U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(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, 1998
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)
21700 Oxnard Street, Suite 1650, Woodland Hills, California 91367
(Address and Zip Code of Principal Executive Offices)
(818) 346-1921
Issuer's Telephone Number
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 5,542,272 shares of the registrant's common stock
outstanding as of August 12, 1998.
<PAGE>
Part I Financial Information
Item 1 - Financial Statements
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PIONEER COMMERCIAL FUNDING CORP.
BALANCE SHEETS
June 30 December 31
1998 1997
ASSETS (unaudited)
Cash and cash equivalents $ $
318,919 2,972,845
Mortgage warehouse loans receivable, net of allowance for loan losses
51,708,896 47,291,076
Loans held for resale, net of allowance for loan losses
1,951,997 4,504,231
Receivable for loans shipped
1,716,969 1,716,969
Accrued interest and fee receivable
1,610,285 930,656
Prepaid and other assets
91,854 99,907
Total Current Assets
57,398,920 57,515,684
Fixed Assets
Furniture and equipment
224,158 119,882
Proprietary computer software
551,114 535,645
Leasehold improvements
156,855 26,855
932,127 682,382
Less accumulated depreciation and amortization
514,383 448,853
Net Fixed Assets
417,744 233,529
Investment securities available for sale
581,250 1,032,000
Deposits on furniture and equipment
378,838 321,260
Other assets
762,045 484,130
Total Assets $ 59,538,797 $ 59,586,603
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage warehouse loans payable $ 50,423,189 $ 50,056,160
Accounts payable and accrued expenses 224,814 362,869
Accrued interest and fees 486,275 1,047,132
Due to mortgage banking companies 1,027,988 629,421
Accrued taxes based on income 10,000 -
Deferred loan fees 29,000 29,000
Deferred legal fees 63,039 60,683
Total Current Liabilities 52,264,305 52,185,265
Subordinate debt 1,000,000 1,000,000
Total Liabilities 53,264,305 53,185,265
Stockholders' Equity:
Common stock 55,423 54,423
Additional paid-in capital
14,556,952 14,316,952
Accumulated deficit (8,694,133) (8,777,037)
Accumulated other comprehensive income-
Unrealized gain on investment securities
356,250 807,000
Total Stockholders' Equity 6,274,492 6,401,338
Total Liabilities and Stockholders' Equity $ 59,538,797 $ 59,586,603
The accompanying notes are an integral part of these statements.
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Three Months Six Months
Ended Ended
June 30 June 30
Income: 1998 1997 1998 1997
Interest income
1,300,758 287,356 2,688,575 370,246
Commissions and facility fees 94,096 25,208 142,096 27,575
Processing fees 524,155 103,315 1,111,145 121,081
Total Income 1,919,009 415,879 3,941,816 518,902
Interest and Fee Costs:
Interest expense-warehouse and lines of credit 1,146,217 172,334 2,265,621 220,030
Bank charges and facility fees 37,500 3,287 75,000 9,228
Bank processing fees 26,293 8,838 53,788 10,968
Total Interest and Fee Costs 1,210,010 184,459 2,394,409 240,226
Net interest and fee income 708,999 231,420 1,547,407 278,676
Loan loss provision 382,472 - 382,472 -
Other Operating Expense:
Compensation and benefits 261,291 88,298 488,156 146,753
Depreciation and amortization 51,646 29,663 65,530 65,753
Professional fees 19,758 17,500 115,520 144,089
Utilities 11,800 7,826 27,023 15,273
Rent 59,654 6,534 103,712 13,068
Repairs and maintenance 3,055 2,893 7,981 8,501
Other 135,605 60,167 252,909 109,431
Total Other Operating Expenses 542,809 212,881 1,060,831 502,868
Income from operations (216,282) 18,539 104,104 (224,192)
Other Income and Expense:
Interest income - other 19,172 6,334 41,156 17,219
Interest expense-other (1,178) (1,178) (2,356) (2,356)
Miscellaneous income - - - 18,800
Non-operating expense (25,000) - (50,000) (446,576)
Total other income and expense (7,006) 5,156 (11,200) (412,913)
Income before taxes based on income (223,288) 23,695 92,904 (637,105)
Provision for taxes based on income - - 10,000 1,125
Net Income (Loss) (223,288) 23,695 82,904 (638,230)
Basic and Diluted Income (Loss)
Per Share of Common Stock $(0.040) $ 0.005 $ 0.015 $ (0.185)
Weighted Average Number of Shares 5,542,272 4,690,624 5,530,670 3,442,272
The accompanying notes are an integral part of these statements.
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PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
Net income (loss) $ (223,288) $ 23,695 $ 82,904 $ (638,230)
Change in unrealized gain on investment in
securities available for sale (243,750) (450,750)
Comprehensive net income (loss) $ (467,038) $ 23,695 $(367,846) $ (638,230)
The accompanying notes are an integral part of these statements.
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PIONEER COMMERCIAL FUNDING CORP.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
1998 1997
Cash Flows from Operating Activities:
Net income (loss) $ 82,904 $ (638,230)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 65,530 65,753
(Increase) decrease in --
Mortgage warehouse loans receivable (4,417,820)
Loans held for resale 2,552,234
Accrued interest receivable (679,629) (170,124)
Prepaid expenses 8,053 140,506
Other assets (3,292) 258,202
Increase (decrease) in --
Accrued interest payable (560,857) 90,056
Due to mortgage banking companies 398,567 87,019
Accounts payable and accrued expenses (128,055) (173,473)
------------ -------------
(2,765,269) (15,456,067)
------------ -------------
(2,682,365) (16,094,297)
----------- -------------
Cash Flows from Investing Activities:
Purchase of fixed assets (249,745) (29,093)
Investment in and advances to joint venture (274,623) (40,000)
Deposits on furniture and fixtures (57,578) -
-------- ---------
Net cash used in investing activities (581,946) (69,093)
-------- -------
Cash Flows from Financing Activities:
Net increase (decrease) in borrowings used in
operations,
net of issuance costs 367,029 14,582,690
Decrease in revolving line of credit and bridge financing (37,500)
Increase in deferred expenses 2,356 (401,721)
Increase in convertible note
1,800,000
Net proceeds from issuance of stock 241,000 2,292,134
-------- -----------
Net cash (used) provided by 610,385 18,235,603
--------- -----------
Net Increase (Decrease) in cash (2,653,926) 2,072,213
Cash and Cash Equivalents at the Beginning of the Period 2,972,845 355,293
--------- ---------
Cash and Cash Equivalents at the End of the Period $ 318,919 $ 2,427,506
----------- -------------
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 2,319,816 $ 117,005
Income taxes paid $ - 3,169
------------ ------------
Non Cash Financing Activities
Cost of equity offering paid in prior years $ - 315,039
------------- ------------
The accompanying notes are an integral part of these statements.
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PIONEER COMMERCIAL FUNDING CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Additional Unrealized Total
Common Paid-in Accumulated Gain on Stockholders'
Stock Capital Deficit Securities Equity
Balance December 31, 1997 54,423 $ 14,316,952 $(8,777,037) $ 807,000 $ 6,401,338
Issuance of 100,000 shares of
Common Stock on January 21, 1998
converting November 26, 1997 options 1,000 240,000 241,000
Change in unrealized gain on
investment in securities available
for sale (450,750) (450,750)
Net Income for period 82,904 82,904
----------- --------------- ------------- ------------ ---------
Balance at June 30, 1998 55,423 $ 14,556,952 $ (8,694,133) $ 356,250 $6,274,492
----------- ---------------- ------------- ------------ ----------
The accompanying notes are an integral part of these statements.
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PIONEER COMMERCIAL FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
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,
consisting only of normal recurring adjustments, necessary for a fair
presentation of its financial position as of June 30, 1998, the results of
operations for three and six month periods ended June 30, 1998 and 1997 and its
cash flows for the six month periods ended June 30, 1998 and 1997. The results
of operations for the three and six month periods ended June 30, 1998 and 1997
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-Q 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 December 31, 1997 audited financial statements and notes thereto,
together with the Management's Discussion and Analysis of Financial Condition
and Results of Operations as of December 31, 1997 and for the year then ended
included in the Company's filing on March 31, 1998 with the SEC on Form 10-KSB.
2. LOANS HELD FOR RESALE
The Company, in accordance with its loan and security agreement, took possession
from a customer in the process of liquidating under Chapter 7 of the Bankruptcy
Code, 37 loans it funded having an aggregate value of $4.5 million. The Company
has a perfected interest in the loans and sold 20 of the loans in June at a net
discount of $72,070. An additional 12 loans, with original loan amounts of
$1,146,822, were sold on July 1, 1998 at a premium. The 17 loans unsold at June
30, 1998 with an original loan amount of $1,844,938, together with holdback
receivable on the sold loans, are held at the lower of cost or market, which
includes a reserve of $149,000.
3. RECEIVABLE FOR LOANS SHIPPED
During October 1997 the Company warehoused $1.7 million in mortgages for the
same customer as described in Note 2 above, who used a third party conduit to
sell its loans to an investor. The Company provided instructions to the third
party conduit that the funds were to be wired by the investor to the Company's
bank. The investor mis-wired the funds to the conduit's bank. The conduit's bank
has refused to return the funds. The Company is taking actions, including legal
action, to collect the funds from the conduit, the conduit's guarantor, the
investor and the conduit's bank. The Company's lender, Banc One Texas, N.A., has
joined the litigation as a co-plaintiff in support of the Company's position. In
addition, the Company has a $5 million personal guarantee from the third party
conduit's primary shareholder and an additional $2 million guarantee from the
customer's primary shareholder. Although it is impossible to assess with
accuracy the ultimate outcome of this matter, management is confident that it
will recover the funds from either the bank or the third party guarantors.
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4. INVESTMENT IN AND ADVANCES TO PIONEER HOME FUNDING
On April 16, 1997 the Company entered into a joint venture agreement with
Maryland Financial Corporation (AMFC@) to form Pioneer Home Funding, LLC, a
California Limited Liability Company, (APHF@). The Company accounts for this
investment on the equity method. The agreement provides that the Company and MFC
would maintain 80% and 20% ownership interests, respectively, in PHF. An
amendment to the agreement was made on October 31, 1997. This amendment provides
that the Company would contribute $40,000 for a 20 percent interest in PHF. In
addition, the Company may from time to time, at its option, make loans to PHF as
needed. Under this agreement the Company has the option to convert loans made to
PHF into an 80% interest in PHF. As of June 30, 1998, the Company has advanced
as a loan receivable $474,100.
5. INVESTMENT IN FIDELITY FIRST MORTGAGE CORP. (FFIR)
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.
FFIR shares closed on June 30, 1998 at $1.9375 per share. 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.
6. SUBORDINATE DEBT
On November 26, 1997, the Company issued $1,000,000 in subordinated debt as part
of a $4 million private placement. The private placement provided for a minimum
purchase of $250,000 (1 unit) with each unit obtaining 7,500 Warrants that allow
for the purchase of 7,500 shares. The exercise price of the shares is equal to
the price of the Company's stock as of the date of issue of the subordinated
debt. The Company has 30,000 Warrants outstanding (7,500 per unit for 4 units).
The subordinated debt carries an interest rate of 10% per annum and matures on
November 25, 2002. The Company's stock price on November 26, 1997 was $2.875.
7. SUBSEQUENT EVENTS
On July 31, 1998 Bank One extended its line of credit agreement to the Company
through August 31, 1998.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
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
were converted into 1.8 million shares of Common Stock on May 9, 1997. On
November 26, 1997 a private investor purchased an option for $9,000 to acquire
100,000 common shares at $2.41 per share. On January 21, 1998 the option was
exercised and 100,000 common shares were issued for a purchase price of
$241,000.
Since March of 1997, the Company has had a credit agreement with Bank One,
Texas, N.A. (Bank One). Pursuant to the Credit Agreement, most recently amended
July 31, 1998, Bank One provides the Company with a $60,000,000 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 loans 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. In addition, Leedan Business Enterprise Ltd., a 49.2%
shareholder of the Company, has guaranteed Bank One, that it will maintain the
Company's net worth (including subordinated debt) at a minimum level of $8
million, up to an additional investment or loan of $2 million.
Results of Operations
Six Month Period Ended June 30, 1998 Compared with the Six Month Period Ended
June 30, 1997.
Revenues. During the six month period ended June 30, 1998 revenues increased to
$3,941,816 compared to $518,902 for the six month period ended June 30, 1997.
The volume of loan fundings during the six month periods ended June 30, 1998 and
1997 totaled approximately $265 million and $52 million respectively. Such
increases in revenues, loan funding, interest and processing fees were due to
the increase in loan activity experienced by the Company during the latter
period.
During the six month period ended June 30, 1998, the Company financed a total of
4,550 loans totaling $264,616,522 with a weighted average principal amount of
$58,157 for an average duration of 33 days per borrowing which amounts included
4,435 loans funded through bank borrowings aggregating $260,636,307 in weighted
average principal amounts of $58,768. During the six month period ended June 30,
1997, the Company financed a total of 922 loans totaling $71,239,216 with a
weighted average principal amount of $77,266 for a duration of 21 days per
borrowing which amounts included 615 loans funded through bank borrowings
aggregating $51,905,933 in weighted average principal amounts of $84,400.
Interest and Fee Costs. During the six month periods ended June 30, 1998 and
1997, interest expense and other bank charges accrued on the Company's revolving
line of credit amounted to $2,394,409 and $240,226, respectively. The increase
in interest expense and bank fees was due to an increase in the use of the
Company's bank credit facility engendered by the above-described increase in
loan activity.
<PAGE>
Other Operating Expenses. The Company's other operating expenses of $1,060,831
during the six month period ended June 30, 1998 consisted primarily of salary
and benefits of $488,156; accounting and legal fees of $115,520; rent of
$103,712; depreciation of $65,530 and travel of $44,081. The Company's
compensation and operating expenses of $502,868 during the six month period
ended June 30, 1997 consisted primarily of salaries and benefits of $146,753 and
legal and accounting fees of $144,089. The increase in compensation and
operating expenses for the six month period ended June 30, 1998 are due to the
increase in lending activity.
Net Income Versus Net Loss. During the six month period ended June 30, 1998 the
Company earned net income of $82,904 primarily as a result of the addition of
the Bank One line of credit facility and the increase in the Company's customer
base. The combination of these two factors in conjunction with revised pricing
allowed the Company to generate revenues sufficient to overcome the $382,000 of
discounts, expenses and reserves recognized in the second quarter related to the
disposition of stale loans. During the six month period ended June 30, 1997 the
Company incurred a net loss of $638,230 as a result of the Company's lack of
sufficient warehouse loan credit and customer base. In addition, increased costs
of $446,576 associated with the professional, financial consulting and similar
services which the Company incurred by reason of its change in status from a
privately owned to a publicly held company also negatively impacted results for
that period.
Three Month Period Ended June 30, 1998 Compared with the Three Month Period
Ended June 30, 1997.
Revenues. During the three month period ended June 30, 1998 revenues increased
to $1,919,009 compared to $415,879 for the three month period ended June 30,
1997. The volume of loan fundings during the three month periods ended June 30,
1998 and 1997 totaled approximately $134 million and $54 million, respectively.
Such increases in revenues, loan funding, interest and processing fees were due
to the increase in loan activity experienced by the Company during the latter
period.
During the three month period ended June 30, 1998, the Company financed a total
of 2,234 loans totaling $133,844,350 with a weighted average principal amount of
$59,912 for an average duration of 33 days per borrowing which amounts included
2,226 loans funded through bank borrowings aggregating $133,540,090 in weighted
average principal amounts of $59,991. During the three month period ended June
30, 1997, the Company financed a total of 727 loans totaling $54,675,444 with a
weighted average principal amount of $75,207 for a duration of 17 days per
borrowing which amounts included 544 loans funded through bank borrowings
aggregating $45,858,000 in weighted average principal amounts of $84,298.
Interest and Fee Costs. During the three and six month periods ended June 30,
1998 and 1997, interest expense and other bank charges accrued on the Company's
revolving line of credit amounted to $1,210,010 and $184,459, respectively. The
increase in interest expense and bank fees was due to an increase in the use of
the Company's bank credit facility engendered by the above-described increase in
loan activity.
<PAGE>
Other Operating Expenses. The Company's other operating expenses of $542,809
during the three month period ended June 30, 1998 consisted primarily of salary
and benefits of $261,291; accounting and legal fees of $19,758; rent of $59,654;
depreciation of $51,646 and travel of $15,645. The Company's operating expenses
of $212,881 during the three month period ended June 30, 1997 consisted
primarily of salaries and benefits of $88,298 and legal and accounting fees of
$17,500. The increase in operating expenses for the three month period ended
June 30, 1998 are due to the increase in lending activity.
Net Loss Versus Net Income. During the three month period ended June 30, 1998
the Company incurred a net loss of $223,288 primarily due to the recognition in
the second quarter of losses related to the disposition of the above mentioned
stale loans and a reserve for future estimated discounts and expenses related to
the disposition of the remaining unsold stale loans and other stale warehouse
loans totaling $382,000. During the three month period ended June 30, 1997 the
Company earned a net income of $23,695 as a result of the introduction of the
Bank One warehouse credit facility and the increase in customer base.
<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
The Company did not file any reports on Form 8-K during the
quarter for which this report has been filed.
<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: John O'Brien
Principal Financial Officer
Dated: August 17, 1998
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<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>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 318,919
<SECURITIES> 0
<RECEIVABLES> 56,988,147
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 57,398,920
<PP&E> 932,127
<DEPRECIATION> 514,383
<TOTAL-ASSETS> 59,538,797
<CURRENT-LIABILITIES> 50,423,189
<BONDS> 0
0
0
<COMMON> 55,423
<OTHER-SE> 6,219,069
<TOTAL-LIABILITY-AND-EQUITY> 59,538,797
<SALES> 0
<TOTAL-REVENUES> 3,941,816
<CGS> 0
<TOTAL-COSTS> 2,394,409
<OTHER-EXPENSES> 1,060,831
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 92,904
<INCOME-TAX> 10,000
<INCOME-CONTINUING> 82,904
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82,904
<EPS-PRIMARY> 0.015
<EPS-DILUTED> 0.015
</TABLE>
