================================================================================
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 June 30, 1998
[ ] 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 22-3382016
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 VILLAGE COURT
HAZLET, NEW JERSEY, 07730
----------------------------------------
(Address of Principal Executive Offices)
(732) 888-1055
------------------------------------------------
(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 X 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 June 30, 1998
Transitional Small Business Disclosure Format (check one):
Yes X No
--- ---
================================================================================
<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 Sheets as of June 30, 1998 (unaudited) and
December 31, 1997.....................................................
Statements of Operations and Retained Earnings for the Six Months
ended June 30, 1998 (unaudited) ......................................
Statements of Operations and Retained Earnings for the Three Months
ended June 30, 1998 (unaudited).......................................
Statement of Cash Flows for the Six Months Ended June 30, 1998
(unaudited)...........................................................
Notes to Financial Statements (unaudited)...............................
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997.....................................................
Statements of Operations and Retained Earnings for the Six Months
ended June 30, 1998 (unaudited) .....................................
Statements of Operations and Retained Earnings for the Three Months
ended June 30, 1998 (unaudited).......................................
Statement of Cash Flows for the Six Months Ended June 30, 1998
(unaudited)...........................................................
Notes to Financial Statements (unaudited)...............................
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997.....................................................
Statements of Operations and Partners' Capital for the Six Months
ended June 30, 1998 (unaudited).......................................
Statements of Operations and Retained Earnings for the Three Months
ended June 30, 1998 (unaudited).......................................
Statement of Cash Flows for the Six Months Ended June 30, 1998
(unaudited)...........................................................
Notes to Financial Statements (unaudited)...............................
Item 2. Management's Plan of Operation ...................................
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................
Item 2. Changes in Securities ............................................
Item 3. Defaults Upon Senior Securities ..................................
Item 4. Submission of Matters to a Vote of Security Holders...............
Item 5. Other Information ................................................
Item 6. Exhibits and Reports on Form 8-K .................................
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JUNE 30, 1998
<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Balance Sheets .......................................................... 1
Statement of Operations and Retained Earnings ........................... 2
Statement of Cash Flows ................................................. 3
Notes to the Financial Statements ....................................... 4-5
<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC
BALANCE SHEETS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
6/30/98 12/31/97
---------- ----------
(unaudited) (audited)
ASSETS
Cash ............................................... $ 152,242 $ 945,616
Prepaid income taxes ............................... 100
Mortgages receivable ............................... 3,903,264 3,096,545
Deferred costs, net ................................ 164,787 186,049
---------- ----------
TOTAL ASSETS ....................................... $4,220,393 $4,228,210
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable ................................... $ 125
Notes Payable ...................................... $3,750,000 3,750,000
---------- ----------
TOTAL LIABILITIES .................................. 3,750,000 3,750,125
---------- ----------
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 ....................... 490,000 490,000
Retained earnings ................................ (29,607) (21,915)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY ......................... 470,393 478,085
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......... $4,220,393 $4,226,400
========== ==========
-1-
<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
Revenue ......................................................... $166,750
Interest expense ................................................ 149,326
--------
Income(loss) before G & A and amortization ...................... 17,424
General & administrative expenses ............................... 6,129
Amortization .................................................... 10,631
--------
Net Income ...................................................... 664
Retained Earnings, beginning of period .......................... $(30,271)
Retained Earnings, end of period ................................ $(29,607)
========
-2-
<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
Revenue .......................................................... $314,798
Interest expense ................................................. 288,025
--------
Income(loss) before G & A and amortization ....................... 26,773
General & administrative expenses ................................ 13,203
Amortization ..................................................... 21,262
--------
Net Income ....................................................... (7,692)
Retained Earnings, beginning of period ........................... $(21,915)
Retained Earnings, end of period ................................. $(29,607)
========
-3-
<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................. $ (7,692)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization ........................................... 21,262
Increase in mortgages receivable ....................... (806,719)
Increase in prepaid income taxes ....................... (100)
Increase in accounts payable ........................... (125)
---------
NET CASH USED IN OPERATING ACTIVITIES ......................... (793,374)
DECREASE IN CASH .............................................. (793,374)
CASH, Beginning of period .................................... 945,616
---------
CASH, End of period .......................................... $ 152,242
=========
-4-
<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
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 closed a public offering of its intermediate term secured
notes (the "Notes") on May 15, 1996 with issuing $3,750,000 principal
amount of Notes. The offering proceeds, along with the additional paid
in capital in excess of organizational expenses, will be used to make
loans primarily for projects in the early stages of development. The
Company has committed to maintain at least 90% of the offering
proceeds in secured loans, subject to certain conditions.
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 Notes, the .5% loan servicing fee payable to MMO, and other
expenses.
The Company filed a registration statement with respect to its Notes
offering under the Securities and Exchange 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 public offering.
INCOME TAXES
The stockholders of the Company have elected "S" corporation status
for federal and state income tax purposes.
-5-
<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES (Continued)
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 and
liabilities at the date of the 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 -- MORTGAGES RECEIVABLE
Mortgages receivable represent loans made to affiliated entities
bearing interest at a rate of 16%. The loans have maturity dates
ranging from twelve to twenty four months.
-6-
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JUNE 30, 1998
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
INDEX TO FINANCIAL STATEMENTS
Page
----
Balance Sheets......................................................... 1
Statement of Operations and Retained Earnings ......................... 2-3
Statement of Cash Flows ............................................... 4
Notes to the Financial Statements ..................................... 5-9
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
BALANCE SHEETS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
06/30/98 12/31/97
(unaudited) (audited)
----------- ----------
ASSETS
Cash ........................................... $ 41,776 $ 53,028
Performance Bond ............................... 271,736 188,600
Inventories .................................... 10,278,844 8,776,775
----------- ----------
TOTAL ASSETS ................................... $10,592,356 $9,018,403
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage payable -- M&M Mortgage Funding ....... $ 3,303,264 $2,496,545
Mortgage payable ............................... 5,137,519 5,046,744
Note payable ................................... 250,000 300,000
Accounts payable ............................... 878,098 163,174
Customer deposits .............................. 671,114 581,526
Accrued expenses ............................... 177,288
Due to affiliate ............................... 89,332 422,194
----------- ----------
TOTAL LIABILITIES .............................. 10,506,615 9,010,183
----------- ----------
PARTNERS' CAPITAL .............................. 85,741 8,220
----------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL ........ $10,592,356 $9,018,403
=========== ==========
-1-
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED JUNE 30, 1998
Sales .......................................................... $5,133,388
Cost of sales .................................................. 4,673,289
----------
Gross profit ................................................... 460,099
Selling, general and administrative expenses ................... 384,056
----------
Income from operations ......................................... 76,043
Interest income ................................................ 2,075
----------
Net income (loss) .............................................. 78,118
Member's capital, Beginning of period .......................... 7,623
----------
Member's capital, End of Period ................................ $ 85,741
==========
-2-
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1998
Sales .......................................................... $5,452,102
Cost of sales .................................................. 4,986,985
----------
Gross profit ................................................... 465,117
Selling, general and administrative expenses ................... 394,034
----------
Income from operations ......................................... 71,083
Interest income ................................................ 6,438
----------
Net income (loss) .............................................. 77,521
Member's capital, Beginning of period .......................... 8,220
----------
Member's capital, End of Period ................................ $ 85,741
==========
-3-
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) .......................................... $ 77,521
Adjustments to reconcile net loss to net cash
used in operating activities
Increase in performance bonds .......................... (83,136)
Increase in inventories ................................ (1,502,069)
Increase (decrease) in accounts payable ................ 714,924
Increase (decrease) in accrued expenses ................ 177,288
Increase (decrease) in customer deposits ............... 89,588
-----------
NET CASH USED IN OPERATING ACTIVITIES ......................... (525,884)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages payable ........................ 7,573,935
Payments on mortgages payable .......................... (6,676,441)
Payments on notes payable .............................. (50,000)
Proceeds to affiliate .................................. (332,862)
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ..................... 514,632
-----------
DECREASE IN CASH .............................................. (11,252)
CASH, Beginning of period .................................... 53,028
-----------
CASH, End of period .......................................... $ 41,776
===========
-4-
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS AND ORGANIZATION
Matzel & Mumford at South Brunswick, L.L.C. ("M & M" at "South
Brunswick") is a New Jersey limited liability company formed for the
purpose of purchasing land in the Township of South Brunswick, New
Jersey and developing and constructing 91 single-family homes on that
land.
REVENUE RECOGNITION
Revenues arising from home sales will be 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
incurred is capitalized based upon interest on specifically related
debt.
A portion of the construction management fees paid to a related party
is capitalized by the Company.
MEMBERS CAPITAL
The two managing members have pledged a total of $1,000 in capital
contributions.
-5-
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES (continued)
INCOME TAXES
The Company is organized and operates as a limited liability company
which 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 generally
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 June 30, 1998:
Land ....................................... $ 2,945,224
Land improvements and construction costs ... 4,973,092
Project overhead ........................... 753,862
Financing costs ............................ 1,342,247
Sales and marketing ........................ 264,419
-----------
$10,278,844
===========
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 management fees capitalized during the
period ended June 30, 1998 are $1,893,399.
-6-
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 3 -- NOTE PAYABLE
On June 16, 1997, the Company entered into a financing arrangement
with an individual in the amount of $300,000 bearing interest at
15.00%. Repayment of principal calls for $10,000 per closing, for
closings 11 through 40, but no later than June 15, 1999. The first
interest payment commences on six months from the date of the note and
then every three months thereafter. The note is collateralized by a
financial guarantee bond, which is guaranteed by the managing member's
of the Company.
The fair value of the note payable approximates fair value of
instruments with similar terms and average maturities.
NOTE 4 -- MORTGAGES PAYABLE
June 30, 1998
-------------
Construction -- related party (a) ............... $3,303,264
Land, construction and model (b) ................ 1,737,519
1st mortgage (c) ................................ 3,400,000
----------
$8,440,783
==========
(a) The Company has a mortgage payable to Matzel & Mumford Mortgage
Funding, Inc., an entity controlled by members of M & M at South
Brunswick. The note is in the maximum amount of $3,400,000 and is
to fund the construction of twelve houses in phase one. Interest
is payable 16.00% and principal is payable with each closing at
the rate of 105% of the amount funded for each unit. Interest
payments are payable quarterly until June 18, 1999, when the
outstanding principal balance is due. The note is collateralized
by a first mortgage on the twelve building lots.
(b) The Company has a commitment from a bank for land acquisition and
construction not to exceed $6,400,000 as follows:
Note A in the maximum amount of $4,000,000 is to fund land
acquisition and improvements. The note has been extended for
an additional two months through September 28, 1998 and
bears interest at a rate of prime plus 1.5%.
-7-
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 4 -- MORTGAGES PAYABLE (Continued)
Interest is payable monthly and principal is payable with
each closing at the rate of 120% of the cost of the related
land and site improvements or $120,000. The loan is
collateralized by a first mortgage on the land and
improvements of phase one (40 lots) of the project and is
guaranteed by the managing member's of the Company. At June
30, 1998, the Note has a balance of $400,000.
Note B, a revolver, in the maximum amount of $2,500,000 is
fund the construction of sold homes. The note has a been
extended through September 30, 1998 and bears interest at a
rate of prime plus 1.5%. Interest is payable monthly and
principal is payable with the closing of each home. The loan
is collateralized by a first mortgage on the units being
constructed. The note balance is $1,087,519 as of June 30,
1998.
Note C in the amount of $500,000 is fund the construction of
two model homes. The note has been extended through
September 30, 1998 and bears interest at a rate of prime
plus 1.5%. Interest is payable monthly and principal is
payable with the closing of each model home. The loan is
collateralized by the model homes being constructed. The
note balance is $250,000 as of June 30, 1998.
The fair value of the mortgages approximates fair value of instruments
with similar terms and average maturities.
c) The Company has a commitment from a bank for land acquisition and
construction not to exceed $7,200,000 for phase two as follows:
The maximum amount of $3,400,000 is to fund land acquisition
and improvements and was used to payoff Matzel & Mumford
Mortgage Funding's first mortgage on the property. The note
bears interest at a rate of prime plus 3/8% and has a term
for 24 months which matures on June 14, 2000. Interest is
payable monthly and principal is payable with each closing
at the rate of 120% of the cost of the related land and site
improvements or $80,000. The loan is collateralized by a
first mortgage on the land and improvements of phase two (51
lots) of the project and is guaranteed by the managing
member's of the
-8-
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 4 -- MORTGAGES PAYABLE (Continued)
Company. At June 30, 1998, the Note has a balance of
$3,400,000.
The construction revolver is in the maximum amount of
$3,800,000 is fund the construction of sold homes. The note
has a term of 24 months and bears interest at a rate of
prime plus 3/8%. Interest is payable monthly and principal
is payable with the closing of each home. The loan is
collateralized by a first mortgage on the units being
constructed. The note balance is $0 as of June 30, 1998.
NOTE 5 -- RELATED PARTY TRANSACTIONS
The Company has an agreement with MMO whereby MMO provides
construction management services at a fee of 3% of the gross selling
price of each house. MMO is entitled to receive monthly draws of
$30,000 per month. Since inception, the Company has incurred $710,000
in management fees of which $551,152 have been capitalized in
inventories at June 30, 1998.
Also included in due to/from affiliates are net cash advances from an
affiliated company of the managing member of the Company. The advances
are short term in nature and bear no interest. The amounts are to be
repaid from available cash flow.
-9-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JUNE 30, 1998
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
INDEX TO FINANCIAL STATEMENTS
Page
----
Balance Sheets .......................................................... 1
Statement of Operations and Partner's Capital ........................... 2-3
Statement of Cash Flows ................................................. 4
Notes to the Financial Statements ....................................... 5-9
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
BALANCE SHEETS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
06/30/98 12/31/97
(unaudited) (audited)
----------- -----------
ASSETS
Cash .......................................... $ (13,621) $ 361,379
Performance bonds ............................. 326,380 229,020
Notes receivable .............................. 44,500 44,500
Utility deposits .............................. 47,823 38,570
Fixed assets, net ............................. 4,910 7,856
Due from affiliates ........................... 79,964 809,711
Inventories ................................... 13,057,123 11,756,553
----------- -----------
TOTAL ASSETS .................................. $13,547,079 $13,247,589
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages payable ............................. $10,383,831 $11,587,034
Accounts payable .............................. 1,530,175 709,668
Accrued expenses .............................. 347,792
Customer deposits ............................. 1,132,770 891,680
----------- -----------
TOTAL LIABILITIES ............................. 13,394,568 13,188,382
----------- -----------
PARTNERS' CAPITAL ............................. 152,511 59,207
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL ....... $13,547,079 $13,247,589
=========== ===========
-1-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED JUNE 30, 1998
Sales .......................................................... $5,109,038
Cost of sales .................................................. 4,498,700
----------
Gross profit ................................................... 610,338
Selling, general and administrative expenses ................... 572,205
----------
Income from operations ......................................... 38,133
Depreciation ................................................... 1,473
Interest income ................................................ 2,740
----------
Net income ..................................................... 39,400
Member's capital, Beginning of period .......................... 113,111
----------
Member's capital, End of Period ................................ $ 152,511
==========
-2-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1998
Sales .......................................................... $7,887,927
Cost of sales .................................................. 7,140,160
----------
Gross profit ................................................... 747,767
Selling, general and administrative expenses ................... 655,540
----------
Income from operations ......................................... 92,227
Depreciation ................................................... 2,946
Interest income ................................................ 4,023
----------
Net income ..................................................... 93,304
Member's capital, Beginning of period .......................... 59,207
----------
Member's capital, End of Period ................................ $ 152,511
==========
-3-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ......................................... $ 93,304
Depreciation .............................................. 2,946
Adjustments to reconcile net loss to net cash
used in operating activities
Increase in inventories ............................... (1,300,570)
Increase in performance bonds ......................... (97,360)
Increase in utility deposits .......................... (9,253)
Increase (decrease) in customer deposits .............. 241,090
Increase (decrease) in accrued expenses ............... 347,792
Increase (decrease) in accounts payable ............... 820,507
-----------
NET CASH USED IN OPERATING ACTIVITIES ........................ 98,456
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage payable ........................ 2,358,803
Payments of construction and land mortgages ........... (3,562,006)
Proceeds from affiliate ............................... 729,747
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES .................... (473,456)
-----------
DECREASE IN CASH ............................................. (375,000)
CASH, Beginning of period .................................... 361,379
-----------
CASH, End of period .......................................... $ (13,621)
===========
-4-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS AND ORGANIZATION
Matzel & Mumford at Freehold, L.L.C. ("M & M" at "Freehold") is a New
Jersey limited liability company formed for the purpose of purchasing
land in the Township of Freehold, New Jersey and developing and
constructing 126 single-family homes on that land.
REVENUE RECOGNITION
Revenues arising from home sales will be 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
incurred is capitalized based upon interest on specifically related
debt.
A portion of the construction management fees paid to a related party
is capitalized by the Company.
MEMBERS CAPITAL
The two managing members have pledged a total of $1,000 in capital
contributions.
-5-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES (continued)
INCOME TAXES
The Company is organized and operates as a limited liability company
which 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 generally
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 June 30, 1998:
Land ........................................ $ 5,050,498
Land improvements and construction costs .... 6,010,349
Project overhead ............................ 408,704
Financing costs ............................. 1,114,387
Sales and marketing ......................... 473,185
-----------
$13,057,123
===========
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 management fees capitalized during the
period ended June 30, 1998 are $1,395,807.
-6-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 3 -- MORTGAGES PAYABLE
06/30/98 12/31/97
----------- -----------
Land and construction mortgages (a) ...... $ 5,995,894 $ 6,843,090
1st mortgage (b) ......................... 1,099,268 1,099,268
2nd mortgage (c) ......................... 600,000 600,000
2nd mortgage (d) ......................... 1,257,919 979,676
3rd mortgage (e) ......................... 680,000 1,000,000
4th mortgage (f) ......................... 750,750 1,065,000
----------- -----------
$10,383,831 $11,587,034
=========== ===========
(a) The company has a commitment from a bank for land acquisition and
construction not to exceed $10,330,000 as follows:
Note A in the maximum amount of $6,030,000 is to fund land
acquisition and improvements. The note is due in May 1999,
and bears interest at the prime rate, plus 1.5%. Interest is
payable monthly and principal is payable with each closing
at the rate of 120% of the amount advanced for land
acquisition and site improvements, or $110,210. The Note has
a balance of $2,995,894 at June 30, 1998.
Note B in the amount of $700,000 matures in May 1998 and
bears interest at 18%. Interest is payable monthly and
principal is due at maturity. At June 30, 1998, the Note was
paid in full.
Note C, a revolver, in the maximum amount of $3,000,000, is
to be used to fund construction. The note bears interest at
the prime rate, plus 1%, and matures in May 1999. Interest
is payable monthly and principal is paid at par upon closing
of a unit. The Note balance is $3,000,000 as of June 30,
1998.
The loan is collateralized by a first mortgage on the land
and improvements of phases one and two (95 lots) of the
project and is guaranteed by the managing members.
(b) The Company has a first mortgage to the seller in the original
amount of $1,699,268, of which $600,000 was payable on November
15, 1997, and another $600,000 is payable on November 15, 1998
with the balance due on November 15, 1999. The mortgage bears
interest at 9.25%, which is payable at the time of the related
principal payment. The note is collateralized by a first mortgage
on phase three (31 lots) of the project.
-7-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 3 -- MORTGAGES PAYABLE (continued)
(c) The Company has a second mortgage to Matzel & Mumford Mortgage
Funding, an entity controlled by the members of M & M at
Freehold, which is payable interest only at 16%. Interest
payments are payable quarterly until November 15, 1999 when the
outstanding principal balance is due. The is collateralized by a
second mortgage on phase three (31 lots) of the project.
(d) The Company has a second mortgage from a bank for site
improvements on phase two (49 lots) not to exceed $2,415,000. The
note matures in May 1999 and bears interest at the prime rate,
plus 1-1/2%. Interest is payable monthly and principal is payable
with each closing at the rate of 120% of the cost of the related
improvements or $59,143 per lot.
(e) The Company has a third mortgage payable on phases one and two to
an investor group in the amount of $1,000,000. The note bears
interest at the rate of 20%, of which 6% is deferred until the
twenty first closing when the deferred portion is payable.
Thereafter, interest is payable in full quarterly. Principal is
payable $20,000 per house beginning with the 21st through the
50th closing and $40,000 from the 51st through the 60th closing
with the balance, if any, due on January 31, 2000.
(f) The Company has a fourth mortgage payable to an insurance company
in the maximum amount of $1,250,000 bearing interest at 20% on
the first $1,000,000 and 25% on the balance. The Company has made
principal repayments in the amount of $600,000 against the
original loan balance of which $250,000 was at an interest rate
of 25%. Fifty percent of the interest is payable semi-annually
beginning one year from the initial advance with the balance
deferred until the related principal payments commence. Principal
is payable $50,000 per house, plus the related portion of the
deferred interest, beginning with the 83rd closing through the
95th closing with the unpaid balance, if any, due December 31,
2001. The note is collateralized by a fourth mortgage on the land
and improvements of phases one and two and the guarantee of the
managing members.
NOTE 4 -- RELATED PARTY TRANSACTIONS
The Company has an agreement with MMO whereby MMO provides
construction management services at a fee of 4% of the gross selling
price of each house. MMO is entitled to receive monthly draws of
$50,000 per month. Since inception, the Company has incurred
-8-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 4 -- RELATED PARTY TRANSACTIONS (continued)
$710,000 in management fees of which $281,420 have been capitalized in
inventories at June 30, 1998.
Also included in due to/from affiliates are net cash advances from an
affiliated company of the managing member of the Company. The advances
are short term in nature and bear no interest. The amounts are to be
repaid from available cash flow.
-9-
<PAGE>
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
Matzel & Mumford Mortgage Funding, Inc. (the "Funding Company") is a
finance company that was formed in July 1995 for the purpose of funding land
acquisition, infrastructure improvements, and the construction of homes in
single-family residential housing communities by making loans. In furtherance of
this purpose, the Funding Company made a public offering of up to $6,000,000 of
its Intermediate Term Secured Notes (the "Notes"). On May 16, 1996, the Funding
Company issued and sold $3,750,000 principal amount of Notes.
During the second quarter of 1998, the Funding Company made a new first
mortgage loan to Matzel & Mumford at South Brunswick, LLC ("South Brunswick") in
the amount of $3.4 million on twelve building lots for the construction of sold
homes. South Brunswick is an entity organized to develop, market and build a 91
lot subdivision known as "Heather Knolls" located on Perrine Road in South
Brunswick, New Jersey. Upon receipt of the financing from the Funding Company,
South Brunswick will use a portion of the proceeds to repay Amboy National Bank
(first mortgage holder) for its existing acquisition and improvement funding.
The remaining funds will be used for the construction of the houses on a
percentage of completion method. Repayment of the loan from South Brunswick to
the Funding Company will come from proceeds of the houses as they are closed
with third party purchasers. As of June 30, 1998, South Brunswick had written 53
contracts with prospective home buyers.
As of June 30, 1998, the Funding Company had an aggregate of $3,903,264 of
loans outstanding, allocated as follows: to Matzel & Mumford at South Brunswick,
L.L.C. ("South Brunswick"), (an aggregate of $3,303,264 secured by a first
mortgage), and to Matzel & Mumford at Freehold, LLC ("Freehold"), (an aggregate
of $600,000 secured by a second mortgage). The financial statements of each of
these entities are included with this Quarterly Report. The Funding Company also
had $96,736 deposited in a cash collateral account with First Union National
Bank, as trustee for the holders of the Notes.
During the second quarter of 1998, South Brunswick repaid its previously
outstanding loan of $3,400,000 from the Funding Company for land and site
improvements in full.
Subsequent to June 30, 1998, the Funding Company made a first mortgage loan
to Freehold in the amount of $2,390,000 on seven building lots for the
construction of sold homes. Freehold is an entity organized to develop, market
and build a 126 lot subdivision known as "Seven Oaks" located on Burlington Road
in Freehold, New Jersey. Upon receipt of the financing from the Funding Company,
Freehold will use a portion of the proceeds to repay Amboy National Bank (first
mortgage holder) for its existing acquisition and improvement funding and Apple
Chase Investors, L.L.C. (second mortgage holder for its acquisition funding).
The remaining funds will be used for the construction of the houses on a
percentage of completion method. Repayment of the loan from Freehold to the
Funding Company will come from proceeds of the houses as they are closed with
third party purchasers. As of June 30, 1998, Freehold had written 74 contracts
with prospective home buyers and has taken 7 deposits which are expected to be
converted to contracts upon meeting certain conditions.
Because the Funding Company is not an operating company, it has minimal
cash needs. The Funding Company expects that its cash requirements will be
satisfied by the administrative fee that various borrowers will pay to the
Funding Company and by the amount of interest on the various loans (which will
be at least 16%) that remains after paying the interest on the Notes and a loan
servicing fee to its affiliate, Matzel & Mumford Organization. Inc.
<PAGE>
PART II. OTHER INFORMATION
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.
Subsequent to June 30, 1998, the Funding Company made a first mortgage loan
to Freehold in the amount of $2,390,000 on seven building lots for the
construction of sold homes. Freehold is an entity organized to develop, market
and build a 126 lot subdivision known as "Seven Oaks" located on Burlington Road
in Freehold, New Jersey. Upon receipt of the financing from the Funding Company,
Freehold will use a portion of the proceeds to repay Amboy National Bank (first
mortgage holder) for its existing acquisition and improvement funding and Apple
Chase Investors, L.L.C. (second mortgage holder for its acquisition funding).
The remaining funds will be used for the construction of the houses on a
percentage of completion method. Repayment of the loan from Freehold to the
Funding Company will come from proceeds of the houses as they are closed with
third party purchasers. As of June 30, 1998, Freehold had written 74 contracts
with prospective home buyers and has taken 7 deposits which are expected to be
converted to contracts upon meeting certain conditions.
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).
<PAGE>
4(b) Resolutions of the Board of Directors of the Funding Company
establishing specific terms of the Notes (incorporated by
reference to Exhibit 4(b) of Quarterly Report on Form 10-QSB for
the quarter ended March 31, 1996).
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.
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the under-signed, thereunto duly authorized.
MATZEL & MUMFORD MORTGAGE FUNDING, INC.
Date: August 12, 1998 By: /s/ ROGER MUMFORD
-----------------------------------
Roger Mumford, President
(Principal Executive Officer)
By: /s/ JONATHAN FISHER
-----------------------------------
Jonathan Fisher, Chief
Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934,
This report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: August 12, 1998 By: /s/ ROGER MUMFORD
-----------------------------------
Roger Mumford, Director
By: /s/ BRUCE MATZEL
-----------------------------------
Bruce Matzel, Director
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
MATZEL & MUMFORD AT MORTGAGE FUNDING, LLC
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 152,242
<SECURITIES> 0
<RECEIVABLES> 3,903,264
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,055,606
<PP&E> 164,787
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,220,393
<CURRENT-LIABILITIES> 0
<BONDS> 3,750,000
0
0
<COMMON> 10,000
<OTHER-SE> 460,393
<TOTAL-LIABILITY-AND-EQUITY> 4,220,393
<SALES> 314,798
<TOTAL-REVENUES> 314,798
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 34,465
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 288,025
<INCOME-PRETAX> (7,692)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,692)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,692)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, LLC
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 313,512
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 10,278,844
<CURRENT-ASSETS> 10,592,356
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,592,356
<CURRENT-LIABILITIES> 10,506,615
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 85,741
<TOTAL-LIABILITY-AND-EQUITY> 10,592,356
<SALES> 5,452,102
<TOTAL-REVENUES> 5,458,540
<CGS> 4,986,985
<TOTAL-COSTS> 4,986,985
<OTHER-EXPENSES> 394,034
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 77,521
<INCOME-TAX> 0
<INCOME-CONTINUING> 77,521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,521
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
MATZEL & MUMFORD AT FREEHOLD, LLC
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 312,759
<SECURITIES> 0
<RECEIVABLES> 172,287
<ALLOWANCES> 0
<INVENTORY> 13,057,123
<CURRENT-ASSETS> 13,542,169
<PP&E> 4,910
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,547,079
<CURRENT-LIABILITIES> 13,394,568
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 152,511
<TOTAL-LIABILITY-AND-EQUITY> 13,547,079
<SALES> 7,887,927
<TOTAL-REVENUES> 7,891,950
<CGS> 7,140,160
<TOTAL-COSTS> 7,140,160
<OTHER-EXPENSES> 658,486
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 93,304
<INCOME-TAX> 0
<INCOME-CONTINUING> 93,304
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,304
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
