10-Q 1 doc1.txt 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, 2002 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) WASHINGTON 95-4426690 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 17 DAME STREET, DUBLIN 2 IRELAND (Address of principal executive offices) (3531) 679-1688 (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 May14, 2002 ----- -------------------------- Common Stock, $0.01 2,718,600 par value 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, 2002 (UNAUDITED) DRUMMOND FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS)
MARCH 31, 2002 JUNE 30, 2001 -------------- ------------- ASSETS Cash and cash equivalents $ 2,756 $ 5,714 Receivables 7,681 7,883 Investments 7,491 9,190 Deferred debt issuance costs, net 450 749 -------------- ------------- $ 18,378 $ 23,536 ============== ============= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Accounts payable and accrued liabilities $ 238 $ 216 Interest payable 184 537 Accrued dividends payable 74 149 Debt 14,949 21,515 -------------- ------------- 15,445 22,417 -------------- ------------- SHAREHOLDERS' EQUITY Capital stock Preferred stock 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 2,718,600 shares issued and outstanding 27 27 Additional paid-in capital 14,727 14,727 -------------- ------------- 14,754 14,754 Accumulated other comprehensive loss (325) (391) Deficit (17,496) (19,244) -------------- ------------- (17,821) (4,881) -------------- ------------- 2,933 1,119 -------------- ------------- $ 18,378 $ 23,536 ============== =============
The accompanying notes are an integral part of these financial statements. DRUMMOND FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE NINE FOR THE NINE MONTHS ENDED MONTHS ENDED MARCH 31, 2002 MARCH 31, 2001 -------------- -------------- Revenue Interest $ 473 $ 695 Gain (loss) on securities 1,098 (205) Dividend and other 249 294 -------------- -------------- 1,820 784 -------------- -------------- Costs and expenses Interest 744 909 General and administrative 715 751 -------------- -------------- 1,459 1,660 -------------- -------------- Income (loss) before income tax expense 361 (876) Income tax expense - 1 -------------- -------------- Income (loss) before extraordinary item 361 (877) Extraordinary item, gain on debt extinguishment 1,612 - -------------- -------------- Net Income (loss) 1,973 (877) Accumulated deficit, beginning of period (19,244) (17,675) Dividends paid and payable (225) (225) -------------- -------------- Accumulated deficit, end of period $ (17,496) $ (18,777) ============== ============== Earnings (loss) per share Before extraordinary item $ 0.05 $ (0.41) Extraordinary item 0.59 - -------------- --------------- $ 0.64 $ (0.41) ============== ============== Weighted average number of shares outstanding 2,718,600 2,718,600 ============== ==============
The accompanying notes are an integral part of these financial statements. DRUMMOND FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE FOR THE THREE MONTHS ENDED MONTHS ENDED MARCH 31, 2002 MARCH 31, 2001 -------------- -------------- Revenue Interest $ 135 $ 220 Gain (loss) on securities 237 (6) Dividend and other 74 74 -------------- -------------- 446 288 -------------- -------------- Costs and expenses Interest 122 303 General and administrative 268 286 -------------- -------------- 390 589 -------------- -------------- Net income (loss) 56 (301) Accumulated deficit, beginning of period (17,478) (18,402) Dividends payable (74) (74) -------------- --------------- Accumulated deficit, end of period $ (17,496) $ (18,777) ============== =============== Loss per share $ (0.01) $ (0.14) ============== =============== Weighted average number of shares outstanding. 2,718,600 2,718,600 ============== ===============
The accompanying notes are an integral part of these financial statements. DRUMMOND FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
FOR THE NINE FOR THE NINE MONTHS ENDED MONTHS ENDED MARCH 31, 2002 MARCH 31, 2001 -------------- -------------- Operating activities: Income (loss) before extraordinary item $ 361 $ (877) Adjustments to reconcile income (loss) before extraordinary item to net cash from operating activities (Gain) loss on securities (1,098) 205 Amortization of deferred debt issuance costs 81 100 Changes in non-cash working capital balances Other receivables (19) 23 Interest receivable 932 (256) Due from/to affiliates - 112 Interest payable (354) (938) Accounts payable and accrued liabilities (2) (2) -------------- -------------- (99) (1,633) Purchase of trading securities (1,122) - Proceeds from sales of trading securities 2,876 972 -------------- -------------- Net cash provided by (used in) operating activities 1,655 (661) -------------- -------------- Investing activities: Purchase of long-term investments (425) - Decrease (increase) in loans and notes receivable, net 847 (2,428) -------------- -------------- Net cash provided by (used in) investing activities 422 (2,428) -------------- -------------- Financing activities: Repayment of debt (4,735) - Dividend on preferred shares (300) (300) -------------- -------------- Net cash used in financing activities (5,035) (300) -------------- -------------- Net change in cash and cash equivalents (2,958) (3,389) Cash and cash equivalents, beginning of period 5,714 6,238 -------------- -------------- Cash and cash equivalents, end of period $ 2,756 $ 2,849 ============== ============== Cash paid during the period for: Interest expense $ 1,016 $ 1,887 Income taxes $ - $ 1
The accompanying notes are an integral part of these financial statements. DRUMMOND FINANCIAL CORPORATION STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (DOLLARS IN THOUSANDS)
FOR THE NINE FOR THE NINE MONTHS ENDED MONTHS ENDED MARCH 31, 2002 MARCH 31, 2001 -------------- -------------- Net income (loss) $ 1,973 $ (877) Other comprehensive gain (loss): Unrealized gain (loss) on securities 66 (399) -------------- -------------- Total comprehensive income (loss) $ 2,039 $ (1,276) ============== ===============
The accompanying notes are an integral part of these financial statements. DRUMMOND FINANCIAL CORPORATION STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (DOLLARS IN THOUSANDS)
FOR THE THREE FOR THE THREE MONTHS ENDED MONTHS ENDED MARCH 31, 2002 MARCH 31, 2001 -------------- -------------- Net income (loss) $ 56 $ (301) Other comprehensive loss: Unrealized loss on securities (12) (22) --------------- -------------- Total comprehensive income (loss) $ 44 $ (323) =============== ==============
The accompanying notes are an integral part of these financial statements. DRUMMOND FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 (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, 2002, respectively, were of a normal, recurring nature. The amounts presented for the nine months and three months ended March 31, 2002, 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, 2001, 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, 2002 and 2001, respectively. The weighted average number of shares outstanding was 2,718,600 for the nine months and three months ended March 31, 2002 and 2001, respectively. 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. The Corporation continued to apply FASB Statement No. 5 "Accounting for Contingencies" to provide an allowance on a pool of unimpaired loans. The Corporation had no loan commitments at March 31, 2002. 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, 2002, 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, 2002 Revenues for the nine months ended March 31, 2002 increased to $1.8 million from $0.8 million for the comparative period of 2001, primarily as a result of a gain on securities. Revenues from interest decreased to $0.5 million for the nine months ended March 31, 2002 from $0.7 million for the nine months ended March 31, 2001, primarily as a result of a decrease in the average receivables compared to the same period last year. The Corporation has a gain on securities of $1.1 million for the current period compared to a loss of $0.2 million for the comparative period in 2001. Revenues from dividends and other activities decreased to $0.2 million for the nine months ended March 31, 2002 from $0.3 million for the nine months ended March 31, 2001. Costs and expenses for the nine months ended March 31, 2002 were $1.5 million compared to $1.7 million for the comparative period of 2001. General and administrative expenses were $0.7 million for the nine months ended March 31, 2002, compared to $0.8 million for the comparative period of 2001. Interest expense decreased to $0.7 million for the nine months ended March 31, 2002 from $0.9 million for the nine months ended March 31, 2001. No income tax provision was recognized for the nine months ended March 31, 2002 and 2001, respectively, except for the payment of a minimum tax of $1,000 for the nine months ended March 31, 2001. 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, 2002, the Corporation reported a net income of $2.0 million, or $0.64 per share, compared to a net loss of $0.9 million, or $0.41 per share, for the nine months ended March 31, 2001. RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2002 Revenues for the three months ended March 31, 2002 were $0.4 million, compared to $0.3 million for the comparative period of 2001. The Corporation had a gain on securities of $0.2 million in the three months ended March 31, 2002, compared to a loss on securities of $6,000 in the three months ended March 31, 2001. Revenues from interest were $0.1 million for the three months ended March 31, 2002, compared to $0.2 million for the three months ended March 31, 2001. Revenues from dividends and other activities were $74,000 for the three months ended March 31, 2002 and 2001, respectively. Costs and expenses were $0.4 million for the three months ended March 31, 2002 compared to $0.6 million for the three months ended March 2001. General and administrative expenses were $0.3 million for the three months ended March 31, 2002 and 2001, respectively. Interest expense was $0.1 million for the three months ended March 31, 2002 compared to $0.3 million for the three months ended March 31, 2001. For the three months ended March 31, 2002, the Corporation reported net income of $56,000, or a net loss of $0.01 per share, compared to a net loss of $0.3 million, or $0.14 per share, for the three months ended March 31, 2001. LIQUIDITY AND CAPITAL RESOURCES The Corporation's cash and cash equivalents at March 31, 2002 were $2.8 million, a decrease of $3.0 million from June 30, 2001. Operating activities provided cash of $1.7 million in the nine months ended March 31, 2002, compared to using cash of $0.7 million in the nine months ended March 31, 2001. Net sales of trading securities provided cash of $1.8 million in the nine months ended March 31, 2002, compared to $1.0 million in the nine months ended March 31, 2001. Investing activities provided cash of $0.4 million in the nine months ended March 31, 2002 primarily due to a decrease in loans and notes receivable. In the nine months ended March 31, 2001, investing activities used cash of $2.4 million. Financing activities used cash of $5.0 million in the nine months ended March 31, 2002 representing a repayment of debt as to $4.7 million and a payment of dividends on preferred shares as to $0.3 million. In the comparative period in 2001, financing activities used cash of $0.3 million representing the payment of dividends on preferred shares. 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. 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, 2001 for information concerning market risk. 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, 2001 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 11, 2002. At the meeting, Oq-Hyun Chin was re-elected for a three year term to serve until the annual meeting of shareholders to be held following the fiscal year ending June 30, 2004, or until his successor is elected and qualified. Of the shares eligible for voting at the meeting, 5,406,664 shares were voted for Mr. Chin's re-election, 1,000 shares were withheld from voting and there were no abstentions and broker non-votes. Young Soo Ko and Michael J. Smith continued their terms as directors of the Corporation. ITEM 5. OTHER INFORMATION In order to effect a change in the domicile of the Corporation from Delaware to the State of Washington, the Corporation entered into a Plan and Agreement of Merger (the "Plan") on June 18, 2001 pursuant to which Drummond Financial Corporation, a Delaware corporation, merged with and into Drummond Merger Corporation, a Washington corporation. Drummond Merger Corporation was the surviving corporation under the name Drummond Financial Corporation. The articles of incorporation and bylaws of the Washington corporation became the articles of incorporation and bylaws of the Corporation. Articles of Merger were filed by the Washington Secretary of State on January 18, 2002 and a Certificate of a Merger was filed by the Delaware Secretary of State on February 22, 2002. The Plan, new articles of incorporation and new bylaws of the Corporation are attached hereto as Exhibit 3.6. For further details on the merger, refer to the Corporation's Schedule 14C Information Statement dated December 11, 2001. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 3.6. Plan and Agreement of Merger, Articles of Incorporation and By-laws. (b) REPORTS ON FORM 8-K None. 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 14, 2002 DRUMMOND FINANCIAL CORPORATION By: /s/ Michael J. Smith ------------------------ Michael J. Smith, President, Chief Executive Officer and Chief Financial Officer