Form 10-Q Quarterly Report
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
Commission File Number: 1-7614
-----------------------------
PMCC FINANCIAL CORP.
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-3404072
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3 Expressway Plaza
Roslyn Heights, N.Y. 11577
(Address of Principal Executive Offices and Zip Code)
(516) 625-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ________
Number of shares outstanding of the issuer's Common Stock, par value $.01
per share, as of August 7, 1998: 3,750,000 shares.
(1)
<PAGE>
PMCC FINANCIAL CORP.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No
<S> <C>
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations (Unaudited)
Six Months Ended June 30, 1998 and 1997 3
Three Months Ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Financial Condition (Unaudited)
June 30, 1998 and December 31, 1997 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II - Other Information 15
Signatures 16
Exhibit Index 17
</TABLE>
(2)
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
PMCC FINANCIAL CORP. and SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Revenues:
Sales of residential rehabilitation properties $16,759,170 $ 8,807,292
Gains on sale of mortgage loans, net 6,761,807 4,340,477
Interest earned 2,309,494 426,296
----------- -----------
25,830,471 13,574,065
----------- -----------
Expenses:
Costs of sales, residential rehabilitation properties 15,418,658 8,254,452
Compensation and benefits 4,470,700 2,677,417
Interest expense 2,373,574 707,778
Other general and administrative 1,668,545 967,407
----------- -----------
23,931,477 12,607,054
----------- -----------
Income before income tax expense 1,898,994 967,011
Income tax expense (1) 1,595,000 16,506
----------- -----------
Net Income $303,994 $950,505
=========== ===========
Pro forma information:
Historical income before income tax $1,898,994 $967,011
Adjustment to compensation expense for contractual
Increase in officers' salary -- (77,000)
----------- -----------
Pro forma income before income tax expense 1,898,994 890,011
Provision for pro forma income taxes (779,000) (365,000)
----------- -----------
Pro forma net income $1,119,994 $525,011
=========== ===========
Pro forma net income per share of common stock-basic $0.33 $0.21
===== =====
Pro forma net income per share of common stock-diluted $0.32 $0.21
===== =====
Pro forma weighted average number of shares and
share equivalents outstanding-basic
3,418,508 2,500,000
========= =========
Pro forma weighted average number of shares and
share equivalents outstanding-diluted 3,489,381 2,500,000
========= =========
</TABLE>
(1) Income tax expense for the six months ended June 30, 1998 includes a
provision for deferred income tax expense of $1,081,000 related to the change in
tax status of the Company's subsidiaries from S corporation's to C
corporation's.
See accompanying notes to unaudited condensed consolidated financial
statements.
(3)
<PAGE>
PMCC FINANCIAL CORP. and SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Revenues:
Sales of residential rehabilitation properties $8,546,493 $4,582,892
Gains on sale of mortgage loans, net 3,676,417 2,560,213
Interest earned 1,449,670 310,466
---------- ----------
13,672,580 7,453,571
---------- ----------
Expenses:
Costs of sales, residential rehabilitation properties 7,829,482 4,266,490
Compensation and benefits 2,281,622 1,396,005
Interest expense 1,473,049 494,616
Other general and administrative 948,232 514,051
---------- ----------
12,532,385 6,671,162
---------- ----------
Income before income tax expense 1,140,195 782,409
Income tax expense 467,000 13,256
---------- ----------
Net Income $673,195 $769,153
========== ==========
Pro forma information:
Historical income before income tax $782,409
Adjustment to compensation expense for contractual
Increase in officers' salary (56,000)
----------
Pro forma income before income tax expense 726,409
Provision for pro forma income taxes (298,000)
----------
Pro forma net income $428,409
==========
Net income/pro forma net income per share of common
stock-basic $.018 $0.17
===== =====
Net income/pro forma net income per share of common
stock-diluted $.018 $.017
===== =====
Weighted average number of shares and
share equivalents outstanding-basic 3,750,000 2,500,000
========= =========
Weighted average number of shares and
share equivalents outstanding-diluted 3,826,379 2,500,000
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
(4)
<PAGE>
PMCC FINANCIAL CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Cash and cash equivalents $4,619,860 $1,713,405
Receivable from sales of loans 44,856,337 35,130,857
Mortgage loans held for sale, net 40,289,986 18,609,569
Accrued interest receivable 364,958 312,772
Other receivables, net 1,546,829 398,444
Residential rehabilitation properties 14,410,905 11,584,273
Furniture & equipment, net 664,645 286,713
Prepaid expenses and other assets 480,886 391,299
------- -------
Total assets $107,234,406 $68,427,332
============ ===========
Liabilities and shareholders' equity Liabilities:
Notes payable-principally warehouse lines of credit $88,576,215 $59,116,509
Notes payable-shareholder -- 293,163
Due to affiliates 3,303,850 3,084,503
Accrued expenses and other liabilities 1,482,899 1,123,948
Distribution payable 665,555 --
Taxes payable 1,581,349 --
---------- ----------
Total liabilities 95,609,868 63,618,123
---------- ----------
Shareholders' equity
Common stock 37,500 6,250
Additional paid-in capital 10,846,043 711,775
Retained earnings 740,995 4,091,184
---------- ----------
Total shareholders' equity 11,624,538 4,809,209
---------- ---------
Total liabilities and shareholders' equity $107,234,406 $68,427,332
============ ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements
(5)
<PAGE>
PMCC FINANCIAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $303,994 $950,505
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Residential rehabilitation properties (exclusive of cash paid directly
to/by independent contractors):
Contractual fees received (1,340,512) (552,840)
Proceeds from sales of properties 16,759,170 8,807,292
Costs of properties acquired (18,245,290) (15,163,150)
Depreciation and amortization 43,167 29,492
Increase in accrued interest receivable (52,186) (28,833)
Net increase in mortgage loans held for sale (21,680,417) (14,048,971)
Increase in receivable from sales of loans (9,725,480) (7,004,752)
Increase in other receivables (1,148,385) (225,248)
(Increase) decrease in prepaid expenses and other assets (89,587) 16,968
Increase in taxes payable 1,581,349 --
Increase in due to affiliates 219,347 1,950,867
Increase in accrued expenses and other liabilities 358,951 310,868
------------ ------------
Net cash used in operating activities (33,015,879) (24,957,802)
------------ ------------
Cash flows from investing activities:
Purchase of furniture and equipment (421,099) (64,498)
Principal repayments of mortgage loans held for investment -- 22,269
--------- --------
(421,099) (42,229)
--------- --------
Net cash used in investing activities
Cash flows from financing activities:
Distributions to S corporation shareholders, net of
distribution payable (2,006,435) (215,756)
Net proceeds from sale of common stock 9,183,325 --
Net decrease in notes payable-shareholder (293,163) --
Net increase in notes payable-warehouse lines of credit 29,459,706 25,441,433
---------- ----------
Net cash provided by financing activities 36,343,433 25,225,677
---------- ----------
Net increase in cash and cash equivalents 2,906,455 225,646
Cash and cash equivalents at beginning of period 1,713,405 409,788
--------- -------
Cash and cash equivalents at end of period $4,619,860 $635,434
========== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest 2,169,682 $576,883
========== ========
Income taxes $13,651 $25,365
======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements
(6)
<PAGE>
PMCC FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
1. Basis of Presentation
The unaudited condensed consolidated financial statements included herein
reflect all adjustments, which are, in the opinion of management necessary for a
fair presentation of the Company's financial condition as of the dates indicated
and the results of operations for the periods shown. In preparing the
accompanying condensed consolidated financial statements, management is required
to make estimates and assumptions that reflect the reported amounts of assets
and liabilities as of the date of the condensed consolidated statements of
financial condition and of income and expenses for the periods presented in the
condensed consolidated statements of operations. The results of operations for
the six and three months ended June 30, 1998 are not necessarily indicative of
the results of operations to be expected for the remainder of the year. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to rules and regulations of the Securities and
Exchange Commission.
These unaudited condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Form 10-K for the year ended December 31,
1997.
Certain reclassifications have been made to conform the prior period's
presentation to the current presentation.
2. Initial Public Offering
On February 18, 1998 the shareholders of Premier Mortgage Corp. ("Premier")
exchanged all of their outstanding common shares of Premier for 2.5 million
common shares of the Company. Following the exchange, the Company completed an
initial public offering of 1.25 million common shares at a price of $9 per share
from which gross proceeds of $11,250,000 and net proceeds of $9,183,000 were
received.At the time of the offering, shareholder equity was $1.7 million.
At the time of the share exchange, the Company agreed to make a cash
distribution to existing shareholders of $2.7 million which was equal to the
Company's undistributed subchapter S corporation earnings. Approximately $1.9
million of the distribution was paid during the quarter ended March 31, 1998, of
which $1 million was from the proceeds of the initial public offering. The
balance of the distribution will be paid in four equal quarter annual
installments and is evidenced by the Company's promissory note bearing interest
at 10% per annum. The remaining undistributed subchapter S corporation earnings
were reclassified from retained earnings to additional paid in capital.
3. Income Taxes
Prior to February 18, 1998, certain of the Company's subsidiaries elected
to be treated as S corporations for both federal and state income tax purposes.
As a result, the income of the subsidiaries through February 18, 1998 was taxed
directly to the individual shareholders. On February 18, 1998, in conjunction
with the Company's initial public offering, the S corporation elections were
terminated and the Company's subsidiaries became C corporations for federal and
state income tax purposes and, as such, became subject to federal and state
income taxes on their taxable income for the periods after February 18, 1998.
Therefore, the provision for income taxes for the six months ended June 30, 1998
includes a provision for deferred income taxes of $1,081,000 related to the
temporary differences existing at the termination of the S corporation
elections, and pro forma net income for the six months ended June 30, 1998 and
the three and six months ended June 30, 1997 include pro forma income taxes as
if the Company had been taxed as a C corporation throughout the periods.
(7)
<PAGE>
4. Earnings Per Share of Common Stock
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings
Per Share" ("EPS"). This statement establishes standards for computing and
presenting EPS for entities with publicly held common stock and common stock
equivalents and requires reconciliation of the numerator and denominator of the
EPS calculation presented.
Basic EPS is determined by dividing pro forma net income for the period by
the weighted average number of common shares outstanding during the same period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock which would then share in the
earnings of the Company. The additional number of shares included in the
calculation of diluted EPS arising from issued stock options was 70,873 shares
and 0 shares, respectively, for the six months ended June 30, 1998 and 1997 and
76,379 and 0 shares, respectively, for the three months ended June 30, 1998 and
1997.
A ctual earnings per share data for periods prior to February 18, 1998 have
not been presented in the accompanying unaudited condensed consolidated
statement of operations because the Company was not a public company. Actual
earnings per share data for the periods February 18, 1998 to March 31, 1998 and
February 18, 1998 to June 30, 1998 have not been presented in the accompanying
unaudited condensed consolidated statement of operations because management
believes that such data would not be meaningful given the less than full time
period and the impact of the recognition of a deferred tax liability in
connection with the change in tax status.
5. Supplemental Information
The Company's operations consist of two principal activities (a) mortgage
banking and (b) funding the purchase, rehabilitation and resale of residential
real estate. The following table sets forth certain information concerning these
activities (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Revenues:
Residential rehabilitation properties $16,759 $ 8,807
Mortgage banking 9,071 4,767
------- --------
$25,830 $13,574
======= ========
Less: (1)
Expenses allocable to residential rehabil-
itation properties (cost of sales, interest
expense and compensation and benefits) 16,168 8,440
Expenses allocable to mortgage banking
(all other) 7,763 4,167
-------- -------
$ 23,931 $12,607
======== =======
Operating Profit:
Residential rehabilitation properties 591 367
Mortgage banking 1,308 600
------ -------
$1,899 $ 967
====== =======
Identifiable Assets (at June 30, 1998
and December 31, 1997, respectively):
Residential rehabilitation properties $ 14,411 $11,584
Mortgage banking 92,823 56,843
-------- -------
$107,234 $68,427
======== =======
</TABLE>
(1) In managing its business, the Company does not allocate corporate
expenses other than interest and compensation and benefits to its various
activities.
(8)
<PAGE>
6. Common Stock
The authorized common stock of the Company consists of 1 million shares of
preferred stock, par value $.01, none of which is presently issued, and 40
million shares of common stock, par value $.01, of which 3,750,000 shares are
issued and outstanding at June 30, 1998. Prior to the February 18, 1998 initial
public offering, Premier had 2,500 authorized shares of Class A common stock, of
which 100 shares were issued and outstanding at December 31, 1997, and 1,000
authorized shares of Class B common stock, of which 25 shares were issued and
outstanding at December 31, 1997. In conjunction with the initial public
offering, both classes of Premier's common stock were exchanged by their
shareholders for shares of the Company.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. This Quarterly Report on Form
10-Q may contain forward-looking statements which reflect the Company's current
views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those identified below, which could cause actual results to differ
materially from historical results or those anticipated. The words "believe,"
"expect," "anticipate," "intend," "estimate," and other expressions which
indicate future events and trends identify forward-looking statements. Readers
are cautioned not to place undue reliance upon these forward-looking statements,
which speak only as of their dates. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as the result
of new information, future events or otherwise. The following factors could
cause actual results to differ materially from historical results or those
anticipated: (1) the level of demand for mortgage credit, which is affected by
such external factors as the level of interest rates, the strength of various
segments of the economy and demographics of the Company's lending markets; (2)
the direction of interest rates; (3) the relationship between mortgage interest
rates and cost of funds; (4) federal and state regulation of the Company's
mortgage banking operations; (5) competition within the mortgage banking
industry and (6) the Company's management of rapid growth and expansion.
Results of Operations
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenues. The following table sets forth the components of the Company's
revenues for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Sales of residential rehabilitation properties $ 16,759,170 $ 8,807,292
Gains on sales of mortgage loans, net 6,761,807 2,340,477
Interest earned 2,309,494 426,296
---------- ---------
Total Revenue $ 25,830,471 $13,574,065
========== ==========
</TABLE>
Revenues from the sale of residential rehabilitation properties increased
$8.0 million, or 90%, to $16.8 million for the six months ended June 30, 1998
from $8.8 million for the six months ended June 30, 1997. This increase was
primarily the result of the increase in the number of residential rehabilitation
properties sold to 109 for the six months ended June 30, 1998 from 62 for the
six months ended June 30, 1997.
(9)
<PAGE>
Gains on sales of mortgage loans increased $2.4 million, or 56%, to $6.8
million for the six months ended June 30, 1998 from $4.3 million for the six
months ended June 30, 1997. This increase was primarily due to (a) increased
loan originations and loan sales from the Company's existing retail offices, and
(b) loan originations and sales by the Company's Wholesale and B-C-D Divisions,
which commenced operations in April 1997. Mortgage loan originations were $240.1
million and $109.7 million for the six months ended June 30, 1998 and 1997,
respectively. For the six months ended June 30, 1998, approximately 50% of the
Company's mortgage originations were derived from its retail mortgage operations
and approximately 50% from its wholesale operations. The following table
summarizes the Company's mortgage originations (in millions):
Six Months Ended June 30,
1998 1997
---- ----
Conventional $155,503 $ 66,700
FHA/VA 48,403 28,500
BCD 36,201 14,500
------ ------
Total $240,107 $109,700
======== ========
Although there can be no assurance thereof, the Company expects mortgage
originations to increase and therefore believes its gains on sales of mortgage
loans will increase.
Interest earned increased $1.9 million, or 442%, to $2.3 million for the
six months ended June 30, 1998 from $426,000 for the six months ended June 30,
1997. This increase was primarily due to increased mortgage originations for the
six months ended June 30, 1998 as compared to the six months ended June 30, 1997
and an increase in the amount of B-C-D mortgage originations which generally are
held for sale longer than conventional mortgage originations.
Expenses. The following table sets forth the Company's expenses for the
periods indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Cost of sales - residential rehabilitation properties $ 15,418,658 $ 8,254,452
Compensation and benefits 4,470,700 2,677,417
Interest expense 2,373,574 707,778
Other general and administrative 1,668,545 967,407
---------- ----------
Total expenses $ 23,931,477 $12,607,054
========== ==========
</TABLE>
Cost of sales - residential rehabilitation properties increased $7.2
million, or 87%, to $15.4 million for the six months ended June 30, 1998 from
$8.3 million for the six months ended June 30, 1997. This increase was primarily
due to the increase in the number of properties purchased, rehabilitated and
sold.
Compensation and benefits increased $1.8 million, or 67%, to $4.5 million
for the six months ended June 30, 1998 from $2.7 million for the six months
ended June 30,1997. This increase was primarily due to increased sales salaries
and commission, which are based substantially on mortgage loan originations.
Total personnel increased to 126 employees at June 30, 1998 from 68 at June 30,
1997.
(10)
<PAGE>
Interest expense increased $1.7 million, or 235%, to $2.4 million for the
six months ended June 30, 1998 from $708,000 for the six months ended June 30,
1997. Approximately $351,000 of this increase was attributable to the funding of
residential rehabilitation properties. The remainder of the increase was
attributable to the increase in mortgage originations funded through the
Company's warehouse facility.
Other general and administrative expense increased $701,000, or 72%, to
$1.7 million for the six months ended June 30, 1998 from $967,000 for the six
months ended June 30, 1997. This increase was primarily due to increased
expenses incurred in connection with the growth in the operations of the Company
including rent and facilities expense, telephone and marketing.
Although there can be no assurance thereof, the Company believes that the
expected increase in mortgage origination volume and residential rehabilitation
activities will result in increased expenses.
Pro forma net income increased $595,000, or 113%, to $1.1 million for the
six months ended June 30, 1998 from $525,000 for the six months ended June 30,
1997. Net income decreased $647,000 to $304,000 for the six months ended June
30, 1998 from $951,000 for the six months ended June 30, 1997. The six months
ended June 30, 1998 includes a provision for deferred income tax expense of
$1,081,000 related to the change in tax status of the Company's subsidiaries
from S corporations to C corporations.
Quarter Ended June 30, 1998 Compared to Quarter Ended June 30, 1997
Revenues. The following table sets forth the components of the Company's
revenues for the periods indicated:
Quarter Ended June 30,
1998 1997
Sales of residential rehabilitation properties $ 8,546,493 $4,582,892
Gains on sales of mortgage loans, net 3,676,417 2,560,213
Interest earned 1,449,670 310,466
----------- ----------
Total Revenue $13,672,580 $7,453,571
=========== ==========
Revenues from the sale of residential rehabilitation properties increased
$4.0 million, or 86%, to $8.5 million for the quarter ended June 30, 1998 from
$4.5 million for the quarter ended June 30, 1997. This increase was primarily
the result of the increase in the number of residential rehabilitation
properties sold to 56 for the quarter ended June 30, 1998 from 34 for the
quarter ended June 30, 1997.
Gains on sales of mortgage loans increased $1.1 million, or 44%, to $3.7
million for the quarter ended June 30, 1998 from $2.6 million for the quarter
ended June 30, 1997. This increase was primarily due to (a) increased loan
originations and loan sales from the Company's existing retail offices, and (b)
loan originations and sales by the Company's Wholesale and B-C-D Divisions,
which commenced operations in April 1997. Mortgage loan originations were $139.6
million and $72.3 million for the quarters ended June 30, 1998 and 1997,
respectively. For the quarter ended June 30, 1998, approximately 54% of the
Company's mortgage originations were derived from its retail mortgage operations
and approximately 46% from its wholesale operations. The following table
summarizes the Company's mortgage originations (in millions):
(11)
<PAGE>
Quarters Ended June 30,
1998 1997
---- ----
Conventional $ 93,120 $ 43,269
FHA/VA 26,876 14,488
BCD 19,576 14,500
------- ------
Total $139,572 $ 72,257
======= ======
Although there can be no assurance thereof, the Company expects mortgage
originations to increase and therefore believes its gains on sales of mortgage
loans will increase.
Interest earned increased $1.1 million, or 367%, to $1.4 million for the
quarter ended June 30, 1998 from $310,000 for the quarter ended June 30, 1997.
This increase was primarily due to increased mortgage originations for the
quarter ended June 30, 1998 as compared to the quarter ended June 30, 1997 and
an increase in the amount of B-C-D mortgage originations which generally are
held for sale longer than conventional mortgage originations.
Expenses. The following table sets forth the Company's expenses for the
periods indicated:
<TABLE>
<CAPTION>
Quarters Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Cost of sales - residential rehabilitation properties $ 7,829,482 $ 4,266,490
Compensation and benefits 2,281,622 1,396,005
Interest expense 1,473,049 494,616
Other general and administrative 948,232 514,051
---------- ---------
Total expenses $12,532,385 $6,671,162
========== =========
</TABLE>
Cost of sales - residential rehabilitation properties increased $3.6
million, or 84%, to $7.8 million for the quarter ended June 30, 1998 from $4.3
million for the quarter ended June 30, 1997. This increase was primarily due to
the increase in the number of properties purchased, rehabilitated and sold.
Compensation and benefits increased $886,000, or 63%, to $2.3 million for
the quarter ended June 30, 1998 from $1.4 million for the quarter ended June
30,1997. This increase was primarily due to increased sales salaries and
commission, which are based substantially on mortgage loan originations.
Interest expense increased $978,000, or 198%, to $1.5 million for the
quarter ended June 30, 1998 from $495,000 for the quarter ended June 30, 1997.
Approximately $192,000 of this increase was attributable to the funding of
residential rehabilitation properties. The remainder of the increase was
attributable to the increase in mortgage originations funded through the
Company's warehouse facility.
Other general and administrative expense increased $434,000, or 84%, to
$948,000 for the quarter ended June 30, 1998 from $514,000 for the quarter ended
June 30, 1997. This increase was primarily due to increased expenses incurred in
connection with the growth in the operations of the Company including rent and
facilities expense, telephone and marketing.
Although there can be no assurance thereof, the Company believes that the
expected increase in mortgage origination volume and residential rehabilitation
activities will result in increased expenses.
Income before income taxes increased $358,000, or 46%, to $1.1 million for
the quarter ended June 30, 1998 from $783,000 for the quarter ended June 30,
1997. Net income decreased $96,000 to $673,000 for the three months ended June
30, 1998 from $769,000 for the three months ended June 30, 1997 as a result of
the provision for income tax expense of $467,000 for the quarter ended June 30,
1998 compared to $13,000 for the quarter ended June 30, 1997 reflecting the
change of tax status to a C corporation from an S corporation. Net income of
$673,000 for the quarter ended June 30, 1998 represents an increase of $245,000,
or 57%, compared to pro forma net income of $428,000 for the quarter ended June
30, 1997.
(12)
<PAGE>
Liquidity and Capital Resources
The Company's principal financing needs consist of funding mortgage loan
originations and residential rehabilitation properties. To meet these needs, the
Company currently relies on borrowings under warehouse lines of credit,
borrowings from affiliates and cash flow from operations. The amount of
outstanding borrowings under warehouse lines of credit at June 30, 1998 was
$88.6 million. The mortgage loans and residential rehabilitation properties,
funded with the proceeds from such borrowings, secure warehouse lines of credit.
Borrowings from affiliates are secured by mortgages on the residential
rehabilitation properties for which monies were borrowed.
On August 7, 1998, the Company entered into a Senior Secured Credit
Agreement with Chase Bank of Texas, National Association and PNC Bank (the
"Warehouse Line"). The Warehouse Line provides a warehouse line of credit of
$120 million ($90 million committed at August 11, 1998) for its mortgage
originations and residential rehabilitation purchases. The Warehouse Line
combined the two existing warehouse lines of credit with the same financial
institutions and is secured by the mortgage loans and residential rehabilitation
purchases funded with the proceeds of such borrowings. The Company has also
pledged the stock of its residential rehabilitation subsidiaries as additional
collateral. Borrowings for residential rehabilitation purchases are guaranteed
by Ronald Friedman (President, Chief Executive Officer and a Director of the
Company) and Robert Friedman (Chairman of the Board of Directors, Chief
Operating Officer, Secretary and Treasurer of the Company). The interest rate
charged for borrowings under the Warehouse Line is LIBOR plus 1 1/4%-2 1/4
depending upon the collateral type. The Warehouse Line expires on August 6,
1999.
The Warehouse Lines contains certain covenants limiting indebtedness,
liens, mergers, changes in control and sales of assets and requires the Company
to maintain minimum net worth and other financial ratios. The Company expects to
be able to renew or replace the Warehouse Line when the current terms expire.
Since September 1, 1996, the Company has borrowed funds from corporations
owned by Ronald Friedman (President, Chief Executive Officer and a Director of
the Company) and Robert Friedman (Chairman of the Board of Directors, Chief
Operating Officer, Secretary and Treasurer of the Company) to provide for
funding of residential rehabilitation properties and working capital purposes.
At June 30, 1998, borrowings from these affiliates totaled $3.3 million.
Interest on borrowings from affiliates is 10% per annum and certain of the
Company's residential rehabilitation properties secure the borrowings.
On February 18, 1998 the Company completed an initial public offering of
new shares of common stock at a price of $9 per share. The Company received
gross proceeds of $11,250,000 and net proceeds of approximately $9.2 million.
The proceeds from this offering were used for funding mortgage originations and
residential rehabilitation properties, working capital and an S Corporation
distribution.
Net cash used in operations for the six months ended June 30, 1998 was $33
million. The Company used cash to fund the $21.8 million net increase in
mortgage loans held for sale, the $9.6 million net increase in receivable from
sales of loans and the $2.8 million net increase in residential rehabilitation
properties. The increases in these assets were financed by increased borrowings
under the Warehouse Facility, and the proceeds from the initial public offering.
Impact of New Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income". SFAS 130 is effective for fiscal years beginning after
December 15, 1997 and requires the reclassification of financial statements for
earlier periods provided for comparative purposes. The statement establishes
standards for reporting and display of comprehensive income and its components.
This statement requires that all items that are to be recognized as components
of comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. Comprehensive income is
defined as all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The Company has determined
that the requirements of SFAS 130 will have no impact on its financial condition
or results of operations.
(13)
<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS 131 is effective for fiscal years
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated, unless it is
impracticable to do so. The statement requires that a public business enterprise
report financial and descriptive information about its reportable operating
segments. As the requirements of SFAS 131 are disclosure related, its
implementation will have no impact on the Company's financial condition or
results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 applies to all entities and is
effective for fiscal quarters of fiscal years beginning after June 15, 1999.
This statement establishes accounting and auditing standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. This statement requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company is
currently evaluating the impact SFAS No. 133 may have on its financial
statements.
(14)
<PAGE>
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
The Registrant is a defendant in certain litigation arising in the normal
course of its business. In the opinion of the Registrant, any potential
liability with respect to such legal actions will not, individually or in the
aggregate, be material to the Registrant's financial position, liquidity or
future results of operations.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(15)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PMCC FINANCIAL CORP.
(Registrant)
By:/s/ Ronald Friedman
------------------------------------
Ronald Friedman
President and Chief Executive Officer
By:/s/ Timothy J. Mayette
------------------------------------
Timothy J. Mayette
Chief Financial Officer
(Principal Accounting Officer)
Dated: August 13, 1998
(16)
<PAGE>
INDEX TO EXHIBITS
Exhibits Sequential Page Number
- -------- ----------------------
8/98 Amended and Restated Senior
Secured Credit Agreement with
Chase Bank of Texas, National
Association and PNC Bank, N.A. 10.23*
Financial Data Schedule 27
* To be filed as an amendment
(17)
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