<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
Commission File Number 0-24940
PIONEER COMMERCIAL FUNDING CORP.
(Exact name of small business issuer as specified in its charter)
New York 13-3763437
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
6650 Reseda Boulevard, Reseda, California 91335
(Address and Zip Code of Principal Executive Offices)
Issuer's Telephone Number (818) 776-0590
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____.
There were 5,442,272 shares outstanding of the registrant's common stock
outstanding as of July 25,1997.
1
<PAGE>
Part I Financial Information
Item 1 - Financial Statements
PIONEER COMMERCIAL FUNDING CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 March 31
1997 1997
(unaudited)
----------- -----------
<S> <C> <C>
ASSETS
Cash and temporary cash investments $ 2,465,006 $ 2,704,078
Loans receivable, mortgage warehouse lending 20,069,243 2,456,154
Accrued interest and fees receivable 203,482 27,824
Prepaid and other assets 43,316 33,798
----------- -----------
Total Current Assets 22,781,047 5,221,854
Fixed Assets
Furniture and equipment 109,812 106,640
Proprietary computer software 501,823 483,410
Leasehold improvement 10,846 10,846
----------- -----------
622,481 600,896
Less accumulated depreciation and amortization 443,763 414,100
----------- -----------
Net Fixed Assets 178,718 186,796
----------- -----------
Investment in Pioneer Home Funding, LLC 40,000
Other assets 25,000 25,000
----------- -----------
Total Assets $23,024,765 $ 5,433,650
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Loans payable, mortgage warehouse $17,538,371 $ -
Accounts payable & accrued expenses 98,827 235,360
Accrued interest & fees payable 101,951 -
Due to mortgage banking companies 147,999 85,546
Deferred legal fees 58,327 57,149
----------- -----------
Total Current Liabilities 17,945,475 378,055
----------- -----------
Converitable note payable - 1,800,000
----------- -----------
Total Liabilities 17,945,475 2,178,055
----------- -----------
Commitments and Contingencies
Stockholders, Equity:
Common stock-$.01 par value; authorized 20,000,000 shares;
5,442,272 and 3,642,272 shares issued and outstanding
at June 30 and March 31, 1997 respectively 54,423 36,423
Additional paid-in capital 14,307,952 12,525,952
Accumulated deficit (9,283,085) (9,306,780)
----------- -----------
Total stockholders, equity 5,079,290 3,255,595
----------- -----------
Total liabilities and stockholders, equity $23,024,765 $ 5,433,650
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED June 30, 1997 & 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
----------------------
<S> <C> <C>
1997 1996
---- ----
INCOME:
Interest income $ 287,356 $ 60,567
Facility fees 25,208 -
Processing fees 103,315 12,668
---------- ---------
Total income 415,879 73,235
---------- ---------
DIRECT COSTS:
Interest expense- warehouse and
revolving lines of credit 172,334 66,400
Interest expense -bridge financing - 17,030
Bank charges & fees 3,287 3,616
Bank processing fees 8,838 3,000
---------- ---------
Total direct costs 184,459 90,046
---------- ---------
INCOME (LOSS) BEFORE OPERATING EXPENSES 231,420 (16,811)
OPERATING EXPENSES 212,881 96,466
---------- ---------
PROFIT (LOSS) FROM OPERATIONS 18,539 (113,277)
---------- ---------
OTHER INCOME (EXPENSE)
Interest income -other 6,334 270
Interest expense - other (1,178) -
---------- ---------
Total other income(expense) 5,156 270
---------- ---------
PROFIT (LOSS) BEFORE INCOME TAXES 23,695 (113,007)
PROVISION FOR INCOME TAXES - 1,392
---------- ---------
Net profit (loss) $ 23,695 $(114,399)
========== =========
PROFIT (LOSS) PER SHARE OF COMMON STOCK $ 0.005 $ (0.14)
========== =========
WEIGHTED AVERAGE NUMBER OF SHARES 4,690,624 835,606
========== =========
</TABLE>
The accompanying notes are an integral part of this statement. 3
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMMON ADDITIONAL TOTAL
STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
CAPITAL DEFICIT EQUITY
------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE March 31, 1997 $36,423 $12,525,952 $(9,306,780) $3,255,595
Issuance of 1,800,000 of shares of the
Company's common stock in connection
with the conversion of the convertible
note to shares as of May 9, 1997 18,000 1,782,000 1,800,000
Net profit for the period 23,695 23,695
------ ----------- ----------- ----------
BALANCE June 30, 1997 $54,423 $14,307,952 $(9,283,085) $5,079,290
======= =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit (loss) $ 23,695 $ (114,399)
------------- -----------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 29,663 37,825
(Increase) decrease in --
Mortgage warehouse loan receivables (17,613,089) 2,050,590
Accrued interest receivable (175,658) 8,946
Prepaid expenses (9,518) -
Other assets - 7,900
Increase (decrease) in --
Accrued interest payable 101,951 (704)
Due to mortgage banking companies 62,452 54,713
Accounts payable & accrued expenses (136,533) 55,379
------------- -----------
(17,740,732) 2,214,649
------------- -----------
Net cash provided by (used in) operating activities (17,717,037) 2,100,250
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (21,584) (6,947)
Investment in Pioneer Home Funding, LLC (40,000) -
------------- -----------
Net cash used in investing activities (61,584) (6,947)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase(decrease) in borrowings used in operations,
net of issuance costs 17,538,371 (1,887,621)
Increase in deferred costs of equity offering - (74,865)
Increase in deferred costs 1,178 5,135
------------ -----------
Net cash provided by financing activities 17,539,549 (1,957,351)
------------ -----------
Net increase (decrease) in cash (239,072) 135,952
CASH AND CASH EQUIVALENTS -
at the beginning of the period 2,704,078 98,349
------------ -----------
CASH AND CASH EQUIVALENTS -
at the end of the period $ 2,465,006 $ 234,301
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 79,835 $ 59,899
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements. 5
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------
Basis of Presentation
- ---------------------
In the opinion of management, the accompanying unaudited financial statements
for Pioneer Commercial Funding Corp. (the Company) contain all adjustments of a
recurring nature considered necessary for a fair presentation of its financial
position as of June 30 1997 and the results of operations for the three month
periods ended June 30 1997 and 1996 and its cash flows for the three months
ended June 30, 1997 and 1996. The results of operations for the three month
periods ended June 30, 1997 and 1996 are not necessarily indicative of the
Company's results of operations to be expected for the entire year.
The accompanying unaudited interim financial statements have been prepared in
accordance with instructions to Form 10-QSB and, therefore, do not include all
information and footnotes required to be in conformity with generally accepted
accounting principles. The financial information provided herein, including the
information under the heading, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," is written with the presumption
that the users of the interim financial statements have read, or have access to,
the Company's March 31, 1997 audited financial statements and notes thereto,
together with the Managements Discussion and Analysis of Financial Condition and
Results of Operations as of March 31, 1997 and for the year then ended included
in the Company's filing on June 28, 1997 with the SEC on Form 10-KSB.
6
<PAGE>
2. OPERATING EXPENSES
------------------
Operating expenses consisted of the following for the three month periods ended
June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three Month Period Ended
June 30,
------------------------
1997 1996
---- ----
<S> <C> <C>
Salaries and benefits $ 88,298 $33,359
Depreciation and amortization 29,663 25,325
Professional fees 17,500 13,056
Utilities 7,826 5,545
Rent 6,534 2,902
Repairs and maintenance 2,893 1,969
Other 60,167 14,310
-------- -------
Operating Expenses $212,881 $96,466
</TABLE> ======== =======
3. CONVERTIBLE NOTE
----------------
On May 9, 1997, the Company increased its authorized shares of common stock by
15 million to 20 million shares. With these newly available shares, the company
immediately converted its outstanding Convertible Notes into 1.8 million shares
of common stock.
5. INVESTMENT IN PIONEER HOME FUNDING, LLC
---------------------------------------
On April 16, 1997 the Company entered into a joint venture agreement with
Maryland Financial Corporation ("MFC") to form Pioneer Home Funding, LLC, a
California Limited Liability Company, ("PHF"). The Company and MFC will maintain
80% and 20% ownership interests, respectively, in PHF. The Company and MFC have
contributed $40,000 and $20,000, respectively, as of June 10, 1997. These
amounts are anticipated to increase up to $200,000 and $50,000, respectively.
PHF is a mortgage banking company organized for the primary purpose of
originating, acquiring, marketing and selling mortgage loans on residential
properties. PHF will focus on various lending markets including the subprime
market. All loans originated or acquired by PHF will be sold servicing released.
PHF is expected to commence operations in July 1997.
6. SUBSEQUENT EVENTS
-----------------
On July 7 , 1997 the company purchased 300,000 shares at $.75 per share of
Fidelity First Mortgage Corp., NASDAQ (FFIR) for a total investment of
$225,000.00. FFIR closed on July 22, 1997 at $2.50 per share. The stock is
restricted for a period of one year. Fidelity First Mortgage is based in
Columbia Maryland and funds conforming and non-conforming single family
residential mortgages in Maryland, Virginia, Delaware, Florida, North and South
Carolina.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
In August 1996, the Company consummated its initial public offering (the
"IPO") pursuant to which the Company issued and sold 600,000 shares of its
common stock, par value $.01 per share (the "Common Stock"), and 690,000
warrants (including warrants sold upon exercise of the underwriters' over-
allotment option) exercisable into 690,000 shares of Common Stock at a price to
the public of $5.00 per share and $.10 per warrant, which yielded to the Company
net proceeds of approximately $2 million. The exercise price of the warrants is
$5.50 per share exercisable during the four year period commencing August 13,
1996 and ending August 12, 2000.
On January 9, 1997, Messrs. Arthur Goldberg and Elie Housman, the Company's
Chief Executive Officer and Chief Operating Officer, respectively, were removed
from their respective offices by the Board of Directors following disagreements
between the Board of Directors and those two officers with respect to the
Company's financing efforts and investment strategies. On January 20, 1997,
Messrs. Goldberg and Housman resigned from their positions as directors of the
Company.
On January 9, 1997 the Company appointed M. Albert Nissim, President for an
interim period of six months. The term was extended indefinitely by the Board of
Directors.
On February 28, 1997, the Company completed a private placement of
securities with eight investors who invested an aggregate of $4 million in the
Company in consideration for 2.2 million shares of Common Stock and $1.8 million
principal amount of convertible promissory notes of the Company (the
"Convertible Notes"). The Convertible Notes were converted into 1.8 million
shares of Common Stock on May 9, 1997.
During the fiscal year 1996, the Company utilized a $4 million revolving
line of credit provided by United Mizrahi Bank ("UMB") under a revolving line of
credit and security agreement between the Company and UMB, as collateral
security for its indebtedness to UMB under the UMB Agreement, the Company
granted to UMB a security interest in various assets including, but not limited
to, all promissory notes acquired by the Company with respect to any loan funded
by it with proceeds of the UMB credit line and all mortgages or other forms of
collateral securing the funding of such loans. The UMB credit line was paid in
full by the Company in February 1997. On March 31, 1997 the UMB credit line was
discontinued.
As of March 31, 1997, the Company entered into a one year credit agreement
with Bank One, Texas, N.A. ("Bank One"). Pursuant to the Credit Agreement, Bank
One provides the Company with a $25,000,000 revolving line of credit. As
collateral security for its indebtedness to Bank One under the Credit Agreement,
the Company has granted to Bank One a security interest in various assets
including, but not limited to, all promissory notes acquired by the Company with
respect to any loan funded by the Company with proceeds of the Bank One Credit
Line and all mortgages or other forms of collateral securing the funding of such
loans.
8
<PAGE>
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED JUNE 30, 1996 COMPARED WITH THE THREE MONTH PERIOD
ENDED JUNE 30, 1997
REVENUES: During the three month period ended June 30, 1997 revenues increased
to $415,879 compared to $73,235 for the three month period ended June 30, 1996.
Such revenue was generated from the addition of 21 customers. 727, loans
totaling $54,675,444 were funded during this period which represented 323% and
270.3% increase, respectively, of the total number of loans and fundings
reported for the three months ended June 30, 1996. The interest and processing
fee component of such revenues reported for the three months ended June 30, 1997
amounted to $287,356 and $103,315 respectively, compared to $60,567 in interest
and $12,668 in processing fees for the three months ended June 30, 1996.
During the three month period ended June 30, 1997, the Company financed a total
of 727 loans totaling $54,675,444 in the weighted average principal amounts of
$75,207 for an average duration of 21 days per borrowing, which amounts include
544 loans funded through bank borrowings aggregating $45,858,000 in weighted
average principal amounts of $84,298. During the three month period ended June
30, 1996, the Company financed a total of 172 loans totaling $14,774,998, in the
weighted average principal amount of $85,901 for an average duration of 17 days
per borrowing. Such increase for the three month period ended June 30, 1997 in
loan activity was due to the addition of the Bank One Credit Facility, and a
substantial increase in the Company's customer base.
DIRECT COSTS: The Company's direct costs consist of the interest and other
charges which it must pay to its revolving credit line providers and the
interest which it paid to the lenders who had provided bridge financing to the
Company in connection with the initial public offering of securities which the
Company completed in August 1996. During the three month period ended June 30,
1996 and 1997, the Company's interest expense and other bank charges paid to
revolving line of credit providers amounted to $86,430 and $181,172,
Respectively. The increase in interest expense and bank fees was due to the
increase in loan funding operations and the use of the Company's bank credit
facility.
Interest expense on the bridge financing for the three month period ended June
30, 1996 and 1997 amounted to $4,530 and -0- respectively and debt discount
amortization of $12,500 and -0-, respectively. Upon the closing of the public
offering the Bridge Financing obligation of $128,356 (which includes $28,356 in
accrued interest) was retired in full.
OPERATING EXPENSES: Operating expenses increased from $96,466 for the three
month period ended June 30,1996 to $212,881 for the three month period ended
June 30, 1997. Operating expenses included $33,359 of salaries and benefits paid
to executives and other staff, and $25,325 of depreciation and amortization, the
primary component of which is $23,077 attributable to the CTS, compared to
$88,298 of salaries and benefits to executives and other staff, and $29,663 in
depreciation and amortization expense, the primary component of which is $23,765
attributable to the CTS for the three month period ended June 30, 1997.
Accounting and legal fees amounted to $13,056 compared to $17,500 for the three
month periods ended June 30, 1996 and 1997. The increase in operating expenses
is due to the expanded operations of the Company during the three month period
ended June 30, 1997, including the addition of staff, advertising and the normal
costs associated expansion.
9
<PAGE>
It is anticipated that aggregate operating expenses will increase as staff
and office space are increased to manage the greater number of mortgage
warehouse loan transactions that management believes the Company will be
processing as a result of the recent increase of credit lines available to the
Company.
JUNE 30, 1996 NET LOSS VERSUS JUNE 30, 1997 NET PROFIT: During the three month
period ended June 30, 1996, the Company incurred a net losses of $114,399. Such
losses were primarily due to the Company's inability during this period, to
attract additional warehouse lines of credit and attract additional customer
which it required in order to operate profitably.
During the three month period ended June 30, 1997, the Company earned a net
profit of $23,695. Such profit was a direct result of the addition of the $25
million Bank One warehouse credit facility and the increase in its' customer
base. The combination of these two factor in conjunction with revised pricing
allowed the Company to generate revenues to show a profit for the period.
CASH FLOWS FROM OPERATIONS: The Company generated positive cash flow of
approximately $136,000 for the three month period ended June 30, 1996. The
positive cash flow was generated primarily from a decrease in mortgage warehouse
loan receivables and an increase in accounts payable and due to mortgage
companies. For the three month period ended June 30, 1997 the Company generated
a negative cash flow of approximately $239,000. Such negative cash flow was
generated primarily by an increase in interest receivable due from its'
customers and a decrease in accounts payable and accrued expenses.
REALIZABILITY OF LONG-LIVED ASSETS. Management has evaluated the realization of
its long-lived assets (primarily furniture and equipment and proprietary
computer software) having a net book value of $178,718 at June 30, 1997 in
accordance with the provisions of Statement of Financial Accounting Standards
No. 121 "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed of." Based on such evaluation and taking into consideration the
positive cash flows and earnings the Company believes it will be able to
generate in future periods, management does not believe that there is an
impairment of its long-lived assets at June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES. As of March 31, 1997, Bank One made available
to the Company a $25 million revolving line of credit. The Company's primary
sources of capital which it employs in its warehouse lending operations are
borrowings under its Bank One revolving line of credit and its net equity
capital funds of approximately $5 million (after giving effect to $4 million of
funds received by the Company in February 1997 as proceeds of the Private
Placement). Management believes that such capital will enable the Company to
increase its customer base and thereby create a greater demand for and volume of
loans to be funded, which, in turn, is anticipated to generate sufficient
revenues from such expanded operations to maintain liquidity and generate
positive cash flow.
NET OPERATING LOSS CARRYFORWARDS: As of June 30,1997, Pioneer had available, in
aggregate, net operating loss Carryforwards of approximately $2.8 million. As a
result of changes in common stock ownership , the Company is subject to annual
limitations pertaining to the use of such operating loss carryforwards. The
Company expects that the amount of net operating loss carryforward which may be
utilized in any future period will be limited to an amount not to exceed
approximately $100,000 per year. Management believes that the losses that it has
incurred since the 1994 merger of Pioneer Commercial Funding Corp, with the
Company are not subject to these limitations. The Company's ability to use such
net operating loss carryforwards is dependent upon its ability to generate
taxable income in the future.
10
<PAGE>
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following document has been filed exclusively with the Securities
and Exchange Commission.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
During the first quarter of the 1997 fiscal year, the company file two
reports on Form-8K as set forth below:
1. On May 8, 1997 in response to "Item 5-Other Events" in connection
with a Special meeting of shareholders held May 8, 1997 the
shareholders approved an amendment to the Certificate of
Incorporation increasing the authorized capital stock of the Company
from 5,000,000 shares of common stock, par value $.01 per share, to
20,000,000 shares of common stock.
2. On June 25, 1997 in response to "Item 7 - Change in Fiscal Year", as
of June 12, 1997 the company determined to change its fiscal year
from that used through fiscal year ended March 31, 1997 and to fix
the fiscal year to be a calendar year beginning January 1 and ending
December 31. The next annual report will be filed on Form 10-KSB for
the transition period of nine months commencing on April 1, 1997 and
ending December 31, 1997.
11
<PAGE>
Signature
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Pioneer Commercial Funding Corp.
By /s/
--------------------------------------
Glenda S. Klein, Sr. Vice President
And Chief Financial Officer
Dated: July 25,1997
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and statements of operations filed as part of the Company's quarterly
report on Form 10-QSB and is qualified in its entirety by reference to such
report.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> $2,465,006
<SECURITIES> 0
<RECEIVABLES> $20,272,725
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> $22,781,047
<PP&E> $622,481
<DEPRECIATION> $443,763
<TOTAL-ASSETS> $23,024,765
<CURRENT-LIABILITIES> $17,945,475
<BONDS> 0
0
0
<COMMON> $54,423
<OTHER-SE> $14,307,952
<TOTAL-LIABILITY-AND-EQUITY> $23,024,765
<SALES> 0
<TOTAL-REVENUES> $415,879
<CGS> 0
<TOTAL-COSTS> $184,459
<OTHER-EXPENSES> $212,881
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $1,179
<INCOME-PRETAX> $23,695
<INCOME-TAX> 0
<INCOME-CONTINUING> $23,695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $23,695
<EPS-PRIMARY> $.005
<EPS-DILUTED> $.005
</TABLE>
