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 SEPTEMBER 30, 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.) FLOOR 21, MILLENNIUM TOWER, HANDELSKAI 94-96, A-1200 VIENNA, AUSTRIA (Address of office) (43) 1 240 25 102 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: Class Outstanding at November 14, 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 THREE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED) 2 DRUMMOND FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these financial statements. 3 DRUMMOND FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of these financial statements. 4 DRUMMOND FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these financial statements. 5 DRUMMOND FINANCIAL CORPORATION STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED) (DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these financial statements. 6 DRUMMOND FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 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 three months ended September 30, 2002 were of a normal, recurring nature. The amounts presented for the three months ended September 30, 2002 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, 2002, and should be read in conjunction with such annual report. Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation. NOTE 2. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share is calculated by dividing the net income or loss available to common shareholders by the weighted average number of common shares outstanding during the three months ended September 30, 2002 and 2001, respectively. The weighted average number of shares outstanding was 2,718,600 for the three months ended September 30, 2002 and 2001, respectively. The income or loss available to common shareholders includes the recognition of a preferred stock dividend of $76,000 in the three months ended September 30, 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 September 30, 2002. 7 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 the Corporation for the three months ended September 30, 2002 and 2001 should be read in conjunction with the consolidated financial statements and related notes included elsewhere herein. RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2002 Revenues for the three months ended September 30, 2002 increased to $0.4 million from nil for the comparative period of 2001, primarily as a result of an increase in interest revenue and decrease in loss on securities. The Corporation had a nominal loss on securities for the current period, compared to a loss on securities of $0.2 million for the comparative period in 2001. Revenues from interest increased to $0.3 million for the three months ended September 30, 2002 from $0.1 million for the three months ended September 30, 2001. Revenues from dividends and other activities were $76,000 for the three months ended September 30, 2002, compared to $0.1 million for the three months ended September 30, 2001. Costs and expenses for the three months ended September 30, 2002 were $0.4 million, compared to $0.5 million for the comparative period of 2001. General and administrative expenses were $0.2 million for both the three months ended September 30, 2002 and 2001. Interest expense decreased to $0.2 million for the three months ended September 30, 2002 from $0.3 million for the three months ended September 30, 2001, primarily as a result of a decrease in debt in the current period. No income tax provision was recognized for the three months ended September 30, 2002 and 2001, respectively, except for the payment of a minimum tax of $1,000 for the three months ended September 30, 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 three months ended September 30, 2002, the Company reported a net loss of $29,000, or $0.04 per common share, compared to a net loss of $0.4 million, or $0.19 per common share ($0.22 per common share before extraordinary items), for the three months ended September 30, 2001. LIQUIDITY AND CAPITAL RESOURCES The Corporation's cash and cash equivalents at September 30, 2002 were $0.6 million, a decrease of $0.1 million from June 30, 2002. Operating activities provided cash of $0.2 million in the three months ended September 30, 2002, compared to providing cash of $0.7 million for the three months ended September 30, 2001. An 8 increase in receivables used cash of $0.3 million in the three months ended September 30, 2002, compared to $79,000 in the three months ended September 30, 2001. Investing activities used cash of $22.5 million in the three months ended September 30, 2002, compared to providing $0.1 million in the three months ended September 30, 2001. Financing activities provided cash of 22.3 million in the three months ended September 30, 2002, compared to using cash of $0.3 million in the three months ended September 30, 2001. 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, 2002 for information concerning market risk. ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic reports filed with the U.S. Securities and Exchange Commission. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of certain events, and there can be no assurance that any design will succeed in achieving its stated goals under all future conditions, regardless of how remote. In addition, we reviewed our internal controls, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation. 9 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, 2002 for information concerning certain legal proceedings. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 99.1 Certification of Periodic Report (b) REPORTS ON FORM 8-K Form 8-K dated July 25, 2002: Item 5. Other Events 10 SIGNATURES Pursuant to 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. Dated: November 14, 2002 DRUMMOND FINANCIAL CORPORATION By: /s/ Michael J. Smith --------------------------------------- Michael J. Smith President, Chief Executive Officer and Chief Financial Officer 11 CERTIFICATION OF PERIODIC REPORT I, Michael J. Smith, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Drummond Financial Corporation (the "Registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others with those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Michael J. Smith ------------------------------- Michael J. Smith Chief Executive Officer and Chief Financial Officer 12 EXHIBIT 99.1

DRUMMOND FINANCIAL CORP 10-Q