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, 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)
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 2,771,136 shares of the registrant's common stock
outstanding as of August 15, 1999.
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Pioneer Commercial Funding Corp.
BALANCE SHEETS
June 30, December 31
1999 1998
(Unaudited)
ASSETS
Cash and cash equivalents $ 1,588,022 $ 1,503,788
Mortgage warehouse loans receivable, net of allowance for loan losses 10,957,831 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 938,939 825,340
Notes receivable-current portion 704,091 176,667
Prepaid and other assets 131,342 180,503
Total Current Assets 16,617,187 38,748,948
Fixed Assets
Furniture and equipment 732,745 634,376
Proprietary computer software 551,114 551,114
Leasehold improvements 198,689 198,689
1,482,548 1,384,179
Less accumulated depreciation and amortization 747,647 651,383
Net Fixed Assets 734,901 732,796
Investment securities available for sale 120,000 318,750
Notes receivable-noncurrent portion 911,770 911,770
Other assets 296,133 475,063
Total Assets $ 18,679,991 $ 41,187,327
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage warehouse loans payable $ 11,888,091 $ 33,384,925
Accounts payable and accrued expenses 210,660 213,646
Accrued interest and fees 1,327,927 777,798
Due to mortgage banking companies 158,590 220,228
Deferred loan fees 29,000 29,000
Deferred legal fees 67,751 65,395
Total Current Liabilities 13,682,019 34,690,992
Subordinated debt 1,626,000 1,726,000
Total Liabilities 15,308,019 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 June 30, 1999
and December 31, 1998 55,423 55,423
Additional paid-in capital 14,556,952 14,556,952
Accumulated deficit (11,135,403) (9,935,790)
Accumulated other comprehensive income (105,000) 93,750
Total Stockholders' Equity 3,371,972 4,770,335
Total Liabilities and Stockholders' Equity $ 18,679,991 $ 41,187,327
The accompanying notes are an integral part of these statements.
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Pioneer Commercial Funding Corp.
STATEMENTS OF OPERATIONS
For the three and six month periods ended June 30, 1999 and 1998
(Unaudited)
Three Months Ended June 30 Six Months Ended June 30
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
Income:
Interest income $ 355,329 $ 1,300,758 $ 1,161,583 $ 2,688,575
Commissions and facility fees 26,625 94,096 57,958 142,096
Processing fees 147,100 524,155 392,285 1,111,145
----------------- ----------------- ----------------- -----------------
Total Income 529,054 1,919,009 1,611,826 3,941,816
----------------- ----------------- ----------------- -----------------
Interest and Fee Costs:
Interest expense-warehouse and lines of credit 340,690 1,146,217 1,125,171 2,265,621
Bank charges and facility fees 22,917 37,500 47,917 75,000
Bank processing fees 11,028 26,293 30,426 53,788
----------------- ----------------- ----------------- -----------------
Total Interest and Fee Costs 374,635 1,210,010 1,203,514 2,394,409
----------------- ----------------- ----------------- -----------------
Net Interest and Fee Income 154,419 708,999 408,312 1,547,407
Loan loss provision 508,643 382,472 508,643 382,472
-----------------
----------------- ----------------- ----------------- -----------------
(354,224) 326,527 (100,331) 1,164,935
----------------- ----------------- ----------------- -----------------
Other Operating Expense:
Compensation and benefits 216,127 261,291 471,215 488,156
Depreciation and amortization 48,132 51,646 96,264 65,530
Professional fees 178,233 19,758 293,924 115,520
Utilities 8,555 11,800 17,445 27,023
Rent 54,238 59,654 102,497 103,712
Repairs and maintenance 689 3,055 2,175 7,981
Other 74,923 135,605 150,216 252,909
----------------- ----------------- ----------------- -----------------
Total Other Operating Expenses 580,897 542,809 1,133,736 1,060,831
----------------- ----------------- ----------------- -----------------
Income (loss) from operations (935,121) (216,282) (1,234,067) 104,104
----------------- ----------------- ----------------- -----------------
Other Income and Expense:
Interest income - other 19,277 19,172 37,610 41,156
Interest expense-other (1,178) (1,178) (2,356) (2,356)
Equity in loss of affiliate - (25,000) - (50,000)
----------------- ----------------- ----------------- -----------------
Total Other Income and Expense 18,099 (7,006) 35,254 (11,200)
----------------- ----------------- ----------------- -----------------
Income (Loss) Before Taxes Based on Income (917,022) (223,288) (1,198,813) 92,904
Provision for taxes based on income - - 800 10,000
================= ================= ================= =================
Net Income (Loss) $ (917,022) $ (223,288) $ (1,199,613) $ 82,904
================= ================= ================= =================
Basic and Diluted Income (Loss)
Per Share of Common Stock $ (0.33) $ (0.08) $ (0.43) $ 0.03
================= ================= ================= =================
Weighted Average Number of Shares 2,771,136 2,771,136 2,771,136 2,765,335
================= ================= ================= =================
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 month periods ended June 30, 1999 and 1998
(Unaudited)
Three Months Ended June 30 Six Months Ended June 30
1999 1998 1999 1998
------------------ ------------------- ------------------ ------------------
Net income (loss) $ (917,022) $ (223,288) $ (1,199,613) $ 82,904
Change in unrealized gain on investment in
securities available for sale (30,000) (243,750) (198,750) (450,750)
================== =================== ================== ==================
Comprehensive net income (loss) $ (947,022) $ (467,038) $ (1,398,363) $ (367,846)
================== =================== ================== ==================
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Pioneer Commercial Funding Corp.
STATEMENTS OF CASH FLOWS
For the six month periods ended June 30, 1999 and 1998
(Unaudited)
June 30, June 30,
1999 1998
---------------- -----------------
Cash Flows from Operating Activities:
Net income (loss) $ (1,199,613) $ 82,904
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 96,264 65,530
Loan loss reserve 508,643
(Increase) decrease in --
Mortgage warehouse loans receivable 22,173,728 (4,417,820)
Loans held for resale 125,486 2,552,234
Accrued interest receivable (113,599) (679,629)
Prepaid expenses 49,161 8,053
Notes receivable (527,424) -
Other assets 178,930 (3,292)
Increase (decrease) in --
Accrued interest payable 550,129 (560,857)
Due to mortgage banking companies (61,638) 398,567
Accounts payable and accrued expenses (2,986) (128,055)
---------------- -----------------
Net Cash Provided by (Used in) Operating Activities 21,777,081 (2,682,365)
---------------- -----------------
Cash Flows from Investing Activities:
Purchase of fixed assets (98,369) (249,745)
Investment in and advances to joint venture - (274,623)
Deposits on furniture and fixtures - (57,578)
---------------- -----------------
Net Cash Used in Investing Activities (98,369) (581,946)
---------------- -----------------
Cash Flows from Financing Activities:
Net increase (decrease) in borrowings used in operations,
net of issuance costs (21,496,834) 367,029
Increase in deferred expenses 2,356 2,356
Repayment of subordinated debt (100,000)
Net proceeds from issuance of stock - 241,000
---------------- -----------------
Net Cash (Used) Provided by Financing Activities (21,594,478) 610,385
---------------- -----------------
Net Increase in Cash 84,234 (2,653,926)
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 $ 1,588,022 $ 318,919
================ =================
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 563,605 $ 2,319,816
================ =================
Income taxes paid $ 829 $ -
================ =================
Non Cash Financing Activities
Conversion of mortgage loans receivable to notes receivable $ 658,070 $ -
================ =================
The accompanying notes are an integral part of these statements.
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Pioneer Commercial Funding Corp..
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
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, 1999 and December 31, 1998 (audited), the results of
operations, comprehensive income, stockholders' equity and cash flows for three
and six month periods ended June 30, 1999 and 1998. The results of operations
for the three and six month periods ended June 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.
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 June 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.
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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 has commenced
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.
("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.
4. NOTES RECEIVABLE
On November 18, 1998, a 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. $ 353,334
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 June 30, 1999 the balance has been reduced by principal
payments of $205,646. 452,424
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 1,615,861
Less current portion 880,758
-----------------
$735,103
-----------------
-----------------
-----------------
-----------------
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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 June 30, 1999, the Company has advanced
as a loan receivable $275,345, which has been fully reserved.
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. 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. The extended line of credit is effectively reduced by the amount of
ineligible loans (primarily those over 60 days old, which amount to
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 will cause capital contributions or
subordinated debt advances, up to $2 million, to be made to the Company in order
to maintain an adjusted Company net worth of a least $8 million, upon official
written request by Bank One. This agreement will continue in effect until the
Company has paid its obligation to Bank One and Bank One terminates its
commitment to supply the Company credit (See also Note 8).
8. 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 On
September 11, 1998 three 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 subordinate debt was
repaid
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9. SUBSEQUENT EVENTS
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.
On July 30, 1999 the Company entered into an agreement to sell the Company's
furniture, fixtures, equipment and software to Princap Mortgage Warehouse, Inc.
for $800,000. The agreement includes an option for Princap to purchase some or
all of the remaining loans in the Company's portfolio of loans at book value. As
a result of this transaction, the Company will effectively exit the mortgage
warehouse lending business and use the remaining capital to invest in an
alternative business. The proposed transaction is planned to close in escrow
before September 15, 1999 and is subject to stockholder approval.
The accompanying pro forma balance sheets present the financial position of the
Company as of June 30, 1999 before and after adjustments, explained below, for
the expected effects of the sale of the furniture, equipment and software to
Princap Mortgage Warehouse, Inc. (Princap) for $800,000 and the effects of the
possible sale of the Company's mortgage warehouse loans to Princap for net book
value plus accrued fees and interest on such loans. In addition, the number of
shares issued and outstanding at June 30, 1999 of 5,542,272 has been adjusted to
reflect the two for one reverse stock split effective July 23, 1999. No other
substantial changes are expected to impact the financial position of the Company
between June 30, 1999 and the expected date of the Princap transaction. The
adjustments are as follows:
a. Cash received from Princap
b. Sale of furniture, computer equipment and licensed software
c. Sale of proprietary software
d. Reduction of accumulated depreciation related to furniture, equipment
and software
e. Income from sale of furniture, equipment and software
f. Cash from sale of mortgage warehouse loans plus related
accrued fees and interest less line of credit reduction
related to mortgage warehouse loans
g. Sale of mortgage warehouse loans h. Sale of related accrued fees
and interest
i. Reduction in line of credit related to mortgage warehouse loans
j. Number of shares issued and outstanding reflects two for one reverse
stock split
In the opinion of management, the accompanying unaudited balance sheets 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, 1999.
The accompanying unaudited interim balance sheets 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 is written with
the presumption that the users of the pro forma balance sheet 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.
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Pioneer Commercial Funding Corp.
PRO FORMA BALANCE SHEET
June 30, 1999 (Unaudited)
After After
Fixed Asset Fixed Asset Possible Possible
June 30, 1999 Sale Sale Loan Sale Loan Sale
---------------------------- ---------------------------- ---------
ASSETS
Cash and cash equivalents $ 1,588,022 $ 800,000 1a $ 2,388,022 $ 8,679 1f $ 2,396,701
Mortgage warehouse loans receivable, net of allowance for lo10,957,831 10,957,831 (10,957,831) 1g -
Loans held for resale, net of allowance for loan losses 579,993 579,993 579,993
Receivable for loans shipped 1,716,969 1,716,969 1,716,969
Accrued interest and fee receivable 938,939 938,939 (938,939) 1h -
Notes receivable-current portion 880,758 880,758 880,758
Prepaid and other assets 131,342 131,342 131,342
---------------------------- ---------------------------- ----------
Total Current Assets 16,793,854 800,000 17,593,854 (11,888,091) 5,705,763
---------------------------- ---------------------------- ----------
Fixed Assets
Furniture and equipment 732,745 (732,745) 1b - -
Proprietary computer software 551,114 (551,114) 1c - -
Leasehold improvements 198,689 198,689 198,689
---------------------------- ---------------------------- ----------
1,482,548 (1,283,859) 198,689 - 198,689
Less accumulated depreciation and amortization 747,647 (712,587) 1d 35,060 35,060
---------------------------- ---------------------------- ----------
Net Fixed Assets 734,901 (571,272) 163,629 - 163,629
---------------------------- ---------------------------- ----------
Investment securities available for sale 120,000 120,000 120,000
Notes receivable-noncurrent portion 735,103 735,103 735,103
Deposits on furniture and equipment - - -
Other assets 296,133 296,133 296,133
============================ ============================ ==========
Total Assets $ 18,679,991 $ 228,728 $ 18,908,719 $ (11,888,091) $7,020,628
============================ ============================ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage warehouse loans payable $ 11,888,091 $ 11,888,091 $ (11,888,091) 1i $ -
Accounts payable and accrued expenses 210,660 210,660 210,660
Accrued interest and fees 1,327,927 1,327,927 1,327,927
Due to mortgage banking companies 158,590 158,590 158,590
Deferred loan fees 29,000 29,000 29,000
Deferred legal fees 67,751 67,751 67,751
---------------------------- ---------------------------- ----------
Total Current Liabilities 13,682,019 - 13,682,019 (11,888,091) 1,793,928
---------------------------- ---------------------------- ----------
Subordinated debt 1,626,000 1,626,000 1,626,000
---------------------------- ---------------------------- ------------
Total Liabilities 15,308,019 - 15,308,019 (11,888,091) 3,419,928
---------------------------- ---------------------------- ------------
Commitments and Contingencies
Stockholders' Equity:
Common stock - $.01 par value; authorized 20,000,000 shares;
issued and outstanding - 2,771,136 at June 30, 1999 55,423 1j 55,423 55,423
Additional paid-in capital 14,556,952 14,556,952 14,556,952
Accumulated deficit (11,135,403) 228,728 1e (10,906,675) (10,906,675)
Accumulated other comprehensive income (105,000) (105,000) (105,000)
---------------------------- ---------------------------- -------------
Total Stockholders' Equity 3,371,972 228,728 3,600,700 - 3,600,700
---------------------------- ---------------------------- -------------
============================ ============================ =============
Total Liabilities and Stockholders' Equity $ 18,679,991 $ 228,728 $ 18,908,719 $ (11,888,091) $ 7,020,628
============================ ============================ =============
The accompanying notes are an integral part of this statement
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Since March of 1997 the Company has had a revolving line of credit with Bank
One. The credit limit on the line has fluctuated from $25 million initially to
$60 million at its peak and is presently at $30 million. The line presently
expires September 30, 1999. 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.
As a result of losses incurred due to the burden of carrying $1,716,969 in
non-producing receivable for loans shipped since 1997, the related strain on the
Company's relationship with its lender, the shortage of liquid funds supplying
the secondary market for 125 and other high loan to value residential mortgages,
the effect such shortage has had on several of the Company's customers, and the
prospect of a reduced line of credit and continued losses, the Company has
decided to exit the warehouse mortgage banking business. Accordingly, the
Company has entered into an agreement to sell the operational assets of the
Company with an option for the purchaser to acquire some or all of the Company's
loan portfolio. The proposed transaction is planned to close in escrow before
September 30, 1999, subject to stockholder approval Results of Operations
Six month Period Ended June 30, 1999 Compared with the Six month Period Ended
June 30, 1998.
Revenues. During the six month period ended June 30, 1999 revenues decreased
from $3,941,816 for the six month period ended June 30, 1998 to $1,611,826. The
volume of loan fundings during the six month periods ended June 30, 1999 and
1998 totaled approximately $90 million and $130 million, respectively. Such
decreases in revenues, loan 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 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 do not
yield processing or interest income.
During the six month period ended June 30, 1999, the Company financed a total of
1,653 loans totaling $137,697,482 with a weighted average principal amount of
$83,302 for an average duration of 46 days per borrowing which amounts included
1,606 loans funded through bank borrowings aggregating $134,855,950 in weighted
average principal amounts of $83,970. 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 a 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.
<PAGE>
Direct Costs. During the six month periods ended June 30, 1999 and 1998,
interest expense and other bank charges accrued on the Company's revolving line
of credit amounted to $1,203,514 and $2,394,409, 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 $1,133,736
during the six month period ended June 30, 1999 consisted primarily of salary
and benefits of $471,215; accounting and legal fees of $293,924; rent of
$102,497 and depreciation of $96,264. The Company's operating expenses of
$1,060,831 during the six month period ended June 30, 1998 consisted primarily
of salaries and benefits of $488,156 and legal and accounting fees of $115,520,
rent of $103,712 and depreciation of $65,530.
Net Loss Versus Net Income. During the six month period ended June 30, 1999 the
Company incurred a net loss of $1,199,613 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 $508,643 against loans and fees
receivable. During the six months the Company's volume of business was reduced
as a result of the tightening of investor cash available for customer loans,
particularly "125" loans which previously comprised a substantial portion of the
number of loans funded by the Company. 125 loans are bill consolidation loans
with high loan to value ratios that are more dependant on the borrower's credit
than the underlying real estate value. Net income for the six months ended June
30, 1998 of $82,904 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 $382,472.
Three month Period Ended June 30, 1999 Compared with the Three month Period
Ended June 30, 1998.
Revenues. During the three month period ended June 30, 1999 revenues decreased
to $529,054 from $1,919,009 for the three month period ended June 30, 1998. The
volume of loan fundings during the three month periods ended June 30, 1999 and
1998 totaled approximately $48 million and $134 million, respectively. Such
decreases in revenues, loan 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 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 do not
yield processing or interest income.
During the three month period ended June 30, 1999, the Company financed a total
of 610 loans totaling $48,096,803 with a weighted average principal amount of
$78,847 for an average duration of 48 days per borrowing which amounts included
602 loans funded through bank borrowings aggregating $47,746,687 in weighted
average principal amounts of $79,313. 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 a 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.
<PAGE>
Direct Costs. During the three month periods ended June 30, 1999 and 1998,
interest expense and other bank charges accrued on the Company's revolving line
of credit amounted to $374,635 and $1,210,010, 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 $580,897
during the three month period ended June 30, 1999 consisted primarily of salary
and benefits of $216,127; accounting and legal fees of $178,233; rent of $54,238
and depreciation of $48,132. The Company's operating expenses of $542,809 during
the three month period ended June 30, 1998 consisted primarily of salaries and
benefits of $261,291, legal and accounting fees of $19,758 and rent of $59,654
and depreciation of $51,646.
Net Loss. During the three month period ended June 30, 1999 the Company incurred
a net loss of $917,022 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 $508,643 against loans and fees receivable. During the
three months the Company's volume of business was reduced as a result of the
tightening of investor cash available for customer loans, particularly "125"
loans which previously comprised a substantial portion of the number of loans
funded by the Company. 125 loans are bill consolidation loans with high loan to
value ratios that are more dependant on the borrower's credit than the
underlying real estate value. The net loss for the three months ended June 30,
1998 of $223,228 resulted from the reduction in volume of business and the
burden of non-performing loans in the portfolio and the recognition of reserves
of $382,472 against loans and fees receivable.
Liquidity and Capital Resources.
At June 30, 1999, the Company had cash of $1,588,022, working capital of
$3,111,835 and a current ratio of 1.23 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 six months ended June 30, 1999 the Company was able to provide
$84,234 net increase in cash flows, primarily as a result of reducing loans
receivable. For the six months ended June 30, 1998, the Company used $2,653,926
of net cash primarily due to the reduction of the line of credit related to
stale loans which continued to be unpaid and due to the Company.
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, is 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. Final implementation
of fully tested and operationally Y2K compliant systems is projected to be
complete by the end August 1999. Cost incurred to date for computer system
enhancement, which includes work flow technology and collateral document
scanning for electronic storage as well as Y2K compliance, is approximately
$435,000 which is included in equipment and software fixed assets. Additional
cost to complete the project are expected to be less than $15,000. 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.
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 prove 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, thereunder duly
authorized.
Pioneer Commercial Funding Corp.
By: John O'Brien
Principal Financial Officer
Dated: August 19, 1999
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,588,022
<SECURITIES> 0
<RECEIVABLES> 14,122,382
<ALLOWANCES> 508,643
<INVENTORY> 0
<CURRENT-ASSETS> 16,793,854
<PP&E> 1,482,548
<DEPRECIATION> 747,647
<TOTAL-ASSETS> 18,679,991
<CURRENT-LIABILITIES> 13,682,019
<BONDS> 0
0
0
<COMMON> 55,423
<OTHER-SE> 14,556,952
<TOTAL-LIABILITY-AND-EQUITY> 18,679,991
<SALES> 0
<TOTAL-REVENUES> 1,611,826
<CGS> 0
<TOTAL-COSTS> 1,203,514
<OTHER-EXPENSES> 1,133,736
<LOSS-PROVISION> 508,643
<INTEREST-EXPENSE> 37,610
<INCOME-PRETAX> 2,356
<INCOME-TAX> (1,198,813)
<INCOME-CONTINUING> 800
<DISCONTINUED> (1,199,613)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,199,613)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
