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 September 30, 1999
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)
1 Rockefeller Plaza, New York, New York 10020
(Address and Zip Code of Principal Executive Offices)
(212) 218-1850
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 2,771,136 shares of the registrant's common stock
outstanding as of November 15, 1999.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Pioneer Commercial Funding Corp.
BALANCE SHEETS
(Unaudited) September 30, December 31
1999 1998
ASSETS
Cash and cash equivalents $ 2,821,701 $ 1,503,788
Mortgage warehouse loans receivable, net of allowance for loan losses 7,285,239 33,640,202
Loans held for resale, net of allowance for loan losses 579,993 705,479
Receivable for loans shipped 1,716,969 1,716,969
Accrued interest and fee receivable 1,120,732 825,340
Notes receivable-current portion 621,832 176,667
Investment securities available for sale 106,000 318,750
Prepaid and other assets 126,035 180,503
Total Current Assets 14,378,501 39,067,698
Fixed Assets
Furniture and equipment - 634,376
Proprietary computer software - 551,114
Leasehold improvements - 198,689
- 1,384,179
Less accumulated depreciation and amortization - 651,383
Net Fixed Assets - 732,796
Notes receivable-noncurrent portion 735,103 911,770
Other assets 192,432 475,063
Total Assets $ 15,306,036 $ 41,187,327
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage warehouse loans payable $ 8,955,694 $ 33,384,925
Accounts payable and accrued expenses 55,581 213,646
Accrued interest and fees 1,642,315 777,798
Due to mortgage banking companies 241,551 220,228
Deferred loan fees 29,000 29,000
Deferred legal fees 68,144 65,395
Total Current Liabilities 10,992,285 34,690,992
Subordinated debt 1,626,000 1,726,000
Total Liabilities 12,618,285 36,416,992
Commitments and Contingencies
Stockholders' Equity:
Common stock - $.01 par value; authorized 20,000,000 shares;
issued and outstanding - 2,771,136 at September 30, 1999
and December 31, 1998 55,423 55,423
Additional paid-in capital 14,556,952 14,556,952
Accumulated deficit (11,805,624) (9,935,790)
Accumulated other comprehensive income (loss) (119,000) 93,750
Total Stockholders' Equity 2,687,751 4,770,335
Total Liabilities and Stockholders' Equity $ 15,306,036 $ 41,187,327
The accompanying notes are an integral part of these statements.
F-1
<PAGE>
Pioneer Commercial Funding Corp.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------------------------------------------
1999 1998 1999 1998
---------------- --------------- --------------- --------------
Income:
Interest income $ 293,508 $ 1,051,828 $ 1,455,091 $ 3,740,403
Commissions and facility fees 5,250 42,895 63,208 184,991
Processing fees 100,668 414,690 492,953 1,525,835
---------------- --------------- --------------- --------------
Total Income 399,426 1,509,413 2,011,252 5,451,229
---------------- --------------- --------------- --------------
Interest and Fee Costs:
Interest expense-warehouse and lines of credit 302,623 863,730 1,427,794 3,129,351
Bank charges and facility fees 8,333 37,500 56,250 112,500
Bank processing fees 3,989 20,131 34,415 73,919
---------------- --------------- --------------- --------------
Total Interest and Fee Costs 314,945 921,361 1,518,459 3,315,770
---------------- --------------- --------------- --------------
Net Interest and Fee Income 84,481 588,052 492,793 2,135,459
Loan loss provision 311,055 362,929 819,698 745,401
---------------- --------------- --------------- --------------
---------------- --------------- --------------- --------------
(226,574) 225,123 (326,905) 1,390,058
---------------- --------------- --------------- --------------
Other Operating Expense:
Compensation and benefits 247,088 302,647 718,303 790,803
Depreciation and amortization 48,244 51,000 144,508 116,530
Professional fees 117,695 21,751 411,619 127,271
Utilities 5,994 12,447 23,439 39,470
Rent 43,117 60,186 145,614 163,898
Repairs and maintenance 404 4,590 2,579 12,571
Other 78,530 134,877 228,746 397,786
---------------- --------------- --------------- --------------
Total Other Operating Expenses 541,072 587,498 1,674,808 1,648,329
---------------- --------------- --------------- --------------
---------------- --------------- --------------- --------------
(Loss) from operations (767,646) (362,375) (2,001,713) (258,271)
---------------- --------------- --------------- --------------
Other Income and Expense:
Interest income - other 7,305 20,129 44,915 61,285
Interest expense-other (393) (1,511) (2,749) (3,867)
Gain on disposal of fixed assets 90,577 - 90,577 -
Non-operating expense - - - (50,000)
---------------- --------------- --------------- --------------
Total Other Income and Expense 97,489 18,618 132,743 7,418
---------------- --------------- --------------- --------------
(Loss) Before Taxes Based on Income (670,157) (343,757) (1,868,970) (250,853)
Provision for taxes based on income (loss) 64 (9,171) 864 829
================ =============== =============== ===============
Net (Loss) $ (670,221) $ (334,586) $ (1,869,834) $ (251,682)
================ =============== =============== ===============
Basic and Diluted (Loss)
Per Share of Common Stock $ (0.24) $ (0.06) $ (0.67) $ (0.05)
================ =============== =============== ===============
Weighted Average Number of Shares 2,771,136 5,542,272 2,771,136 5,534,580
================ =============== =============== ===============
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
Pioneer Commercial Funding Corp.
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------------
1999 1998 1999 1998
---------------- --------------- ---------------- ---------------
Net (loss) $ (670,221) $ (334,586) $ (1,869,834) $ (251,682)
Change in unrealized gain on investment in
securities available for sale (24,000) - (212,750) (450,750)
================ =============== ================ ===============
Comprehensive net (loss) $ (694,221) $ (334,586) $ (2,082,584) $ (702,432)
================ =============== ================ ===============
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Pioneer Commercial Funding Corp.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
--------------------------------------
September 30, September 30,
1999 1998
---------------- -----------------
Cash Flows from Operating Activities:
Net (loss) $ (1,869,834) $ (251,682)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Gain on disposal of fixed assets (90,577) -
Loan loss provision 819,698 745,401
Depreciation and amortization 144,508 116,530
(Increase) decrease in --
Mortgage warehouse loans receivable 25,535,265 15,937,514
Loans held for resale 125,486 3,708,241
Accrued interest receivable (295,392) (293,786)
Prepaid expenses 54,468 (49,148)
Notes receivable (268,498) -
Other assets 282,631 (4,170)
Increase (decrease) in --
Accrued interest payable 864,517 (434,776)
Due to mortgage banking companies 21,323 (111,739)
Accounts payable and accrued expenses (158,065) (279,361)
---------------- -----------------
Net Cash Provided by Operating Activities 25,165,530 19,083,024
---------------- -----------------
Cash Flows from Investing Activities:
Purchase of fixed assets (113,773) (268,415)
Net proceeds from sale of fixed assets 792,638 -
Investment in and advances to joint venture - (274,623)
Deposits on furniture and fixtures - (57,578)
---------------- -----------------
Net Cash Provided by (Used in) Investing Activities 678,865 (600,616)
---------------- -----------------
Cash Flows from Financing Activities:
Net (decrease) in borrowings used in operations,
net of issuance costs (24,429,231) (18,827,121)
Increase in deferred expenses 2,749 3,534
Increase in convertible note (100,000) 726,000
Net proceeds from issuance of stock - 241,000
---------------- -----------------
Net Cash (Used in) Financing Activities (24,526,482) (17,856,587)
---------------- -----------------
Net Increase in Cash 1,317,913 625,821
Cash and Cash Equivalents at the Beginning of the Period 1,503,788 2,972,845
---------------- -----------------
Cash and Cash Equivalents at the End of the Period $ 2,821,701 $ 3,598,666
================ =================
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 563,605 $ 3,750,546
================ =================
Income taxes paid $ 864 $ -
================ =================
Non Cash Financing Activities
Conversion of mortgage loans receivable to notes receivable $ 658,070 $ -
================ =================
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Pioneer Commercial Funding Corp..
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pioneer Commercial Funding Corp. (the Company) is a mortgage warehouse lender
providing short-term financing to mortgage bankers who need to hold the mortgage
loans they originate pending the nonrecourse sale of such loans to institutional
investors in the secondary mortgage market.
Basis of Presentation
In the opinion of management, the accompanying unaudited financial statements
for the Company contain all adjustments of a recurring nature considered
necessary for a fair presentation of its financial position as of September 30,
1999 and December 31, 1998 (audited), and the results of operations,
comprehensive income and cash flows for the three and nine month periods ended
September 30, 1999 and 1998. The results of operations for the three and nine
month periods ended September 30, 1999 and 1998 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, 1998 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, 1998 and for the year then ended
included in the Company's filings on April 15, 1999 with the SEC on Form 10-KSB.
From March of 1997 until September 30th of 1999 the Company has had a revolving
line of credit with Bank One. The credit limit on the line increased from $25
million to $60 million at its peak and decreased to $30 million when the line
expired on September 30th. 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
Enterprises Ltd., a major shareholder of the company, had guaranteed Bank One
that it would maintain the Company's net worth through an additional investment
or loan of up to $2 million.
As a result of severe losses incurred due to the burden of carrying $1,716,969
in non-producing receivables for loans shipped since 1997, the related strain on
the Company's relationship with its lender, and to a lesser extent secondary
market changes, credit lines to the Company were reduced. The Company saw no
prospects of operating at a profit without increased lines of credit and such
additional lines no longer were available, causing the Company to exit the
mortgage warehouse banking business. Accordingly, after stockholder approval,
operational assets of the Company were sold.
For the quarter ended September 30, 1999, business activities were in the
process of being shut down in an orderly manner. Clients were advised that we
would no longer be able to provide them with funding and operational assets were
transferred to the purchaser. The number of new loans and total fundings for the
period were greatly reduced during this termination process.
At present, no new loans are being funded and every effort is being made to
reduce bank indebtedness by selling loans in the Company's possession and by
collecting outstanding receivables.
<PAGE>
Management is also vigorously pursuing a law suit to recover funds and
subsequent damages sustained when approximately $1.7 million was, it believes,
misappropriated by a major banking institution and others. Trial is presently
scheduled for May, 2000.
In September 1999, the Company sold its furniture, fixtures, equipment and
software to Princap Mortgage Warehouse, Inc. for approximately $800,000. The
Company recorded a gain from the sale of this transaction in the amount of
$249,293. In addition, the Company moved its operating activities to New York
and wrote off the net book value of leasehold improvements in the amount of
$158,716. The statement of operations has reflected a net gain from these two
transactions in the amount of $90,577.
2. LOANS HELD FOR RESALE
In 1997, 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 during 1998 sold 32 of the
loans at a net discount of $72,070. One loan in the amount of $132,090 was sold
in the first quarter of 1999 for $125,486. The four loans unsold at September
30, 1999 with an original loan amount of $566,026, together with holdback
receivables on sold loans of $180,945, are held at net realizable value which
includes a reserve of $166,978.
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,
American Financial Mortgage Corporation, to sell its loans to an investor,
Norwest Funding, Inc. 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, Corestates Bank, N.A.
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,
Bank One Texas, N.A. ("Bank One"), 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.
<PAGE>
4. NOTES RECEIVABLE
On November 18, 1998, as settlement was reached with a guarantor of a mortgage
banking customer's defaulted line of credit. The guarantor was also a Company
stockholder. Pursuant to the settlement, an entity which is an affiliate of
Leedan (Note 7) accepted $530,000 of the guarantor's recognized debt to the
Company in exchange for the guarantor's shares in the Company. This entity paid
the Company $176,667 and issued two notes of $176,667 each with maturity dates
of August 23, 1999 and May 23, 2000, respectively. Interest is payable quarterly
at an annual rate of 8.25% commencing three months after the November 23, 1998
date of issuance.
$ 176,667
Pursuant to the settlement stated above, the guarantor also issued two notes to
the Company in the amounts of $265,103 and $470,000, respectively. Interest is
payable quarterly at an annual rate of prime plus 1/2% commencing three months
after the November 18, 1998 date of issuance. Both notes mature November 18,
2000. 735,103
On March 29, 1999, a settlement was reached with two clients and their guarantor
wherein the remaining loans on each client's line and interest and fees due
through October 31, 1998 were replaced with a note from each client guaranteed
by the client's guarantor in the amounts of $453,430 and $204,640, respectively,
each payable in sixteen equal monthly installments plus interest at an annual
rate of 10%. Through September 30, 1999 the balance has been reduced by
principal payments of $287,905.
370,165
On May 5, 1999 the Company loaned $75,000 to Royalty Records. Royalty issued a
note payable in nine equal payments of principal and interest at 16% commencing
no later than December 1, 1999.
75,000
-----------------
Total 1,356,935
Less current portion 621,832
-----------------
$735,103
</TABLE>
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 provided
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 September 30, 1999, the Company has
advanced as a loan receivable $294,345 which has been fully reserved.
<PAGE>
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 were last traded on April 23, 1999 at $.25 per share. On May 6, 1999
FFIR issued a 50 to 1 reverse stock split, reducing the Company's number of
shares to 6,000. During the three month period ended September 30, 1999, the
Company received 1,250 restricted bonus FFIR shares. 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. LINE OF CREDIT AND CAPITAL MAINTENANCE AGREEMENT
Effective April 30, 1999, Bank One renewed the credit facility with a borrowing
limit of $35,000,000 through June 29, 1999 and $30,000,000 through September 30,
1999. This line has expired and no formal extension has been granted. The line
of credit is effectively reduced by the amount of ineligible loans (primarily
those over 60 days old, which aggregate approximately $6 million). Effective
June 30, 1998 Leedan Business Enterprise Ltd. (Leedan), a 49% owner of the
Company, entered into a Capital Maintenance Agreement with Bank One wherein
Leedan would cause capital contributions or subordinated debt advances, up to $2
million, to be made to the Company in order to have maintained an adjusted
Company net worth of a least $8 million, upon official written request by Bank
One. (See also Note 8).
8. SUBORDINATED 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 On
September 11, 1998 three additional subordinated debt advances, pursuant to the
Leedan Capital Maintenance Agreement (See also Note 7), were made to the Company
totaling $726,000 secured by notes. The notes are due when a replacement for the
Bank One lending facility is in place, with interest paid quarterly at 11% per
annum. During the first quarter of 1999, $100,000 of the subordinated debt was
repaid.
9. COMMON STOCK
On July 23, 1999, the Company effected a two for one reverse stock split.
Accordingly, the number of shares issued and outstanding was reduced from
5,542,272 to 2,771,136.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Pioneer Commercial Funding Corp. (the Company) is a mortgage warehouse lender
providing short-term financing to mortgage bankers who need to hold the mortgage
loans they originate pending the nonrecourse sale of such loans to institutional
investors in the secondary mortgage market.
General
From March of 1997 until September 30th of 1999 the Company has had a revolving
line of credit with Bank One. The credit limit on the line increased from $25
million to $60 million at its peak and decreased to $30 million when the line
expired on September 30th. 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
Enterprises Ltd., a major shareholder of the company, had guaranteed Bank One
that it would maintain the Company's net worth through an additional investment
or loan of up to $2 million.
As a result of severe losses incurred due to the burden of carrying $1,716,969
in non-producing receivables for loans shipped since 1997, the related strain on
the Company's relationship with its lender, and to a lesser extent secondary
market changes, credit lines to the Company were reduced. The Company saw no
prospects of operating at a profit without increased lines of credit and such
additional lines no longer were available, causing the Company to exit the
mortgage warehouse banking business. Accordingly, after stockholder approval,
operational assets of the Company were sold.
For the quarter ended September 30, 1999, business activities were in the
process of being shut down in an orderly manner. Clients were advised that we
would no longer be able to provide them with funding and operational assets were
transferred to the purchaser. The number of new loans and total fundings for the
period were greatly reduced during this termination process.
At present, no new loans are being funded and every effort is being made to
reduce bank indebtedness by selling loans in the Company's possession and by
collecting outstanding receivables.
Management is also vigorously pursuing a law suit to recover funds and
subsequent damages sustained when approximately $1.7 million was, it believes,
misappropriated by a major banking institution and others. Trial is presently
scheduled for May, 2000.
Nine month Period Ended September 30, 1999 Compared with the Nine Month Period
Ended September 30, 1998.
Revenues. During the nine month period ended September 30, 1999 revenues
decreased from $5,451,229 for the nine month period ended September 30, 1998 to
$2,011,252. Such decreases in revenues, interest and processing fees were due to
the decrease in loan volume experienced by the Company during the latter period
while they are winding down operations. The reduction in loan volume was also
due to the reduction in the Company's line of credit from Bank One and the
number and amount of stale loans in the Company's portfolio of loans that take
up space on the Company's line of credit but may not yield processing or
interest income.
Direct Costs. During the nine month periods ended September 30, 1999 and 1998,
interest expense and other bank charges accrued on the Company's revolving line
of credit amounted to $1,518,459 and $3,315,770, respectively. The decrease in
interest expense and bank fees was due to a decrease in the use of the Company's
bank credit facility engendered by the above-described decrease in credit limit.
<PAGE>
Other Operating Expense. The Company's other operating expenses of $1,674,808
during the nine month period ended September 30, 1999 consisted primarily of
salary and benefits of $718,303, accounting and legal fees of $411,619, rent of
$145,614 and depreciation of $144,508. The Company's operating expenses of
$1,648,329 during the nine month period ended September 30, 1998 consisted
primarily of salaries and benefits of $790,803, legal and accounting fees of
$127,271, rent of $163,898 and depreciation of $116,530.
Net Loss. During the nine month period ended September 30, 1999 the Company
incurred a net loss of $1,869,834 primarily due to the reduction in volume of
business, the burden of non-performing loans in the portfolio and the
recognition of additional reserves of $819,698 against loans and fees
receivable. During the nine months the Company's volume of business was reduced
as a result of the companies decision to exit the mortgage business. Net loss
for the nine months ended September 30, 1998 of $251,682 resulted from high
volumes of loans, including 125 loans, which preceded the funds shortage that
lead to the recent reduction in lines of credit, loan volume and the increase in
stale loans in spite of reserves recorded during the period of $745,401.
Three month Period Ended March 30, 1999 Compared with the Three month Period
Ended March 30, 1998.
Revenues. During the three month period ended September 30, 1999 revenues
decreased to $399,426 from $1,509,413 for the three month period ended September
30, 1998. Such decreases in revenues, loans funding, interest and processing
fees were due to the decrease in loan volume experienced by the Company during
the latter period. The reduction in loan volume was due to the Company's
decision to exit the mortgage business.
Direct Costs. During the three month periods ended September 30, 1999 and 1998,
interest expense and other bank charges accrued on the Company's revolving line
of credit amounted to $314,945 and $921,361, respectively. The decrease in
interest expense and bank fees was due to a decrease in the use of the Company's
bank credit facility engendered by the above-described decrease in credit limit.
Other Operating Expenses. The Company's other operating expenses of $541,072
during the three month period ended September 30, 1999 consisted primarily of
salary and benefits of $247,088, accounting and legal fees of $117,695, rent of
$43,117 and depreciation of $48,244. The Company's operating expenses of
$587,498 during the three month period ended September 30, 1998 consisted
primarily of salaries and benefits of $302,647, legal and accounting fees of
$21,751, rent of $60,186 and depreciation of $51,000.
Net Loss. During the three month period ended September 30, 1999 the Company
incurred a net loss of $670,221 primarily due to the reduction in volume of
business and the burden of non-performing loans in the portfolio and the
recognition of additional reserves of $311,055 against loans and fees
receivable. During the three months the Company's volume of business was reduced
as a result of the Company's decision to exit the mortgage business. The net
loss for the three months ended September 30, 1998 of $334,586 resulted from the
reduction in volume of business and the burden of non-performing loans in the
portfolio and the recognition of reserves of $362,929 against loans and fees
receivable.
Liquidity and Capital Resources. At September 30, 1999, the Company had cash of
$2,821,701, working capital of $3,280,216 and a current ratio of 1.30 to 1. At
the Company's year end of December 31, 1998, it reflected cash of $1,503,788,
working capital of $4,057,956 and a current ratio of 1.2 to 1.
Cash Flow. During the nine months ended September 30, 1999 and 1998, the Company
was able to provide $1,317,913 and $625,821, respectively, of net increase in
cash flows, primarily as a result of reducing loans receivable.
The Company believes that its cash flows from operations and continuing lines of
credit will be sufficient to meet its financing requirements for the next twelve
months.
<PAGE>
Year 2000 Computer Readiness. The Year 2000 ("Y2K") issue is the result of
computer programs using a two-digit format, as opposed to four digits, to
indicate the year. Such computer systems will be unable to interpret dates
beyond the year 1999, which could cause a system failure or other computer
errors, leading to disruptions in operations. The Company has two basic computer
functions, accounting and collateral tracking. Date sensitive calculations such
as fees and interest charges and due dates on loans comprising the Company's
warehouse loans receivable and payable would be negatively effected if the
accounting and collateral tracking systems were not compliant after the end of
1999. The Company, with the assistance of outside software contractors, was in
the process of changing its accounting and collateral tracking computer systems
from non-compliant systems run on AS400 hardware to a compliant system run on a
Windows NT network. The Company's banks and lender have communicated that they
will be Y2K compliant by the end of 1999. No other third party Y2K compliance is
expected to have a material impact on the operations of the Company. In
September 1999, the Company sold all of its fixed assets excluding leasehold
improvements (see Note 1).
Other. This report contains forward-looking statements and information that is
based on management's beliefs and assumptions, as well as information currently
available to management. When used in this document, the words "anticipate,"
estimate," "expect," "intend" and similar expressions are intended to identify
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will provide to be correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or expected. Among the key factors that may have a direct bearing on
the Company's operating results are fluctuations in the economy, the degree and
nature of competition, the risk of delay in product development and release
dates and acceptance of, and demand for, the Company's products.
<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>
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: Albert Nissim
President, Principal Accounting Officer
Dated: November 17, 1999
<PAGE>
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,821,701
<SECURITIES> 0
<RECEIVABLES> 11,140,086
<ALLOWANCES> 1,017,146
<INVENTORY> 0
<CURRENT-ASSETS> 14,272,501
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,306,036
<CURRENT-LIABILITIES> 10,992,285
<BONDS> 1,626,000
0
0
<COMMON> 55,423
<OTHER-SE> 2,632,328
<TOTAL-LIABILITY-AND-EQUITY> 15,306,036
<SALES> 0
<TOTAL-REVENUES> 2,011,252
<CGS> 1,518,459
<TOTAL-COSTS> 1,518,459
<OTHER-EXPENSES> 1,674,808
<LOSS-PROVISION> 819,698
<INTEREST-EXPENSE> 44,915
<INCOME-PRETAX> 2,749
<INCOME-TAX> (1,868,970)
<INCOME-CONTINUING> 864
<DISCONTINUED> (1,869,834)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,869,834)
<EPS-BASIC> (0.67)
<EPS-DILUTED> (0.67)
</TABLE>
