SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-16123
-----------------
NEWTEK CAPITAL, INC.
--------------------
(Exact name of small business issuer as specified in its charter)
New York 11-3504638
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Hempstead Tpke., East Meadow, NY 11554
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (516) 390-2260
--------------
Check if the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 November 7, 2001, 22,212,517 shares of Common Stock were issued and
outstanding.
Transitional Small Business Disclosure Format Yes No X
---- ----
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) as of September 30, 2001
and December 31, 2000...................................................... 2
Consolidated Statements of Operations (Unaudited) for the Three and Nine Month
Periods Ended September 30, 2001 and 2000.................................. 3
Consolidated Statements of Cash Flows (Unaudited) for the Nine Month
Periods Ended September 30, 2001 and 2000.................................. 4
Notes to Unaudited Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis or Plan of Operations.................... 12
PART II. OTHER INFORMATION
-----------------
Item 4. Submission of Matters to a Vote of Security Holders........................... 14
Item 5. Other Information ............................................................ 14
Item 6. Exhibits and Reports on Form 8-K.............................................. 14
SIGNATURES............................................................................. 15
PART I. FINANCIAL INFORMATION
ITEM 1-FINANCIAL STATEMENTS
NEWTEK CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September December
30, 31,
2001 2000
--------- ---------
ASSETS
------
Cash and cash equivalents $ 32,415,339 $ 34,697,081
Credits in lieu of cash 33,851,384 17,496,810
Investments in qualified businesses 15,414,443 15,644,515
Structured insurance product 2,666,443 2,570,487
Prepaid insurance 11,178,255 12,187,376
Prepaid expenses and other assets 873,408 411,195
Furniture, fixtures and equipment, net 49,671 31,462
Asset held for sale 500,000 500,000
Goodwill 978,303 -
------------- ------------
Total $ 97,927,246 $ 83,538,926
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Accounts payable and accrued expenses $ 2,331,673 $ 2,546,800
Notes payable- certified investors 3,855,469 3,861,220
Notes payable- insurance 9,666,666 5,800,000
Mortgage payable 331,770 369,339
Interest payable 60,501,593 56,147,907
Deferred tax liability 3,272,176 1,381,258
------------- ------------
Total liabilities 79,959,347 70,106,524
------------- ------------
Minority interest 4,868,058 4,163,053
------------- ------------
Stockholders' equity:
Common Stock (par value $0.02 per share: authorized 39,000,000
shares, issued and outstanding 22,212,517 and 21,373,460) 444,250 427,469
Additional Paid-In Capital 13,635,276 12,267,052
Accumulated deficit (979,685) (3,425,172)
------------- ------------
Total stockholders' equity 13,099,841 9,269,349
------------- ------------
Total liabilities and stockholders' equity $ 97,927,246 $ 8,538,926
============= ============
See accompanying notes to these Consolidated financial statements.
2
NEWTEK CAPITAL, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenue:
Income from tax credits $ 5,611,956 $ 3,435,542 $20,263,173 $ 3,652,298
Consulting fee income - 7,068 8,000 34,260
Interest and dividend income 522,589 527,912 1,735,674 1,552,850
Other Income 182,941 - 308,783 -
----------- ----------- ----------- -----------
Total revenue 6,317,486 3,970,522 22,315,630 5,239,408
----------- ----------- ----------- -----------
Expenses:
General and administrative 2,154,597 1,278,911 5,924,280 3,373,339
Interest 2,927,818 2,797,913 9,112,972 5,298,886
----------- ----------- ----------- -----------
Total expense 5,082,415 4,076,824 15,037,252 8,672,225
----------- ----------- ----------- -----------
Income (loss) before equity in net losses of affiliates,
other than temporary decline in value of investments,
provision for taxes, and minority interest 1,235,071 (106,302) 7,278,378 (3,432,817)
Equity in net losses of affiliates (856,656) - (1,817,392) -
Other than temporary decline
in value of investments, net of recovery 5,000 (336,050) (220,000) (936,050)
----------- ----------- ----------- -----------
Income (loss) before provision for taxes,
extraordinary gain on defeasance of debt
and minority interest 383,415 (442,352) 5,240,986 (4,368,867)
Provision for taxes (153,365) (2,285,129) (2,096,394) (2,285,129)
Extraordinary gain on
defeasance of debt - - - 431,881
----------- ----------- ----------- -----------
Income (loss) before minority interest 230,050 (2,727,481) 3,144,592 (6,222,115)
Minority interest in (income) loss 230,541 927,708 (699,105) 2,221,849
----------- ----------- ----------- -----------
Net income (loss) $ 460,591 $(1,799,773) $ 2,445,487 $(4,000,266)
=========== =========== =========== ===========
Weighted average common shares outstanding
Basic 22,212,517 21,204,461 21,779,671 21,204,461
Diluted 22,212,517 21,204,461 21,779,671 21,204,461
Income (loss) per share
Basic $ .02 $ (.08) $ .11 $ (.19)
Diluted $ .02 $ (.08) $ .11 $ (.19)
See accompanying notes to these Consolidated financial statements.
3
NEWTEK CAPITAL, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
Nine Months Ended
September 30,
---------------------------------
2001 2000
------------ --------------
Cash flows from operating activities:
Net income (loss) $ 2,445,487 $ (4,000,266)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Extraordinary gain on defeasance of debt (431,881)
Other than temporary decline in investments 220,000 936,050
Equity in net losses of affiliates 1,817,392
Income from tax credits (20,263,173) (3,652,298)
Deferred income taxes 1,890,812 2,285,129
Depreciation and other amortization 6,207 4,137
Accretion of interest income (106,582) (105,495)
Accretion of interest expense 8,272,035 5,019,930
Issuance of warrants for services performed 58,800
Minority interest included in income (loss) 699,105 (2,221,849)
Non-cash compensation - options vested 30,779
Changes in assets and liabilities:
Prepaid insurance 1,009,121 (222,648)
Prepaid expenses and other assets (99,989) 16,031
Accounts payable and accrued expenses (215,127) (251,385)
------------ --------------
Net cash used in operating activities (4,235,133) (2,624,545)
------------ --------------
Cash flows from investing activities:
Purchase of structured insurance product (661,432)
Investments in qualified businesses (20,662,289) (10,630,942)
Return of principal - qualified investments 7,826,686 3,460,750
Consolidation of majority owned investments 11,103,283
Other investments (442,000) (320,000)
Return of principal - other investments 125,000
Cash received from Rexx acquisition 143,790
Purchase of machinery and equipment (24,417) (28,898)
------------ --------------
Net cash used in investing activities (2,198,737) (7,911,732)
------------ --------------
See accompanying notes to these Consolidated financial statements.
4
NEWTEK CAPITAL, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
-------------------------------------------------------------
Nine Months Ended
September 30,
-----------------------------
2001 2000
----------- -----------
Cash flows from financing activities:
Payment of note payable - bank (725,358)
Proceeds from issuance of note payable-insurance 5,200,000 1,251,630
Proceeds from issuance of long-term debt 7,284,518
Payments from defeasance of long-term debt (3,228,175)
Issuance of warrants 403,348
Payments for deferred financing costs (44,771)
Repurchase of member's interest (1,300)
Repayments of principal of note payable-insurance (1,333,334)
Repayments of mortgage payable (37,569)
Net proceeds from issuance of common stock 726,391 2,962,762
Distributions to Capco members (402,060) (707,000)
Loans payable - members - 330,000
----------- -----------
Net cash provided by
financing activities 4,152,128 7,526,954
----------- -----------
Net (decrease) in cash
and cash equivalents (2,281,742) (3,009,323)
Cash and cash equivalents -
beginning of period 34,697,081 25,454,016
----------- -----------
Cash and cash equivalents - end of period $32,415,339 $22,444,693
=========== ===========
Supplemental disclosure of non-cash financing activities:
---------------------------------------------------------
Issuance of the following in partial payment
for insurance:
Notes $ 1,500,000
===========
Warrants $ 56,020
===========
Conversion to stock of Notes Payable - Other 250,000
==========
Reduction of credits in lieu of cash and interest payable balances due
to delivery of tax credits to certified investors: $ 3,908,599
===========
Issuance of common stock in connection with acquisition of minority interest
In Wilshire Investors $ 978,303
===========
See accompanying notes to these Consolidated financial statements.
5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
Basis of presentation and description of business
-------------------------------------------------
On September 20, 2000, Newtek Capital, Inc. (Newtek) acquired the
controlling interests in the underlying entities listed below and accordingly
consolidates the financial statements of these entities with its own.
Additionally, on September 20, 2000, Newtek's common stock began trading on the
American Stock Exchange under the symbol "NKC". Newtek was formed on June 29,
1999 under the name Whitestone Holdings, Inc. and changed its name to Newtek
Capital, Inc. on January 18, 2000, and the underlying entities comprise: BJB
Holdings, Inc. ("BJB"), Wilshire Holdings I, Inc., Wilshire Holdings II, Inc.,
Newtek Securities, LLC, REXX Environmental Corp. ("REXX"), Whitestone Capital
Markets, Inc., The Whitestone Group, LLC ("TWG"); Wilshire Advisers, LLC ("WA"),
Wilshire NY Advisers II LLC ("WAII"), and Wilshire New York Partners III LLC
("WNYIII"), certified capital companies ("Capcos") in New York, Wilshire
Partners, LLC ("WP"), a Capco in Florida, Wilshire Investors, LLC ("WI"), a
Capco in Wisconsin, Wilshire Louisiana Advisers, LLC ("WLA"), and Wilshire
Louisiana Partners II LLC ("WLPII"), a Capco and a subsidiary find,
respectively, in Louisiana (the Capco entities are, collectively, the "Capcos"
and Newtek and all of these aforementioned entities and Capcos are collectively
the "Company"). TWG acts as an investment adviser and manager to the
aforementioned Capcos as well as a merchant bank and provides investment banking
and business development services including general business consulting
services, strategic planning, due diligence, merger and acquisition analysis,
technology design and implementation support, joint venture negotiations and
litigation support services. All significant intercompany balances and
transactions are eliminated in consolidation.
As described above, Newtek acquired the controlling interests in the
underlying entities. In this connection, Newtek issued 18,823,285 shares of
common stock in exchange for 100% of BJB's shares and the member interests in
the underlying entities. The principal shareholders of Newtek were the
principal owners of BJB and the underlying entities. As a result, Newtek has
recorded the assets acquired and liabilities assumed at their historical values,
with the net asset value recorded as a credit to stockholders' equity.
Additionally, on September 19, 2000, Newtek completed its acquisition of
REXX. Pursuant to the acquisition, REXX stockholders received one share of
Newtek common stock in exchange for each share of REXX common stock held. The
Company issued 2,467,576 shares of common stock in exchange for 100% (2,467,576
shares) of REXX stock. This transaction has been accounted for as a
recapitalization, whereby Newtek has recorded the monetary assets and
liabilities of REXX at their historical values (which were not material to the
Company), with the net asset value recorded as a credit to stockholders' equity.
The following is a summary of each Capco, state of certification and
date of certification:
Capco State of Certification Date of Certification
WA New York May 1998
WP Florida December 1998
WI Wisconsin October 1999
6
WLA Louisiana October 1999
WAII New York April 2000
WLPII Louisiana October 2000
WNYIII New York December 2000
In general, the Capcos issue debt and equity instruments, generally
warrants ("Certified Capital"), to insurance company investors ("Certified
Investors"). The Capcos then make targeted investments ("Investments in
Qualified Businesses", as defined under the respective state statutes), with the
Certified Capital raised. Such investments may be accounted for as either
consolidated subsidiaries, under the equity method or cost method of accounting,
or as notes receivable, depending upon the nature of the investment and the
Company's and/or the Capco's ability to control or otherwise exercise
significant influence over the investee. Each Capco has a contractual
arrangement with the particular state that legally entitles the Capco to receive
(or earn) tax credits from the state upon satisfying quantified, defined
investment percentage thresholds and time requirements. In order for the Capcos
to maintain their state-issued certifications, the Capcos must make Investments
in Qualified Businesses in accordance with these requirements. Each Capco also
has separate, legal contractual arrangements with the Certified Investors
obligating the Capco to pay interest on the aforementioned debt instruments
whether or not it meets the statutory requirements for Investments in Qualified
Businesses. The Capco can satisfy this interest payment, at the Capco's
discretion, by delivering tax credits in lieu of paying cash. The Capcos
legally have the right to deliver the tax credits to the Certified Investors.
The Certified Investors legally have the right to receive and use the tax
credits and would, in turn, use these tax credits to reduce their respective
state tax liabilities in an amount usually equal to 100% to 110% of their
certified investment. The tax credits can be utilized over a ten-year period at
a rate of generally between 10% and 11% per year and in some instances are
transferable and can be carried forward.
The accompanying financial statements have been prepared without audit and
do not include all footnotes and disclosures required under generally accepted
accounting principles. Management believes that the results herein reflect all
adjustments which are, in the opinion of management, necessary to fairly state
the results and current financial condition of the Company for the respective
periods. All such adjustments reflected herein are of a normal, recurring
nature. These financial statements should be read in conjunction with the
Company's financial statements contained in its Form 10-KSB for its year ended
December 31, 2000, and all other filings with the Securities and Exchange
Commission.
NOTE 2 - INVESTMENTS IN QUALIFIED BUSINESSES
The following table is a summary of investments as of September 30, 2001,
shown separately between their debt ($12,324,725) and equity ($3,089,718)
components for a total Investment in Qualified Businesses of $15,414,443. Terms
of each are summarized. There are no expiration dates on any of the financial
instruments, unless disclosed.
7
-----------------------------------------------------------------------------------------------------------------------------
Outstanding
Principal
DEBT Original Amount
Date of Maturity Principal Stated September 30,
Investee Type Investment Date Amount Interest Rate 2001
=============================================================================================================================
AIDA, LLC Debt 3/01 3/02 $ 3,500,000 7.00% $ 3,500,000
-----------------------------------------------------------------------------------------------------------------------------
1 800GiftCertificate Debt 7/99, 7/01 9/01, 7/03 $ 1,250,000 8.75% $ 1,097,825
-----------------------------------------------------------------------------------------------------------------------------
Starphire Technologies, LLC Debt 6/01 6/02 $ 1,000,000 5.75% $ 1,000,000
-----------------------------------------------------------------------------------------------------------------------------
4G's Truck Renting Debt 12/00, 1/01 6/02 $ 1,000,000 8.70% $ 960,000
-----------------------------------------------------------------------------------------------------------------------------
Multi-Media Distribution Debt 6/00 6/02 $ 1,000,000 10.00% $ 930,000
Corp.
-----------------------------------------------------------------------------------------------------------------------------
Merchant Data Systems, Inc. Debt 8/00 5/04 $ 1,000,000 0% $ 906,930
-----------------------------------------------------------------------------------------------------------------------------
Direct Creations, LLC Debt 9/00 3/02 $ 750,000 10.00% $ 750,000
-----------------------------------------------------------------------------------------------------------------------------
OS Johnson /(4)/ Debt 9/01 Various $ 750,000 Prime + $ 50,000
1.00%
-----------------------------------------------------------------------------------------------------------------------------
Group Management Debt 11/99 11/01 $ 3,150,000 5.25% $ 631,620
Technologies, LLC
-----------------------------------------------------------------------------------------------------------------------------
E&E Machine Shop /(4)/ Debt 9/01 Various $ 523,244 Prime + $ 461,850
1.00%
-----------------------------------------------------------------------------------------------------------------------------
Transworld Business Brokers, Debt 06/01 6/02, 6/04 $ 240,000 6.00% $ 240,000
LLC
-----------------------------------------------------------------------------------------------------------------------------
BuySeasons, Inc. Debt 6/01 6/06 $ 200,000 11.00% $ 200,000
-----------------------------------------------------------------------------------------------------------------------------
Amerimed /(4)/ Debt 8/01, 9/01 Various $ 155,962 Prime + $ 155,962
1.00%
-----------------------------------------------------------------------------------------------------------------------------
St. Gabriel Hardware /(4)/ Debt 11/00, 8/01 Various $ 792,000 Prime + $ 129,903
1.00%
-----------------------------------------------------------------------------------------------------------------------------
Gerace Auto Parts /(4)/ Debt 4/00 Various $ 810,000 Prime + $ 125,110
1.00%
-----------------------------------------------------------------------------------------------------------------------------
Steve Kent Trucking /(4)/ Debt 3/00, 5/00 Various $ 747,000 Prime + $ 116,038
1.00%
-----------------------------------------------------------------------------------------------------------------------------
Gino's Seafood /(4)/ Debt 3/00, 4/00 Various $ 517,942 Prime + $ 86,692
1.00%
-----------------------------------------------------------------------------------------------------------------------------
Embosser's Sales and Debt 8/00 Various $ 495,000 Prime + $ 77,248
Service /(4)/ 1.00%
-----------------------------------------------------------------------------------------------------------------------------
Data-Tel of Louisiana /(4)/ Debt 3/00 Various $ 513,000 Prime + $ 68,462
1.00%
-----------------------------------------------------------------------------------------------------------------------------
Tsunami Restaurants /(4)/ Debt 3/01 Various $ 328,500 Prime + $ 54,252
1.00%
-----------------------------------------------------------------------------------------------------------------------------
Raising Cain /(4)/ Debt 3/00, 4/00, 5/00 Various $ 315,000 Prime + $ 46,249
1.00%
-----------------------------------------------------------------------------------------------------------------------------
Tari's School of Dance /(4)/ Debt 5/00 Various $ 189,000 Prime + $ 31,500
1.00%
-----------------------------------------------------------------------------------------------------------------------------
BBQ West /(4)/ Debt 10/00, 11/00 Various $ 49,500 Prime + $ 5,084
1.00%
-----------------------------------------------------------------------------------------------------------------------------
Total Debt Investments $19,276,148 $12,324,725
=========== ===========
8
NOTE 2 - INVESTMENTS IN QUALIFIED BUSINESSES (Continued):
------------------------------------------------------------------------------------------------------------------------------------
EQUITY
Original Cost Basis
Date of Type of Common Stock Percentage of Investment September 30,
------------
Investee Investment Investment Equivalents/(1)/ Ownership Amount 2001
-------- ---------- ---------- ---------------- --------- ------ ----
------------------------------------------------------------------------------------------------------------------------------------
Niche Directories, LLC 9/00, 12/00 Preferred N/A 37.50% $ 1,344,000 $ 848,570
Membership
Interest w/
voting rights
------------------------------------------------------------------------------------------------------------------------------------
Starphire 8/00 Preferred N/A 50.00% $ 1,400,000 $ 804,864
Technologies, LLC Membership
Interest w/
voting rights
------------------------------------------------------------------------------------------------------------------------------------
AIDA, LLC 10/00 Preferred N/A 50% $ 1,000,000 $ 596,208
Membership
Interest w/
voting rights
------------------------------------------------------------------------------------------------------------------------------------
Transworld Business 06/01 Preferred N/A 33% $ 350,000 $ 323,307
Brokers, LLC Membership
Interest w/
voting rights
------------------------------------------------------------------------------------------------------------------------------------
Multi-Media 6/00 Common Stock 66,000 3% $ 200,000 $ 200,000
Distribution Corp.
------------------------------------------------------------------------------------------------------------------------------------
Group Management 6/01 Preferred N/A 47.5% $ 450,000 $ 191,769
Technologies, LLC Membership
Interest w/
voting rights
------------------------------------------------------------------------------------------------------------------------------------
BuySeasons, Inc. 6/01 Common Stock 18,182 3% $ 100,000 $ 100,000
------------------------------------------------------------------------------------------------------------------------------------
1800GiftCertificate 7/99 Class B Preferred 113,140 N/A $ 22,396 $ 22,396
Stock
------------------------------------------------------------------------------------------------------------------------------------
1800GiftCertificate 7/99 Class A Preferred 3,159 N/A $ 2,604 $ 2,604
Stock
------------------------------------------------------------------------------------------------------------------------------------
Cedric Kushner Boxing, 11/98 Options for 3 N/A $ 0 $ 0
Inc. /(5)/ Common Stock /(2)/
------------------------------------------------------------------------------------------------------------------------------------
CB Real Net, LLC /(5)/ 2/00 Membership N/A 100.00% $ 0 $ 0
Interest /(3)/
------------------------------------------------------------------------------------------------------------------------------------
Direct Creations /(5)/ 12/00 Membership N/A 25% $ 0 $ 0
Interest
------------------------------------------------------------------------------------------------------------------------------------
Merchant Data 5/01 Warrants for N/A 10.00%- $ 0 $ 0
Sysytems, Inc. Membership 20.00%
Interest /(3)/
------------------------------------------------------------------------------------------------------------------------------------
TotaL Equity $ 4,869,000 $ 3,089,718
Investments =========== ===========
----------------------------------------------------
Total Debt and Equity Investments September 30, 2001 $24,145,148 $15,414,443
=========== ===========
/(1)/ Common Stock Equivalents reflect conversion of all financial instruments
into common stock.
/(2)/ Expires four years from date of investment, and has a $.01 exercise
price.
/(3)/ Expires six years from date of investment, and has a $.01 exercise price.
/(4)/ Represents participation in Small Business Administration (SBA) loans.
/(5)/ Represents additional equity interests received for making funds
available to qualified businesses through qualified debt.
9
The Company consolidates five of its investments. The following tables are
summaries of such investments:
---------------------------------------------------------------------------------------------------------------------------
DEBT Outstanding
Principal
Original Amount
Date of Maturity Principal Stated September 30,
Investee Type Investment Date Amount Interest Rate 2001
=========================================================================================================================
Universal Processing Debt 3/01 3/02 $3,400,000 6.00% $3,400,000
Services, LLC
-------------------------------------------------------------------------------------------------------------------------
United Processing Services Debt 6/01 6/06 $2,100,000 5.00% $2,030,000
- Wisconsin, LLC
-------------------------------------------------------------------------------------------------------------------------
PPM Link, LLC Debt 3/01 9/02 $1,850,000 6.00% $1,850,000
-------------------------------------------------------------------------------------------------------------------------
Harvest Strategies, LLC Debt 8/01 10/02 $ 950,000 5.00% $ 950,000
-------------------------------------------------------------------------------------------------------------------------
Total Consolidated Debt $8,300,000 $8,230,000
Investments ========== ==========
------------------------------------------------------------------------------------------------------------------------------------
EQUITY
Original Cost Basis
Date of Type of Common Stock Percentage of Investment September 30,
------------
Investee Investment Investment Equivalents (1) Ownership Amount 2001
-------- ---------- ---------- -------------- --------- ------ ----
---------------------------------------------------------------------------------------------------------------------------------
United Processing 9/01 Preferred N/A 82% $ 1,350,000 $ 1,350,000
Services - La Membership
Interest w/
voting rights
---------------------------------------------------------------------------------------------------------------------------------
Harvest Strategies, LLC 8/01 Preferred N/A 70% $ 999,950 $ 890,301
Membership
Interest w/
voting rights
---------------------------------------------------------------------------------------------------------------------------------
PPM Link, LLC 3/01 Preferred N/A 67% $ 253,333 $ 100,462
Membership
Interest w/
voting rights
---------------------------------------------------------------------------------------------------------------------------------
Universal Processing 3/01 Preferred N/A 60% $ 200,000 $ 75,690
Services, LLC Membership
Interest w/
voting rights
---------------------------------------------------------------------------------------------------------------------------------
Total Consolidated Equity Investments $ 2,803,283 $ 2,416,453
=========== ===========
Total Consolidated Debt and Equity Investments September 30, 2001 $11,103,283 $10,646,453
=========== ===========
The Company has not guaranteed any obligation of these investees, and the
Company is not otherwise committed to provide further financial support for the
investees. Periodically, the Company evaluates each of its individual
investments for potential impairment in value. Should the Company determine
that an impairment exists and it is deemed to be other than temporary, the
Company will write down the recorded value of the asset to its estimated fair
value and record a corresponding charge in the statement of operations. At
September 30, 2001, the Company has determined that there was $250,000 of other
than temporary decline
10
in the value of its investments for Hypercosm. In addition, the Company
determined an impairment existed for certain non-Capco investments, and recorded
a charge of $75,000. For the three months ended September 30, 2001, the Company
had a net recovery of $5,000.
The Company recovered $105,000 of cash on two of its investments previously
written down. This amount is shown on the statement of operations as a component
of other than temporary decline in investments.
NOTE 3 - EARNINGS PER SHARE
Basic earnings per share is computed based on the weighted average number of
common shares outstanding during the period. The dilutive effect of common stock
equivalents is included in the calculation of diluted earnings per share only
when the effect of their inclusion would be dilutive. The effect of common stock
equivalents were anti-dilutive for the Three and Nine Months ended September 30,
2001 and the Three and Nine Months ended September 30, 2000 and, therefore, have
been excluded from the calculation of diluted earnings per share.
The calculations of Net Income (Loss) Per Share were:
Three months ended Nine Months ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Basic
Net income (loss) $ 460,591 $(1,799,773) $ 2,445,487 $(4,000,266)
Weighted average shares 22,212,517 21,204,461 21,779,671 21,204,461
Basic and diluted $ .02 $ (.08) $ .11 $ (.19)
NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS
During the second quarter of 2001 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 141, Business
Combinations ("SFAS 141") and Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 is effective
for all business combinations initiated after September 30, 2001 and for all
business combinations accounted for by the purchase method for which the date of
acquisition is after September 30, 2001. The provisions of SFAS 142 will be
effective for fiscal years beginning after December 15, 2001. However, early
adoption of SFAS 142 is permitted for companies with a fiscal year beginning
after March 15, 2001, provided their first quarter financial statements have not
been previously issued.
The Company has determined that the adoption of SFAS 141 and SFAS 142 is
not expected to have a material impact on the Company's consolidated financial
statements.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Three Months Ended September 30, 2001 compared to Three Months Ended September
30, 2000
Revenues increased by approximately $2,346,000 to $6,317,000 for the three
months ended September 30, 2001, from $3,971,000 for the three months ended
September 30, 2000. Income from tax credits increased by approximately
$2,176,000 attributable to the tax credits recognized in 2001, due to the
Company's meeting the next investment thresholds mandated by the various state
capco statutes.
General and administrative expenses increased by approximately $876,000, to
$2,155,000 for the three months ended September 30, 2001, from $1,279,000 for
the three months ended September 30, 2000, due to increased staffing and
professional fees (legal and accounting) attributable to the increased size and
number of capcos. Interest expense increased by approximately $130,000 to
$2,928,000 for the three months ended September 30, 2001, from $2,798,000 for
the three months ended September 30, 2000, which was attributable to the
issuance of notes to Certified Investors relating to the formation of capcos
during the prior 12 months.
Equity in net losses of affiliates increased by $857,000 for the three
months ended September 30, 2001, from $0 for the three months ended September
30, 2000 due to the increased number of partner companies and the nature of the
Company's investments in them (more equity investments versus debt). Other than
temporary decline in investments decreased by approximately $341,000, to a
$5,000 gain for the three months ended September 30, 2001, from $336,050 for the
three months ended September 30, 2000, due partially to a recovery of $5,000 in
cash in 2001 related to an investment written down in 2000.
Nine Months Ended September 30, 2001 compared to Nine Months Ended September 30,
2000
Revenues increased by approximately $17,077,000 to $22,316,000 for the nine
months ended September 30, 2001, from $5,239,000 for the nine months ended
September 30, 2000. Income from tax credits increased by approximately
$16,611,000 attributable to the tax credits recognized in 2001, due to the
Company's meeting the next investment thresholds mandated by the various state
Capco statutes.
General and administrative expenses increased by approximately $2,551,000,
to $5,924,000 for the nine months ended September 30, 2001, from $3,373,000 for
the nine months ended September 30, 2000, due to increased staffing and
professional fees (legal and accounting) attributable to the increased size and
number of Capcos. Interest expense increased by approximately $3,814,000 to
$9,113,000 for the nine months ended September 30, 2001, from $5,299,000 for the
nine months ended September 30, 2000, which was attributable to the issuance of
notes to Certified Investors relating to the formation of capcos during the
prior 12 months.
Equity in net losses of affiliates increased by $1,817,000 for the nine
months ended September 30, 2001, from $0 for the nine months ended September 30,
2000 due to the increased number of partner companies and the nature of the
Company's investments in them (more equity investments versus debt). Other than
temporary decline in investments decreased by approximately $716,000, to
$220,000 for the nine months ended September 30, 2001, from $936,000 for the
nine months ended September 30, 2000, due partially to a recovery of $105,000 in
cash in 2001 related to an investment written down in 2000. Extraordinary gain
decreased by approximately $432,000, to $0 for the nine months ended September
30, 2001, from $432,000 for the nine months ended September 30, 2000, due to the
$432,000 gain recognized on
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the defeasance of the liability of the Company's Wilshire New York Advisers II
Capco in the second quarter of 2000 versus no such activity in 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through the issuance of
notes and warrants to Certified Investors through the Capco program. To date,
the Company has received approximately $136,000,000 in proceeds from the
issuance of long-term debt through the Capco programs. The Company's principal
capital requirements have been to fund the defeasance of the principal amount of
notes issued to the Certified Investors, the acquisition of Capco insurance
policies, the acquisition of partner companies interests, acquisitions funding
of other investments, and working capital needs resulting from increased
operating and business managing development activities of its partner
companies.
Net cash used in operating activities for the nine months ended September
30, 2001 of approximately $4,235,000 resulted primarily from net income of
$2,445,000, offset by the non-cash interest expense of approximately $8,272,000
and non-cash income tax expense of approximately $1,891,000. It was also
partially affected by the approximately $1,817,000 in non-cash equity in net
losses of affiliates, approximately $699,000 of minority interest and the
approximately $20,263,000 in non-cash income from tax credits. In addition, the
Company had a decrease in components of working capital of approximately
$694,000.
Net cash used in investing activities for the nine months ended September
30, 2001 of approximately $2,199,000 resulted primarily from approximately
$20,662,000 in additional qualified investments (inclusive of $11,103,000 of
investments consolidated in the financial statements) made in the period and
offset by repayments on the debt instruments of $7,827,000, offset by
approximately $10,631,000 in additional qualified investments made in the
period.
Net cash provided by financing activities for the nine months ended
September 30, 2001 was approximately $4,152,000, primarily attributable to
approximately $5,200,000 from the issuance of notes payable and approximately
$726,000 from the private placement of common stock during the three months
ended March 31, 2001, which was offset by approximately $1,333,000 in payments
on notes payable. In addition, the Company paid approximately $402,000 in
distributions to CAPCO members for taxes.
The Company believes that its cash and cash equivalents, its anticipated
cash flow from operations, its ability to access private and public debt and
equity markets, and the availability of funds under its existing credit
agreements will provide it with sufficient liquidity to meet its short and long-
term capital needs.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains forward-looking statements.
Additional written or oral forward-looking statements may be made by the Company
from time to time in filings with the Securities and Exchange Commission or
otherwise. The words "believe," "expect," "seek," and "intend" and similar
expressions identify forward-looking statements, which speak only as of the date
the statement is made. Such forward-looking statements are within the meaning of
that term in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements may
include, but are not limited to, projections of income or loss, expenditures,
acquisitions, plans for future operations, financing needs or plans relating to
services of the Company, as well as assumptions relating to the foregoing.
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Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. Future events and actual
results could differ materially from those set forth in, contemplated by or
underlying the forward-looking statements.
The Company does not undertake, and specifically disclaims, any obligation
to release publicly the results of revisions which may be made to forward-
looking statements to reflect the occurrence of anticipated or unanticipated
events or circumstances after the date of such statements.
PART II - OTHER INFORMATION
ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On August 3, 2001 the Company held its annual meeting of shareholders.
(b) All five of the incumbent directors were reelected for one year terms:
John Cox
Jeffrey G. Rubin
Steven A. Shenfeld
Barry Sloane
Brian A. Wasserman
In addition, Jeffrey M. Schottenstein was elected for a one year term
to fill a vacancy on the Board.
(c) Only the election of directors was voted upon at the meeting, at
which a total of 16,136,766, or 72.65 percent, were present in person
or by proxy, with the vote for each of the nominees the same:
For: 16,131,541 votes, or 72.62 percent
Withheld: 5,225 votes, 0.02 percent.
There were no abstentions or non-voting broker votes.
ITEM 5-OTHER INFORMATION
Beginning in the third quarter of 2001 and continuing to the present, the
Company has been working on two particular acquisitions which, if consummated,
are expected to have a material positive effect upon the Company's business. The
smaller of these acquisitions involves a closely held business development
company in an area and with a business plan similar to the Company. If
ultimately agreed to, the consideration is expected to be an exchange for
Company stock. The larger of the acquisitions is a company in a related field of
business to that of the Company and which now operates on a nationwide basis.
This transaction is in initial stages, with no agreement on terms, conditions or
structure at present.
Attached hereto as Exhibits are four press releases issued by the Company
with respect to various corporate developments, which are incorporated herein by
reference.
ITEM 6-EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 99.1 NEWTEK ANNOUNCES RESEARCH COVERAGE BY STIFEL NICHOLAUS AND 12
MONTH PRICE TARGET
Exhibit 99.2 NEWTEK ANNOUNCES JEFF SCHOTTENSTEIN JOINS BOARD OF DIRECTORS
Exhibit 99.3 NEWTEK REAFFIRMS WALL STREET EARNINGS ESTIMATES FOR 2001
Exhibit 99.4 NEWTEK INVESTS IN UNIVERSAL PROCESSING SERVICES OF LOUISIANA -
ACQUIRES MAJORITY INTEREST
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEWTEK CAPITAL, INC.
Date: November 7, 2001 /s/ Barry Sloane
----------------
Barry Sloane
Chairman of the Board, Chief Executive Officer,and
Secretary
Date: November 7, 2001 /s/ Brian A. Wasserman
----------------------
Brian A. Wasserman
Treasurer, Chief Financial Officer, and Director
Date: November 7, 2001 /s/ Giuseppe Soccodato
----------------------
Giuseppe Soccodato
Controller and Chief Accounting Officer
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