SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[X] 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 registrant 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 Turnpike, East Meadow, NY 11554
------------------------------------------ ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (
-
Check whether the registrant has (1) filed all documents and reports required
to be filed by Section 13 or 15(d) of the Exchange Act 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
ninety days.
Yes x No
------ -----
As of April 30, 2001, 21,644,210 shares of Common Stock were issued and
outstanding.
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) as of March 31, 2001
and December 31, 2000............................................. 2
Consolidated Statements of Operations (Unaudited) for the Three-Month
Periods Ended March 31, 2001 and 2000............................. 3
Consolidated Statements of Cash Flows (Unaudited) for the Three-Month
Periods Ended March 31, 2001 and 2000............................. 4
Notes to Unaudited Consolidated Financial Statements................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation.......... 11
SIGNATURES.................................................................. 14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEWTEK CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31,
2001 2000
---------- -----------
ASSETS
-------
Cash and cash equivalents $ 38,812,301 $34,697,081
Credits in lieu of cash 19,618,314 17,496,810
Investments in qualified businesses 13,028,898 15,644,515
Structured insurance 2,596,221 2,570,487
Prepaid insurance 11,823,724 12,187,376
Prepaid expenses and other assset 389,611 411,195
Furniture, fixtures and equipemnt, net 29,449 31,46
Asset held for sale 500,000 500,000
---------- ----------
Total asets $86,798,518 $83,538,926
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Accounts payable and accrued expenses $ 1,259,045 $ 2,546,800
Notes-payable - certified investors 3,862,591 3,861,220
Notes payable - insurance 9,666,666 5,800,000
Mortgage payable 356,817 369,339
Interest payable 55,339,090 56,147,907
Deferred tax liability 1,756,872 1,381,258
---------- ----------
Total 72,241,081 70,106,524
---------- ----------
Minority interest 4,144,492 4,163,053
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common Stock (par
value $0.02 per
share: authorized
39,000,000
shares, issued and
outstanding
21,644,210 and 21,373,460) 432,884 427,469
Additional paid-in
Capital 12,644,762 12,267,052
---------- ----------
Accumulated deficit (2,664,701) (3,425,172)
------------ ------------
Total stockholders' equity 10,412,945 9,269,349
------------ ------------
Total liabilities and
stockholders' equity $ 86,798,518 $ 83,538,926
============ ============
See accompanying notes to these Consolidated financial statements.
2
NEWTEK CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
March 31 March 31,
2001 2000
---- ----
Revenue:
Income from tax credits $ 6,030,103 $ 110,269
Consulting fee income 8,000 14,300
Interest and dividend income 638,210 476,419
Other income 45,238 --
----------- -----------
Total revenue 6,721,551 600,988
----------- -----------
Expenses:
General and administrative 1,850,703 800,552
Interest 3,335,532 1,157,479
----------- -----------
Total expenses 5,186,234 1,958,031
----------- -----------
Income (loss) before equity in losses of affiliates,
provision for taxes, and minority interest 1,535,317 (1,357,043)
Equity in net losses of affiliates (298,798) --
----------- -----------
(Loss) income before provision for taxes, extraordinary gain on
defeasance of debt and minority interest 1,236,519 (1,357,043)
Provision for taxes (494,608) --
----------- -----------
Income (loss) before minority interest 741,911 (1,357,043)
Minority interest 18,561 544,614
----------- -----------
Net income (loss) $ 760,471 $ (812,429)
=========== ===========
Weighted average common shares outstanding
Basic 21,382,586 18,456,348
Diluted 21,382,586 18,456,348
Income (loss) per share
Basic $.04 $(.04)
Diluted $.04 $(.04)
See accompanying notes to these Consolidated financial statements.
3
NEWTEK CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
----------------------------
2001 2000
----------- -------------
Cash flows from operating activities:
Net income (loss) $ 760,471 $ (812,429)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Equity in net losses of affiliates 298,798 --
Income from tax credits (6,030,103) (110,269)
Deferred Income Taxes 375,614
Depreciation and other amortization 2,013 4,764
Accretion of interest income (25,734) (25,734)
Accretion of interest expense 3,104,657 1,140,685
Issuance of warrants for services performed 58,800 --
Minority interest included in loss (18,561) (544,614)
Changes in assets and liabilities:
Prepaid insurance 363,652 208,637
Prepaid expenses and other assets 21,584 (3,437)
Accounts payable and accrued expenses (1,291,266) (901,640)
----------- -----------
Net cash used in operating activities (2,380,075) (1,044,037)
----------- -----------
Cash flows from investing activities:
Investments in qualified businesses (9,631,833) (4,376,877)
Return of principal - qualified investments 6,245,320 165,000
Consolidation of majority owned investments 5,703,333 --
Other investments - (220,000)
Purchase of machinery and equipment - (9,722)
----------- -----------
Net cash provided by (used in) investing activities 2,316,820 (4,441,599)
----------- -----------
See accompanying notes to these Consolidated financial statements.
4
NEWTEK CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
Three Months Ended
March 31,
---------------------------
2001 2000
----------- -----------
Cash flows from financing activities:
Payment of note payable - bank - (725,358)
Proceeds from issuance of note payable insurance 5,200,000 -
Payments of note payable insurance (1,333,334) -
Payments on mortgage payable (12,522) -
Net proceeds from issuance of common stock 726,391 1,625,000
Distributions to CAPCO members (402,060) (225,000)
Loans payable - members - 351,000
----------- -----------
Net cash provided by
financing activities 4,178,475 1,025,642
----------- -----------
Net increase (decrease) in cash
and cash equivalents 4,115,220 (4,459,994)
Cash and cash equivalents -
beginning of period $34,697,081 25,454,016
----------- -----------
Cash and cash equivalents - end of period $38,812,301 $20,994,022
=========== ===========
Supplemental disclosure of non-cash financing activities:
---------------------------------------------------------
Reduction of credits in lieu of cash and interest
payable balances due to delivery of tax credits
to certified investors: $ 3,908,599
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"), capcos 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.
6
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
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 10K-SB for its year ended
December 31, 2000, and all other filings with the Securities and Exchange
Commission.
Note 2 - PRIVATE PLACEMENT OF COMMON STOCK
In the first quarter of 2001, the Company sold 270,750 shares of common
stock in private transactions, with gross proceeds totaling approximately
$1,160,000 and incurred related offering costs of approximately $434,000.
Subsequently, the Company filed a resale registration statement which would
permit the purchasers to resell their shares.
Note 3 - INVESTMENTS IN QUALIFIED BUSINESSES
The following table is a summary of investments as of March 31, 2001, shown
separately between their debt ($8,622,133) and equity ($4,406,765) components
7
(for a total non-consolidated Investment in Qualified Businesses of
$13,028,898), and all terms of each are summarized. There are no expiration
dates on any of the financial instruments, unless disclosed.
DEBT Outstanding
Date of Maturity Original Stated Interest Principal Amount
Investee Type Investment Date Principal Amount Rate March 31, 2001
----------------------------------------------------------------------------------------------------------------------------
AIDA, LLC Debt 3/01 3/02 $ 3,500,000 7.00% $3,500,000
----------------------------------------------------------------------------------------------------------------------------
Multi-Media Distribution Debt 6/00 06/14/02 $ 1,000,000 10.00% $1,000,000
Corp.
----------------------------------------------------------------------------------------------------------------------------
4G's Truck Renting Debt 12/00, 1/01 On demand $ 1,000,000 10.00% $ 980,000
----------------------------------------------------------------------------------------------------------------------------
Group Management Debt 11/99 11/23/01 $ 3,150,000 5.25% $ 784,064
Technologies, LLC
----------------------------------------------------------------------------------------------------------------------------
Direct Creations, LLC Debt 9/00 3/9/02 $ 750,000 10.00% $ 750,000
----------------------------------------------------------------------------------------------------------------------------
Tsunami Restaurants(4) Debt 3/01 Various $ 328,500 Prime + $ 328,500
1.00%
----------------------------------------------------------------------------------------------------------------------------
Transworld Business Brokers, Debt 11/99 11/23/01 $ 350,000 6.00% $ 250,000
Inc.
----------------------------------------------------------------------------------------------------------------------------
1 800GiftCertificate Debt 7/99 09/15/01 $ 300,000 8.75% $ 201,525
----------------------------------------------------------------------------------------------------------------------------
Gerace Auto Parts(4) Debt 4/00 Various $ 810,000 Prime + $ 128,677
1.00%
----------------------------------------------------------------------------------------------------------------------------
Steve Kent Trucking(4) Debt 3/00, 5/00 Various $ 747,000 Prime + $ 119,449
1.00%
----------------------------------------------------------------------------------------------------------------------------
Merchant Data Systems, Inc. Debt 8/00 1/11/02 $ 100,000 10.00% $ 100,000
----------------------------------------------------------------------------------------------------------------------------
Gino's Seafood(4) Debt 3/00, 4/00 Various $ 517,942 Prime + $ 86,692
1.00%
----------------------------------------------------------------------------------------------------------------------------
Down to Earth Distribution, Debt 12/99, 8/00 08/16/01 $ 580,000 9.00% $ 80,000
LLC
----------------------------------------------------------------------------------------------------------------------------
St. Gabriel Hardware(4) Debt 11/00 Various $ 477,000 Prime + $ 78,580
1.00%
----------------------------------------------------------------------------------------------------------------------------
Embosser's Sales and Debt 8/00 Various $ 495,000 Prime + $ 77,629
Service(4) 1.00%
----------------------------------------------------------------------------------------------------------------------------
Data-Tel of Louisiana(4) Debt 3/00 Various $ 513,000 Prime + $ 72,500
1.00%
----------------------------------------------------------------------------------------------------------------------------
Raising Cain(4) Debt 3/00, 4/00, 5/00 Various $ 315,000 Prime + $ 47,665
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 + $ 5,352
1.00%
----------------------------------------------------------------------------------------------------------------------------
CB Real Net, LLC Debt 2/01/00 Various $ 2,500,000 Various $ 0
----------------------------------------------------------------------------------------------------------------------------
Merchant Data Systems Sales Debt 10/99 04/15/01 $ 3,500,000 9.00% $ 0
and Marketing
----------------------------------------------------------------------------------------------------------------------------
Total Debt Investments $21,171,942 $8,622,133
=========== ==========
NOTE 3 - INVESTMENTS IN QUALIFIED BUSINESSES (Continued):
EQUITY
Original
Date of Type of Common Stock Percentage of Investment Cost Basis
Investee Investment Investment Equivalents (1) Ownership Amount March 31, 2001
----------------------------------------------------------------------------------------------------------------------------------
Starphire 8/00 Preferred N/A 50.00% $ 1,400,000 $ 1,417,281
Technologies, LLC Membership
Interest w/
voting rights
----------------------------------------------------------------------------------------------------------------------------------
Niche Directories, LLC 9/00, 12/00 Preferred N/A 37.50% $ 1,344,000 $ 1,209,570
Membership
Interest w/
voting rights
----------------------------------------------------------------------------------------------------------------------------------
Merchant Data Systems, 9/00 Preferred Stock/ N/A 35% $ 900,000 $ 785,181
Inc. Common Stock
----------------------------------------------------------------------------------------------------------------------------------
AIDA, LLC 10/00 Preferred Stock/ N/A 50% $ 1,000,000 $ 769,733
Common Stock
----------------------------------------------------------------------------------------------------------------------------------
Multi-Media 6/00 Common Stock 66,000 3% $ 200,000 $ 200,000
Distribution Corp.
----------------------------------------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------------------------------
Group Management 11/99 Membership N/A 50.00% $ 0 $ 0
Technologies, LLC (5) Interest
----------------------------------------------------------------------------------------------------------------------------------
Cedric Kushner Boxing, 11/98 Options for 3 N/A $ 0 $ 0
Inc. (5) Common Stock(2)
----------------------------------------------------------------------------------------------------------------------------------
CB Real Net, LLC (5) 2/00 Warrants for N/A 40.00% $ 0 $ 0
Membership
Interest(3)
----------------------------------------------------------------------------------------------------------------------------------
Direct Creations (5) 12/00 Membership N/A 25% $ 0 $ 0
Interest
----------------------------------------------------------------------------------------------------------------------------------
Down to Earth 12/99 Membership N/A 50.00% $ 0 $ 0
Technologies, LLC (5) Interest
----------------------------------------------------------------------------------------------------------------------------------
Merchant Data Systems 10/99 Membership N/A 50.00% $ 0 $ 0
Sales and Marketing, Interest
LLC (5)
----------------------------------------------------------------------------------------------------------------------------------
Total Equity Investments $ 4,869,000 $ 4,406,765
=========== ===========
Total Debt and Equity Investments March 31, 2001 $26,040,942 $13,028,898
=========== ===========
(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 Louisiana Small Business Administration (SBA) loans.
(5) Represents additional equity interests received for making funds available
to qualified businesses through qualified debt.
9
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
March 31, 2001, the Company has determined that there is no other than temporary
decline in the value of its investments.
The Company consolidates two of its investments. The following tables are
summaries of such investments:
DEBT Outstanding
Date of Maturity Original Stated Interest Principal Amount
Investee Type Investment Date Principal Amount Rate March 31, 2001
---------------------------------------------------------------------------------------------------------------------------
Universal Processing Debt 3/01 3/02 $3,400,000 6.00% $3,400,000
Services, LLC
---------------------------------------------------------------------------------------------------------------------------
PPM Link, LLC Debt 3/01 9/02 $1,850,000 6.00% $1,850,000
---------------------------------------------------------------------------------------------------------------------------
Total Consolidated Debt $5,250,000 $5,250,000
Investments ========== ==========
EQUITY
Original
Date of Type of Common Stock Percentage of Investment Cost Basis
Investee Investment Investment Equivalents (1) Ownership Amount March 31, 2001
----------------------------------------------------------------------------------------------------------------------------------
Universal Processing 3/01 Preferred N/A 60% $ 200,000 $ 200,000
Services, LLC Membership
Interest w/
voting rights
----------------------------------------------------------------------------------------------------------------------------------
PPM Link, LLC 3/01 Preferred N/A 67% $ 253,333 $ 253,333
Membership
Interest w/
voting rights
----------------------------------------------------------------------------------------------------------------------------------
Total Consolidated Equity Investments $ 453,333 $ 453,333
========== ==========
Total Consolidated Debt and Equity Investments March 31, 2001 $5,703,333 $5,703,333
========== ==========
Including the consolidated investments, the Company has qualified investments of
$18,732,231 as of March 31, 2001.
NOTE 4 - 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 months ended March 31, 2001
and the three months ended March 31, 2000 and, therefore, have been excluded
from the calculation of diluted earnings per share.
10
The calculations of Net Income (Loss) Per Share were:
Three months ended
March 31,
-----------------------------------
2001 2000
----------- ------------
Basic
Net income (loss) $ 760,471 $ (812,429)
Weighted average shares 21,382,586 18,456,348
Basic and diluted $ .04 $ (.04)
NOTE 5 - DERIVATIVES AND HEDGING ACTIVITIES
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was
issued. In June 2000, Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Hedging Activities, an
Amendment of FASB Statement No. 133" ("SFAS 138") was issued. SFAS 133 and SFAS
138 address the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. The
Company has adopted SFAS 133 and SFAS 138 in the first quarter of 2001. This had
no material effect on its financial position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Three Months Ended March 31, 2001 compared to Three Months Ended March 31, 2000
Revenues increased by approximately $6,121,000, to $6,722,000 for the three
months ended March 31, 2001, from $601,000 for the three months ended March 31,
2000. Income from tax credits increased by approximately $5,920,000,
attributable to the tax credits recognized in 2001, due to the Company's meeting
investment thresholds mandated by the various state Capco statutes. Interest
and dividend income increased by approximately $162,000, to $638,000 for the
three months ended March 31, 2001, from $476,000 for the three months ended
March 31, 2000. This increase was primarily due to additional investments made
as a result of increased cash balances over the comparable prior period.
Consulting fee income decreased by approximately $6,000 due to the decrease in
consulting related activity.
General and administrative expenses increased by approximately $1,050,000,
to $1,851,000 for the three months ended March 31, 2001, from $801,000 for the
three months ended March 31, 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 $2,179,000 to $3,336,000
for the three months ended March 31, 2001, from $1,157,000 for the three months
ended March 31, 2000, which was attributable to the issuance of notes to
certified investors relating to the formation of Capcos during the prior 12
months.
11
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through the issuance of
notes 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, funding of other investments,
and working capital needs resulting from increased operating and business
development activities of its partner companies.
Net cash used in operating activities for the three months ended March 31,
2001 of approximately $2,380,000 resulted primarily from net income of $760,000,
offset by the non-cash interest expense of approximately $3,104,000 and non-cash
income tax expense of approximately $376,000. It was also affected by the
approximately $299,000 in non-cash equity in net losses of affiliates,
approximately $19,000 of minority interest and the approximately $6,030,000 in
non-cash income from tax credits. In addition, the Company had a decrease in
components of working capital of $906,000 (primarily the decrease in accounts
payable and accruals of $1,291,000).
Net cash provided by investing activities for the three months ended March
31, 2001 of approximately $2,317,000 resulted primarily from approximately
$9,632,000 in additional qualified investments made in the period and offset by
repayments on the debt instruments of $6,245,000. In addition, the Company
consolidated approximately $5,703,000 of its investments.
Net cash provided by financing activities for the three months ended March
31, 2001 was approximately $4,178,000, primarily attributable to approximately
$5,200,000 from the issuance of notes payable which was offset by approximately
$1,333,000 in payments on notes payable, and approximately $726,000 from the
private placement of common stock during the three months ended March 31, 2001.
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 10QSB 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. 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
publicly release the results of revisions which may be made to forward-looking
12
statements to reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
13
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.
NEWTEK CAPITAL, INC.
Date: May 14, 2001 /s/ Barry Sloane
-------------------------------------------------
Barry Sloane
Chairman of the Board, Chief Executive Officer, and
Secretary
Date: May 14, 2001 /s/ Brian A. Wasserman
-------------------------------------------------
Brian A. Wasserman
Treasurer, Chief Financial Officer, and Director
Date: May 14, 2001 /s/ Giuseppe Soccodato
-------------------------------------------------
Giuseppe Soccodato
Controller and Chief Accounting Officer
14