-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TBwWrn2GNNaRq8M/+phXGZfwi+luUEmwg1QhIxpEVEHpn9U2F6YNvP/X3qkdGqq6 BNo23/eDXt92VAmBfr2joQ== 0000852220-01-500009.txt : 20020410 0000852220-01-500009.hdr.sgml : 20020410 ACCESSION NUMBER: 0000852220-01-500009 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARBOURTON FINANCIAL CORP CENTRAL INDEX KEY: 0000852220 STANDARD INDUSTRIAL CLASSIFICATION: SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153] IRS NUMBER: 541208450 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-17832 FILM NUMBER: 1788405 BUSINESS ADDRESS: STREET 1: 8180 GREENSBORO DRIVE STREET 2: SUITE 525 CITY: MCLEAN STATE: VA ZIP: 22102 BUSINESS PHONE: 703-883-9757 MAIL ADDRESS: STREET 1: 8180 GREENSBORO DRIVE STREET 2: STE 525 CITY: MCLEAN STATE: VA ZIP: 22102 FORMER COMPANY: FORMER CONFORMED NAME: ALLSTATE FINANCIAL CORP /DE/ DATE OF NAME CHANGE: 20000908 FORMER COMPANY: FORMER CONFORMED NAME: ALLSTATE FINANCIAL CORP /VA/ DATE OF NAME CHANGE: 19920703 10QSB 1 qsb9302001.txt QUARTERLY REPORT ON FORM 10QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 Commission File Number 0-17832 Harbourton Financial Corporation (Exact name of small business issuer as specified in its charter) Delaware 54-1208450 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8180 Greensboro Drive, McLean, VA 22102 --------------------------------- ----- (Address of principal executive offices) (Zip Code) (703) 883-9757 (Issuer's telephone number) Check whether the issuer (1) 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 ---- ---- The number of shares outstanding of the issuer's common stock, $.01 par value, as of November 13, 2001, was 15,184,164. Transitional Small Business Disclosure Format (check one): No X Yes Harbourton Financial Corporation Form 10-QSB Index Page Number Part I Item 1. Financial Statements Consolidated Balance Sheets..............................................1 Consolidated Statements of Operations (unaudited)........................2 Consolidated Statements of Comprehensive Income (unaudited)..............2 Consolidated Statements of Shareholders' Equity (unaudited)..............3 Consolidated Statements of Cash Flows (unaudited)........................4 Notes to Consolidated Financial Statements...............................5 Item 2. Management's Discussion and Analysis or Plan of Operation........8 Part II.......................................................................13 Item 1. Legal Proceedings...............................................13 Item 2. Changes in Securities and Use of Proceeds.......................13 Item 3. Defaults Upon Senior Securities.................................13 Item 4. Submission of Matters to a Vote of Security Holders.............13 Item 5. Other Information...............................................13 Item 6. Exhibits and Reports on Form 8-K................................13 Signatures....................................................................14 Harbourton Financial Corporation and Subsidiaries Consolidated Balance Sheets
--------------------------------------------------------------------- ------------------------ ------------------------ September 30, 2001 December 31, 2000 ------------------- ----------------- --------------------------------------------------------------------- --------------------------------------------------------------------- Unaudited --------------------------------------------------------------------- ------------------------ ------------------------ Assets --------------------------------------------------------------------- Cash and cash equivalents $ 601,039 $ 447,184 --------------------------------------------------------------------- Loans receivable, net 13,651,559 12,199,912 --------------------------------------------------------------------- Purchased receivables, net 1,518,454 1,575,969 --------------------------------------------------------------------- Securities available for sale 79 60,000 --------------------------------------------------------------------- Deferred income taxes, net 3,205,198 3,126,714 --------------------------------------------------------------------- Furniture, fixtures and equipment, net 30,479 55,617 --------------------------------------------------------------------- Other assets 179,662 154,328 ------- ------- --------------------------------------------------------------------- Total assets $19,186,469 $17,619,724 ============ ============ --------------------------------------------------------------------- Liabilities and shareholders' equity --------------------------------------------------------------------- Liabilities --------------------------------------------------------------------- Notes payable $1,680,000 $1,420,000 --------------------------------------------------------------------- Convertible subordinated notes 266,000 266,000 --------------------------------------------------------------------- Accounts payable and accrued expenses 446,548 793,867 --------------------------------------------------------------------- Income taxes payable 24,189 24,189 ------ ------ --------------------------------------------------------------------- Total liabilities 2,416,737 2,504,056 --------- --------- --------------------------------------------------------------------- Shareholders' equity: --------------------------------------------------------------------- Common stock, $.01 par value, authorized 20,000,000 shares; 15,184,164 issued and outstanding 151,841 151,841 --------------------------------------------------------------------- Additional paid-in-capital 24,612,674 24,612,674 --------------------------------------------------------------------- Accumulated deficit (7,990,862) (9,704,847) --------------------------------------------------------------------- Accumulated other comprehensive income: unrealized (loss) gain on investment securities (3,921) 56,000 ------- ------ --------------------------------------------------------------------- Total shareholders' equity 16,769,732 15,115,668 ---------- ---------- --------------------------------------------------------------------- Total liabilities and shareholders' equity $19,186,469 $17,619,724 ============ =========== ---------------------------------------------------------------------
See Notes to Consolidated Financial Statements 1 Harbourton Financial Corporation and Subsidiaries Consolidated Statements of Operations (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 Revenue Earned discounts and interest 707,721 $ 70,807 1,779,161 $287,735 Fees and other revenue 345,982 93,686 1,249,370 284,233 Profit participations 81,817 - 178,995 - ------------- -------- ---------- Total Revenue 1,135,520 164,493 3,207,526 571,968 ---------- ------- ---------- ------- Expenses Compensation and fringe benefits 291,775 112,805 897,903 398,048 General and administrative 264,291 307,204 572,190 850,035 Interest expense 49,258 169,809 101,931 516,523 Provision for recovery - (473,830) - (839,319) -------------- --------- --------------- --------- - Total Expenses 605,324 115,988 1,572,024 925,286 -------- ------- ---------- ------- Income (Loss) Before Income Tax benefit 530,196 48,505 1,635,502 (353,318) Income tax (benefit) (15,000) - (78,484) - ------------ -------- ---------- --------- Net income (loss) $545,196 $48,505 $1,713,986 $(353,318) ========= ======= =========== ========== Net income (loss) per common share Basic and diluted $.04 $.02 $.11 ($.15) ==== ==== ==== ====== Weighted average Number of shares outstanding 15,184,164 2,499,616 15,184,164 2,403,644 =========== ========= =========== ========= Basic and diluted
Harbourton Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (unaudited) ---------------------------------------------- ---------------------------------- ----------------------------------- Three Months Ended September 30, Nine Months Ended September 30, 2001 2000 2001 2000 ---------------------------------------------- ---------------- ----------------- ----------------- ----------------- Net income (loss) $545,196 $ 48,505 $1,713,986 $(353,318) ========= ======== =========== ========== Other comprehensive income: Unrealized (loss) gain on securities available for sale (788) (144,000) (59,921) 232,000 ----- --------- -------- ------- Comprehensive income (loss) $544,408 $ (95,495) $1,654,065 $(121,318) ======== ========== ========== ==========
See Notes to Consolidated Financial Statements 2 Harbourton Financial Corporation and Subsidiaries Consolidated Statements of Shareholders' Equity - ------------------------------------------------------------------------------------------------------------------------------------ Retained Accumulated Additional Earnings Other Common Paid-in- Treasury (Accumulated Comprehensive Stock Capital Stock Deficit) Income Total - ------------------------------------------------------------------------------------------------------------------------------------ Balance - December 31, 1999 $ 40,000 $18,874,182 $(4,967,472) $(13,604,281) $ - $ 342,429 Amortization of treasury stock acquisition costs - - 13,449 - - 13,449 Unrealized gains on investment securities - - - - 56,000 56,000 Issuance of restricted stock - 89,250 - 89,250 - - Conversion of no par value Virginia shares to $.01 par value Delaware shares (7,192) 7,192 - - - - Issuance of 5,168,388 shares in exchange for convertible subordinated notes 51,684 4,688,415 - - 4,740,099 - Issuance of 7,516,160 shares in exchange for common stock of Harbourton Financial Corp. 75,161 7,931,878 - 1,053,753 - 9,060,792 Return of capital (2,024,220) - - - (2,024,220) - Retirement of 781,212 shares of treasury stock (7,812) (4,954,023) 4,954,023 - - (7,812) Net income - - - 2,845,681 - 2,845,681 ------------ ---------- ----------- ---------- --------- ---------- Balance-December 31, 2000 151,841 24,612,674 - (9,704,847) 56,000 15,115,668 Net income (unaudited) - - - 1,713,986 - 1,713,986 Unrealized loss on investment securities (unaudited) (59,921) (59,921) --------- ---------- -------- ----------- --------- Balance- September 30, 2001 (unaudited) $151,841 $24,612,674 $ - $(7,990,862) $ (3,921) $16,769,732 ========= ============ ======== ============ ========= ===========
See Notes to Consolidated Financial Statements 3 Harbourton Financial Corporation and Subsidiaries Consolidated Statements of Cash Flows (unaudited)
- ---------------------------------------------------------------------------------------------------------------------------- Nine months ended September 30, 2001 September 30, 2000 - ---------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $1,713,986 $(353,318) Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Depreciation 30,024 62,679 Amortization of valuation allowance (67,941) - Provision for recoveries - (839,319) Changes in operating assets and liabilities: Other assets (25,334) (150,148) Accounts payable and accrued expenses (347,319) 9,192 Deferred income taxes (78,484) - -------- --------- Net cash provided by (used in) operating activities 1,224,932 (1,270,896) --------- ----------- Cash flows from investing activities: (Increase in) collection of receivables, net (1,326,191) 4,570,139 (Purchase) sale of furniture, fixtures and equipment (4,886) 11,221 ------- ------- Net cash (used in) provided by investing activities (1,331,077) 4,558,918 ----------- --------- Cash flows from financing activities: Principal borrowings (payments) on notes payable, net 260,000 (1,366,050) Treasury stock acquisition costs - 13,449 ---------- ------ Net cash provided by (used in) financing activities 260,000 (1,322,601) ------- ----------- Net increase in cash 153,855 1,965,421 Cash, beginning of period 447,184 353,962 ------- ------- Cash, end of period $ 601,039 $2,319,383 ========= ========== Supplemental disclosure of cash flow information: Cash paid for interest $109,419 $67,250 ======== ======= Unrealized (loss) gain on securities available for sale $(59,921) $232,000 ========= ======== Issuance of common stock as directors' fees $ - $89,250 ====== =======
See Notes to Consolidated Financial Statements 4 Harbourton Financial Corporation and Subsidiaries Notes to Consolidated Financial Statements 1. General. The consolidated financial statements of Harbourton Financial Corporation (f/k/a Allstate Financial Corporation, prior to its name change on May 1, 2001) and subsidiaries (the "Company") included herein are unaudited for the periods ended September 30, 2001 and 2000; however, they reflect all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary to present fairly the results for the periods presented. The December 31, 2000 balance sheet has been extracted from audited financial information. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company believes that the disclosures are adequate to make the information presented not misleading.The results of operations for the three and nine months ended September 30, 2001 are not necessarily indicative of the results of operations to be expected forthe remainder of the year. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in Allstate Financial Corporation's Annual Report on Form 10-KSB for the year ended December 31, 2000. 2. Receivables. At September 30, 2001 and December 31, 2000, loans receivable, net, comprises the following:
-------------------------------------------------- ---------------------------- --------------------------- September 30, 2001 December 31, 2000 ------------------ ----------------- -------------------------------------------------- ---------------------------- --------------------------- Loans receivable - gross $54,377,641 $55,340,066 Portion sold to participants (39,358,683) (41,833,057) Deferred interest and fees (1,387,546) (979,971) Amount allocated from purchase of minority interest (30,196) (98,137) Investment in real estate ventures 670,058 311,237 Allowance for credit losses (619,715) (540,226) --------- --------- Loans receivable, net $ 13,651,559 $12,199,912 ============= =========== At September 30, 2001 and December 31, 2000, purchased receivables, net, is as follows:
--------------------------------------------------- --------------------------- --------------------------- September 30, 2001 December 31, 2000 ------------------ ----------------- --------------------------------------------------- --------------------------- --------------------------- Life insurance policies $2,814,868 $2,914,868 --------------------------------------------------- Valuation allowance (1,336,560) (1,386,045) ----------- ----------- --------------------------------------------------- Life insurance policies, net 1,478,308 1,528,823 ---------- ---------- --------------------------------------------------- Litigation claims, net of unearned discount 40,146 59,872 --------------------------------------------------- Allowance for credit losses - (12,726) --------- -------- --------------------------------------------------- Litigation claims, net 40,146 47,146 --------------------------------------------------- Total purchased receivables, net $1,518,454 $1,575,969 ================================= =========== =========== ---------------------------------------------------
5 Activity in the allowance for losses accounts for the three and nine months ended September 30, 2001 was as follows:
------------------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended September 30, 2001 September 30, 2001 ------------------------------------------------------------------------------------------------------------ Beginning Balance $618,526 $552,954 Charge-offs - 31,909 Recoveries of amounts previously charged-off 1,189 98,670 ----- -------- Ending Balance $619,715 $619,715 ======== ========
Impaired loans are measured based on the present value of expected future cash flows discounted at a rate determined by management, or, as a practical expedient, the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Changes in the present value of impaired loans are recognized as bad debt expense in the same manner in which impairment was initially recognized or as a reduction in the amount of bad-debt expense that otherwise would be reported. Information regarding impaired loans at September 30, 2001 and December 31, 2000 is as follows:
--------------------------------------------------------- ------------------------- ------------------------ September 30, 2001 December 31, 2000 --------------------------------------------------------- ------------------------- ------------------------ Number of impaired loans 1 1 --------------------------------------------------------- Total recorded investment in impaired loans, net of deferred income $1,424,003 $463,746 --------------------------------------------------------- Recorded investment in impaired loans for which there is a related allowance $1,424,003 $463,746 --------------------------------------------------------- Related allowance for impaired loans $350,884 $232,000 ---------------------------------------------------------
3. Credit Concentrations. For the three months ended September 30, 2001, the total revenue from the two largest borrowers, each of which accounted for 10% or more of the Company's total revenues (net of non-recurring item), was 42.1% of the Company's total revenues, compared to revenues from two clients, each accounting for over 10% of the Company's total revenue, representing 31.2% of the total in the same period in 2000. At September 30, 2001, three borrowers (counting as a single borrower those related by common ownership) whose balances were more than 10% of the Company's outstanding loan balances net of deferred income and participations sold, accounted for 38.9% of the Company's total receivables, while at December 31, 2000 four such borrowers accounted for 61.5%. 4. Stock Options. The Company maintains two stock option plans: (1) the Incentive Stock Option Plan ("Qualified"), and (2) the 2000 Stock Option Plan ("2000 Plan"), under which either qualified or non-qualified options may be issued. The Company continues to account for stock options under APB 25 and provides the additional disclosures as required by SFAS No. 123. 6 There was no activity in the Qualified plan during the three and nine months ended September 30, 2001. The Company reserved the lesser of 450,000 shares or 8% of the then issued and outstanding shares of common stock for issuance under its 2000 Plan. As of September 30, 2001, the amount of shares reserved was 450,000. On May 2, 2001, 400,000 options were granted under the 2000 Plan. The exercise price of the options was $1.00 per share and is indexed to the rate on US Treasury securities of the same maturity as the options, 5.0 %. The terms of the awards will require that the Company use variable plan accounting to measure compensation expense in subsequent periods. The options vest by December 31, 2003 and expire on December 31, 2008. Because the exercise price of the options exceeded the market value of the underlying stock on every day during the period, no compensation cost has been recognized under the provisions of APB 25 for the 2000 Plan for the three and nine months ended September 30, 2001. The fair value at date of grant for options granted during the three and nine months ended September 30, 2001 was $0.34. The fair value of options at date of grant was estimated using the Black-Scholes model with an expected option life of 5.7 years, and the following assumptions: dividend yield - none, interest rate - 0% (the "risk-free" rate minus the index rate referred to above), and volatility 68.00% (average daily volatility for the period November 30, 2000-June 30, 2001). In accordance with the additional disclosures as required by SFAS No. 123, had we determined compensation cost for the 2000 Plan based on the fair value at date of grant for options granted during the three and nine months ended September 30, 2001, our net profit for the three and nine months ended September 30, 2001 would have been reduced to the proforma amounts indicated below:
------------------------- ----------------------- ------------------------------ ------------------------------ Three Months Ended Nine Months Ended ------------------- ---------------------------- September 30, 2001 September 30, 2001 ------------------ --------------------------- ------------------------- ----------------------- ------------------------------ ------------------------------ Net income As reported $545,196 $1,713,986 Pro forma $524,460 $1,629,961 Basic and diluted As reported $0.04 $0.11 earnings per share Pro forma $0.03 $0.11
The table below summarizes the option activity for both plans for the nine months ended September 30, 2001:
Outstanding at January 1, 2001 30,600 ------------------------------------------------- Granted 400,000 ------------------------------------------------- Forfeited or expired 0 ------- Outstanding at September 30, 2001 430,600 ------- ------------------------------------------------- Exercisable at September 30, 2001 130,600 ======= -------------------------------------------------
5. Income taxes. The Company determined that a portion of the valuation allowance for the deferred tax asset was not required because of projected future profitability and recorded reductions to the allowance in the three and nine month periods ended September 30, 2001. 7 Activity in the net deferred income taxes account for the three and nine months ended September 30, 2001 was as follows:
-------------------------------------------------------- ------------------------- ---------------------------- Three months ended Nine months ended ------------------- ------------------ September 30, 2001 September 30, 2001 ------------------ ------------------ -------------------------------------------------------- ------------------------- ---------------------------- Beginning balance $3,190,198 $3,126,714 Income taxes 203,012 626,234 Reduction in valuation allowance (218,012) (704,718) --------- --------- Ending Balance $3,205,198 $3,205,198 ========== ==========
Item 2. Management's Discussion and Analysis or Plan of Operation This Form 10-QSB may contain certain "forward-looking statements" relating to the Company (defined in the notes to the financial statements above, and also referred to herein as "we," "our," or "us") that represent our current expectations or beliefs, including, but not limited to, statements concerning our operations, performance, financial condition and growth. For this purpose, any statements contained in this Form 10-QSB that are not statements of historical fact may be deemed forward-looking statements. Without limiting the generality of the foregoing, words such as "may", "will", "expect", "believe", "anticipate", "intend", "could", "estimate", or "continue", or the negatives or other variations thereof, or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, such as credit losses, dependence on management and key personnel, seasonality and variability of quarterly results, our ability to continue our growth strategy, competition, and regulatory restrictions relating to potential new activities, certain of which are beyond our control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual outcomes and results could differ materially from those indicated in the forward-looking statements. General Description. Harbourton Financial Corporation, f/k/a Allstate Financial Corporation, was formed in 1982 as a Virginia corporation. On August 28, 2000, we changed our state of incorporation to Delaware and, on November 30, 2000, acquired Harbourton Financial Corp. ("Old Harbourton") by merger. Old Harbourton was a Delaware corporation formed in August 1998 to acquire the assets of Harbourton Residential Capital Co., L.P. On May 1, 2001, we changed our name to Harbourton Financial Corporation to better reflect our business plan, which is to provide financing to the residential building and development community, through products that were previously offered by Old Harbourton. Although we are no longer active in these business lines, we have a liquidating portfolio of commercial finance loans to small and middle-market businesses secured by inventory and machinery and equipment collateral ("Asset-Based" loans, or "ABL"). In October 1999, we sold our factoring business, the portion of the business that purchased discounted invoices with recourse. We will continue to receive revenue from this sale for the near future, under an agreement with the purchaser to pay us part of their net revenue earned from new factoring activities with the borrowers acquired from us. Our subsidiary Lifetime Options, Inc. manages a portfolio of life insurance policies it purchased from individuals facing life-threatening illnesses. During 1997, Lifetime Options ceased purchasing policies. The market for residential real estate is sensitive to, among other factors, the general level of consumer and business confidence, interest rates, and macro economic conditions. Although the Company has not experienced any marked 8 downturn in sales at the various building projects in its finance portfolio following the events of September 11, 2001, it is carefully monitoring the national and local economic conditions and trends. In addition, the Company has modified its underwriting criteria with the objective of further limiting the risk associated with new financing transactions. Such increased selectivity may limit the amount of new lending arrangements that the Company originates in future periods. Liquidity and Capital Resources. Our requirement for capital is a function of the level of our generation of and investment in receivables. We fund this investment in receivables through loan participations, shareholders' equity, bank lines of credit, convertible subordinated notes, and internally generated funds. The Company sells participation interests in selected loans, using a structure designed to provide credit enhancement to participants as well as incentives for the Company to efficiently service and administer loans. The Company currently has participations with four sources including banks and a major nonbank financial services company. The Company can not be assured that the existing sources will continue to purchase new participations or that additional sources can be located to purchase participations. On March 15, 2001, our bank approved an increase in our secured line of credit from $2.5 million to $3.0 million, and an extension of the maturity to December 31, 2002. On September 30, 2001, there was $1.3 million available to the Company under the line. Financial condition at September 30, 2001 and December 31, 2000. Total assets were $19.2 million at September 30, 2001 compared to $17.6 million at December 31, 2000. Our total loans receivable before the sale of participations ("Managed Loan Portfolio") was $54.4 million at September 30, 2001 and $55.3 million at December 31, 2000. Participations sold as of those same dates were $39.4 million and $41.8 million. Purchased receivables declined by $100 thousand with the collection of two life insurance policies. Equity loans, which represent amounts due based on the Company's entitlement to receive a percentage share of underlying project profits in certain lending arrangements, increased to $620 thousand at September 30, 2001 compared to $311 thousand at December 31, 2000. We increased the net balance of our deferred tax asset by $78 thousand as a result of a reduction in the valuation allowance applied to the asset. The value of our securities held for resale (consisting of stock accepted in partial settlement of a loan) fell to less than $1 thousand from $60 thousand. Other assets increased to $180 thousand from $154 thousand. The cash flows from our operations during the nine months ended September 30, 2001, along with an increase in our bank debt of $260 thousand, were used to increase our net receivables by $1.5 million. We also reduced accounts payable and accrued expenses, primarily through the payments of merger-related expenses and bonus compensation for the year ended December 31, 2000. The following table indicates the composition of our portfolio, net of deferred income and participations sold (gross of the allowance for losses), by loans receivable and purchased receivables, as of September 30, 2001 and December 31, 2000 (dollars in thousands and as a percentage of the total portfolio). 9
- -------------------------------------------------------------------------------------------------------------------- Composition of Receivable Portfolio September 30, 2001 December 31, 2000 Percent of Percent of Amount total Amount total - -------------------------------------------------------------------------------------------------------------------- Loans receivable $14,301 90.1% $12,838 89.0% Purchased receivables 1,518 9.9% 1,589 11.0% ----- ---- ------ ----- Total portfolio $15,820 100.0% $14,427 100.0% ======= ====== ======= ======
The following table indicates the composition of our retained loan portfolio, net of deferred income and participations sold (gross of the allowance for loan losses), by loan product, as of September 30, 2001 and December 31, 2000 (dollars in thousands and as a percentage of the total portfolio).
- -------------------------------------------------------------------------------------------------------------------- Loans Receivable, Net of Deferred Income, by Loan Product September 30, 2001 December 31, 2000 Percent of Percent of Amount total Amount total - -------------------------------------------------------------------------------------------------------------------- Acquisition, development and construction $6,169 43.1% $6,205 48.3% Mezzanine 6,711 46.9% 5,059 39.4% Equity loans 671 4.7% 311 2.4% Asset-based 638 4.5% 1,146 8.9% Other 112 0.8% 117 0.9% ------ ---- ---- ------ All products $14,301 100.0% $12,838 100.0% ======== ======= ======== ======
Within the asset-based portfolio, we had no non-performing accounts at September 30, 2001 and one at December 31, 2000. At September 30, 2001, there are two related non-performing loans, to the same borrower, in the mezzanine loan and equity loan portfolios, with a combined balance (net of deferred income) of $1.4 million. Except for the asset-based loan referenced above, there were no other non-performing loans at December 31, 2000. This space intentionally left blank. 10 Three and nine months ended September 30, 2001 vs. three and nine months ended September 30, 2000. The following tables show the components of revenue for the three and nine-month periods ended September 30, 2001 vs. September 30, 2000 (dollars in thousands and as a percentage of total revenues).
- -------------------------------------------------------------------------------------------------------------------- Three Months Ended September 30, 2001 2000 ---- ---- Percent Percent Increase Increase -------- -------- -------- -------- Amount of total Amount of total amount percent ------ -------- ------ -------- ------ ------- - -------------------------------------------------------------------------------------------------------------------- Interest, discounts, and loan fees $ 708 62.3% $71 43.0% $637 899.6% Administration fees and other revenue 346 30.5% 94 57.0% 252 269.2% Profit participations 82 7.2% - - 82 - ------ --- ---- ------ ---- Total revenues $1,136 100.0% $165 100.0% $971 590.3% ======= ====== ===== ====== ===== ======
- ------------------------------- ------------------------------------------------------------------------------------ Nine Months Ended September 30, 2001 2000 ---- ---- Percent of Percent of Increase Increase ----------- ----------- -------- -------- Amount total Amount total amount percent ------ ----- ------ ----- ------ ------- - ------------------------------- ------------- ------------- ------------- ------------- -------------- ------------- Interest, discounts, and loan fees $1,779 55.5% $288 50.3% $1,491 518.4% Administration fees and other revenue 1,249 39.0% 284 49.7% 965 339.6% Profit participations 179 5.6% - - 179 - ---- ---- ---- ----- ---- Total revenues $3,208 100.0% $572 100.0% $2,636 460.9% ======= ====== ===== ====== ======= ======
During the three and nine months ended September 30, 2001, the results predominantly reflect our current core business of lending to builders/developers of residential real estate. During the three and nine months ended September 30, 2001, we had other, non-recurring, revenue of $137 thousand and $387 thousand, respectively, from the sale of intellectual property. Because we may provide higher amounts of funding based on loan to costs than traditional bank lenders, our loan structures provide for fees and other revenue, including profit participations in the properties being developed by borrowers. These fees and other revenues enhance our yield and provide returns that may approach those traditionally earned by equity investments. In addition, we have subordinated our retained interest in selected loans to the participant. This has the effect of increasing both our yields and our risk exposures on the portions of loans we retain. For the same period in 2000, the revenues were derived from the liquidating portfolio of commercial finance loans to small and middle-market businesses secured by inventory and machinery and equipment, as well as the fees from the buyer of the factoring business. The following tables show our expenses for the three and nine-month periods ended September 30, 2001 vs. September 30, 2000 (dollars in thousands and as a percentage of total revenues). 11
- -------------------------------------------------------------------------------------------------------------------- Three Months Ended September 30, 2001 2000 ---- ---- Increase/ Increase/ Percent of Percent of (decrease) (decrease) ---------- ---------- ---------- ---------- Amount revenue Amount revenue amount percent ------ ------- ------ ------- ------ ------- - -------------------------------------------------------------------------------------------------------------------- Compensation and fringe benefits $ 292 25.7% $ 113 68.7% $179 158.2% General and administrative 264 23.3% 307 186.6% (43) (13.9%) Interest expense 49 4.3% 170 103.3% (121) (71.0%) Provision for (recoveries) - - (474) (288.1%) 474 (100.0%) ------ -------- ----- -------- ---- -------- Total expenses 605 46.7% 116 70.5% 489 421.8% ---- ----- ---- ----- ---- ------ Income before income tax benefit 530 46.7% 49 29.8% 481 982.0% Income tax ( benefit) (15) (1.3%) - - (15) - ---- ------ ------ -------- --- Net income $ 545 48.0% $ 49 29.8% $496 1012.6% ====== ===== ===== ===== ===== =======
- ----------------------------------- --------------------------------------------------------------------------------- Nine Months Ended September 30, 2001 2000 ---- ---- Increase/ Increase/ Percent of Percent of (decrease) (decrease) ---------- ---------- ---------- ---------- Amount revenue Amount revenue amount percent ------ ------- ------ ------- ------ ------- - ----------------------------------- ------------ -------------- ----------- -------------- ------------ -------------- Compensation and fringe benefits $898 28.0% $398 69.6% $500 125.6% General and administrative 572 17.8% 850 148.6% (278) (32.7%) Interest expense 102 3.2% 517 90.4% (415) (80.3%) Provision for (recoveries) - - (839) (146.7%) 839 (100.0%) ------- ------- ----- -------- ---- -------- Total expenses 1,572 49.0% 925 161.7% 647 69.9% ------ ----- ---- ------ ---- ----- Income (loss) before income tax benefit 1,636 51.0% (353) (61.7%) 1,989 (563.3%) Income tax (benefit) (78) (2.4%) - - (78) - ---- ------ ---- -------- ---- Net income (loss) $1,714 53.4% $(353) (61.7%) $2,067 (585.5%) ======= ===== ====== ======= ======= ========
During the three and nine months ended September 30, 2001, the expenses reflect the operations of the merger of the Company with Old Harbourton (the "Merged Operation"). Compensation expenses were higher for the Merged Operation in part because it employs a greater number of people to effect the new business model as compared to our liquidating operation in the same period last year. General and administrative expenses were lower in the 2001 periods primarily due to lower legal and professional costs, rent and occupancy expenses and depreciation expense. Most of these savings relate to the expenses of collection and downsizing during 2000. Interest expense is lower because the majority of our financing now comes from participations instead of lines of credit, and because we converted the majority of our convertible subordinated notes to equity in October 2000. Interest on the convertible subordinated notes in the three and nine months ended September 30, 2001 was $7 thousand and $20 thousand, respectively, vs. $170 and $429 thousand, respectively, in the same periods in 2000, reflecting the note conversion. 12 Based on our projected profitability we determined that a portion of the valuation allowance for the deferred tax asset was not required and recorded a $218 thousand reduction to the allowance in September 2001. Combined with income taxes at our statutory rate of $203 thousand, this led to a net tax benefit of $15 thousand for the three months ended September 30, 2001. For the nine months ended September 30, 2001 the corresponding amounts were $705 thousand, $626 thousand, and $78 thousand, respectively. In 2000, we did not record any tax expense or benefit. We did not record a provision for losses or recoveries in the three and nine months ended September 30, 2001. In the three and nine month periods ended September 30, 2000, we recorded provisions for recoveries of $484 and $839 thousand, respectively. During the three and nine months ended September 30, 2001, we charged off no receivables and $32 thousand in receivables, respectively. In those same periods, we recovered $2 thousand and $99 thousand of receivables charged-off in prior periods. During the three and nine months ended September 30, 2000, the Company had charge-offs of $0 and $4 million, respectively, while recovering $600 thousand and $624 thousand. At September 30, 2001, our allowance for losses on loans receivable was $620 thousand. Of the total allowance, $351 thousand was allocated to one impaired account. The remaining reserve, $269 thousand, is 2.1% of performing receivables, net, at September 30, 2001. At December 31, 2000, $232 thousand of the $553 thousand allowance was allocated to one impaired account. The balance, $321 thousand, was 2.7% of performing receivables, net, as of that date. Part II Item 1. Legal Proceedings. None Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. No Reports were filed on Form 8-K during the period. 13 Signatures In accordance with the requirements of the Securities and Exchange Act of 1934, Harbourton Financial Corporation caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Harbourton Financial Corporation Date: November 14, 2001 /s/ J. Kenneth McLendon J. Kenneth McLendon President and Chief Executive Officer Date: November 14, 2001 /s/ C. Fred Jackson C. Fred Jackson Senior Vice President and Chief Financial Officer 14 -----END PRIVACY-ENHANCED MESSAGE-----