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 March 31, 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 May 4, 1998.
<PAGE>
Part I Financial Information
Item 1 - Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PIONEER COMMERCIAL FUNDING CORP.
BALANCE SHEETS
March 31, December 31,
1998 1997
(unaudited)
---------------- ------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,236,663 $ 2,972,845
Mortgage warehouse loans receivable 49,186,132 47,291,076
Loans held for resale 4,504,231 4,504,231
Receivable for loans shipped 1,716,969 1,716,969
Accrued interest and fee receivable 1,198,083 930,656
Prepaid and other assets 102,508 99,907
---------------- ------------------
Total Current Assets 59,944,586 57,515,684
Fixed Assets:
Furniture and equipment 223,016 119,882
Proprietary computer software 547,524 535,645
Leasehold Improvements 156,855 26,855
---------------- ------------------
927,395 682,382
Less accumulated depreciation and amortization 462,737 448,853
---------------- ------------------
Net Fixed Assets 464,658 233,529
---------------- ------------------
Investment securities available for sale 825,000 1,032,000
Deposits on furniture and equipment 378,160 321,260
Other assets 629,307 484,130
---------------- ------------------
Total Assets $ 62,241,711 $ 59,586,603
================ ==================
The accompanying notes are an integral part of these statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PIONEER COMMERCIAL FUNDING CORP.
BALANCE SHEETS
March 31, December 31,
,,
1998 1997
(unaudited)
--------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Mortgage warehouse loans payable $ 51,872,758 $ 50,056,160
Accounts payable & accrued expenses 363,883 362,869
Accrued interest & fees 1,596,081 1,047,132
Due to mortgage banking companies 566,598 629,421
Accrued taxes based on income 10,000 -
Deferred loan fees 29,000 29,000
Deferred legal fees 61,861 60,683
--------------- -----------------
Total Current Liabilities 54,500,181 52,185,265
--------------- -----------------
Subordinate debt 1,000,000 1,000,000
--------------- -----------------
Total Liabilities 55,500,181 53,185,265
--------------- -----------------
Stockholders' Equity:
Common stock-$.01 par value; authorized 20,000,000 shares; issued and
outstanding - 5,542,272 shares at March 31, 1998 and
5,442,272 shares at December 31, 1997 55,423 54,423
Additional paid-in capital 14,556,952 14,316,952
Accumulated deficit (8,470,845) (8,777,037)
Accumulated other comprehensive income -
Unrealized gain on investment in securities available for sale 600,000 807,000
--------------- -----------------
Total Stockholders' Equity 6,741,530 6,401,338
--------------- -----------------
Total Liabilities and Stockholders' Equity $ 62,241,711 $ 59,586,603
=============== =================
The accompanying notes are an integral part of these
statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
Three Months Ended March 31,
1998 1997
----------------- -----------------
INCOME:
Interest income $ 1,387,817 $ 82,890
Commissions and facility fees 48,000 2,367
Processing fees 586,990 17,766
----------------- -----------------
Total income 2,022,807 103,023
----------------- -----------------
DIRECT COSTS:
Interest expense- warehouse and
revolving lines of credit 1,119,404 47,696
Bank charges & facility fees 37,500 5,941
Bank processing fees 27,495 2,130
----------------- -----------------
Total direct costs 1,184,399 55,767
----------------- -----------------
Income (loss) before operating expenses 838,408 47,256
COMPENSATION AND BENEFITS 226,865 58,455
OPERATING EXPENSES 291,157 231,532
----------------- -----------------
Total compensation and operating expenses 518,022 289,987
----------------- -----------------
Income (loss) from operations 320,386 (242,731)
----------------- -----------------
OTHER INCOME (EXPENSE)
Interest income -other 21,984 10,885
Interest expense - other (1,178) (1,178)
Miscellaneous income - 18,800
Non-operating expense (25,000) (446,576)
----------------- -----------------
Total other income (expense) (4,194) (418,069)
----------------- -----------------
Income (loss) from operations 316,192 (660,800)
PROVISION FOR INCOME TAXES 10,000 1,125
----------------- -----------------
Net income (loss) $ 306,192 $ (661,925)
================= =================
BASIC AND DILUTED INCOME (LOSS) PER SHARE OF COMMON STOCK $0.06 ($0.30)
================= =================
WEIGHTED AVERAGE NUMBER OF SHARES 5,519,800 2,208,564
================= =================
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Unrealized
Gain on
Additional Securities Total
Common Paid-in Accumulated Available Stockholders'
Stock Capital Deficit for Sale Equity
--------------- -------------- ---------------- ------------------- ------
BALANCE at 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 (207,000) (207,000)
Net Income for the period 306,192 306,192
--------------- -------------- ---------------- ---------------- ------
BALANCE at March 31, 1998 $ 55,423 $ 14,556,952 $ (8,470,845) $ 600,000 $ 6,741,530
=============== ============== ================ ============= ===========
The accompanying notes are an integral part of this statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
March 31, March 31,
1998 1997
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $ 306,192 $ (661,925)
---------------- ----------------
Adjustments to reconcile net income(loss) to net cash used in operating
activities:
Depreciation and amortization 13,884 73,590
(Increase) decrease in --
Mortgage warehouse loan receivables (1,895,056) 1,859,083
Accrued interest receivable (267,427) 5,534
Prepaid expenses (2,601) 150,024
Other assets (12,677) 258,202
Increase (decrease) in --
Accrued interest payable 548,949 (11,895)
Due to mortgage banking companies (62,823) 24,567
Accounts payable & accrued expenses 11,014 (36,940)
---------------- ----------------
(1,666,737) 2,322,165
---------------- ----------------
Net cash (used in) provided by operating activities (1,360,545) 1,660,240
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (245,013) (7,509)
Investment in and advances to joint venture (132,500)
Deposits on furniture & fixtures (56,900) -
Net cash used in investing activities (434,413) (7,509)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase(decrease) in borrowings used in operations,
net of issuance costs 1,816,598 (2,955,681)
Decrease in revolving line of credit and bridge financing - (37,500)
Increase in deferred expenses 1,178 (402,899)
Increase in convertible note - 1,800,000
Net proceeds from issuance of stock 241,000 2,292,134
---------------- ----------------
Net cash provided by financing activities 2,058,776 696,054
---------------- ----------------
Net increase in cash 263,818 2,348,785
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 $ 3,236,663 $ 2,704,078
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 636,027 $ 37,170
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
</TABLE>
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 of a
recurring nature considered necessary for a fair presentation of its financial
position as of March 31, 1998, the results of operations for three month periods
ended March 31, 1998 and 1997 and its cash flows for the three month periods
ended March 31, 1998 and 1997. The results of operations for the three month
periods ended March 31, 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. OPERATING EXPENSES
Operating expenses consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Month Period Ended
March 31,
1998 1997
------------------ ------------------
Depreciation and amortization $ 13,884 $ 36,090
Professional fees 95,762 126,589
Utilities 15,223 7,447
Rent 44,058 6,534
Repairs and maintenance 4,926 5,608
Other 117,304 49,264
------------------ ------------------
Total Operating Expenses $ 291,157 $ 231,532
================== ==================
</TABLE>
3. 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 management is confident that the 37
loans will be realized. The loans are held at the lower of cost or market.
4. RECEIVABLE FOR LOANS SHIPPED
During October 1997 the Company warehoused a $1.7 million in mortgages for the
same customer as described in Note 3 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 bank has
refused to return the funds. The Company is taking actions, including legal
action, to collect the funds. 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.
<PAGE>
5. INVESTMENT IN AND ADVANCES TO PIONEER HOME FUNDING
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 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 March 31, 1998, the Company has advanced
as a loan receivable $356,976.
6. 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 March 31, 1998 at $2.75 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. 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.
<PAGE>
8. OTHER COMPRHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, a new accounting
rule on reporting comprehensive income. The new rule requires reporting of
comprehensive income, which includes net income and all other nonowner changes
in equity during a period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Month Periods Ended
March 31,
1998 1997
----------------- -----------
Net income (loss) $ 306,192 $ (661,925)
Changes in comprehensive income, net of tax -
Unrealized change in gain on investment in securities available for sale (207,000) -
----------------- ----------
Comprehensive net income (loss) $ 99,192 $ (661,925)
----------------- ------------
</TABLE>
9. SUBSEQUENT EVENTS
On May 4, 1998 Bank One extended its line of credit agreement to the Company
through June 30, 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 promissary 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.
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, as amended
on August 25, 1997, September 26, 1997 and December 12, 1997, 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.
Results of Operations
Three Month Period Ended March 31, 1997 Compared with the Three Month Period
Ended March 31, 1998.
Revenues. During the three month period ended March 31, 1998 revenues increased
to $2,022,807 compared to $103,023 for the three month period ended March 31,
1997. The volume of loan fundings during the three month periods ended March 31,
1998 and 1997 totaled approximately $130,772,172 and $16,563,772 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 March 31, 1997, the Company financed a total
of 195 loans totaling $16,563,772 with a weighted average principal amount of
$85,185 for an average duration of 17 days per borrowing. During the three month
period ended March 31, 1998, the Company financed a total of 2,316 loans
totaling $130,772,172 with a weighted average principal amount of $56,465 for a
duration of 33 days per borrowing which amounts included 2,209 loans funded
through bank borrowings aggregating $127,096,217 in weighted average principal
amounts of $57,536.
Direct Costs. During the three month periods ended March 31, 1998 and 1997,
interest expense and other bank charges accrued on the Company's revolving line
of credit providers amounted to $1,184,399 and $55,767, 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>
Compensation and Operating Expenses. The Company's compensation and operating
expenses of $518,022 during the three month period ended March 31, 1998
consisted primarily of salary and benefits of $226,865; Accounting and Legal
fees of $95,762; office rent of $44,058; and travel of $28,436. The Company's
operating expenses of $287,574 during the three month period ended March 31,1997
consisted primarily of salaries and benefits of $58,455 and legal and accounting
fees of $126,589. The increase in operating expenses for the three month period
ended March 31, 1998 are due to the increase in lending activity.
Net Income Versus Net Loss. During the three month periods ended March 31, 1998
the Company earned net income of $306,192 primarily as a result of the addition
of the Bank One warehouse credit facility and the increase in its' customer
base. The combination of these two factors in conjunction with revised pricing
allowed the Company to generate revenues to show a profit for the period. During
the three month period ended March 31, 1997 the Company incurred a net loss of
$661,925 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.
<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: May 15, 1998
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,236,663
<SECURITIES> 0
<RECEIVABLES> 56,605,415
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 59,944,586
<PP&E> 927,395
<DEPRECIATION> 462,737
<TOTAL-ASSETS> 62,241,711
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 55,423
<OTHER-SE> 14,556,952
<TOTAL-LIABILITY-AND-EQUITY> 62,241,711
<SALES> 0
<TOTAL-REVENUES> 2,022,807
<CGS> 0
<TOTAL-COSTS> 1,184,399
<OTHER-EXPENSES> 518,022
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,119,404
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 306,192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 306,192
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
