U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
|X| Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
--------------
|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ________ to _____________
Commission file number 33-98178
Matzel & Mumford Mortgage Funding, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
New Jersey 22-33-82016
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 Village Court
Hazlet, New Jersey 07730
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(Address of Principal Executive Offices)
(908) 888-4801
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(Issuer's Telephone Number, Including Area Code)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 500 shares common stock, no
par value as of April 30, 1996
Transitional Small Business Disclosure Format (check one):
Yes No x
<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC.
FORM 10-QSB INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements..................................................1
Matzel & Mumford Mortgage Funding, Inc.
Balance Sheet as of March 31, 1996 (unaudited) and
December 31, 1995.................................................1
Statement of Operations and Retained Earnings for the Quarter
Ended March 31, 1996 (unaudited)..................................2
Statement of Cash Flows for the Quarter Ended March 31, 1996
(unaudited).......................................................2
Notes to Financial Statements (unaudited).......................3-4
Beacon Manor Associates
Balance Sheet as of March 31, 1996 (unaudited) and
December 31, 1995.................................................4
Statement of Operations and Partners' Capital for the Quarter
Ended March 31, 1996 and March 31, 1995 (unaudited)...............5
Statement of Cash Flows for the Quarter Ended March 31, 1996
and March 31, 1995 (unaudited)....................................5
Notes to Financial Statements (unaudited).......................6-9
Matzel & Mumford at Staats Farm, L.L.C.
Balance Sheet as of March 31, 1996 (unaudited) and
December 31, 1995.................................................9
Statement of Operations and Members' Capital for the Quarter
Ended March 31, 1996 and the Period from March 7, 1995
(inception) to March 31, 1995 (unaudited)........................10
Statement of Cash Flows for the Quarter Ended March 31, 1996
and the Period from March 7, 1995 (inception) to
March 31, 1995 (unaudited).......................................10
Notes to Financial Statements (unaudited).....................11-14
Item 2. Management's Plan of Operation....................................15-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................17
Item 2. Changes in Securities................................................17
Item 3. Defaults Upon Senior Securities......................................17
Item 4. Submission of Matters to a Vote of Security Holders..................17
Item 5. Other Information....................................................17
Item 6. Exhibits and Reports on Form 8-K..................................17-18
<PAGE>
PART I
Item 1. Financial Statements.
MATZEL & MUMFORD MORTGAGE FUNDING, INC.
Balance Sheet
As of March 31, 1996 and December 31, 1995
ASSETS
March 31, 1996 December 31, 1995
(unaudited)
-------------- -----------------
Cash $ 450 $ 50,604
Prepaid income taxes 50
Due from affiliate 184,000 184,000
Deferred Costs $207,557 185,007
--------- ---------
TOTAL ASSETS $392,057 $419,611
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable $ 63,657 $119,611
Due to affiliate 28,500
-------- ---------
TOTAL LIABILITIES 92,157 119,611
-------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, no par value, 5,000
shares authorized 500 shares issued
and outstanding 10,000 10,000
Additional paid-in capital 290,000 290,000
Retained earnings (100)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY.......... 299,900 300,000
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $392,057 $419,611
========= =========
<PAGE>
Statement Of Operations And Retained Earnings
For The Quarter Ended March 31, 1996
(Unaudited)
Revenue
State income taxes $ 100
---------
Net Loss (100)
Retained Earnings, beginning of period
Retained Earnings, end of period $ (100)
=========
Statement of Cash Flows
For The Quarter Ended March 31, 1996
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (100)
Adjustments to reconcile net loss to net cash
used in operating activities
Increase in deferred costs (22,550)
Increase in prepaid income taxes ( 50)
Decrease in accounts payable. (55,954)
---------
NET CASH USED IN OPERATING ACTIVITIES (78,654)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from affiliate 28,500
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 28,500
DECREASE IN CASH (50,154)
CASH, Beginning of period 50,604
---------
CASH, End of period $ 450
==========
<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC.
Notes To Financial Statements
March 31, 1996
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS
Matzel & Mumford Mortgage Funding, Inc. (the "Company") is a
New Jersey corporation formed for the purpose of financing
loans to real estate development companies controlled by the
principals of The Matzel & Mumford Organization, Inc. ("MMO")
which are engaged in the business of developing single-family
residential housing communities. The Company intends to use
the proceeds of a public debt offering of up to $6,000,000 to
make loans primarily for projects in the early stages of
development. The Company has committed to convert at least
90% of the offering proceeds into loans within ten (10)
business days after the issuance of investor notes. The
Company intends to charge interest on the loans at a rate of
16% or more and will also assess each borrower an
administrative fee. Debt service payments on the project
loans, together with the administrative fee, are intended to
service the 15% interest due on the investor notes and the
.5% loan servicing fee payable to MMO, and other expenses.
The Company filed a registration statement with respect to
its debt offering under the Securities Act of 1933, as
amended. The Company's registration statement was declared
effective by the Securities and Exchange Commission on
February 7, 1996.
DEFERRED COSTS
Deferred costs include legal, accounting and filing fees
incurred in connection with the Company's registration
statement.
INCOME TAXES
The stockholders of the Company have elected "S" corporation
status for federal and state income tax purposes.
ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets, liabilities and contingencies at the date
of the financial statements and the reported amounts of
revenues and expenses during the period. Actual results could
differ from those estimates.
<PAGE>
NOTE 2 - RELATED PARTY TRANSACTIONS
Due from affiliate represents a 16% interest-bearing demand
loan to an affiliated company of the stockholders.
NOTE 3 - COMMITMENT
In August 1995, the stockholders contributed $10,000 for the
purchase of common stock. In December 1995, the stockholders
contributed an additional $290,000 to the Company as capital.
Contemporaneously with the issuance and sale of notes offered
by the Company as reflected in the registration statement,
the stockholders are obligated to contribute as capital an
additional $200,000 to provide for initial capitalization of
the Company.
BEACON MANOR ASSOCIATES
(A Joint Venture)
Balance Sheet
As of March 31, 1996 and December 31, 1995
March 31, 1996 December 31, 1995
(unaudited)
-------------- -----------------
ASSETS
Cash $13,040 $ 75,575
Performance bonds 42,691 60,670
Inventories 8,491,928 7,702,221
Due from affiliate 6,000
Due from general partner 3,977 3,977
Property and equipment, net 2,114 2,114
---------- ----------
TOTAL ASSETS $8,553,750 $7,850,557
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage Payable $6,114,369 $5,353,969
Note Payable 300,000 300,000
Accounts Payable 338,412 434,098
Accrued expenses 8,000
Accrued interest payable 16,135
Customer deposits 687,073 35,208
Due to affiliates 801,155 1,306,294
---------- ----------
TOTAL LIABILITIES 8,241,009 7,453,704
========== ==========
PARTNERS' CAPITAL 312,741 396,853
---------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $8,553,750 $7,850,557
========== ==========
<PAGE>
Statement Of Operations And Partners' Capital
For The Quarter Ended March 31, 1996 and March 31, 1995
(Unaudited)
March 31, 1996 March 31, 1995
-------------- --------------
Interest income $909 $ 1,594
Selling, general and administrative expenses 84,982 36,055
------ ---------
Net Loss (84,073) (34,461)
Partners' Capital, beginning of period 396,853 750,194
Partner distributions (39) -
Partners' Capital, end of period $312,741 $715,733
========= =========
Statement Of Cash Flows
For The Quarter Ended March 31, 1996 and March 31, 1995
(Unaudited)
March 31, 1996 March 31, 1995
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (84,073) $ (34,461)
Adjustments to reconcile net loss to net cash
used in operating activities
Decrease in performance bonds 17,979 (370)
Increase in inventories 789,707) (235,133)
Increase (decrease) in accounts payable (95,686) 64,214
Decrease in accrued expenses (8,000)
Increase in customer deposits 651,865
Decrease in accrued interest payable (16,135) (16,135)
---------- -----------
NET CASH USED IN OPERATING ACTIVITIES (323,757) (221,885)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments to affiliate (505,139) (264,000)
---------- -----------
NET CASH USED IN INVESTING ACTIVITIES (505,139) (264,000)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage payable 760,400 61,183
Capital distributions (39)
Proceeds from affiliate 6,000 353,000
---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 766,361 414,183
---------- -----------
DECREASE IN CASH (62,535) (71,702)
CASH, Beginning of period 75,575 72,402
CASH, End of period $ 13,040 $ 700
========== ===========
<PAGE>
BEACON MANOR ASSOCIATES
(A Joint Venture)
Notes to Financial Statements
March 31, 1996
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS AND ORGANIZATION
Beacon Manor Associates (The "Partnership") is a New Jersey
general partnership formed in November 1994 for the purpose
of purchasing land in the Township of Bernards, New Jersey
and developing and constructing 29 single-family homes on
that land.
On November 21, 1994, the partners formed a joint venture as
provided by a Joint Venture Agreement. The parties to the
agreement are The Matzel & Mumford Organization, Inc.
("MMO") and the Centrone Building Corp., Inc. ("CBC").
MMO entered into a contract to purchase the land in October
1994. The contract to purchase was assigned to CBC in
December 1994.
CBC acquired the land and contributed $750,000 to the
Partnership. CBC's partnership interest is 20%. For securing
necessary development financing and committing to advance up
to $1.5 million, MMO received an 80% partnership interest.
REVENUE RECOGNITION
Revenues arising from home sales are recognized under the
full accrual method. Under this method, income is recognized
when all terms relating to the sale of a unit are complete,
consideration is exchanged, and title is conveyed to the
buyer.
INVENTORIES
Inventories are stated at the lower of cost or estimated net
realizable value, which is determined by reducing the
anticipated net sales proceeds by the estimated costs
necessary to complete or improve the property to the
condition used in arriving at the anticipated selling price.
Inventory costs are comprised of direct unit and allocated
costs. Development costs are capitalized until the property
is complete and title has been conveyed to the buyer.
Development costs generally include land and improvements,
house construction, project overhead, interest and a portion
of construction management fees. Interest capitalized is
based upon the interest rate on specifically related debt. A
<PAGE>
portion of the construction management fees to a related
party is paid and capitalized by the Partnership.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
calculated using straight-line method based upon the
estimated useful lives of the assets.
INCOME TAXES
The Partnership is organized and operates as a general
partnership and is not subject to Federal or state income
taxes. Accordingly, no provision for income taxes has been
made. The earnings or losses of the Partnership are included
on each partner's tax return, according to the terms of the
Partnership agreement.
PARTNERS
The financial statements do not reflect the assets the
partners may have outside their interests in the Partnership,
nor any personal obligations, including income taxes, of the
individual partners.
ESTIMATES
The preparation of financial statements in conformity with
general accepted accounting principles requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from
those estimates.
NOTE 2 - INVENTORIES
Inventories relating to the development of single-family
homes consist of the following at March 31, 1996:
Land $4,535,473
Approval costs 239,285
Land improvements and
construction costs 2,371,948
Project overhead 169,785
Financing costs 843,377
Sales and marketing 332,060
-----------
$8,491,928
============
All expenses incurred for development of the project are
capitalized. Selling expenses which do not benefit future
periods and general and administrative expenses are treated
as period costs and are expensed as incurred. Interest and
<PAGE>
management fees capitalized during the year ended March 31,
1996 are $937,192.
NOTE 3 - MORTGAGE PAYABLE
The property is encumbered by a $9,921,376 mortgage provided
by Amboy National Bank. The balance outstanding at March 31,
1996 was $6,114,369. On December 21, 1994, Amboy National
Bank, CBC and D. Majorie Centrone entered into a loan
agreement which provides for aggregate financing in the
amount of $9,921,376.
The loan agreement provides for three notes as follows:
Note #1 $5,200,000
Note #2 $3,721,376
Note #3 $1,000,000
D. Majorie Centrone has guaranteed all of the above notes.
Notes #1 and #2 provide for interest on advanced funds with
interest on unpaid principal at 1.50% (floating) in excess of
the prime rate of Chase Manhattan Bank, N.A. The prime rate
as of March 31, 1996 was 8 1/4%. The maturity dates of Notes
#1 and #2 are December 21, 1996.
Effective November 17, 1995, the $1,000,000 balance of Note
#3 was transferred to Note #1. A total of $63,000 in loan
fees related to these loans are included in financing costs.
NOTE 4 - NOTES PAYABLE
The Partnership has a demand note payable to a private
investor in the amount of $300,000. Interest on the note is
computed at 25% per annum. The maturity date is June 19,
1996. The note is unsecured and is jointly and severally
guaranteed by Bruce Matzel and Roger Mumford, principals of
MMO.
NOTE 5 - RELATED PARTY TRANSACTIONS
Due to affiliates represents noninterest bearing demand loans
to affiliated companies of certain partners of the
Partnership, except for a $184,000 portion which bears
interest at 16% per annum.
The Partnership has an agreement with MMO whereby MMO
provides construction management services at a fee of $25,000
per unit. MMO is entitled to receive monthly draws of
management fees up to $35,000 per month up to an aggregate of
$725,000. Since inception, the Partnership has incurred
$495,000 in management fees, of which $169,785 has been
capitalized in inventories at March 31, 1996.
<PAGE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
In accordance with the Joint Venture Agreement, MMO will be
required to loan up to $1.5 million (as needed) to fund the
Partnership for acquisition and working capital.
PERFORMANCE BONDS
At March 31, 1996, the Partnership is contingently liable for
performance bonds totaling $426,913.
NOTE 7 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for the period ended March 31, 1996 for:
Interest $ 162,242
MATZEL & MUMFORD AT STAATS FARM, L.L.C.
Balance Sheet
As of March 31, 1996 and December 31, 1995
March 31, 1996 December 31, 1995
(unaudited)
-------------- -----------------
ASSETS
Cash $24,146 $ 366,031
Performance bonds 156,710 156,710
Inventories 5,542,056 6,464,163
Other receivable 1,391
Due from affiliate 1,000 1,065
---------- ----------
TOTAL ASSETS $5,723,912 $6,989,360
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage payable $3,644,753 $4,877,552
Developer note payable 1,000,000 1,000,000
Accounts Payable 706,190 660,283
Accrued interest payable 74,887
Due to affiliate 136
Customer deposits 58,368 28,073
---------- ----------
TOTAL LIABILITIES 5,409,447 544,666
---------- ----------
MEMBERS' CAPITAL 314,465 348,565
---------- ----------
TOTAL LIABILITIES AND MEMBERS' CAPITAL $5,723,912 $6,989,360
========== ==========
<PAGE>
Statement Of Operations And Members' Capital
For The Quarter March 31, 1996 and the Period
from March 7, 1995 (inception) to March 31, 1995
(Unaudited)
March 31, 1996 March 31, 1995
-------------- --------------
Sales $2,597,230
Cost Of Sales 2,354,388
---------- -------------
Gross Profit 242,842
Selling, General And Administrative Expenses 102,078
---------- -------------
Income From Operations 140,764
Interest Income 136
---------- -------------
Net Income 140,900
Members' Capital, Beginning Of Period 348,565 1,000
Capital Distributions (175,000)
---------- -------------
Members' Capital, End Of Period $ 314,465 $1,000
========== -------------
Statement Of Cash Flows
For The Quarter Ended March 31, 1996 and the Period
from March 7, 1995 (inception) to March 31, 1995
(Unaudited)
March 31, 1996 March 31, 1995
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 140,900
Adjustments to reconcile net loss to net
cash used in operating activities
Decrease (increase) in inventories 922,107 $ (387,456)
Decrease in other receivable 1,391
Increase in performance bonds (156,710)
Increase in accounts payable 45,907
Increase in customer deposits 30,295
Decrease in accrued interest payable (74,887)
------------ -----------
NET CASH USED IN OPERATING ACTIVITIES 1,065,713 (544,166)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage payable 727,051
Repayment of mortgage payable (1,959,850)
Capital distributions (175,000)
Proceeds from affiliate 201 544,666
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (1,407,598) 544,666
------------ -----------
INCREASE (DECREASE) IN CASH (341,885) 500
CASH, Beginning of period 366,031
------------ -----------
CASH, End of period $ 24,146 $ 500
============ ===========
<PAGE>
MATZEL & MUMFORD AT STAATS FARM, L.L.C.
Notes to Financial Statements
March 31, 1996
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS AND ORGANIZATION
Matzel & Mumford at Staats Farm, L.L.C. (the "Company") is a
New Jersey limited liability company formed for the purpose of
purchasing land in the Township of Branchburg, New Jersey and
developing and constructing 29 single-family homes on that
land.
REVENUE RECOGNITION
Revenues arising from home sales are recognized under the full
accrual method. Under this method, income is recognized when
all terms relating to the sale of a unit are complete,
consideration is exchanged, and title is conveyed to the
buyer.
INVENTORIES
Inventories are stated at the lower of cost or estimated net
realizable value, which is determined by reducing the
anticipated net sales proceeds by the estimated costs
necessary to complete or improve the property to the condition
used in arriving at the anticipated selling price.
Inventory costs are comprised of direct unit and allocated
costs. Development costs are capitalized until the property is
complete and title has been conveyed to the buyer. Development
costs generally include land and improvements, house
construction, project overhead, interest and a portion of
construction management fees. Interest capitalized is based
upon the interest rate on specifically related debt. A portion
of the construction management fees to a related party is paid
and capitalized by the Company.
MEMBERS' CAPITAL
The two managing members have paid $1,000 in capital
contributions. Three special members have contributed a total
of $475,000.
DISTRIBUTIONS
The Company shall make the following distributions of cash to
the Members:
(a) each special member shall be paid a guaranteed payment
equal to 8% per annum of their unpaid capital
("Guaranteed Payment"). The Guaranteed Payment initially
will accrue through the twenty-fifth day of the sixth
<PAGE>
calendar month following the date of the contribution
and will be paid on the first business day following
such six-month period. Thereafter, the Guaranteed
Payment will be paid on a quarterly basis.
(b) each special member shall be paid a distribution (the
"Special Distribution") in an amount equal to the
product of: (A) the special member's relevant percentage
(aggregate .742185% at March 31, 1996) multiplied by (B)
the aggregate gross sales proceeds of all housing units
actually closed by the Company as of the twenty-fifth
(25th) day of the immediately preceding calendar month.
(c) each special member shall be paid a return distribution
("Return Distribution") representing a return of such
special member's capital contribution equal to the
product of: (A) such special member's return amount as
defined, multiplied by (B) the number of housing units
actually closed by the Company as of the twenty-fifth
(25th) day of the immediately preceding calendar month;
provided, however, that this shall only apply to the
sales of the twentieth through fifty-first units
actually closed by the Company.
All distributions payable to special members are guaranteed
personally by the managing members.
PROFIT AND LOSS ALLOCATIONS
All items of Profits and Losses shall be allocated to the
Members as follows:
(a) first, net Profits will be allocated to the special
members equal to the sum of the Guaranteed Payment and
the Special Distribution paid or payable to such special
members; and
(b) second, to the managing members in proportion to their
respective capital contributions.
INCOME TAXES
The Company is organized and operates as a limited liability
company and is not subject to Federal or state income taxes.
Accordingly, no provision for income taxes has been made. The
earnings or losses of the Company are included on each
member's tax return, according to the terms of the operating
agreement.
ESTIMATES
The preparation of financial statements in conformity with
general accepted accounting principles requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates.
<PAGE>
NOTE 2 - INVENTORIES
Inventories relating to the development of single-family homes
consist of the following at March 31, 1996:
Land $2,415,064
Approval costs 354,470
Land improvements and
construction costs 1,984,144
Project overhead 113,634
Financing costs 375,052
Sales and marketing 299,692
------------
$5,542,056
============
All expenses incurred for development of the project are
capitalized. Selling expenses which do not benefit future
periods and general and administrative expenses are treated as
period costs and are expensed as incurred. The Company
incurred interest and management fees of $243,914, of which $0
was capitalized during the period ended March 31, 1996.
NOTE 3 - MORTGAGE PAYABLE
The Company has a mortgage payable to a bank which is payable
interest only at prime plus 1 1/2%. The prime rate as of March
31, 1996 was 8 1/4%. Interest payments are payable monthly
until October 18, 1996, when the outstanding principal balance
and any accrued interest is due. The Company can borrow up to
$6,450,000 and at March 31, 1996 the outstanding balance was
$3,644,753. The note is secured by the property and is
personally guaranteed by the Company's managing members. A
total of $81,471 in loan fees related to this loan is included
in financing costs.
NOTE 5 - RELATED PARTY TRANSACTIONS
Due to/from affiliates consists of net cash advances from
affiliated companies of the managing members of the Company.
The advances are short term in nature and bear no interest.
The amounts are to be repaid as cash flow allows.
The Company has borrowed from The Matzel & Mumford
Organization, Inc. ("MMO"), an affiliate of the managing
members, $1,000,000, which is evidenced by a secured developer
note. Interest payments are payable quarterly at a rate of 18%
per annum. Additional interest is charged at a rate equal to
1.5625% of the gross sales price per unit received at closing.
The principal balance is payable in installments of $31,250
each. The first installment is due upon the closing of the
20th unit and thereafter upon the sale of each subsequent
unit, until the earlier to occur of December 18, 1997, or the
date of the payment in full of the entire principal and
interest and other charges due under the note. As of March 31,
1996, thirteen units have been closed and no payments have
been made on the note.
<PAGE>
The Company has an agreement with MMO whereby MMO provides
construction management services at a fee of 5% of the gross
selling price of each house. MMO is entitled to receive
monthly draws of management fees up to $50,000 per month for
the first six months for a total of $300,000 and the balance
at the rate of no more than $12,000 at the time of the closing
of the sale of each home, for an aggregate total of $912,000.
The management fee payable shall be proportionately reduced if
the sales prices of the homes are reduced or proportionately
increased if the sales prices are increased. Since inception
the Company has incurred $456,000 in management fees, of which
$113,634 has been capitalized in inventories at March 31,
1996.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
PERFORMANCE BONDS
At March 31, 1996, the Company is contingently liable for
performance bonds totaling $826,118.
NOTE 6 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for the period ended March 31, 1996 for:
Interest $ 159,914
<PAGE>
ITEM 2. MANAGEMENT'S PLAN OF OPERATION.
PURPOSE
Matzel & Mumford Mortgage Funding, Inc. (the "Funding Company") was
formed to make secured loans ("Loans") to real estate development companies
affiliated with The Matzel & Mumford Organization, Inc. (each, an "M&M Project
Entity") for the development of single family housing communities (each, a
"Project"). The Funding Company intends to make Loans using all of the proceeds
of its pending offering (the "Offering") of Intermediate Term Secured Notes
("Notes") and a portion of its equity capital remaining after the expenses of
the Offering are paid.
The Funding Company was conceived by the principals of The Matzel &
Mumford Organization, Inc. ("MMO") to provide a reliable and flexible source of
financing for Matzel & Mumford real estate development companies. Lenders such
as banks generally will not make loans for land acquisition, development or
construction without requiring corresponding equity contributions equal to at
least 25% of development costs. The limitations imposed by first mortgage
lenders have required MMO's principals to expend time and energy, which could
otherwise be devoted to development activities, to attract and maintain equity
investors or subordinated lenders. Moreover, the effective cost of equity
capital or subordinated debt generally is significantly more than the interest
rate that the Funding Company will pay on the Notes.
MMO will manage all of the Projects that the Funding Company finances.
The principals of MMO elected to form the Funding Company rather than cause MMO
to issue securities for several reasons. First, the Funding Company is a new
entity with no existing liabilities. Therefore, the Notes will assume a first
priority position as to the Funding Company's assets -- the portfolio of Loans
and related collateral. In contrast, MMO has other debt that might be senior to,
or on parity with, any new debt securities that MMO might issue. Similarly, in
contrast with the Funding Company, MMO is an operating company, and is subject
to all of the ongoing liabilities and obligations that operating companies
generally encounter. Finally, the principals of MMO do not believe that the
market for the instant offering could support all of MMO's cash requirements. If
MMO were the issuer of the Notes rather than the Funding Company, the status and
priority of the holders of the Notes might interfere with the ability of MMO to
secure other financing as necessary. With the Funding Company as the issuer,
holders of Notes will have rights in connection with a few discrete Projects or
portions of Projects without affecting the financing of other Matzel & Mumford
communities.
ABILITY TO SATISFY CASH REQUIREMENTS
The Funding Company has identified several Projects that it may finance
with the proceeds of the Offering. If the Funding Company sells all of the Notes
that are the subject of the Offering, it may finance aspects of more than one
Project. If the Funding Company sells fewer than all of the offered Notes, it
may elect to apply all, or a substantial portion, of the Offering proceeds to a
Loan for a single Project. The Funding Company determined that it would not
complete the Offering unless it received subscriptions for at least $3,000,000
in principal amount of Notes, which is an amount that the Funding Company
believes is sufficient to finance at least one Project or a significant aspect
<PAGE>
of one Project. As of May 2, 1996, the Funding Company had received
subscriptions (which may be withdrawn until accepted) for approximately [$3.4]
million principal amount of Notes. The Funding Company presently expects to
effect an initial closing and issue Notes to satisfy all outstanding
subscriptions on May [15], 1996.
Because the Funding Company is not an operating company, it has minimal
operating cash needs. The Funding Company will lend substantially all of the
proceeds of the Offering, but will not commit to make any Loans until it is
certain what the proceeds of the Offering will be in order to closely tie the
dollar volume of its lending commitments to the Offering proceeds. The Funding
Company expects that its cash requirements will be satisfied by the
administrative fee that the M&M Project Entities will pay to the Funding Company
in connection with their Loans and by the amount of interest on the Loans (which
will be at least 16%) that remains after paying the interest on the Notes (15%)
and a loan servicing fee.
PROPOSED LENDING ACTIVITIES
MMO generally views the development and construction of a housing
community as a three phase process of land acquisition, infrastructure
improvements, and home construction, although a developer often will undertake
to make infrastructure improvements and to construct homes at the same time. The
Funding Company intends, to the extent practicable, to make Loans for Projects
in the early stages of development, but these Loans may continue to support
development and construction activities until a Project is complete and all of
the homes have been delivered and closed.
As the M&M Project Entities make payments on their respective Loans,
the Funding Company intends to roll those repaid funds into Loans to new or
existing M&M Project Entities. The Funding Company has committed to employ an
average of 90% of the proceeds of the Offering in Loans at all times. The
Funding Company currently has, and management believes that it will continue to
have, sufficient investment opportunities so that the Funding Company can
satisfy that obligation. For example, under current market conditions, Matzel
and Mumford real estate development companies generally have more than 100 homes
under construction at any given time, providing ample opportunities to make
short-term Loans.
The Funding Company presently expects that the first two Loans that it
will make with the proceeds of the Offering will be to Matzel & Mumford at
Staats Farm, LLC ("Staats Farm"), an entity organized to develop, market and
build a 51-lot subdivision known as Staats Farm, and to Section 14 of the Hills,
LLC ("Section 14"), an entity organized to serve as managing partner of Beacon
Manor Associates ("Beacon Manor"), which is developing, marketing and building a
29-lot subdivision known as Beacon Manor. Financial statements for Staats Farm
and for Beacon Manor accompany the financial statements of the Funding Company
under Item 1 of this Report.
The Funding Company intends to rely upon the administrative and
management systems and personnel that MMO has already established to monitor and
service the Loans. MMO has agreed to provide such services to the Funding
Company in exchange for a loan servicing fee equal to .5% of Loan collections.
PART II
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6.
(a) EXHIBITS.
3(a) Certificate of Incorporation of Matzel & Mumford Mortgage Funding,
Inc.(the "Funding Company")(incorporated by reference to Exhibit 3(a) to
Registration Statement on Form SB-2 of Matzel & Mumford Mortgage
Funding, Inc. (Registration Number 33-98178) (the "Notes Registration
Statement")).
3(b) By-Laws of the Funding Company (incorporated by reference to Exhibit 3(b)
to the Notes Registration Statement).
4(a) Indenture (including form of Notes) dated as of January 25, 1996, between
the Funding Company and First Union National Bank, as Trustee
(incorporated by reference to Exhibit 4(a) to the Notes Registration
Statement).
4(b) Resolutions of the Board of Directors of the Funding Company establishing
specific terms of the Notes.
10(a) Form of Loan Agreement (incorporated by reference to Exhibit 10(a) to
the Notes Registration Statement).
10(b) Form of Mortgage and Security Agreement (incorporated by reference to
Exhibit 10(b) to the Notes Registration Statement).
10(c) Loan Servicing Agreement dated January 22, 1996 between the Funding
Company and The Matzel & Mumford Organization, Inc. (incorporated by
reference to Exhibit 10(c) to the Notes Registration Statement).
27 Financial Data Schedules.
(b) REPORTS ON FORM 8-K.
The Funding Company filed a Current Report on Form 8-K on March 5, 1996
to report a change in certifying accountants.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MATZEL & MUMFORD
MORTGAGE FUNDING, INC.
By:/S/ROGER MUMFORD
------------------------------
Roger Mumford, President
Dated: May 14, 1996
By:/S/RICHARD ANDERSON By:/S/JONATHAN FISHER
- ---------------------- ------------------------------
Richard Anderson, Jonathan Fisher,
Chief Financial Officer Controller
<PAGE>
EXHIBIT INDEX
NUMBER DOCUMENT PAGE
3(a) Certificate of Incorporation of Matzel & Mumford Mortgage Funding, *
Inc. (the "Funding Company") (incorporated by reference to Exhibit
3(a) to Registration Statement on Form SB-2 of Matzel & Mumford
Funding, Inc. (Registration Number 33-98178) (the "Notes
Registration Statement")).
3(b) By-Laws of the Funding Company (incorporated by reference to *
Exhibit 3(b) to the Notes Registration Statement).
4(a) Indenture (including form of Notes) dated as of January 25, *
1996, between the Funding Company and First Union National
Bank, as Trustee (incorporated by reference to Exhibit 4(a) to
the Notes Registration Statement).
4(b) Resolutions of the Board of Directors of the Funding Company
establishing specific terms of the Notes.
10(a) Form of Loan Agreement (incorporated by reference to *
Exhibit 10(a) to the Notes Registration
Statement).
10(b) Form of Mortgage and Security Agreement (incorporated by reference *
to Exhibit 10(b) to the Notes Registration Statement).
10(c) Loan Servicing Agreement dated January 22, 1996 between the Funding *
Company and The Matzel & Mumford Organization, Inc. (incorporated
by reference to Exhibit 10(c) to the Notes Registration Statement).
27 Financial Data Schedules.
- -------------
* Incorporated by reference
EXHIBIT 4(b)
RESOLUTIONS ADOPTED BY UNANIMOUS CONSENT
AS OF SEPTEMBER 28, 1995
RESOLVED, that the Corporation issue and sell up to
$6,000,000.00 principal amount of the Corporation's notes with the terms
hereinafter described in these resolutions (the "Notes"); and further
RESOLVED, that the form, terms and conditions of the proposed
Indenture (the "Indenture") between the Corporation and Amboy National Bank, as
Trustee (the "Trustee"), which provides for the issuance from time to time of
evidences of indebtedness, including without limitation the Notes, unlimited as
to principal amount, to bear such rates of such interest, to mature at such time
or times, to be issued in one or more series, and to have such other provisions
as may be therein provided, in substantially the form presented to this Board of
Directors be, and hereby are, approved and authorized in all respects; and
further
RESOLVED, that each of the Chairman of the Board, the
President or any Vice President (each, an "Authorized Officer") be, and hereby
is, authorized and empowered in the name and on behalf of the Corporation to
negotiate, execute and deliver the Indenture, with such changes in form or
substance (including a change in the identity of the Trustee) as the Authorized
Officer executing the same may approve, such approval to be conclusively
evidenced by such Authorized Officer's execution and delivery thereof; and
further
RESOLVED, that the Notes shall be issued in one series under
the Indenture with the following terms and that the holders of the Notes shall
be entitled to the benefits of the Indenture:
1. The title of the Notes shall be "Intermediate Term Secured
Notes";
2. The Notes shall be represented by individual certificates
in substantially the form of Exhibit A to the Indenture, and shall be issued in
the names of the respective holders thereof;
3. The Notes shall mature and the principal amount thereof be
payable by the Corporation on or about the sixth anniversary of the issuance
thereof, with the exact maturity date to be determined by an Authorized Officer;
4. The Corporation shall have the right, at its option, to
redeem all or any portion of the Notes upon the payment of all interest accrued
to the date of redemption and (i) 103% of the face amount of each redeemed Note
if redeemed prior to the first anniversary of the issuance thereof, (ii) 102% of
such face amount if redeemed after the first but prior to the second anniversary
of the issuance thereof, (iii) 101% of such face amount if redeemed after the
second but prior to the third anniversary of the issuance thereof, and (iv) 100%
<PAGE>
of such face amount if redeemed after the third anniversary of the issuance
thereof;
5. The Notes shall bear interest at a rate of 15% per annum,
payable quarterly on March 31, June 30, September 30 and December 31 of each
year, commencing March 31, 1996;
6. The Notes shall be issued in denominations of $5,000 and
any integral multiple thereof; and
7. The record date for the payment of any interest in respect
of the Notes shall be thirty (30) days prior to the date on which interest is to
be paid; and further
RESOLVED, that the Notes shall be executed by an Authorized
Officer on behalf of the Corporation, sealed with the seal of the Corporation
and attested, all in the manner provided in the Indenture; and further
RESOLVED, that the Authorized Officers are authorized to
execute and deliver a written order to the Trustee directing the Trustee, when
the Notes have been properly executed by the Corporation, to authenticate them
and thereafter to authenticate and deliver such Notes as may be necessary upon
registration of transfer of, in exchange for, or in lieu of, any outstanding
Notes, all in accordance with or pursuant to the terms of the Indenture; and
further
RESOLVED, that the Secretary or any Assistant Secretary of the
Corporation be, and hereby is, authorized to file with the Trustee certified
copies of these resolutions and such other resolutions as the Board hereafter
may adopt with respect to the Notes; and further
RESOLVED, that each Authorized Officer be, and hereby is,
authorized to execute and deliver any officer's certificate, supplemental
indenture, company order or other writing required under or in connection with
or contemplated by the Indenture or deemed by such Authorized Officer to be
necessary or appropriate in connection with the issuance or sale of the Notes,
including without limitation any such document setting forth the terms of the
Notes; and further
RESOLVED, that each Authorized Officer be, and hereby is,
authorized and directed, in the name and on behalf of the Corporation, to cause
to be prepared and filed with the Securities and Exchange Commission a
registration statement for the registration of the Notes under the Securities
Act of 1933, as amended, and the rules and regulations of the Commission
thereunder, and such amendments or supplements thereto, and all certificates,
letters, instruments, applications and other documents as they may deem
necessary or advisable concerning the issuance and sale thereof, and the Vice
President/Secretary of the Corporation be, and he hereby is, designated as the
Agent for Service in connection therewith. The execution by the Corporation of
such registration statement and all such amendments and supplements thereto may
be effected pursuant to a power of attorney signed on behalf of the Corporation
- 2 -
<PAGE>
by any one or more of the Chairman of the Board, the President, or the Vice
President/Secretary of the Corporation, which power of attorney duly appoints
any or all of such officers as attorney-in-fact to act for the officers and/or
the directors of the Corporation for such purpose; and further
RESOLVED, that the Notes be qualified or registered for sale
in the States of New Jersey and New York, and that each Authorized Officer
hereby is authorized to perform on behalf of the Corporation any and all such
acts as they may deem necessary or advisable in order to comply with the
applicable securities laws of such states, and in connection therewith to
execute and file all requisite papers and documents, including, but not limited
to, agent registrations, applications, reports, surety bonds, irrevocable
consents to jurisdiction and services of process in such states and appointments
of attorneys for service of process; and the execution by any Authorized Officer
of any such paper or document or the doing by any Authorized Officer of any act
in connection with the foregoing matters shall conclusively establish the
authority therefor from the Corporation and the approval and ratification by the
Corporation of the papers and documents so executed and the action so taken; and
further
RESOLVED, that each and every resolution required to be
adopted by any legislation or law, or by any order or regulation of any
governmental body or agency, in any state or other jurisdiction wherein the
Notes may be registered, qualified or offered for sale shall be deemed to be,
and the same hereby are, adopted and approved; and further
RESOLVED, that the appropriate officers of the Corporation be,
and they hereby are, authorized and directed to take all actions, including
without limitation to execute certificates, agreements, undertakings, documents
and instruments, which may be necessary or appropriate in order to give full
force and effect to the foregoing resolutions, and all actions heretofore taken
by any officer or officers of the Corporation in connection with the subject
matter of these resolutions are hereby ratified, confirmed and approved in all
respects as the acts and deeds of the Corporation.
- 3 -
RESOLUTIONS ADOPTED BY UNANIMOUS CONSENT AS OF
FEBRUARY 1, 1996
RESOLVED, that the resolutions adopted by the Board of
Directors on September 28 (the "Original Resolutions") in connection with the
issuance and sale by the Corporation of up to $6,000,000.00 principal amount of
the Corporation's Intermediate Term Secured Notes (the "Notes") be amended to
provide that the first interest payment date in respect of the Notes shall be
June 30, 1996, rather than March 31, 1996, as stated in the Original
Resolutions; and further
RESOLVED, that all other resolutions contained in the Original
Resolutions are hereby ratified and confirmed in all respects; and further
RESOLVED, that all actions heretofore taken by any officer or
officers of the Corporation in connection with the subject matter of these
resolutions or the Original Resolutions are hereby ratified, confirmed and
approved in all respects as the acts and deeds of the Corporation.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 180,856
<SECURITIES> 0
<RECEIVABLES> 1,000
<ALLOWANCES> 0
<INVENTORY> 5,542,056
<CURRENT-ASSETS> 5,723,912
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,723,912
<CURRENT-LIABILITIES> 5,409,447
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 314,465
<TOTAL-LIABILITY-AND-EQUITY> 5,723,912
<SALES> 2,597,230
<TOTAL-REVENUES> 2,597,366
<CGS> 2,354,388
<TOTAL-COSTS> 2,354,388
<OTHER-EXPENSES> 102,078
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 140,900
<INCOME-TAX> 0
<INCOME-CONTINUING> 140,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,900
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 55,731
<SECURITIES> 0
<RECEIVABLES> 3,977
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<INVENTORY> 8,491,928
<CURRENT-ASSETS> 8,551,636
<PP&E> 2,114
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<TOTAL-ASSETS> 8,553,750
<CURRENT-LIABILITIES> 8,241,009
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 312,741
<TOTAL-LIABILITY-AND-EQUITY> 8,553,750
<SALES> 0
<TOTAL-REVENUES> 909
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 84,982
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (84,073)
<INCOME-TAX> 0
<INCOME-CONTINUING> (84,073)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (84,073)
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 450
<SECURITIES> 0
<RECEIVABLES> 184,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 184,500
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 392,057
<CURRENT-LIABILITIES> 92,157
<BONDS> 0
0
0
<COMMON> 10,000
<OTHER-SE> 290,000
<TOTAL-LIABILITY-AND-EQUITY> 392,057
<SALES> 0
<TOTAL-REVENUES> 0
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<OTHER-EXPENSES> 100
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