3,302,000
<ACCUMULATED-NII-CURRENT> (15,182,000)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,293,000
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,675,000)
<NET-ASSETS> 8,771,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 58,000
<OTHER-INCOME> 0
<EXPENSES-NET> 739,000
<NET-INVESTMENT-INCOME> (889,000)
<REALIZED-GAINS-CURRENT> 3,665,000
<APPREC-INCREASE-CURRENT> (3,010,000)
<NET-CHANGE-FROM-OPS> (234,000)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> (14,293,000)
<ACCUMULATED-GAINS-PRIOR> 9,628,000
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 208,000
<GROSS-EXPENSE> 947,000
<AVERAGE-NET-ASSETS> 8,888,000
<PER-SHARE-NAV-BEGIN> 2.73
<PER-SHARE-NII> (0.07)
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 2.62
<EXPENSE-RATIO> 0
</TABLE>
