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, 2000
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 March 31, 2000.
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PIONEER COMMERCIAL FUNDING CORP.
- FORM 10QSB - INDEX -
Page(s)
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheets at March 31, 2000 (unaudited) and December 31, 1999 1
Statements of Operations for the Quarters Ended March 31, 2000
and 1999 (unaudited) 2
Statements of Comprehensive Income (Loss) for the Quarters Ended
March 31, 2000 and 1999 (unaudited) 3
Statements of Cash Flows for the Quarter Ended March 31, 2000
and 1999 (unaudited) 4
Notes to Financial Statements (unaudited) 5
Independent Accountants' Review Report 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 8
PART II Other Information
Exhibits and Reports on Form 8-K 10
SIGNATURES 11
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
PIONEER COMMERCIAL FUNDING CORP.
BALANCE SHEETS
- ASSETS -
March 31, December 31,
2000 1999
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,634,698 $ 1,979,395
Mortgage warehouse loans receivable, net of allowance for loan losses 1,435,630 1,572,550
Loans held for resale, net of allowance for loan losses 230,080 236,179
Receivable for loans shipped 1,716,969 1,716,969
Accrued interest and fee receivable 190,716 208,256
Notes receivable-current portion 944,308 1,067,696
Prepaid and other current assets 101,358 138,688
-------------- ----------------
Investment securities available for sale 43,500 108,750
Other assets 188,962 192,282
-------------- ----------------
TOTAL ASSETS $ 6,486,221 $ 7,220,765
============ ==============
- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) -
CURRENT LIABILITIES:
Mortgage warehouse loans payable $ 4,338,114 $ 4,721,817
Accounts payable and accrued expenses 291,346 152,131
Accrued interest and fees 654,749 511,349
Deferred loan fees 29,000 29,000
Deferred legal fees 65,395 65,395
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - $.01 par value; authorized 20,000,000 shares;
2,771,136 shares
issued and outstanding 27,712 27,712
Additional paid-in capital 14,584,663 14,584,663
Accumulated deficit (14,949,258) (14,381,052)
Accumulated other comprehensive income (loss) (181,500) (116,250)
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 6,486,221 $ 7,220,765
============ ==============
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PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 2000 AND 1999
(Unaudited)
2000 1999
INCOME:
Interest income $ 69,637 $ 806,254
Commissions and facility fees - 31,333
Processing fees 22,350 245,185
---------------- ----------------
Interest expense - warehouse and lines of credit 143,400 784,481
Bank charges and facility fees 16 25,000
Bank processing fees 10 19,398
---------------- ----------------
Compensation and benefits 62,825 255,088
Depreciation and amortization - 48,132
Professional fees 359,478 115,691
Utilities 2,528 8,890
Rent 44,025 48,259
Repairs and maintenance - 1,486
Other 59,870 75,293
---------------- ----------------
Interest income - other 14,029 18,333
Interest expense - other -
----------------
BASIC AND DILUTED LOSS PER SHARE OF COMMON STOCK $ (.21) $ (.10)
============= =============
WEIGHTED AVERAGE NUMBER OF SHARES 2,771,134 2,771,134
================ ================
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 2000 AND 1999
(Unaudited)
2000 1999
NET LOSS $ (568,206) $ (282,591)
Change in unrealized loss on investment in securities available for sale (65,250) (168,750)
------------------ ---------------
COMPREHENSIVE NET LOSS $ (633,456) $ (451,341)
=============== ==============
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PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 2000 AND 1999
(Unaudited)
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (568,206) $ (282,591)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization - 48,132
Decrease in mortgage warehouse loans receivable 136,920 13,624,478
Decrease in loans held for resale 6,099 125,486
Decrease (increase) in accrued interest receivable 17,540 (70,311)
Decrease in prepaid expenses 37,330 35,172
Decrease (increase) in notes receivable 123,388 (658,070)
Decrease in other assets 3,320 14,434
Increase (decrease) in accrued interest payable 143,400 (320,744)
Increase in due to mortgage banking companies - 105,616
Increase in accounts payable and accrued expenses 139,215 22,218
----------------- ----------------
Net cash provided by operating activities 39,006 12,643,820
----------------- ----------------
Purchase of fixed assets - (36,797)
----------------- ----------------
Net cash (used in) investing activities - (36,797)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in borrowings used in operations, net of issuance costs (383,703) (11,745,014)
Increase in deferred expenses - 1,178
Repayment of subordinated debt - (100,000)
----------------- ----------------
Net cash (used in) financing activities (383,703) (11,843,836)
------------------ ----------------
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 1,979,395 1,503,788
----------------- ---------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 1,634,698 $ 2,266,975
============== ==============
Interest paid $ - $ 563,605
============== ==============
Income taxes paid $ 2,070 $ 829
============== ==============
NONCASH FINANCING ACTIVITIES:
Conversion of mortgage loans receivable to notes receivable $ - $ 658,070
============== ==============
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PIONEER COMMERCIAL FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
- 11 -
NOTE A - 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. The Company is in the process of
winding down its current operations.
Basis of Presentation:
In the opinion of management, the accompanying March 31, 2000 unaudited interim
financial statements for the Company, which have been reviewed by our auditors,
contain all adjustments of a recurring nature considered necessary for a fair
presentation of its financial position as of March 31, 2000 and December 31,
1999 (audited), and the results of operations, comprehensive income (loss) and
cash flows for the three month periods ended March 31, 2000 and 1999. The
results of operations for the three month periods ended March 31, 2000 and 1999
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, 1999 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, 1999 included in the Company's
filing on April 14, 2000 with the SEC on Form 10-KSB.
From March of 1997 until September 30th of 1999 the Company 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 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 were no longer 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 March 31, 2000, no new loans were funded.
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Basis of Presentation (Continued):
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. A trial is presently
scheduled for May, 2000 (see Note D).
NOTE B - GOING CONCERN UNCERTAINTY:
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company is winding down its mortgage
warehouse lending business, has sustained substantial operating losses over the
last two years and has used substantial amounts of working capital in its
operations. Management of the Company determined that the Company did not meet
the revenue objectives for its mortgage warehouse lending business and did not
expect the Company to be able to meet these objectives in the foreseeable
future. The Company therefore decided to sell all its operating assets and will
explore other business opportunities.
In view of these matters, realization of the assets of the Company is dependent
upon the Company's ability to meet its financing requirements and the success of
future operations. The financial statements do not include adjustments relating
to the recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
NOTE C - LOANS HELD FOR RESALE:
In September 1999, the Company used a portion of the proceeds from the sale of
its fixed assets and acquired 36 stale loans for $574,774 from Bank One. At
March 31, 2000, the balance of these loans are reflected in the financial
statements at net realizable value aggregating $230,080, which includes a
reserve of $309,000.
NOTE D - RECEIVABLE FOR LOANS SHIPPED:
During October 1997, the Company warehoused $1.7 million in mortgages for a
customer 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 miswired 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>
REVIEW REPORT ON INTERIM FINANCIAL STATEMENTS
Board of Directors
Pioneer Commercial Funding Corp.
We have reviewed the accompanying financial statements of Pioneer Commercial
Funding Corp. as of March 31, 2000, and for the three-month period then ended.
These financial statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company is winding down its mortgage warehouse lending
business. The Company has also suffered recurring losses from operations. These
factors raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters also are described in Note
B. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
LAZAR LEVINE & FELIX LLP
New York, New York
May 2, 2000
<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. The Company is in the process of
winding down these operations.
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.
During 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
this quarter were greatly reduced during this termination process and no new
loans were funded during the quarter ended March 31, 2000.
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. A trial is presently
scheduled for May, 2000.
Three month Period Ended March 31, 2000 Compared with the Three month Period
Ended March 30, 1999.
Revenues. During the three month period ended March 31, 2000 revenues decreased
to $91,987 from $1,082,772 for the three month period ended March 31, 1999. Such
decreases in revenues were due to no new loans being funded during the latter
period.
Direct Costs. During the three month periods ended March 31, 2000 and 1999,
interest expense and other bank charges accrued on the Company's revolving line
of credit amounted to $143,426 and $828,879, 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 Expenses. The Company's other operating expenses of $528,726
during the three month period ended March 31, 2000 consisted primarily of salary
and benefits of $62,825, accounting and legal fees of $359,478, and rent of
$44,025. The Company's operating expenses of $552,839 during the three month
period ended March 31, 1999 consisted primarily of salaries and benefits of
$255,088, legal and accounting fees of $115,691, rent of $48,259 and
depreciation of $48,132.
Net Loss. During the three month period ended March 31, 2000 the Company
incurred a net loss of $568,206 primarily due to the Company's decision to exit
the mortgage business. The net loss for the three months ended March 31, 1999 of
$282,591 resulted from the reduction in volume of business and the burden of
non-performing loans in the portfolio.
Liquidity and Capital Resources. At March 31, 2000, the Company had cash of
$1,634,698, working capital of $875,155 and a current ratio of 1.16 to 1. At the
Company's year end of December 31, 1999, it reflected cash of $1,979,395,
working capital of $1,440,041 and a current ratio of 1.26 to 1.
Cash Flow. During the three months ended March 31, 2000, the Company used cash
of $344,697, primarily as a result of reducing bank debt. During the three
months ended March 31, 1999, the Company was able to provide $763,187 of net
increase in cash flows, primarily as a result of reducing loans receivable.
The Company believes that its cash position will be sufficient to meet its
financing requirements for the next twelve months, during the time of winding
down current operations.
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.
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(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.
The following document has been filed exclusively with the Securities and
Exchange Commission:
Exhibit No. Description
27 Financial Data Schedule
<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: May 10, 2000
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<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and statements of operations filed as part of the Company's quarterly
report on Form 10-QSB and is qualified in its entirety by reference to such
report.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,634,698
<SECURITIES> 0
<RECEIVABLES> 5,097,595
<ALLOWANCES> 1,524,200
<INVENTORY> 0
<CURRENT-ASSETS> 6,253,759
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,486,221
<CURRENT-LIABILITIES> 5,378,604
<BONDS> 0
0
0
<COMMON> 27,712
<OTHER-SE> (546,095)
<TOTAL-LIABILITY-AND-EQUITY> 6,486,221
<SALES> 0
<TOTAL-REVENUES> 91,987
<CGS> 0
<TOTAL-COSTS> 143,426
<OTHER-EXPENSES> 528,726
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (566,136)
<INCOME-TAX> 2,070
<INCOME-CONTINUING> (568,206)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (586,206)
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.21
</TABLE>
