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, 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 June 30, 2000.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PIONEER COMMERCIAL FUNDING CORP.
- FORM 10QSB - INDEX -
Page(s)
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheets at June 30, 2000 (unaudited) and December 31, 1999 1
Statements of Operations for the Three and Six Month Periods
Ended June 30, 2000 and 1999 (unaudited) 2
Statements of Comprehensive Income (Loss) for the Three and
Six Month Periods Ended June 30, 2000 and 1999 (unaudited) 3
Statements of Cash Flows for the Six Month Periods Ended June 30, 2000
and 1999 (unaudited) 4
Notes to Financial Statements (unaudited) 5 - 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 8 - 10
PART II Other Information
Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
PIONEER COMMERCIAL FUNDING CORP.
BALANCE SHEETS
- ASSETS -
June 30, December 31,
2000 1999
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 682,399 $ 1,979,395
Mortgage warehouse loans receivable, net of allowance for loan losses 1,090,156 1,572,550
Loans held for resale, net of allowance for loan losses 203,644 236,179
Receivable for loans shipped 1,716,969 1,716,969
Accrued interest and fee receivable 139,637 208,256
Notes receivable-current portion 817,843 1,067,696
Prepaid and other current assets 85,260 138,688
---------------- ---------------
Total Current Assets 4,735,908 6,919,733
Investment securities available for sale 126,000 108,750
Other assets 189,000 192,282
---------------- ---------------
TOTAL ASSETS $ 5,050,908 $ 7,220,765
============ =============
- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) -
CURRENT LIABILITIES:
Mortgage warehouse loans payable $ 3,261,010 $ 4,721,817
Accounts payable and accrued expenses 493,761 152,131
Accrued interest and fees 753,881 511,349
Deferred loan fees 29,000 29,000
Deferred legal fees 65,395 65,395
---------------- ---------------
TOTAL CURRENT LIABILITIES 4,603,047 5,479,692
SUBORDINATED DEBT 1,626,000 1,626,000
TOTAL LIABILITIES 6,229,047 7,105,692
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 (15,691,514) (14,381,052)
Accumulated other comprehensive income (loss) (99,000) (116,250)
----------------- --------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,178,139) 115,073
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 5,050,908 $ 7,220,765
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 2000 AND 1999
(Unaudited)
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
Income:
Interest income $ 71,488 $ 355,329 $ 141,125 $ 1,161,583
Commissions and facility fees - 26,625 - 57,958
Processing fees 14,850 147,100 37,200 392,285
------------ ------------- -------------- -------------
Total Income 86,338 529,054 178,325 1,611,826
------------ ------------- -------------- -------------
Interest and Fee Costs:
Interest expense-warehouse and lines of credit 120,613 340,690 264,013 1,125,171
Bank charges and facility fees 3,084 22,917 3,100 47,917
Bank processing fees - 11,028 10 30,426
------------ ------------- -------------- -------------
Total Interest and Fee Costs 123,697 374,635 267,123 1,203,514
------------ ------------- -------------- -------------
Net Interest and Fee Income (Loss) (37,359) 154,419 (88,798) 408,312
Loan loss provision 100,000 508,643 100,000 508,643
------------ ------------- -------------- -------------
(137,359) (354,224) (188,798) (100,331)
------------- -------------- --------------- -------------
Other Operating Expenses:
Compensation and benefits 51,593 216,127 114,418 471,215
Depreciation and amortization - 48,132 - 96,264
Professional fees 714,026 178,233 1,073,504 293,924
Utilities 699 8,555 3,227 17,445
Rent 49,315 54,238 93,340 102,497
Repairs and maintenance - 689 - 2,175
Other 23,066 74,923 82,936 150,216
------------ ------------- -------------- -------------
Total Other Operating Expenses 838,699 580,897 1,367,425 1,133,736
------------ ------------- -------------- -------------
Income (loss) from operations (976,058) (935,121) (1,556,223) (1,234,067)
------------- -------------- --------------- -------------
Other income (expense):
Interest income - other 7,544 19,277 21,573 37,610
Interest expense - other - (1,178) - (2,356)
Litigation settlement 219,828 - 219,828 -
Other income 5,504 - 5,504 -
------------ ------------- -------------- ------------
Total Other Income (Expense) 232,876 18,099 246,905 35,254
------------ ------------- -------------- -------------
Income (Loss) Before Taxes Based on Income (743,182) (917,022) (1,309,318) (1,198,813)
Provision (credit) for taxes based on income (926) - 1,144 800
------------- ------------- -------------- -------------
Net Income (Loss) $ (742,256) $ (917,022) $ (1,310,462) $ (1,199,613)
============= ============= ============== =============
Basic and Diluted Income (Loss)
Per Share of Common Stock $ (0.27) $ (0.33) $ (0.47) $ (0.43)
============= ============= ============== =============
Weighted Average Number of Shares 2,771,136 2,771,136 2,771,136 2,771,136
============ ============= ============== =============
The accompanying notes are an integral part of these financial statements.
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 2000 AND 1999
(Unaudited)
Three Months Ended June 30 Six Months Ended June 30
2000 1999 2000 1999
NET LOSS $(742,256) $ (917,022) $(1,310,462) $ (1,199,613)
Change in unrealized loss on investment in securities
available for sale 82,500 (30,000) 17,250 (198,750)
COMPREHENSIVE NET LOSS $(659,756) $ (947,022) $(1,293,212) $(1,398,363)
========== ============= ============ ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 2000 AND 1999
(Unaudited)
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,310,462) $(1,199,613)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization - 96,264
Loan loss reserve 100,000 508,643
Decrease in mortgage warehouse loans receivable 407,394 22,173,728
Decrease in loans held for resale 7,535 125,486
Decrease (increase) in accrued interest receivable 68,619 (113,599)
Decrease in prepaid expenses 53,428 49,161
Decrease (increase) in notes receivable 249,853 (527,424)
Decrease in other assets 3,282 178,930
Increase in accrued interest payable 242,532 550,129
Increase in due to mortgage banking companies - (61,638)
Increase (decrease) in accounts payable and accrued expenses 341,630 (2,986)
Net cash provided by operating activities 163,811 21,777,081
------------------ --------------
Purchase of fixed assets - (98,369)
------------------ --------------
Net cash (used in) investing activities - (98,369)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in borrowings used in operations, net of issuance costs (1,460,807) (21,496,834)
Increase in deferred expenses - 2,356
Repayment of subordinated debt - (100,000)
------------------ --------------
Net cash (used in) financing activities (1,460,807) (21,594,478)
------------------- --------------
NET (DECREASE) INCREASE IN CASH (1,296,966) 84,234
------------------ -------------
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 $ 682,399 $ 1,588,022
============== =============
Interest paid $ - $ 563,605
============== =============
Income taxes paid $ 2,070 $ 829
============== =============
NONCASH FINANCING ACTIVITIES:
Conversion of mortgage loans receivable to notes receivable $ - $ 658,070
============== =============
The accompanying notes are an itegral part of these financial statements.
</TABLE>
<PAGE>
PIONEER COMMERCIAL FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(Unaudited)
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 and is looking for other business
opportunities.
Basis of Presentation:
In the opinion of management, the accompanying June 30, 2000 unaudited interim
financial statements for the Company, contain all adjustments of a recurring
nature considered necessary for a fair presentation of its financial position as
of June 30, 2000 and December 31, 1999 (audited), and the results of operations
and comprehensive income (loss) for the three and six months ended June 30, 2000
and 1999 and cash flows for the six month periods ended June 30, 2000 and 1999.
The results of operations for the three and six month periods ended June 30,
2000 and 1999 are not necessarily indicative of the 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 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 (see Note D), 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 three and six month periods ended June 30, 2000, no new loans were
funded.
The accompanying notes are an itegral part of these financial statements.
<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.
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 (see also Note D regarding litigation gain
contingency).
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 June
30, 2000, the balance of these loans are reflected in the financial statements
at net realizable value aggregating $203,644, which includes an aggregate
reserve of $334,000.
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 refused to return the
funds. The Company took 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"), 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. In June 2000, the Company received a check in the amount of
$219,828 which represented payment for a settlement reached with Norwest
Funding, Inc.
<PAGE>
NOTE D - RECEIVABLE FOR LOANS SHIPPED (Continued):
On July 26, 2000, subsequent to the balance sheet date, a jury verdict in the
case awarded the Company direct damages of $1,779,000, consequential damages of
$13,400,000 and punitive damages in the amount of $337,500,000 for an aggregate
total of $352,679,000 from the defendant, First Union Bank successor by merger
to Corestates Bank. First Union has stated that it will appeal the verdict.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pioneer Commercial Funding Corp. (the Company) was 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 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 actions of CoreStates Bank
(First Union), and the related strain on the Company's relationship with its
lender, 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 the
six month period were greatly reduced during this termination process and no new
loans were funded during the six month period ended June 30, 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.
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 refused to return the
funds. The Company took 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"), 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. In June 2000, the Company received a check in the amount of
$219,828 which represented payment for a settlement reached with Norwest
Funding, Inc.
On July 26, 2000, subsequent to the balance sheet date, a jury verdict in the
case awarded the Company direct damages of $1,779,000, consequential damages of
$13,400,000 and punitive damages in the amount of $337,500,000 for an aggregate
total of $352,679,000 from the defendant, First Union Bank successor by merger
to Corestates Bank.
<PAGE>
Results of Operation
Six Month Period Ended June 30, 2000 Compared With The Six Month Period Ended
June 30, 1999.
Revenues. During the six month period ended June 30, 2000, revenues decreased to
$178,325. Revenue for the six month period ended June 30, 1999 was $1,611,826.
Such decreases in revenue were due to no new loans being funded during the
latter period.
Direct Costs. During the six month periods ended June 30, 2000 and 1999,
interest expense and other bank charges accrued on the Company's revolving line
of credit amounted to $267,123 and $1,203,514, respectively. The decrease in
interest and bank fees was due to a decrease in the use of the Company's bank
facility engendered by the above-described decrease in credit limit.
Other Operating Expenses. The Company's other operating expenses of $1,367,425
during the six month period ended June 30, 2000 consists primarily of salary and
benefits of $114,418; accounting and legal fees of $1,073,504 and rent of
$93,340. 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.
Net Loss. During the six month period ended June 30, 2000 the Company incurred a
net loss of $1,310,462 primarily due to the Company's decision to exit the
mortgage business and legal costs incurred in litigation. The net loss for the
six month period ended June 30, 1999 of $1,199,613 resulted from 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.
Three Month Period Ended June 30, 2000 Compared With The Three Month Period
Ended June 30, 1999.
Revenues. During the three month period ended June 30, 2000, revenues decreased
to $86,338 from $529,054 for the three month period ended June 30, 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 June 30, 2000 and 1999,
interest expense and other bank charges accrued on the Company's revolving line
of credit amounted to $123,697 and $374,635, 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 $838,699
during the three month period ended June 30, 2000 consisted primarily of salary
and benefits of $51,593, accounting and legal fees of $714,026, and rent of
$49,315. The Company's operating expenses of $580,897 during the three month
period ended June 30, 1999 consisted primarily of salaries and benefits of
$216,127, legal and accounting fees of $178,233, rent of $54,238 and
depreciation of $48,132.
Net Loss. During the three month period ended June 30, 2000 the Company incurred
a net loss of $742,256 primarily due to the Company's decision to exit the
mortgage business and legal costs incurred in litigation. The net loss for the
three months ended June 30, 1999 of $917,022 resulted from 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.
Liquidity and Capital Resources. At June 30, 2000, the Company had cash of
$682,399, working capital of $132,861 and a current ratio of 1.02 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 six months ended June 30, 2000, the Company used cash of
$1,296,966, primarily as a result of reducing bank debt and its net loss. 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 its' net loans
receivable.
<PAGE>
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 (see narrative above as regards litigation with
Corestates Bank).
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: /s/ Albert Nissim
President, Principal Accounting Officer
Dated: August 10, 2000
