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 September 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 22-33-82016
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 _____ 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 September 30, 1998
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 Sheets as of September 30, 1998 (unaudited) and December
31, 1997 .......................................................
Statements of Operations and Retained Earnings for the Nine
Months ended September 30, 1998 (unaudited) ....................
Statements of Operations and Retained Earnings for the Three
Months ended September 30, 1998 (unaudited) ....................
Statement of Cash Flows for the Nine Months Ended September 30,
1998 (unaudited) ...............................................
Notes to Financial Statements (unaudited) ......................
Matzel & Mumford at South Brunswick, L.L.C.
Balance Sheets as of September 30, 1998 (unaudited) and December
31, 1997 .......................................................
Statements of Operations and Retained Earnings for the Nine
Months ended September 30, 1998 (unaudited) ....................
Statements of Operations and Retained Earnings for the Three
Months ended September 30, 1998 (unaudited) ....................
Statement of Cash Flows for the Nine Months Ended September 30,
1998 (unaudited) ...............................................
Notes to Financial Statements (unaudited) ......................
Matzel & Mumford at Freehold, L.L.C.
Balance Sheets as of September 30, 1998 (unaudited) and December
31, 1997 .......................................................
Statements of Operations and Partners' Capital for the Nine
Months ended September 30, 1998 (unaudited) ....................
Statements of Operations and Retained Earnings for the Three
Months ended September 30, 1998 (unaudited) ....................
Statement of Cash Flows for the Nine Months Ended September 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 SEPTEMBER 30, 1998
<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC.
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 - 6
<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC
BALANCE SHEETS
AS OF SEPTEMBER 30,1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
9/30/98 12/31/97
----------- -----------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Cash $ 623,710 $ 945,616
Prepaid income taxes 100
Mortgages receivable 3,435,865 3,096,545
Deferred costs, net 154,156 186,049
----------- -----------
TOTAL ASSETS $ 4,213,831 $ 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 (36,169) (21,915)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 463,831 478,085
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,213,831 $ 4,226,400
=========== ===========
</TABLE>
-1-
<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Revenue $ 150,268
Interest expense 146,199
---------
Income (loss) before G & A and amortization 4,069
General & administrative expenses
Amortization 10,631
---------
Net Income (6,562)
Retained Earnings, beginning of period $ (29,607)
Retained Earnings, end of period $ (36,169)
=========
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<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Revenue $ 465,066
Interest expense 434,224
---------
Income (loss) before G & A and amortization 30,842
General & administrative expenses 13,203
Amortization 31,893
---------
Net Income (14,254)
Retained Earnings, beginning of period $ (21,915)
Retained Earnings, end of period $ (36,169)
=========
-3-
<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ (14,254)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization 31,893
Increase in mortgages receivable (339,320)
Increase in prepaid income taxes (100)
Increase in accounts payable (125)
---------
NET CASH USED IN OPERATING ACTIVITIES (321,906)
DECREASE IN CASH (321,906)
CASH, Beginning of period 945,616
CASH, End of period $ 623,710
=========
-4-
<PAGE>
MATZEL & MUMFORD MORTGAGE FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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
SEPTEMBER 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 SEPTEMBER 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 SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
09/30/98 12/31/97
(unaudited) (audited)
---------- ----------
ASSETS
Cash $ 29,312 $ 53,028
Performance Bond 201,856 188,600
Note receivable 38,700
Inventories 8,576,251 8,776,775
---------- ----------
TOTAL ASSETS $8,846,119 $9,018,403
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage payable- M&M Mortgage Funding $2,496,545
Mortgage payable $6,774,852 5,046,744
Note payable 90,000 300,000
Accounts payable 654,123 163,174
Accrued expenses 288,977
Customer deposits 646,462 581,526
Due to affiliate 89,332 422,194
---------- ----------
TOTAL LIABILITIES 8,543,746 9,010,183
---------- ----------
PARTNERS' CAPITAL 302,373 8,220
---------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $8,846,119 $9,018,403
========== ==========
-1-
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
Sales $5,468,004
Cost of sales 4,836,618
----------
Gross profit 631,386
Selling, general and administrative expenses 417,844
----------
Income from operations 213,542
Interest income 3,090
----------
Net income (loss) 216,632
Member's capital, Beginning of period 85,741
----------
Member's capital, End of Period $ 302,373
==========
-2-
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Sales $10,920,106
Cost of sales 9,823,603
-----------
Gross profit 1,096,503
Selling, general and administrative expenses 811,878
-----------
Income from operations 284,625
Interest income 9,528
-----------
Net income (loss) 294,153
Member's capital, Beginning of period 8,220
-----------
Member's capital, End of Period $ 302,373
===========
-3-
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 294,153
Adjustments to reconcile net loss to net cash
used in operating activities
Increase in performance bonds (13,256)
Decrease in inventories 200,524
Increase in notes receivable (38,700)
Increase (decrease) in accounts payable 490,949
Increase (decrease) in accrued expenses 288,977
Increase (decrease) in customer deposits 64,936
------------
NET CASH USED IN OPERATING ACTIVITIES 1,287,583
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages payable 14,829,148
Payments on mortgages payable (15,597,585)
Payments on notes payable (210,000)
Proceeds to affiliate (332,862)
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (1,311,299)
------------
DECREASE IN CASH (23,716)
CASH, Beginning of period 53,028
------------
CASH, End of period $ 29,312
============
-4-
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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
SEPTEMBER 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 September 30, 1998:
Land $2,360,070
Land improvements and
construction costs 4,394,581
Project overhead 507,016
Financing costs 1,112,032
Sales and marketing 202,552
----------
$8,576,251
==========
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 September 30, 1998 are $1,893,399.
-6-
<PAGE>
MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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
September 30, 1998
-----------------------------------------------------------------------
Construction - related party (a)
Land, construction and model (b) $ 1,896,501
1st mortgage (c 4,878,351
-----------------------------------------------------------------------
$ 6,774,852
-----------------------------------------------------------------------
(a) The Company had a mortgage payable to Matzel & Mumford Mortgage
Funding, Inc., an entity controlled by members of M & M at South
Brunswick. The note was 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. At September 30, 1998
the note has been repaid in full.
(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 November 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
SEPTEMBER 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 September 30, 1998, the Note has
been repaid in full.
Note B, a revolver, in the maximum amount of $2,500,000 is
fund the construction of sold homes. The note has a term of 18
months 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
$1,896,501 as of September 30, 1998.
Note C in the amount of $500,000 is fund the construction of
two model homes. The note has a term of 18 months expiring
July 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. As of September 30, 1998 the
Note has been repaid in full.
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
SEPTEMBER 30, 1998
NOTE 4 - MORTGAGES PAYABLE (Continued)
Company. At September 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 $1,478,351 as of September
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 $800,000 in management fees
of which $468,393 have been capitalized in inventories at September 30,
1998.
Also included in due to/from affiliates are net cash advances from an
affiliated company of the managing member of the Company. The advances
are short term in nature and bear no interest. The amounts are to be
repaid from available cash flow.
-9-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
INDEX TO FINANCIAL STATEMENTS
Page
Balance Sheets ........................................................... 1
Statement of Operations and Partner's Capital............................. 2 - 3
Statement of Cash Flows................................................... 4
Notes to the Financial Statements ........................................ 5 - 9
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
09/30/98 12/31/97
(unaudited) (audited)
------------ ------------
ASSETS
Cash ($ 85,842) $ 361,379
Performance bonds 250,910 229,020
Notes receivable 44,550 44,500
Utility deposits 47,823 38,570
Fixed assets, net 3,437 7,856
Due from affiliates 61,184 809,711
Inventories 10,990,827 11,756,553
------------ ------------
TOTAL ASSETS $ 11,312,889 $ 13,247,589
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages payable $ 8,942,329 $ 11,587,034
Accounts payable 447,016 709,668
Accrued expenses 593,382
Customer deposits 855,634 891,680
------------ ------------
TOTAL LIABILITIES 10,838,361 13,188,382
------------ ------------
PARTNERS' CAPITAL 474,528 59,207
------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 11,312,889 $ 13,247,589
============ ============
-1-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
Sales $7,834,321
Cost of sales 6,898,981
----------
Gross profit 935,340
Selling, general and administrative expenses 616,545
----------
Income from operations 318,795
Depreciation 1,473
Interest income 4,695
----------
Net income 322,017
Member's capital, Beginning of period 152,511
----------
Member's capital, End of Period $ 474,528
==========
-2-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Sales $15,722,248
Cost of sales 14,039,141
-----------
Gross profit 1,683,107
Selling, general and administrative expenses 1,272,085
-----------
Income from operations 411,022
Depreciation 4,419
Interest income 8,718
-----------
Net income 415,321
Member's capital, Beginning of period 59,207
-----------
Member's capital, End of Period $ 474,528
===========
-3-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 415,321
Depreciation 4,419
Adjustments to reconcile net loss to net cash
used in operating activities
Decrease in inventories 765,676
Increase in performance bonds (21,890)
Increase in utility deposits (9,253)
Increase (decrease) in customer deposits (36,046)
Increase (decrease) in accrued expenses 593,382
Increase (decrease) in accounts payable (262,652)
------------
NET CASH USED IN OPERATING ACTIVITIES 1,448,957
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage payable 14,340,076
Payments of construction and land mortgages (16,984,781)
Proceeds from affiliate 748,527
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (1,896,178)
------------
DECREASE IN CASH (447,221)
CASH, Beginning of period 361,379
------------
CASH, End of period ($ 85,842)
============
-4-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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
SEPTEMBER 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 September 30, 1998:
Land $ 4,119,358
Land improvements and
construction costs 5,348,811
Project overhead 166,020
Financing costs 1,039,454
Sales and marketing 317,184
-----------
$10,990,827
===========
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 September 30, 1998 are $1,194,679.
-6-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 3 - MORTGAGES PAYABLE
09/30/98 12/31/97
----------- -----------
Land and construction mortgages (a) $ 3,215,401 $ 6,843,090
1st mortgage (b) 1,099,268
1st mortgage (C) 2,291,063
1st mortgage (d) 2,835,865
2nd mortgage (e) 600,000 600,000
2nd mortgage (f) 979,676
3rd mortgage (g) 1,000,000
4th mortgage (h) 1,065,000
----------- -----------
$ 8,942,329 $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
$1,140,276 at September 30, 1998.
Note B in the amount of $700,000 has been repaid in full.
Note C, a revolver, in the maximum amount of $4,000,000, 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 $2,075,175 as of September 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% and 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. At September 30, 1998
the loan was repaid in full.
-7-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 3 - MORTGAGES PAYABLE (continued)
(C) The company has a commitment from a bank for land acquisition and
construction not to exceed $5,387,000 as follows:
Note A in the maximum amount of $2,387,000 is to fund land
acquisition and improvements. The note is due in February
2000, and bears interest at the prime rate, plus .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 $92,400. The Note has a
balance of $2,221,653 at September 30, 1998.
Note B, 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 .5%, and matures in February 2000. Interest
is payable monthly and principal is paid at par upon closing
of a unit. The Note balance is $69,410 as of September 30,
1998.
The loan is collateralized by a first mortgage on the land and improvements in
phase three (31 lots) of the project and is guaranteed by the managing members.
(d) The Company has two mortgages payable to Matzel & Mumford
Mortgage Funding, Inc., an entity controlled by members of M & M
at Freehold. The aggregate of the notes are in a maximum amount
of $4,090,000 and are to fund the construction of twelve houses
in phases one and two. Interest is payable at 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 July 31, 1999, when the outstanding principal
balance is due. At September 30, 1998 the note balance is
$2,835,865.
(e) 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.
(f) 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 1998 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. The note was repaid in full
during the third quarter.
-8-
<PAGE>
MATZEL & MUMFORD AT FREEHOLD, L.L.C.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 3 - MORTGAGES PAYABLE (continued)
(g) 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. The note was
repaid in full during the third quarter.
(h) 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 $810,000 in management fees
of which $155,225 have been capitalized in inventories at September 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 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 third quarter of 1998, the Funding Company made two new first
mortgage loans to Matzel & Mumford at Freehold, LLC ("Freehold"). The first new
mortgage loan was in the amount of $2,390,000 on seven building lots for the
construction of sold homes of which $1,559,465 is outstanding at September 30,
1998. The other new mortgage loan was in the amount of $1,700,000 on five
building lots for the construction of new homes of which $1,276,400 is
outstanding at September 30, 1998. 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. Freehold 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 loans from Freehold to the Funding Company will come from proceeds of the
houses as they are closed with third party purchasers. As of September 30, 1998,
of the 126 lots Freehold had written 88 contracts with prospective home buyers,
of which 8 were for lots financed by the Funding Company.
As of September 30, 1998, the Funding Company had an aggregate of
$3,435,865 of loans outstanding, allocated to Freehold as follows: an aggregate
of $2,835,865 secured by a first mortgage on the above two referenced loans and
an aggregate of $600,000 secured by a second mortgage. The financial statements
of Freehold are included with this Quarterly Report. The Funding Company also
had $564,135 deposited in a cash collateral account with First Union National
Bank, as trustee for the holders of the Notes.
During the third quarter of 1998, South Brunswick repaid in full its
previously outstanding loan of $3,400,000 from the Funding Company for
construction of seven homes.
Subsequent to September 30, 1998, the Funding Company made a first mortgage loan
to Matzel & Mumford at Heritage Landing ("Heritage Landing") in the amount of
$1,400,000 for the acquisition and approval costs of thirty building lots. The
thirty six building lots is part of an overall 132 unit subdivision. The
remaining 96 building lots have not yet been acquired. The 96 lots will be
acquired in three phases with the first phase closing expected to be in the
middle of November. Heritage Landing is an entity organized to develop, market
and build a 132 lot subdivision located off River Road in South River, New
Jersey. Repayment of the loan from Heritage Landing to the Funding Company will
come from in stages as bank financing is secured. Heritage
<PAGE>
Item 2. Management's Plan of Operation (continued)
Landing opened for sales in October 1998 and is scheduled to have a model grand
opening in early November. The anticipated base selling price will range between
$229,000 and $258,000 with option revenue adding an average of approximately
another $20,000 per house. The size of the building lots range from
approximately 1/4 acre to 1/3 acre.
The Funding Company also anticipates making a second mortgage loan to Matzel &
Mumford at Phillipsburg, LLC ("Phillipsburg) in the amount of $400,000 for land
acquisition for 26 building lots. The first mortgage loan for land acquisition
and construction has been secured through Commerce Bank in an aggregate amount
of $2,811,000. Phillipsburg is an entity organized to develop, market and build
a 26 lot subdivision known as "Delaware Knolls" located on Carpenterville Road
in Phillipsburg, New Jersey. The project is part of an overall 40 lot
subdivision and the property is being acquired with the site improvements
already in place. The anticipated base selling price will range between $175,000
and $220,000 with option revenue adding another $15,000 per house. The size of
the building lots average approximately 1/5 of an acre.
The Funding Company also anticipates making an additional first mortgage loan to
Freehold in the amount of $2,620,000 on seven building lots for the construction
of new homes on a percentage of completion basis. Freehold 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 loans from Freehold to the Funding Company will come from
proceeds of the houses as they are closed with third party purchasers.
The company has completed an initial assessment of its Year 2000 status and has
developed and implemented a plan successfully to address the Company's exposure
to the "Year 2000" issue. The Year 2000 issue is the result of computer programs
being written using two digits rather four to define the applicable year.
Computer systems that have time sensitive software may recognize the date "00"
as the year 1900 rather than 2000. This could result in a major system failure
or miscalculations. Pursuant to its plan, the Company has implemented a Year
2000 conversion in July 1998 which included upgrading its software and
purchasing a new network server. The cost of the compliance of the Year 2000
conversion on all of its systems was $30,000 in 1998. No additional costs are
now anticipated. Major suppliers will be contacted in order to assess their
status as to Year 2000 compliance in the first half of 1999.
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.
None
<PAGE>
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 (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: November 13, 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: November 13, 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
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 623,710
<SECURITIES> 0
<RECEIVABLES> 3,435,965
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,059,675
<PP&E> 154,156
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,213,831
<CURRENT-LIABILITIES> 0
<BONDS> 3,750,000
0
0
<COMMON> 10,000
<OTHER-SE> 453,831
<TOTAL-LIABILITY-AND-EQUITY> 4,213,831
<SALES> 465,066
<TOTAL-REVENUES> 465,066
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 45,096
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 434,224
<INCOME-PRETAX> (14,254)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,254)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,254)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 231,168
<SECURITIES> 0
<RECEIVABLES> 38,700
<ALLOWANCES> 0
<INVENTORY> 8,576,251
<CURRENT-ASSETS> 8,846,119
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,846,119
<CURRENT-LIABILITIES> 8,543,746
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 302,373
<TOTAL-LIABILITY-AND-EQUITY> 8,846,119
<SALES> 10,920,106
<TOTAL-REVENUES> 10,929,634
<CGS> 9,823,603
<TOTAL-COSTS> 9,823,603
<OTHER-EXPENSES> 811,878
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 294,153
<INCOME-TAX> 0
<INCOME-CONTINUING> 294,153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 294,153
<EPS-PRIMARY> 0
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 165,068
<SECURITIES> 0
<RECEIVABLES> 153,507
<ALLOWANCES> 0
<INVENTORY> 10,990,827
<CURRENT-ASSETS> 11,309,402
<PP&E> 3,437
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,312,839
<CURRENT-LIABILITIES> 10,838,361
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 474,528
<TOTAL-LIABILITY-AND-EQUITY> 11,312,889
<SALES> 15,722,248
<TOTAL-REVENUES> 15,730,966
<CGS> 14,039,141
<TOTAL-COSTS> 14,039,141
<OTHER-EXPENSES> 1,276,504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 415,321
<INCOME-TAX> 0
<INCOME-CONTINUING> 415,321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 415,321
<EPS-PRIMARY> 0
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