Registration of Securities by a Small-Business Issuer — Form SB-2
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SB-2 Pioneer Commercial Funding SB-2 131 548K
2: EX-2 Exhibit 2.1 4 16K
3: EX-3 Exhibit 3.1 5 16K
4: EX-3 Exhibit 3.2 28 108K
5: EX-3 Exhibit 3.3 2 10K
6: EX-4 Exhibit 4.1 11 41K
7: EX-4 Exhibit 4.2 2 9K
8: EX-4 Exhibit 4.7 15 56K
9: EX-4 Exhibit 4.8 15 60K
13: EX-10 Exhibit 10-4 7 27K
10: EX-10 Exhibit 10.1 34 100K
11: EX-10 Exhibit 10.2 11 43K
12: EX-10 Exhibit 10.3 7 25K
| Page | (sequential) | | | | (alphabetic) | Top |
|---|
| | |
- Alternative Formats (Word, et al.)
- Available Information
- Business
- Capitalization
- Certain Transactions
- Class A Warrants
- Collateral Tracking System, The
- Common Stock
- Company's Acquisition of Trans Lending, The
- Company's Mortgage Banking Customers, The
- Company, The
- Description of Securities
- Dividend Policy
- Employees
- Employment Agreements
- Executive Compensation
- Executive Officers and Directors
- Exhibits
- Experts
- Facilities
- ICTS Holland
- Impact of Merger on Net Operating Loss Carryforwards
- Indemnification of Directors and Officers
- IPO Underwriter's Warrants
- IPO Warrants
- Lack of Underwriting History
- Legal Matters
- Liquidity and Capital Resources
- Lt Lawrence & Co., Inc
- Management
- Management's Discussion and Analysis of Financial Condition and Results of Operations
- Market for Common Equity and Related Shareholder Matters
- Merger, The
- Mortgage Loan Process From Application by a Customer Through Funding, The
- Nasdaq SmallCap Market Listing; Boston Stock Exchange and Pacific Stock Exchange Listing Applications
- Non-Prime Auto Finance Industry, The
- Notes to Financial Statements March 31, 1995 and 1996
- Offering, The
- Options Issued to Executives
- Other Expenses of Issuance and Distribution
- Pioneer's Chapter 11 Bankruptcy Proceedings
- Preferred Stock
- Principal Security Holders
- Prospectus Summary
- Recent Sales of Unregistered Securities
- Registration Rights
- Report of Independent Public Accountants
- Representative's Warrants
- Risk Factors
- Sales and Marketing
- Servicing of Contracts
- Shares Eligible For Future Sale
- Statements of Cash Flows for the years ended March 31, 1995 and 1996
- Statements of Operations for the years ended March 31, 1995 and 1996
- Stock Option Plan
- Strategy
- The Collateral Tracking System
- The Company
- The Company's Acquisition of Trans Lending
- The Company's Mortgage Banking Customers
- The Merger
- The Mortgage Loan Process From Application by a Customer Through Funding
- The Non-Prime Auto Finance Industry
- The offering
- Trans Lending's Business Strategy
- UMB Option
- Undertakings
- Underwriting
- Use of proceeds
|
| 1 | 1st Page - Filing Submission
|
| 7 | Lt Lawrence & Co., Inc
|
| 9 | Prospectus Summary
|
| " | The Company
|
| 11 | Strategy
|
| 12 | The offering
|
| 18 | Risk Factors
|
| 29 | Shares Eligible For Future Sale
|
| 30 | Impact of Merger on Net Operating Loss Carryforwards
|
| 32 | Lack of Underwriting History
|
| 33 | Use of proceeds
|
| 35 | Capitalization
|
| " | Dividend Policy
|
| 36 | Market for Common Equity and Related Shareholder Matters
|
| 37 | Management's Discussion and Analysis of Financial Condition and Results of Operations
|
| 43 | Liquidity and Capital Resources
|
| " | Pioneer's Chapter 11 Bankruptcy Proceedings
|
| 45 | The Merger
|
| 46 | Business
|
| 50 | The Company's Mortgage Banking Customers
|
| 53 | The Collateral Tracking System
|
| 55 | The Mortgage Loan Process From Application by a Customer Through Funding
|
| 57 | Employees
|
| " | Facilities
|
| 60 | The Company's Acquisition of Trans Lending
|
| 61 | The Non-Prime Auto Finance Industry
|
| 63 | Trans Lending's Business Strategy
|
| 64 | Sales and Marketing
|
| 65 | Servicing of Contracts
|
| 67 | Management
|
| " | Executive Officers and Directors
|
| 70 | Executive Compensation
|
| " | Employment Agreements
|
| 73 | Stock Option Plan
|
| 74 | Indemnification of Directors and Officers
|
| 75 | Certain Transactions
|
| 77 | Principal Security Holders
|
| " | Common Stock
|
| 79 | Description of Securities
|
| " | Preferred Stock
|
| 80 | Class A Warrants
|
| 82 | IPO Warrants
|
| " | Options Issued to Executives
|
| 83 | Representative's Warrants
|
| 85 | IPO Underwriter's Warrants
|
| " | UMB Option
|
| " | Registration Rights
|
| 86 | Nasdaq SmallCap Market Listing; Boston Stock Exchange and Pacific Stock Exchange Listing Applications
|
| 88 | Underwriting
|
| 91 | Legal Matters
|
| " | Experts
|
| " | Available Information
|
| 94 | Report of Independent Public Accountants
|
| 96 | Statements of Operations for the years ended March 31, 1995 and 1996
|
| 98 | Statements of Cash Flows for the years ended March 31, 1995 and 1996
|
| 99 | Notes to Financial Statements March 31, 1995 and 1996
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| 119 | Item 25. Other Expenses of Issuance and Distribution
|
| 120 | Item 26. Recent Sales of Unregistered Securities
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| 121 | ICTS Holland
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| 123 | Item 27. Exhibits
|
| 124 | Item 28. Undertakings
|
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 27, 1996
REGISTRATION NO. 333[ ]
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
PIONEER COMMERCIAL FUNDING CORP.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
[Download Table]
NEW YORK 6162 13-3763437
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
6660 RESEDA BLVD. RESEDA, CALIFORNIA 91335
(818) 776-0590
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND
PRINCIPAL PLACE OF BUSINESS AND TELEPHONE NUMBER)
GLENDA KLEIN
SR. VICE PRESIDENT
PIONEER COMMERCIAL FUNDING CORP.
6660 RESEDA BLVD. RESEDA, CALIFORNIA 91335
(818) 776-0590
(NAME, ADDRESS AND TELEPHONE NUMBER
OF AGENT FOR SERVICE)
----------
COPIES TO:
STEVEN D. DREYER, ESQ. IRWIN M. ROSENTHAL, ESQ.
HALL DICKLER KENT FRIEDMAN & WOOD, LLP RUBIN BAUM LEVIN CONSTANT & FRIEDMAN
909 THIRD AVENUE 30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10112
(212)339-5400 (212) 698-7700
----------
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of the registration statement.
----------
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
[Enlarge/Download Table]
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CALCULATION OF REGISTRATION FEE
-----------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE PROPOSED PROPOSED AMOUNT OF
BE REGISTERED REGISTERED MAXIMUM MAXIMUM REGISTRATION
OFFERING AGGREGATE FEE
PRICE PER OFFERING
SECURITY(1) PRICE
-----------------------------------------------------------------------------------------------
Units, each consisting of one share of 4,312,500 (2) $1.63 $7,029,375 $2,130.12
Common Stock , $.01 par value (the
"Common Stock") and one Five Year
Redeemable Class A Warrant (the "Class
A Warrants")
-----------------------------------------------------------------------------------------------
Common Stock 4,312,500 (3) n/a --- ---
-----------------------------------------------------------------------------------------------
Class A Warrants 4,312,500 (4) n/a --- ---
-----------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise 4,312,500 (5) 1.63 7,029,375 2,130.12
of Class A Warrants
-----------------------------------------------------------------------------------------------
Representative's Warrants 375,000 .001 375 .11
-----------------------------------------------------------------------------------------------
Units Issuable Upon Exercise of 375,000 1.96 (6) 735,000 222.73
Representative's Warrants
-----------------------------------------------------------------------------------------------
Common Stock Components of Units 375,000 (5) --- --- ---
Issuable Upon Exercise of
Representative's Warrants
-----------------------------------------------------------------------------------------------
Class A Warrant Components of Units 375,000 --- --- ---
Issuable Upon Exercise of
Representative's Warrants
-----------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise of 375,000 (5) 1.63 611,250 185.23
Class A Warrant Components of Units ---------
Issuable Upon Exercise of
Representative's Warrants
-----------------------------------------------------------------------------------------------
Totals --- --- $15,405,375 $4,668.31
=========
===============================================================================================
(1) Estimated, pursuant to Rule 457(c), solely for purposes of the calculation
of the fee due hereunder, on the basis of the maximum offering price is based
upon the last sale price of the Common Stock on December 20, 1996.
(2) Includes 562,500 Units which the Underwriters have the option to purchase to
cover over-allotments, if any.
(3) Includes 562,500 shares of Common Stock issuable as components of 562,500
Units which the Underwriters have the option to purchase to cover
over-allotments, if any.
(4) Includes 562,500 Class A Warrants issuable as components of 562,500 Units
which the Underwriters have the option to purchase to cover over-allotments, if
any.
(5) Pursuant to Rule 416, there are also being registered such additional shares
of Common Stock as may be issued pursuant to the anti-dilution provisions of the
Class A Warrants, the Representative's Warrants and the Class A Warrant
components of the Units issuable upon exercise of the Representative's Warrants.
(6) Based upon 120% of the maximum offering price of the Units.
----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
[LEFT MARGIN OF FRONT OUTSIDE COVER OF PROSPECTUS]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 27, 1996
3,750,000 UNITS
[LOGO]
PIONEER COMMERCIAL FUNDING CORP.
EACH CONSISTING OF ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE CLASS A COMMON STOCK PURCHASE WARRANT
-----------------
Each unit ("Unit") of Pioneer Commercial Funding Corp., a New York
corporation (the "Company") consists of one share of the Company's Common Stock,
par value, $.01 per share (the "Common Stock") and one Redeemable Class A
Warrant (the "Class A Warrants"). The components of the Units will be separately
transferrable immediately. Each Class A Warrant entitles the holder to purchase
one share of Common Stock, at an exercise price equal to the Market Price of the
Common Stock, as hereinafter defined. The Class A Warrants are exercisable at
any time during the five year period commencing on the date of this Prospectus
(the "Exercise Period"). The Class A Warrants are subject to redemption by the
Company at any time during the four year period commencing on the first
anniversary of the date of this Prospectus and continuing through the end of the
Exercise Period, for $.10 per Class A Warrant, upon 30 days' prior written
notice, if the closing sale price of the Common Stock as quoted on the principal
market on which it shall then be trading shall be not less than 140% of the
Market Price per share during any period of 30 consecutive trading days ending
on the third day preceding the date of such notice; and further provided that
the Class A Warrant holders may exercise their Class A Warrants at any time
prior to the redemption date specified in such notice. See "Description of
Securities -- Class A Warrants."
The offering of Units being made hereby (the "Offering") involves a
high degree of risk. SEE "RISK FACTORS" BEGINNING ON PAGE 10.
The Common Stock is quoted on the Nasdaq SmallCap Marketsm under the
symbol "PCFC." The closing sale price of the Common Stock on such market on
December 20, 1996 was $1.63. Prior to this Offering, there has been no market
for the Units or the Class A Warrants. Although the Company has made
applications for inclusion of the Units and Class A Warrants on the Nasdaq
SmallCap Market, and for listing of the Units, Common Stock and Class A Warrants
on the Boston Stock Exchange and the Pacific Stock Exchange, there can be no
assurance that any of such applications will be granted, or if any of such
applications is granted, that an active and liquid market in such securities
will develop, or if such a market does develop, that it will be sustained. See
"Market for Common Equity and Related Shareholder Matters;" and "Description of
Securities - Nasdaq SmallCap Market Listing; Boston Stock Exchange and Pacific
Stock Exchange Listing Applications."
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------
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Price to Public Underwriting Proceeds to
Discounts and Company (2)
Commissions (1)
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Per Unit $ $ $
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Total (3) $ $ $
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(1) Does not include (a) warrants to be issued to LT Lawrence & Co., Inc. (the
"Representative") to purchase 375,000 Units, at an exercise price per Unit equal
to 120% of the public offering price per Unit (the "Representative's Warrants")
or (b) a non-accountable expense allowance payable to the Representative equal
to 3% of the gross proceeds of the Offering. The Representative's Warrants are
exercisable for a period of four years commencing one year from the date of this
Prospectus. The Company has agreed to indemnify the Underwriters against, or
contribute to losses arising from, certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated expenses, including the Representative's
non-accountable expense allowance, of $ in the aggregate (or
$ if the Underwriters' over-allotment option is exercised in full)
payable by the Company. See "Underwriting."
(3) The Company has granted the Underwriters an option exercisable for a period
of 45 days from the date of this Prospectus to purchase up to an additional
562,500 Units, upon the same terms and conditions as the Units being offered
hereby, solely to cover over-allotments, if any. If the Underwriters exercise
the over-allotment option in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
-----------------
These Units are being offered by the several Underwriters named
herein on a firm commitment basis, subject to prior sale, when, as and if
delivered to and accepted by them and subject to certain conditions. It is
expected that delivery of the certificates representing the components of the
Units will be made against payment therefor at the offices of the LT Lawrence &
Co., Inc., 3 New York Plaza, New York, New York 10004, or through the facilities
of the Depositary Trust Company, on or about , 1997.
LT LAWRENCE & CO., INC.
-----------------
______, 1997
[INSIDE FRONT COVER OF PROSPECTUS]
The Company intends to furnish its shareholders with annual reports
containing audited financial statements of the Company, after the end of each
fiscal year, and to make available such other periodic reports as the Company
may deem appropriate, or as may be required by law. The Company's accounting
year ends on March 31.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, COMMON
STOCK AND CLASS A WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP
MARKETSM, THE BOSTON STOCK EXCHANGE, THE PACIFIC STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ SMALLCAP MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and Financial Statements and Notes thereto appearing
elsewhere in this Prospectus.
The discussions contained herein assume that the Company's
Certificate of Incorporation has been amended to increase and change the
Company's authorized capital stock from 5,000,000 shares of Common Stock to
25,000,000 shares, of which 20,000,000 shall be Common Stock, and 5,000,000
shall be preferred stock, par value $.01 per share. See "Description of
Securities. A Special Meeting of Shareholders will be held on January 15, 1997
to consider and vote upon a proposal to authorize such action.
The Company, formerly known as PCF Acquisition Corp. ("PCF"), is a
New York corporation organized in March 1994 which merged with Pioneer
Commercial Funding Corp. ("Pioneer"), a New York corporation in November 1994.
In connection with such merger (the "Merger"), PCF, as the surviving entity in
the Merger, changed its name to Pioneer Commercial Funding Corp. and became the
successor to Pioneer's business as a mortgage warehouse lender.
See "The Merger."
Unless otherwise indicated, (i) all references to "Pioneer" shall
mean the corporation which, prior to the Merger, was known as Pioneer Commercial
Funding Corp., (ii) all references to the "Company" shall mean the post-Merger
New York corporation now known as Pioneer Commercial Funding Corp. and (iii) all
references to "PCF" shall mean the Company, as it was constituted and named
prior to such Merger. All information in this Prospectus assumes no exercise of
the Underwriters' over-allotment option or the Representative's Warrants. See
"Underwriting."
THE COMPANY
The Company is a specialized niche financial services company
currently engaged in (i) residential mortgage warehouse lending and (ii)
origination of consumer automobile loan and lease financings through a recently
acquired 50% interest in Trans Lending Corporation ("Trans Lending"). Trans
Lending presently represents AVCO Financial Services, Inc. ("AVCO"), ACC
Consumer Finance Corporation ("ACC") and Norwest Financial, Inc. ("Norwest") who
have agreed to purchase auto loan and lease contracts (the "Contracts") acquired
by Trans Lending from approximately 60 dealers located in Florida. The Company
will seek to enter other specialty financial service sectors primarily through
acquisitions of businesses or joint ventures with businesses or executives
having extensive experience in the targeted specialty.
Mortgage Warehouse Lending Operations. The Company provides
short-term (generally 10 to 30 day) financing to small to medium sized mortgage
bankers with at least $350,000 of capital who hold ("warehouse") the mortgage
loans
they originate pending the nonrecourse sale of such loans to institutional
investors in the secondary mortgage market such as government sponsored or
sanctioned entities, e.g., the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC") and/or accredited financial
institutions such as banks, thrifts, insurance carriers and large mortgage
bankers (each such entity or firm, an "Agency," and collectively, the
"Agencies"). The mortgage loans for which the Company provides such financing
are primarily single family residences and other owner occupied residential
properties including one to four unit properties in which the owner is the
occupant of at least one of such units.
Generally, the Company's customers do not possess sufficient capital
or lines of credit to fully fund all of the loans they originate during the
period of time that transpires between the date on which a loan is closed and
the date on which an Agency will purchase that loan pursuant to the commitment
obtained from it by the customer (the "Agency Commitment Date"). The Company
provides its customers with lines of credit that are collateralized by the loans
that the Company funds. Those lines of credit enable the customers to warehouse
the loans for the period of 10 to 30 days that typically occurs between the
closing of a loan and the Agency Commitment Date. During this period, the
Company will hold the loan documents (generally, the promissory note and the
first deed of trust or mortgage securing the note) and upon delivery of the loan
documents to the Agency, the Company is paid the aggregate amount of the loan.
The Company manages the risks inherent in its business, and prepares,
tracks and confirms the on-time delivery of all necessary documents to the
appropriate Agency with its Collateral Tracking System ("CTS"), a proprietary
set of computer-based standards, procedures and controls. The CTS programs
enable the Company to avoid the problems caused by, and the monetary losses that
can result from, the frequent short-term processing deadlines, the high volume
of loan transactions and the complex document structures of mortgage loan
financing transactions which are integral parts of the mortgage loan warehouse
financing business.
Between June 14, 1993, the date when Pioneer recommenced business
operations upon its emergence from Chapter 11 bankruptcy proceedings (the
"Inception Date"), and September 30, 1996, no loan which was approved for
funding by the Company failed to close, and every loan which was closed with the
Company's funds during said period was sold to one of the Agencies in accordance
with the commitments given by them in advance of such closings. Accordingly, the
Company suffered no loss of its principal during that period. See "Business --
The Mortgage Loan Process From Application by a Customer Through Funding."
Automobile Loan Financing Operations. Trans Lending originates
consumer automobile financing transactions for non-prime borrowers (consumers
2
who are typically unable to obtain financing from traditional sources) by
acquiring Contracts from franchised and independent car dealers.
Strategy. The Company's multi-pronged growth strategy to maximize
long-term shareholder values is:
. Expanding the scope of the Company's mortgage warehouse lending
activities by increasing its available lines of credit and the number of
mortgage bankers served.
. Developing and expanding Trans Lending's automobile financing
activities through its representation of a greater number of banks and other
institutional purchasers of auto loans, and through the establishment of
Contract acquisition relationships with a greater number of franchised and
independent used car dealerships.
. Expanding into other specialty finance niche activities primarily
through acquisitions of businesses, or joint ventures with businesses or
executives having extensive experience in the targeted specialty.
. Obtaining commitments from Arthur H. Goldberg, the Company's Chief
Executive Officer, and Elie Housman, the Company's President and Chief Operating
Officer, to devote substantial portions of their time to the affairs of the
Company.
The Company's office is located at 6660 Reseda Boulevard, Reseda,
California 91330, and its telephone number at that location is (818) 776-0590.
3
THE OFFERING
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Securities offered.......................... 3,750,000 Units, each Unit consisting of one
share of Common Stock and One Class A
Warrant entitling the holder to purchase one
share of Common Stock for $ [the Market
Price] per share.
Common Stock currently
outstanding................................ 1,442,272 shares (1)
Common Stock to be outstanding
after Offering........................... shares (1)
Use of proceeds............................. The net proceeds of the Offering will be
used to increase the funds available for the
Company's warehouse lending operations.
A portion of such proceeds may be used to
enable Trans Lending to engage in the direct
financing of auto loan transactions, and as
working capital. See "Use of Proceeds."
Nasdaq SmallCap Market symbols
Units (proposed).......................... PCFCU
Common Stock................................ PCFC
Class A Warrants (proposed)............... PCFC[A]
Proposed Boston Stock Exchange
symbols
Units .................................... [ ]
Common Stock................................ [ ]
Class A Warrants ......................... [ ]
Proposed Pacific Stock Exchange
symbols
Units .................................... [ ]
Common Stock................................ [ ]
Class A Warrants ......................... [ ]
Risk Factors................................ The Offering involves a high degree of risk.
See "Risk Factors" beginning on page 10.
----------
(1) Does not include (a) up to 4,875,000 shares of Common Stock issuable in the
event that (i) all of the Class A Warrants are fully exercised; (ii) the
Underwriters'
4
over-allotment option is fully exercised; and (iii) the Class A Warrants to be
issued in connection therewith are fully exercised; (b) up to 1,056,424 shares
of Common Stock issuable upon exercise of various warrants and options which
were heretofore granted by the Company at exercise prices ranging from $[ ]
to $[ ] (i) in the initial public offering of securities which the Company
completed in August 1996 (the "IPO"); (ii) to various officers; (iii) to United
the Mizrahi Bank & Trust Company ("UMB"); or (c) up to 750,000 shares of Common
Stock the which shall be issuable in the events that (i) the Representative's
Warrants are fully the exercised; and (ii) the Class A Warrants to be issued in
connection therewith are also fully the exercised; and (iv) up to 700,000 shares
of Common Stock which shall be issuable upon exercise of options granted by the
Company to Messrs. Goldberg and Housman, subject to approval by the
shareholders. See "Management - Employment Agreements;" "Principal Security
Holders;" "Description of Securities - UMB Option;" and "Underwriting."
5
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following selected historical financial information relating
to the Company for the fiscal year ended March 31, 1996 has been derived from
the financial statements appearing elsewhere herein. Such information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Financial Statements and notes thereto
and the report of Arthur Andersen LLP, independent public accountants with
respect to the Company's financial statements appearing elsewhere therein. The
income statement data set forth below with respect to the six month period ended
September 30, 1996, and the balance sheet data at September 30, 1996 are derived
from the unaudited financial statements appearing elsewhere herein. In the
opinion of management of the Company, such unaudited financial statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation thereof. The income statement data for the six month period
ended September 30, 1996 is not necessarily indicative of the results which may
be expected for any interim period or the full fiscal year.
The Proforma - Offering information includes and accounts for the
effects of: (a) the payment of the principal of and accrued interest on certain
bridge financing loans undertaken by the Company in connection with the IPO; and
(b) the anticipated results of the completion of the sale of 3,750,000 Units
offered hereby (not including 562,500 Units subject to the Underwriters'
over-allotment option) at an assumed public offering price of $ per Unit (after
deduction of the estimated underwriting discounts and commissions, and expenses
of the Offering).
6
Proforma Statement of Operations Data for the year ended March 31, 1996:
(in 000's except for share related data)
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Financial Statement Offering Adjustments(1) Proforma
Balance IPO Current Offering Balance
------------------- --- ---------------- ---------
Income $ 97 $ 97
Costs and Expenses:
Direct Costs (174) $ 79 (2) (95)
Operating Expenses (434) (110) (3) (544)
Total Costs and Expenses 608 ( 31) (639)
Loss from Operations (511) (31) (542)
Other Income (Expenses) 31 31
Net Loss $ (480) $( 31) $(511)
======= ====== ======== =====
Net Loss per Share
of Common Stock $(0.58) $(0.10)
Weighted Average
Shares Outstanding (4) 826,644 5,192,272
Common and Common
Equivalent Shares
Outstanding 835,000 607,272 (5) 3,750,000 (6) 5,192,272
----------
(1) Offering adjustments do not include the potential earnings impact from the
Company's ability to utilize the net proceeds obtained from the Offering in its
operations for the year ended March 31, 1996.
(2) To eliminate interest expense on the bridge financing undertaken by the
Company in connection with its IPO (the "IPO Bridge Financing") which was paid
upon completion of the IPO.
(3) Incremental payroll expense payable to the Company's chief executive officer
and chief financial officer. See "Management - Employment Agreements."
(4) Share and per share amounts have been have been adjusted to reflect the
effects of a 1:758 reverse stock split which occurred in June 1996.
(5) To reflect the effects upon the year ended March 31, 1996 of issuance of (a)
600,000 shares of Common Stock in August 1996 upon completion of the IPO; and
(b) 7,272 additional shares of Common Stock issued in June 1996 to certain
lenders who had provided part of the IPO Bridge Financing (the "IPO Bridge
Financing
7
Lenders"). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Bridge Lending."
(6) To reflect the effects on the year ended March 31, 1996 of issuance of
3,750,000 shares of Common Stock upon completion of the Offering.
Proforma Statement of Operations Data for the six months ended September 30,
1996:
(in 000's except for share related data)
[Enlarge/Download Table]
Financial Statement Offering Adjustments(1) Proforma
Balance IPO Current Offering Balance
------------------- --- ---------------- ---------
Income $ 130 $ 130
Costs and Expenses:
Direct Costs (163) $ 42 (2) (121)
Operating Expenses (219) (46) (3) (265)
---- ---- ----- ----
Total Costs and Expenses 382 (4) (386)
---- ---- ----- ----
Loss from Operations (252) (4) (256)
---- ---- ----- ----
Other Income (Expenses) 7 7
---- ---- ----- ----
Net Loss $ (245) $ (4) $ (249)
==== ==== ===== =====
Net Loss per Share
of Common Stock $ (0.25) $(0.05)
Weighted Average
Shares Outstanding (4) 996,629 5,192,272
Common and Common
Equivalent Shares
Outstanding 1,442,272 3,750,000 (4) 5,192,272
----------
(1) Offering adjustments do not include the potential earnings impact from the
Company's ability to utilize the net proceeds obtained from the Offering in its
operations for the six months ended September 30, 1996.
(2) To eliminate interest expense on the IPO Bridge Financing which was paid
upon completion of the IPO.
(3) Incremental payroll expense payable to the Company's chief executive officer
and chief financial officer. See "Management - Employment Agreements."
(4) To reflect the effects on the six month period ended September 30, 1996 of
issuance of 3,750,000 shares of Common Stock upon completion of the Offering.
8
Proforma Balance Sheet Data at September 30, 1996:
(in 000's)
[Download Table]
Financial Statement Offering Proforma
Balance Adjustments Balance
------- ----------- -------
Cash $ 587 $ (1) $
Loans Receivable, Mortgage
Warehouse 3,086 3,086
Other Assets 397 --- 397
------- ------- -------
Total Assets $ 4,070 $ , $ ,
======= ======= =======
Loans Payable, Mortgage
Warehouse $ 1,582 $ 1,582
Other Liabilities 232 232
------- ------- -------
Total Liabilities $ 1,814 $ 1,814
======= ======= =======
Common Stock and
Paid in Capital $10,577 $ $
Accumulated Deficit (8,321) (8,321)
------ ------ ------
Total Shareholder's Equity $ 2,256 $ $
======= ======= =======
-----------------------------
(1) To reflect the sale of 3,750,000 Units in connection with this Offering at $
per Unit.
9
RISK FACTORS
An investment in the Units offered hereby involves a high degree
of risk. Prospective investors should carefully consider all of the information
in this Prospectus including the following risk factors.
LIMITED OPERATING HISTORY; RECENT EMERGENCE FROM CHAPTER 11 BANKRUPTCY
PROCEEDINGS; CONTINUING LOSSES; COMPANY'S ABILITY TO CONTINUE AS A GOING
CONCERN.
Pioneer emerged from the protection of Chapter 11 of the
Bankruptcy Code in April 1993. Accordingly, although Pioneer was founded in 1980
and engaged in substantial business operations during the ensuing nine year
period, the nature and extent of the business that it has conducted since April
1993 are substantially different from the business which it conducted prior to
commencement of such proceedings in January 1990. Due, in large part to the
limited credit lines that were available to Pioneer upon its emergence from
bankruptcy and the time it took thereafter to find and approve two mortgage
banking customers, Pioneer only engaged in limited operations during said fiscal
year, and incurred a loss of $393,155 for said year. During the fiscal years
ended March 31, 1995 and 1996, the Company sustained losses from operations in
the amounts of $583,736 and $511,159, respectively. At September 30, 1996, the
Company's accumulated deficit amounted to $8,320,936 (including accumulated
deficit of approximately $6,602,000 upon emergence from bankruptcy in April
1993). In order to operate profitably in future periods, the Company will need
to increase its capacity to fund loan transactions and correspondingly increase
loan volume demand. Its ability to achieve such increases will depend upon such
factors as how successful the Company will be in acquiring additional lines of
credit from its financing sources, and in establishing new customer
relationships with others mortgage bankers. The net proceeds which the Company
derived from its IPO have enabled it to seek such additional credit lines and to
expand its customer base. Since the completion of the IPO in August 1996, the
Company has sought new credit lines from approximately 20 banks and other
financial institutions. As of the date of this Prospectus, the Company's
applications have been rejected by three of such institutions, and are still
pending with the others. There can be no assurance that the Company will achieve
profitability in the future, if at all. If the Company fails to achieve
profitability, it would be materially adversely affected. In this regard, see
the Report of Independent Public Accountants accompanying the Company's audited
financial statements appearing elsewhere herein which cites substantial doubt
about the Company's ability to continue as a going concern. There can be no
assurance that the Company will achieve profitability in the future, if at all.
See "Business - Pioneer's Chapter 11 Bankruptcy Proceedings" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Trans Lending commenced operations in December 1996. There can be
no assurance that Trans Lending will be able to successfully implement its
business
10
strategy or that unanticipated expenses, problems or difficulties will not
result in material delays in its implementation. See "Business -- The Company's
Acquisition of Trans Lending."
POSSIBLE NEED FOR ADDITIONAL FINANCING.
Implementation of the Company's growth strategy and future growth
of the Company's business may require additional capital. No assurance can be
given that the Company will be able to obtain the necessary financing. The
Company currently estimates that the net proceeds of the Offering, together with
cash generated from operations, will be sufficient to finance its current
operations and planned capital expenditures for at least the next 12 months.
However, there can be no assurance that the Company will not require additional
capital at an earlier date. The Company may, from time to time, seek additional
funding through public or private debt or equity financing. There can be no
assurance that funding will be available as needed or, if available, on terms
acceptable to the Company. If additional funds are raised by issuing equity
securities, existing shareholders may experience dilution.
DEPENDENCE ON AND INEXPERIENCE OF MANAGEMENT; KEY MAN INSURANCE.
Although Messrs. Goldberg and Housman have experience in managing
businesses substantially larger than the Company, neither Mr. Goldberg nor Mr.
Housman has material experience managing a mortgage warehouse lending business.
The Company will be depending on Messrs. Goldberg and Housman to provide
managerial supervision and strategic guidance in connection with the conduct of
the Company's operations. There can be no assurance that the management provided
by Messrs. Goldberg and Housman will result in profitable operations. The
Company has applied for key man life insurance coverage on Messrs. Goldberg and
Housman. No assurance can be given that such insurance will be issued covering
any or all of such persons. See "Management."
In addition, the success of Trans Lending's operations is
dependent upon the experience and ability of Kenneth Germain, Trans Lending's
Chief Operating Officer. The loss of Mr. Germain could have an adverse effect on
Trans Lending's business. See "Business -- The Company's Acquisition of Trans
Lending."
RELIANCE UPON LIMITED SOURCES OF FUNDS; POSSIBLE UNAVAILABILITY OF ADDITIONAL
FUNDING SOURCES.
The Company's principal source of financing is the warehousing
line of credit granted to Pioneer by UMB. This line of credit, in the original
principal amount of $2,000,000, has been increased to $4,000,000, and is
currently scheduled to expire August 31, 1997. The Company has applied for
additional lines of credit with approximately 20 banks and other financial
institutions. No assurance can be given that the Company will be able to
maintain its existing financing arrangements, or
11
obtain replacement financing as current arrangements expire. Furthermore, if the
Company's mortgage banking customers experience difficulty in selling their
mortgage loans or mortgage-backed securities, the Company may have to curtail
loan warehousing activities, which would have a material adverse effect on the
Company's operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources;" and
"Business."
DEPENDENCE ON LIMITED NUMBER OF MORTGAGE BANKING CUSTOMERS.
The Company is conducting business with Windtree Financial Corp.
("Windtree"), 1st Financial Corp. ("1st Financial"), Pacific Crest Mortgage
Corp. ("Pacific Crest"), National Home Funding Corp. ("Home Funding") and
Citizens Mortgage Service Corp. ("Citizens"), as customers. The Company is
currently analyzing applications from four other potential customers who
originate residential family mortgage loans in Arizona, California, Colorado,
Delaware, Florida, Nevada, New Mexico, New Jersey, New York, Oregon,
Pennsylvania, South Carolina, Utah and Washington.
Although the Company expects to conduct business in the future
with a greater number of mortgage banking customers, and thereby reduce the
risks attendant in relying upon a small number of customers to support its
business, no assurance can be given that it will receive applications from
potential customers who will be able to satisfy its standards, or if it does
receive such applications, that such applicants will thereafter engage in
material volumes of mortgage warehouse lending transactions with the Company.
The cessation of business by any customers could materially adversely affect the
Company's ability to generate sufficient revenues to operate profitably. See
"Business - The Company's Mortgage Banking Customers."
TRANS LENDING'S DEPENDENCE ON DEALERS.
Trans Lending's business depends in large part on its ability to
maintain and service it relationships with automobile dealers. While Trans
Lending believes that it has been successful in developing and maintaining
relationships with dealers, there can be no assurance that Trans Lending will be
successful in continuing to maintain such relationships or in increasing the
number of dealers with which it does business, or that its existing dealer base
will generate volume of loans or leases sufficient to permit Trans Lending to
operate profitably. See "Business -- Sales and Marketing."
HIGH RISK OF LOANS AND LEASES ORIGINATED OR TO BE ACQUIRED BY TRANS LENDING.
If Trans Lending engages in direct financing activities, its
ability to generate profits will depend upon, among other things, its capacity
to properly evaluate the creditworthiness of customers and to minimize losses
following
12
defaults with the proceeds from the sale of repossessed collateral and with
insurance proceeds. Trans Lending has just commenced operations, does not
possess a seasoned loan or lease portfolio, and has no prior experience upon
which to gauge the delinquency and loss rates which may apply to it in future
periods. If Trans Lending engages in direct financing activities, there can be
no assurance that the performance of Trans Lending's portfolio will be
satisfactory, or that if satisfactory results are obtained, that Trans Lending
will be able to maintain such performance, or that the rate of future defaults
and/or losses will be at levels that will permit Trans Lending to achieve
profitability. See "Business -- The Non-Prime Auto Finance Industry;" and "--
Trans Lending's Business Strategy."
CYCLICAL NATURE OF MORTGAGE BANKING INDUSTRY.
Mortgage banking firms have historically experienced a wide range
of financial results, from highly profitable to highly unprofitable. These
financial results are due to many factors which affect most, if not all, firms
in the mortgage banking business at about the same time, but three predominate:
changes in mortgage interest rates, the availability of affordable credit and
the state of the domestic economy. These three factors, among others, affect the
demand for new and used housing and thus the demand for financing and
refinancing of mortgages.
COMPETITION IN THE MORTGAGE BANKING BUSINESS.
The business of originating and financing the origination of
residential mortgage loans is highly competitive. Certain companies which have
longer operating histories and significantly greater resources than those of the
Company are engaged in providing multi-state, computer-based bridge financing of
residential mortgage loans. Larger established mortgage warehouse lenders are
making substantial investments in their computer operations to achieve
significant economies of scale and greater flexibility in rendering services.
Also, major bank-related organizations like the Mortgage Warehouse Division of
Bank of New York, Bank of America, PNC Bank, and other businesses engaged in
lending activities, such as CWM Mortgage Holding, Inc.'s Warehouse Lending
Corporation of America, The Associates First Collateral Services and General
Electric Capital Corp.'s Residential Funding Corporation are entering or
reentering the mortgage warehouse financing business. There can be no assurance
that the Company will be able to compete effectively with such competitors, that
additional competitors will not enter the market, or that such competition will
not make it more difficult for the Company to secure a sufficient number of high
quality mortgage banking customers to realize its anticipated business growth.
See "Business - Competition."
13
COMPETITION AND MARKET CONDITIONS IN THE AUTOMOBILE FINANCE BUSINESS.
The non-prime consumer automobile finance market is highly
competitive. The level of competition has increased significantly in recent
years and this trend is expected to continue. Historically, commercial banks,
savings and loan associations, credit unions, captive finance subsidiaries of
automobile manufacturers and other consumer lenders, many of which have
significantly greater resources than Trans Lending, have not competed for
non-prime consumer business. To the extent that such lenders expand their
activities in the non-prime consumer market,Trans Lending's financial condition
and results of operations could be materially adversely affected. See
"Business--Competition." During the past two years, several companies have
devoted considerable resources to the non-prime consumer market, including
well-capitalized public companies. Specifically, Ford Motor Credit Company has
begun to finance non-prime consumers, General Electric Capital Corporation
established strategic alliances with several regional non-prime consumer
automobile finance companies and KeyCorp acquired AutoFinance Group, Inc., one
of Trans Lending's competitors. Other companies, including Mellon Bank
Corporation and Southern National Corporation, have also entered the market.
Trans Lending's business is also affected by certain demographic,
economic and industry trends. These trends include increased sales of used cars,
rising new car prices relative to used car prices, stability in non-prime
consumers' demand for used cars, the inability of non-prime consumers to find
lower cost financing from other sources and the overall level of interest rates
in general. A reversal of any of these trends or a change in any of these
conditions could have a material adverse effect on Trans Lending 's financial
condition and results of operations. See "Business--Competition."
IMPACT OF MORTGAGE INTEREST RATE FLUCTUATIONS.
Prevailing mortgage interest rates, which have an impact on
consumer decisions to obtain new loans or to refinance existing loans, will
affect the ability of the Company's mortgage banking customers to originate
mortgage loans. In recent years, a declining interest rate environment favorable
to mortgage loan originations has existed. Increasing interest rates could cause
a decrease in the pool of consumers seeking new or refinanced mortgage loan
transactions, and a concomitant increase in competition among mortgage bankers
for better quality mortgage loan transactions. Such increased competitive
pressures on the Company's customers might force the Company to decrease the
amount of the transactional fees that it charges in order to cooperate with its
customers' efforts to attract business from the diminished supply of better
quality loan customers, and thereby maintain good relationships with its
customers. Fluctuating interest rates also may affect the net interest income
earned by the Company resulting from the difference between the yield to the
Company on a mortgage loan warehoused by the Company and the interest paid by it
for funds advanced under its line of credit. The Company's net
14
interest income is comprised of the spread between interest rates on mortgages
warehoused by it and interest rates paid on the Company's warehousing line of
credit. A decrease in this spread, or a decrease in the amount of the
transactional fees which the Company charges its customers, would have a
negative effect on the Company's net interest income and its ability to operate
profitably. See "Business."
RISKS ASSOCIATED WITH ACQUISITIONS.
The Company is not currently considering the acquisition of any
business, or a joint venture with any other business or individual. From time to
time in the future, the Company may enter into negotiations with respect to
potential acquisitions or joint ventures, some of which may result in
preliminary agreements. In the course of the Company's negotiations and/or due
diligence, these negotiations and/or preliminary agreements may be abandoned or
terminated. No assurance can be given that the Company will find suitable
acquisition or joint venture candidates, or that future acquisitions or joint
ventures will be financed and made on acceptable terms, or if completed, that
such acquisitions or ventures will be successful.
DEPENDENCE ON SECONDARY MARKET SALES; POTENTIAL CHANGES TO AGENCY PROGRAMS.
The Company's business will depend upon its mortgage banking
customers' abilities to sell new mortgage loans on favorable terms in the
secondary mortgage market in order to generate the funds necessary to originate
additional mortgage loans. Accordingly, any significant change in the secondary
mortgage market such as changes in the operations, programs, levels of activity,
underwriting criteria or applicable regulations of any of the Agencies, or in
the Company's customers' qualifications as loan issuers, sellers or servicers
under such regulations, could impair the Company's ability to warehouse mortgage
loans on a favorable or timely basis. Any such impairment could have a material
adverse effect on the Company's business and results of operations. See
"Business Regulation - Mortgage Warehouse Lending."
DEPENDENCE ON GOVERNMENT PROGRAMS.
Although the Company is not aware of any plans to discontinue or
reduce significantly the operation of programs administered by GNMA, FNMA and
FHLMC which facilitate the issuance of mortgage-backed securities, any such
action, as well as any reduction or impairment of the Company's mortgage banking
customers' continued eligibility to participate in such programs, would have a
material adverse effect on the Company's business operations and prospects. See
"Business."
Similarly, although the Company is not aware of any plans for any
of the Agencies to enter the mortgage warehouse lending business, any of these
Agencies has the capital, the expertise, and the industry knowledge to enter
this
15
business in a significant manner. Furthermore, if any of the Agencies did enter
this business, it would constitute very strong competition to the Company in its
efforts to secure well qualified customers on terms favorable to the Company.
Such an increase in competition in the mortgage warehouse business could have a
material adverse effect on the Company's business operations and prospects. See,
"Business - Competition."
REGULATION AND REGULATORY CHANGES - MORTGAGE WAREHOUSE LENDING.
Although mortgage loan warehousing is not presently subject to
federal regulation, the California Finance Lenders Law went into effect July 1,
1995. That law imposes licensing obligations on the Company, requires the filing
of annual and periodic reports, establishes maximum interest rates and repayment
terms in certain cases, and provides for fines and imprisonment for violation of
the law. Other participants in the mortgage warehouse financing process, such as
title companies and appraisers, also may be regulated by the states in which
they reside and such regulations often determine the scope and approach of the
Company's collateral control monitoring program. Furthermore, mortgage banking
is a highly regulated industry. The Company's mortgage banking customers are
subject to the rules and regulations of, and examinations by, the Federal
Housing Administration ("FHA"), the Veterans Administration ("VA"), GNMA, FNMA,
FHLMC and state regulatory authorities with respect to originating, processing,
underwriting, selling, securitizing and servicing residential mortgage loans. In
addition, there are other federal and state statutes and regulations affecting
such activities. Potential future changes in these rules and regulations could,
among other things, adversely impact its customers' business activities by,
among other things, establishing eligibility criteria for mortgage loan
warehousing, prohibiting discrimination, providing for inspections and
appraisals of properties, requiring credit reports on prospective borrowers,
regulating payment features, requiring disclosures to customers, governing
secured transactions, establishing collection, repossession and claims handling
procedures and other trade practices and, in some cases, fixing maximum interest
rates, insurance coverages, fees and loan amounts. Failure to comply with these
requirements could lead to loss of approved status, class action lawsuits and
administrative enforcement actions.
Although the Company is not presently aware of any pending or
proposed laws, rules or regulations which, if adopted, would make compliance
more difficult or expensive, restrict the Company's ability to fund the
warehousing of mortgage loans, restrict the Company's customers' ability to
originate or sell mortgage loans, further limit or restrict the amount of
interest and other charges earned from loans warehoused by the Company or
otherwise adversely affect the business or prospects of the Company, no
assurance can be given that limitations and/or restrictions of that nature will
not be adopted in the future. See "Business -- Regulation -- Mortgage Warehouse
Lending."
REGULATION - NON-PRIME AUTO FINANCING.
16
Trans Lending's business will be subject to numerous federal and
state consumer laws and regulations, which, among other things, require it to:
obtain and maintain certain licenses and qualifications; limit the interest
rates, fees and other charges Trans Lending is allowed to charge; limit or
prescribe certain other terms of its contracts; provide specified disclosure;
and define Trans Lending's rights to repossess and sell collateral. An adverse
change in existing laws or regulations, or in the interpretation or enforcement
thereof, or the promulgation of any additional laws or regulations would have an
adverse effect on Trans Lending's business. See "Business -- Non-Prime
Automobile Financing."
RISK OF CHANGING ECONOMIC CONDITIONS; GEOGRAPHIC CONCENTRATION OF BUSINESS.
The Company's results of operations will depend heavily upon the
ability of its mortgage banking customers to originate mortgage loans. This
ability is largely dependent upon general economic conditions in the geographic
areas that the Company serves. Because these general economic conditions
fluctuate, there can be no assurance that prevailing economic conditions will,
at any point in time, favor the Company's business and operations. These changes
could materially and adversely affect the Company's revenues and net income. See
"Business."
THE OPERATIONAL PROCESSING RISK.
The basis for the Company's mortgage warehouse financing business
is the acceptance of long-term loans, typically 15 to 30 year mortgages, from
the Company's customers as collateral for very short-term financing, typically
15 days, until the mortgage loans are sold to an Agency. Although the Company's
customers must have a commitment for each loan from an approved Agency before
the Company will extend mortgage warehouse financing, there is no guarantee that
the Agency will, in fact, accept the mortgage loan when delivered to it. Among
the reasons for which a mortgage loan would not be accepted upon delivery are
the following: incomplete documentation, inaccurate documentation or an
over-allotment to the Agency's commitment by the mortgage originator.
If for any reason an Agency does not accept the mortgage loan,
the Company could find itself the owner of a long-term loan of less than market
value instead of short-term bridge financing collateral. While the Company has a
repurchase agreement with each of its customers which requires the customer to
buy back the mortgage loan upon demand, there is no assurance that the customer
will honor the repurchase agreement. Furthermore, the Company can give no
assurance that, absent this repurchase by its customer, it will be able to sell
the mortgage loan to another secondary market investor without incurring a loss
in its investment in the loan. Failure of the Company to dispose of such a
mortgage loan not accepted by an Agency could materially adversely affect the
Company's financial position, its liquidity, and its relationships with its
sources of financing, principally
17
banks to whom it may provide certain loan covenants that could be violated by
one or several of these events.
Furthermore, frequent short-term processing deadlines, a high
volume of loan transactions, the complex document structure of each mortgage
loan financing transaction, and very substantial penalties for delay in
delivering loan documents to the secondary market, which may range from a
surcharge of 1% - 2% of the principal amount of a loan in the case of a delay
regarding an individual loan commitment, to a complete rejection and refusal to
purchase an entire pool of loans, in the case of a delay in filling a pool
commitment, are an integral part of the mortgage loan warehouse financing
business. Although a delay in purchasing a pool of loans could hinder the
Company's ability to timely fund additional loans submitted by other customers,
and thereby adversely affect its ongoing relations with such other customers as
a reliable source of mortgage warehouse financing, any charges or penalties
resulting from such delays are the responsibility of the Company's customers.
See "Business - The Collateral Tracking System;" and "Business - The Mortgage
Loan Process From Application to a Pioneer Customer Through Funding."
DIVIDEND POLICY AND RESTRICTIONS ON PAYMENT OF DIVIDENDS.
The Company has never paid cash dividends on its Common Stock.
Furthermore, the provisions of the plan of reorganization pertaining to
Pioneer's emergence from bankruptcy prohibit Pioneer from paying any dividends
to its common shareholders until the sum of $1,350,000 shall have been paid to
Pioneer's pre-bankruptcy unsecured creditors. Further in accordance with said
plan, Pioneer became obligated to pay certain portions of its net income in
satisfaction of said payment obligation to its pre-bankruptcy creditors. Upon
consummation of the Merger, the Company became obligated, by operation of law,
to comply with such payment obligation and dividend payment prohibition. The
Board of Directors does not anticipate paying cash dividends on its Common Stock
in the foreseeable future as it intends to retain future earnings to finance the
growth of the business. The payment of future cash dividends on the Common Stock
will depend on such factors as earnings levels, anticipated capital
requirements, the operating and financial condition of the Company and other
factors deemed relevant by the Board of Directors. See "Dividend Policy;" "The
Merger" and "Business - Pioneer's Chapter 11 Bankruptcy Proceedings."
BROAD DISCRETION IN APPLICATION OF PROCEEDS.
The Company intends to use all of the net proceeds of the
Offering for mortgage warehouse lending activities, provided, however, that it
has reserved the right to reallocate portions of such net proceeds for other
uses -- up to $2,000,000 may be used for direct financing of Contracts, up to
$500,000 may be used for working capital and up to $1,000,000 of such net
proceeds may be used to enter into other specialty financial service sectors
through acquisitions or joint ventures with
18
entities and executives having extensive experience in the targeted specialty.
See "Use of Proceeds."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE CLASS A
WARRANTS.
The Company will be able to issue shares of its Common Stock upon
exercise of the Class A Warrants only if there is then in effect a current
prospectus relating to such Common Stock, and only if such Common Stock is
qualified for sale or exempt from such qualification under applicable state
securities laws of the jurisdictions in which the various holders of the Class A
Warrants reside. Although the Company has undertaken to, and intends to, file
and keep current a prospectus which will permit the purchase and sale of the
Common Stock underlying the Class A Warrants, there can be no assurance that the
Company will be able to do so. Class A Warrants may not be exercised after [
], 1997 (nine months after the date of this Prospectus) unless and
until a Post-Effective Amendment has been filed with the Securities and Exchange
Commission ("SEC" or Commission") and becomes effective. Although the Company
intends to seek to qualify for sale the shares of Common Stock underlying the
Class A Warrants in those states in which the Units are to be offered, no
assurance can be given that such qualification will occur. The Class A Warrants
may be deprived of any value and the market for the Class A Warrants may be
limited if a current prospectus covering the Common Stock issuable upon exercise
of the Class A Warrants is not kept effective or if such Common Stock is not
qualified or exempt from qualification in the jurisdictions in which the holders
of the Class A Warrants then reside. See "Description of Securities - Class A
Warrants."
MARKET FOR UNITS, COMMON STOCK AND CLASS A WARRANTS; POSSIBLE VOLATILITY OF
PRICES.
Although the Common Stock and the warrants issued by the Company
in connection with its IPO have been quoted on the Nasdaq SmallCap Market since
August 1996, both securities have often been and may continue to be thinly
traded. The Company has applied for quotation of the Units and Class A Warrants
on the Nasdaq SmallCap Market, and for listing of the Units, Common Stock and
Class A Warrants on the Boston Stock Exchange and the Pacific Stock Exchange.
Such quotation and/or listings will not provide any assurance that an active
public market for the Units, Common Stock or Class A Warrants will develop or be
sustained. If an active public market does not develop or is not sustained, the
market price and liquidity of the Units, Common Stock and/or Class A Warrants
may be adversely affected. In addition, the stock market in recent years has
experienced extreme price and volume fluctuations that often have been unrelated
or disproportionate to the operating performance of companies. These
fluctuations as well as general economic and market conditions may adversely
affect the market price of the Units, Common Stock and/or Class A Warrants
prevailing from time to time.
19
CLASS A WARRANTS REDEEMABLE.
The Class A Warrants may be redeemed by the Company, whether or
not a current prospectus is available, at any time during the four year period
commencing one year after the date of this Prospectus at a price of $.10 per
Class A Warrant, provided that the closing price of the Common Stock as quoted
on the principal market on which such shares shall then be trading shall be not
less than the Market Price per share during any period of 30 consecutive
trading days ending on the third day preceding the date of such notice. Although
a Class A Warrant holder has the right to exercise his Class A Warrants through
the date of redemption, he may not be able to exercise because of lack of funds
at the time of redemption or if there is not then in effect a current prospectus
relating to the Common Stock underlying such Class A Warrants. Furthermore, in
the event that the Company timely and properly issues a notice of redemption of
the Class A Warrants, no trading in such securities shall be permitted after the
close of business on the date of redemption. At such time the value of all Class
A Warrants which shall not have been timely exercised prior thereto shall be
reduced to the redemption price. See "Underwriting."
AUTHORIZATION OF PREFERRED STOCK.
The Company's Certificate of Incorporation authorizes the
issuance of preferred stock with designations, rights and preferences determined
from time to time by the Board of Directors. Accordingly, the Board of Directors
is empowered, without shareholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of Common Stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. The issuance of preferred stock with anti-takeover
measures could have a depressive effect on the market price of the Common Stock
(should a market develop for the Common Stock) and could discourage hostile bids
in which shareholders may receive premiums for their shares. See "Description of
Securities -- Preferred Stock."
IMPACT ON THE MARKET OF EXERCISE OF REPRESENTATIVE'S WARRANTS.
The holders of the Representative's Warrants may exercise them at
a time when the Company would, in all likelihood, be able to obtain equity
capital by the sale of securities on terms more favorable than those provided by
the Representative's Warrants. If the Representative's Warrants are exercised,
the dilution of the voting and equity interests of the Company's shareholders
which shall result therefrom could cause a decrease in the market price of the
Company's securities, and may also adversely affect the Representative's ability
to make and maintain an orderly market in the Company's securities. See
"Description of Securities - Representative's Warrants."
20
THE REPRESENTATIVE'S INFLUENCE ON THE MARKET FOR THE COMPANY'S SECURITIES.
A significant amount of the securities offered hereby may be sold
to customers of the Representative. Such customers subsequently may engage in
transactions for the sale or purchase of such securities with the
Representative. Although it has no obligation to do so, the Representative
intends to make a market in the Units, Common Stock and Class A Warrants and may
otherwise effect transactions in such securities. If it participates in the
market, the Representative may exert significant influence on the market, if one
develops, for the securities described in this Prospectus. Such market making
activity may be discontinued at any time. The price and liquidity of the Units,
Common Stock and Class A Warrants may be significantly affected by the degree,
if any, of the Representative's participation in such market. Additionally, the
Representative may participate in the solicitation of the exercise of the Class
A Warrants, in which event, it may be prohibited from engaging in any market
making activities with respect to the Units, Common Stock and Class A Warrants
during certain periods while the Class A Warrants are exercisable. Such
restrictions may adversely affect the price and liquidity of the Units, Common
Stock and Class A Warrants. Furthermore, if the Representative should exercise
its registration rights to effect the distribution of the Units, Common Stock
and Class A Warrants underlying the Representative's Warrants, the
Representative, prior to and during such distribution, will be unable to make a
market in the Units, Common Stock and Class A Warrants. If the Representative
ceases making a market, the market and market prices for the Units, Common Stock
and Class A Warrants may be adversely affected, and the holders thereof may be
unable to sell such securities.
SHARES ELIGIBLE FOR FUTURE SALE.
Sales of the Common Stock in the public market after this
Offering could adversely affect the market price of the Common Stock. Upon
completion of this Offering, the Company will have outstanding [ ]
shares of Common Stock ([ ] shares if the Underwriters' over-allotment
option is exercised in full). Of these shares, [ ] shares will be freely
tradeable without restriction under the Securities Act. The remaining [ ]
shares of Common Stock held by existing shareholders are restricted securities
within the meaning of Rule 144. In accordance with Rule 144, 802,272 of such
shares are presently eligible for sale to the public notwithstanding the fact
that they have not been registered under the Securities Act. Pursuant to certain
restrictions upon sale imposed by a "lockup" agreement which the holders of said
802,272 shares executed and delivered to the underwriter of the IPO as a
condition to the closing of that offering, all of those shares will be
ineligible for sale in the public market until August 15, 1997, provided that,
after May 15, 1997, each of the holders of such shares may sell up to 10% of
such holder's shares pursuant to Rule 144. In addition to the foregoing lockup
restrictions, the Representative has required, as a condition to the closing of
the Offering, that each of the Company's directors, officers, key employees and
holders of 2% or more of the
21
Common Stock must execute written lockup agreements providing that, for a period
of 12 months from the date of this Prospectus, they shall not offer, register,
sell, contract to sell, grant an option for the sale of, issue, assign, transfer
or otherwise dispose of any of the Company's securities held by them without the
Representative's prior written consent. See "Description of Securities -
Registration Rights," "Shares Eligible for Future Sale," "Dividend Policy" and
"Underwriting."
IMPACT OF MERGER ON NET OPERATING LOSS CARRYFORWARDS.
As of March 31, 1996, the Company had accumulated net operating
loss carryforwards in the approximate amount of $2.0 million. The Merger has
limited the Company's use of such net operating loss carryforwards to an annual
limitation not to exceed approximately $100,000 imposed by Section 382 of the
Internal Revenue Code of 1986, as amended. Management believes that the losses
that the Company has incurred since the Merger (aggregating $896,000) are not
subject to these limitations. The Company's ability to use such net operating
loss carryforwards is dependent upon its ability to generate taxable income in
the future. See Note 6 of Notes to Financial Statements of Pioneer and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Impact of Merger on Net Operating Loss Carryforwards."
INDEMNIFICATION OF DIRECTORS AND OFFICERS; POSSIBLE INABILITY TO RENEW OFFICERS'
AND DIRECTORS' LIABILITY INSURANCE.
Arthur H. Goldberg and Elie Housman, the Chief Executive Officer
and Chief Operating Officer, of the Company, respectively, have agreed to enter
into employment agreements with the Company, and Glenda Klein, the Company's
Chief Financial Officer, has entered into an employment agreement with the
Company. Such proposed agreements will provide, and Ms. Klein's agreement does
provide, for the indemnification of such individuals against losses that they
may incur in legal proceedings resulting from their services to the Company in
the capacities of officers and directors. In addition, the Company's Bylaws
provide for the indemnification of directors and officers to the fullest extent
permitted by law. The Company has entered into indemnification agreements with
its other directors. Although the Company currently maintains officers' and
directors' liability insurance providing limits of $1,000,000 per occurrence,
there can be no assurance that the Company will be able to maintain such
insurance on acceptable terms or at all. Failure to maintain such insurance
could have a material adverse effect on the Company's ability to attract and
retain directors and officers. Any amounts which the Company may be required to
pay under such indemnification agreements which are not reimbursed by insurance,
either because no insurance policy is then in effect or because the amount of
such required payments exceeds the policy limit, could have a material adverse
effect on the Company. See "Management - Employment Agreements," and "Management
- Indemnification of Directors and Officers."
22
NASDAQ MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF SECURITIES FROM NASDAQ
SYSTEM; RISKS OF LOW-PRICED STOCKS.
The Common Stock is listed on the Nasdaq SmallCap Market. The
Company has applied to the Nasdaq SmallCap Market for listing of the Units and
Class A Warrants. If the Company is unable to satisfy Nasdaq's listing criteria
for the Units and/or Class A Warrants, or if such securities are listed on the
Nasdaq SmallCap Market, and the Company thereafter fails to satisfy the
maintenance criteria for continued listing of any or all of such securities,
they will be subject to being delisted, and trading, if any, would thereafter be
conducted in the OTC Bulletin Board. As a consequence of such delisting, an
investor could find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Units, Common Stock and/or the Class A
Warrants. The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks. The SEC
regulations generally define a penny stock to be any equity security that has a
market price or exercise price of less than $5.00 per share, subject to certain
exceptions. Such exceptions include any equity security listed on Nasdaq and any
equity security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three (3) years,
(ii) net tangible assets of at least $5,000,000 if such issuer has been in
continuous operation for less than three years, or (iii) average annual revenue
of at least $6,000,000 during such issuer's last three years of operations.
Unless an exception is available, the regulations require the delivery, prior to
any transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith. Furthermore, in
connection with any transaction in a penny stock, brokers must also provide
investors with current bid and offer quotations therefor, the compensation of
the broker and its salesperson in connection therewith and monthly account
statements showing the market value of each penny stock in the investor's
account. See "Description of Securities - Nasdaq SmallCap Market Listing; Boston
Stock Exchange and Pacific Stock Exchange Listing Applications."
In addition, if the Units, Common Stock or Class A Warrants are
not quoted on Nasdaq, or the Company does not have $2,000,000 in net tangible
assets, trading in the Units, Common Stock and Class A Warrants would be covered
by Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") for non-Nasdaq and non-exchange listed securities. Under
such rule, broker/dealers who recommend such securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities also are exempt from this
rule if the market price is at least $5.00 per share.
As of the date of this Prospectus, the Company believes that the
Units, Common Stock and Class A Warrants will be outside the definitional scope
of a penny stock. In the event the Company's securities were subsequently to
become
23
characterized as penny stocks, the market liquidity for such securities could be
adversely affected. In such an event, the regulations on penny stocks could
limit the ability of broker/dealers to sell the Units, Common Stock and/or the
Class A Warrants and thus the ability of purchasers of the Units, Common Stock
and Class A Warrants to sell such securities in the secondary market would be
adversely affected.
DIRECTORS' INVOLVEMENT IN BANKRUPTCY PROCEEDINGS.
Between 1973 and 1989, Arthur H. Goldberg served as President and
Chief Operating Officer of Integrated Resources, Inc. ("Integrated"), a
diversified financial services company which commenced proceedings under Chapter
11 of the U.S. Bankruptcy Code in 1989. During the period in 1989 immediately
prior to the commencement of such bankruptcy proceedings, Mr. Goldberg served as
Integrated's President and Chief Executive Officer. In November 1994,
Integrated's sixth amended reorganization plan was consummated. In accordance
therewith, senior creditors of the reorganized company (known as Presidio
Capital Corp.) may receive as much as 70% of their original claims totalling
approximately $1.1 billion, and junior creditors will receive between 3.1% and
4.5% of their claims of approximately $672 million.
In 1993, Glenda Klein, a director and Senior vice President of
the Company, and her husband, filed a petition pursuant to Chapter 7 of the
Bankruptcy Code. After receiving a discharge in bankruptcy, Mr. and Mrs. Klein
reopened the bankruptcy proceedings and converted same to a case under Chapter
11 of the Bankruptcy Code. In April 1995, Mr. and Mrs. Klein deposited $100,000
into the Bankruptcy Court for the purpose of paying in full, with interest, any
of the creditors of their bankrupt estate who had filed claims against in said
proceedings. In October 1995, such proceedings were closed.
LACK OF UNDERWRITING HISTORY
The Representative was organized in February 1992 and first
registered as a broker-dealer in 1994. Prior to this Offering, the
Representative has participated as a sole or co-manager in four public
offerings. Prospective purchasers of the Units offered hereby should consider
the lack of experience of the Representative in being a manager of an
underwritten public offering. See "Underwriting."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain Statements in the Prospectus Summary and under the
captions "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operation," "Business" and
elsewhere in this Prospectus constitute "forward-looking statements' within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may
24
cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statement. Such factors include, among others, the following general economic
and business conditions: fluctuations in the nationwide and regional demand for
housing and for automobiles; the capacity of the mortgage banking industry and
the non-prime automobile financing industry and the Company's customers in those
respective industries to satisfy consumer demand for respectively, mortgage
loans and automobiles; demographic changes; competition; the loss of any
significant customers; changes in business strategy or development plans;
availability and successful integration of acquisition candidates; availability,
terms and deployment of capital; quality of management; business abilities and
judgment of personnel; availability of qualified personnel; changes in, or the
failure to comply with, government regulations; and other factors discussed in
this Prospectus. See "Risk Factors."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,750,000
Units offered by the Company hereby at the public offering price of $ per
Unit, are estimated to be $ ($ if the over-allotment option
granted to the Underwriters is exercised in full) after deducting the
underwriting discounts and commissions, the Underwriters' ull) non-accountable
expense allowance and the other estimated expenses of this Offering. The ull)
Company expects to use the net proceeds, as follows:
[Download Table]
Amount Percent
------ -------
mortgage warehouse lending operations (1) (4) $ %
direct financing of automobile loans and leases (2) 2,000,000 %
working capital (3) 500,000 %
--------- -----
$ 100.0%
========= =====
----------
(1)The Company may allocate a portion of the proceeds of the Offering for use in
connection with its strategic goal of expanding into other specialty finance
niche activities through acquisitions or joint ventures. To the extent that such
expansion activities will require the Company to expend cash, the source thereof
will be the funds employed in the Company's mortgage warehouse lending
operations. Accordingly, the funds employed by the Company in such mortgage
warehouse lending activities will be concomitantly reduced. See "Business --
Strategy."
(2)The Company may lend up to $2,000,000 to Trans Lending to engage in the
direct financing of automobile loans and leases. Until such time as the
Company's management decides whether to enter into one or more loan transactions
with
25
Trans Lending for such purpose, the $2,000,000 shall be used by the Company in
its mortgage warehouse lending operations.
(3)The Company may use up to $500,000 to pay rent and/or other operating
expenses. Until such time any portion of such proceeds is so used, said
$500,000, or the unapplied balance thereof, shall be employed by the Company in
its mortgage warehouse lending operations.
(4)The allocation of the net proceeds of this Offering set forth above
represents the Company's best estimate of its intended uses thereof based upon
Management's present understanding of the Company's financial condition and
business prospects. If the Company deems it necessary or advisable to enter into
other specialty financial service sectors, primarily through acquisitions of
businesses, or joint ventures with businesses or executives having extensive
experience in the targeted specialty, it may reallocate up to $1,000,000 of the
proceeds currently earmarked for use in its mortgage warehouse lending
activities for such uses.
If the Representative exercises the over-allotment option in
full, the Company will realize additional net proceeds of approximately $, which
will be added to the Company's working capital and used for general corporate
purposes. The proceeds, if any, from the exercise of the Class A Warrants and
any outstanding warrants and options will be added to working capital and used
for general corporate purposes.
26
CAPITALIZATION
The following table sets forth the capitalization of the Company
as of September 30, 1996. The Proforma - Offering information includes and
accounts for the effect of the anticipated results of the completion of the sale
of 3,750,000 Units offered hereby (not including 562,500 Units subject to the
Underwriters' over-allotment option) at an offering price of $ per Unit (after
deduction of the estimated underwriting discounts and commissions and expenses
of the Offering).
[Download Table]
(in 000's)
Offering Proforma
Sept. 30, 1996 Adjustments Offering
-------------- ----------- ---------
Debt Obligations:
Loans payable, Mortgage
Warehouse $1,582 $ --- $1,582
Total Debt Obligations (1) 1,582 --- 1,582
===== ==== =====
Common Stock (1) - $.01
par value, authorized 20,000,000,
issued and outstanding:
1,442,272 shares at Sept. 30,
1996: 5,xxx,xxx shares
- Proforma Offering 15 38 53
Preferred Stock - $.01 par value,
authorized 5,000,000 shares,
issued and outstanding at Sept. 30,
1996: 0
Additional paid-in capital (2) 10,563
Accumulated Deficit (8,321) --- (8,321)
----- ----- -----
Total Shareholders Equity 2,257
----- ----- -----
Total Capitalization $3,839 $ $
===== ==== =====
----------
(1) Does not include additional non-debt related liabilities of approximately
$232,000.
(2) Net equity impact of issuance of 3,750,000 Units at $ per Unit.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock.
Furthermore, the provisions of the plan of reorganization pertaining to
Pioneer's emergence from bankruptcy, prohibit it from paying any dividends to
its common
27
shareholders until the sum of $1,350,000 shall have been paid to its
pre-bankruptcy unsecured creditors, provided, however, that such prohibitions
shall not be applicable in the event that 50% of the proceeds in excess of
$5,000,000 derived from any public offering of securities made by it shall be
utilized for payment of said $1,350,000. The proceeds which the Company derived
from the IPO did not exceed said $5,000,000 threshold. The proceeds which the
Company shall derive from this Offering will exceed such threshold. The Board of
Directors does not anticipate that it will use any portion thereof to pay any
part of said $1,350,000 obligation. Accordingly, the Board of Directors does not
anticipate paying cash dividends on the Common Stock in the foreseeable future.
Upon satisfaction of the foregoing payment obligation, the payment of future
cash dividends on the Common Stock will depend on such factors as earnings
levels, anticipated capital requirements, the operating and financial condition
of the Company and other factors deemed relevant by the Board of Directors. See
"Business - Pioneer's Chapter 11 Bankruptcy Proceedings" and "Description of
Securities."
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock began trading on the Nasdaq SmallCap
Market on August 14, 1996. The ranges of the high, low and closing prices of the
Common Stock on a quarter-by-quarter since said date through December 20, 1996
were, as follows:
[Download Table]
Quarter-End High Low Close
----------- ---- --- -----
Sept. 30, 1996 $4.875 $2.375 $2.75
Dec. 20, 1996 $2.75 $1.38 $1.63
As of December 20, 1996, there were approximately 500 beneficial
holders of the Company's Common Stock.
The Company has not paid any dividends on its Common Stock, and
has no plans to do so in the foreseeable future. See "Dividend Policy."
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
As of June 14, 1993, when the Company commenced active operations
following its emergence from Chapter 11 bankruptcy proceedings, it had an
available credit line of $1 million from one source, UMB. The Company's lines of
available credit were subsequently increased to an aggregate of $2.35 million as
of March 31, 1995 and $4.2 million as of June 1996. Substantially all of the
business conducted by the Company during the years ended March 31, 1994 and 1995
was with one active mortgage banking company who had a credit line approved by
the Company in the amount of $2 million. In April 1995, the Company discontinued
that customer's credit line when it failed to comply with the Company's
underwriting requirement to provide audited financial statements for the year
ended December 31,1994.
As a result of the death of the Company's former Chairman and
Chief Executive Officer, the Company did not engage in any substantial mortgage
warehouse lending activities from April 1995 through August 1995. During the
period from August 1995 through November 1995, the Company developed customer
relationships with three new mortgage banking companies, and from August 1995
through March 1996, the Company generated approximately $20.4 million in
mortgage warehouse lending volume from those new customers. Between April 1,
1996 and September 30, 1996 these three customers generated approximately $26.8
million in warehouse loan volume, a 31% increase over the fiscal year ended
March 31, 1996. During September 1996, the Company added a fourth customer which
received a $5 million line of credit.
The Company is in the process of evaluating the creditworthiness
of several other potential customers. Although the Company will seek to conduct
business in the future with a greater number of mortgage banking customers, and
thereby reduce the risks attendant in relying upon a small number of sources to
support its business, no assurance can be given that it will receive such
applications, or that such applicants will thereafter engage in a large enough
volume of mortgage warehouse lending transactions to sustain the Company's
operations. The cessation of business of any of the Company's active customers
or the inability of its customers to provide the Company with an increased level
of loan volume could materially adversely affect the Company's ability to
generate sufficient revenues to operate profitably and to continue to meet its
cash obligations in future periods.
During the fiscal years ended March 31, 1995 and 1996, the
Company incurred net losses of $589,000 and $480,000, respectively. Such losses
were partly attributable to noncash expenses (primarily depreciation,
amortization, debt discount expenses and deferred consulting agreement expenses)
totalling $329,000
29
and $164,000 during 1995 and 1996, respectively, and the inability of the
Company to generate a sufficient volume of loan transactions with its customers.
During the six month periods ended September 30, 1995 and 1996,
the Company incurred net losses of $229,043 and $246,369 respectively. Such
losses were partly attributed to noncash expenses (primarily depreciation,
amortization and debt discount expenses) totaling $98,267 and $110,936 during
the 1995 and 1996 periods, respectively, and the inability of the Company to
generate a sufficient volume of loan transactions with its customers.
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 1995 COMPARED WITH YEAR ENDED MARCH 31, 1996
REVENUES. Due primarily to the death of Uri Lieber, the
lessening, and ultimate cessation of mortgage lending operations, and the
restructuring of the Company's management and operations which took place during
the first half of the fiscal year ended March 31, 1996, the Company generated
only $97,190 in revenues, a 43.5% decrease from its fiscal year 1995 revenues.
Such revenues were generated by funding 201 loans totalling $20,501,107 with
three customers. The interest income component of such revenues amounted to
$76,957, a 22.6% decrease over the interest income generated during the fiscal
year ended March 31, 1995. Such decrease was due to the Company's operational
inactivity during the first half of the fiscal year. The processing fee
component of such revenues amounted to $15,733, which represented a 76% decrease
from the results of the prior fiscal year. Such decrease was due to the smaller
volume and aggregate dollar value of loans financed.
DIRECT COSTS. The Company's direct costs consist of the interest
and other charges which it must pay to its revolving credit line providers and
to the IPO Bridge Financing Lenders. During the fiscal year ended March 31,
1995, the Company's interest expense and other bank charges paid to providers of
its revolving lines of credit amounted to $68,552. During this period, the
Company financed a total of 222 loans aggregating $26,222,221 in weighted
average principal amounts of approximately $118,118 for an average duration of
12 days per borrowing, which amounts include 101 loans funded through bank
borrowings aggregating $11,454,426 in weighted average principal amounts of
$113,410 for an average duration of 11 days. During the fiscal year ended March
31, 1996, the Company's interest expense and other bank charges paid to
providers of the Company's revolving lines of credit amounted to $95,408. During
this period, the Company financed a total of 201 loans aggregating $20,501,107
in weighted average principal amounts of approximately $101,996 for an average
duration of 15 days per borrowing, which amounts include 152 loans funded
through bank borrowings aggregating $16,507,308 in weighted average principal
amounts of $108,601 for an average duration of 15 days. Such decrease in loan
activity was due to the Company's above-mentioned operational inactivity during
the first half of the fiscal
30
year ended March 31, 1996. The 28% increase in interest expense which occurred
notwithstanding the decrease in lending activity was due primarily to an
increase in use of the Company's bank credit facility, an increase in the length
of time when such loans were outstanding from an average of 12 days to an
average of 15 days and a higher weighted average prime rate during the fiscal
year ended March 31, 1996 over the average weighted prime rate of fiscal 1995.
Interest expense on the IPO Bridge Financing in fiscal 1995 and
1996 amounted to $142,748 and $79,231, respectively, consisting of interest
payable of $24,000 and $21,163, respectively, debt discount amortization of
$102,748 and $55,244, respectively, and deferred issuance cost amortization of
$16,000 and $2,824, respectively. In February, 1996, the Company paid the sum of
$122,492 in full satisfaction of its indebtedness to two of the IPO Bridge
Financing Lenders. The Company's IPO Bridge Financing obligations were be paid
in full upon closing of its IPO.
OPERATING EXPENSES. The Company's operating expenses of $544,462
during the fiscal year ended March 31, 1995 consisted primarily of salaries and
benefits paid or accrued to Uri Lieber and Glenda Klein ($159,427), depreciation
and amortization ($110,498), the primary component of which is the Collateral
Tracking System software ($91,327), accounting and legal fees ($71,010),
amortization of a consulting agreement ($96,000), telephone ($22,352), office
rent ($23,803) and miscellaneous expenses ($61,372 in the aggregate). The
Company's operating expenses of $433,709 during the fiscal year ended March 31,
1996 consisted primarily of salary and benefits paid to Glenda Klein and other
staff ($134,555), depreciation and amortization ($101,300), the primary
component of which is the Collateral Tracking System software ($92,312),
accounting and legal fees (114,382), telephone ($19,782), office rent ($11,609)
and miscellaneous expenses ($52,081 in the aggregate). It is anticipated that
aggregate operating expenses will increase less than proportionately as staffing
and office space is increased to manage the greater number of mortgage warehouse
loan transactions that management believes the Company will be implementing with
the proceeds of the IPO and this Offering. See "Business - Employees" and
"Business - Facilities."
NET LOSS. During the fiscal years ended March 31,1995 and 1996,
the Company incurred a net loss of $589,155 and $479,803, respectively. The
limited nature of the lending capital which was available to the Company,
coupled with the non-cash expenses which it incurred during each of such years
(primarily depreciation, amortization, debt discount and deferred consulting
agreement expenses) totalling $328,965 and $164,080, respectively, were
substantial contributing factors to such losses. The inability to attract
customers and the higher loan volume which they would generate which were caused
by the Company's lack of sufficient warehouse loan credit availability also
negatively impacted net income for the above-mentioned periods. In addition, the
Company has not historically incurred salary expense at a level which equals the
current combined compensation
31
arrangements with its Vice President and Chief Financial Officer, and with its
Chief Executive and Chief Operating Officers. Had such arrangements been in
place during the years ended March 31, 1995 and 1996, the Company would have
incurred additional salary expense of approximately $44,000 and $110,000 in 1995
and 1996, respectively, which would have increased the Company's net loss to
approximately $633,000 and $590,000, respectively, for such periods. See
"Management - Employment Agreements."
CASH FLOWS FROM OPERATIONS. The Company generated negative cash
flows from operations of approximately $194,000 and $253,000 for the fiscal
years ended March 31, 1995 and 1996, respectively. Such negative cash flows are
primarily a result of the Company's inability to generate a sufficient level of
loan volume from its customers which is further negatively impacted by the
limited funds available to the Company for use in its mortgage warehouse
activities (approximately $4.2 million in lines of credit and $150,000 in net
liquid assets). In order to generate positive cash flows from operations, the
Company will need to increase its loan funding capacity and correspondingly
increase its loan revenues and loan volumes.
The Company believes that the addition of the $1,970,466 portion
of the proceeds of the IPO which it is employing in its mortgage warehousing
operations will enable it to increase its base of customers and concomitantly
increase its loan volume to a level sufficient to generate positive operating
cash flows and net income. The infusion of such proceeds increased the Company's
net worth to approximately $2,600,000, increased its cash balance to
approximately $2,300,000, and provided it, without effecting any changes in its
business operations, with sufficient cash to support such operations during the
12 month period following the closing of the IPO.
REALIZABILITY OF LONG-LIVED ASSETS. Management has evaluated the
realizability of its long-lived assets (primarily furniture and equipment and
proprietary computer software) having a net book value of $217,990 at March 31,
1996 in accordance with the provisions of Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of."
SIX MONTH PERIOD ENDED SEPTEMBER 30, 1995 COMPARED WITH THE SIX MONTH
PERIOD ENDED SEPTEMBER 30, 1996
REVENUES. During the six month period ended September 30, 1996,
revenues increased to $129,723 compared to $11,392 for the six month period
ended September 30, 1995. Such revenue was generated from the three customers
added during the period August, 1995 through November, 1995 and the fourth
customer added September 20, 1996. 331 loans totaling $26,796,000 were funded
during the six month period ended September 30, 1996, which represented 65% and
31% increases,
32
respectively, in the total number of loans and the dollar volume of loans funded
during the entire fiscal year ended March 31, 1996. The interest and processing
fee component of such revenues reported for the six months ended September 30,
1996 amounted to $103,280 and $26,443, respectively, compared to $6,452 in
interest and $4,940 in processing fees for the six months ended September 30,
1995.
DIRECT COSTS. The Company's direct costs consist of the interest
and other charges which it must pay to its revolving credit line providers and
the interest which it paid to the IPO Bridge Financing Lenders. During the six
month periods ended September 30, 1995 and 1996, the Company's interest expense
and other bank charges paid to revolving line of credit providers amounted to
$9,051 and $120,887, respectively. Due primarily to the death of the Company's
former Chairman and Chief Executive in March 1995, the lessening, and ultimate
cessation of mortgage lending operations which took place by reason thereof, and
the restructuring of the Company's management and operations which took place
during the first half of the fiscal year ended March 31, 1996, the Company
financed a total of 17 loans totaling $1,233,236 in the weighted average
principal amount of $72,543 for an average duration of 14 days per borrowing
during the six month period ended September 30, 1995. During the six month
period ended September 30, 1996, the Company financed a total of 331 loans
totaling $26,796,000 in the weighted average principal amount of $80,955 for an
average duration of 14 days per borrowing, which amounts include 277 loans
funded through bank borrowings aggregating $22,349,000 in the weighted average
principal amount of $80,682. Such increase in loan activity was due to the
Company's above mentioned addition of four customers. The increase in interest
expense and bank fees was due to the increase in loan funding operations and the
use of the Company's bank credit facility.
Interest expense on the IPO Bridge Financing for the six month periods
ended September 30, 1995 and September 30, 1996 amounted to $14,824 and $4,885,
respectively, and debt discount amortization thereon during the same periods
amounted to $42,744 and $37,500, respectively. In February, 1996, the Company
paid the sum of $122,492 in full satisfaction of its indebtedness to two of the
IPO Bridge Financing Lenders. Upon the closing of the IPO, the remaining IPO
Bridge Financing obligation of $128,356 (which included $28,356 in accrued
interest) was retired in full.
OPERATING EXPENSES. The Company's operating expenses of $193,870
during the six month period ended September 30, 1995 consisted primarily of
depreciation and amortization of $50,650, the primary component of which is the
Collateral Tracking System ($46,156); salaries and benefits to the Company's
former Chairman and Chief Executive Officer and to its Senior Vice President
($66,859); legal and accounting fees ($25,203); telephone ($8,853), office rent
($5,805), temporary staff ($15,776) and miscellaneous expenses ($20,724 in the
aggregate). The Company's operating expenses of $218,379 during the six month
period ended September 30, 1996 consisted primarily of depreciation and
amortization of ($50,650),
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the primary component of which is the Collateral Tracking System ($46,156),
salary and benefits to the Company's Chief Executive, its President, its Senior
Vice President and office staff ($52,821); accounting and legal fees ($26,196);
telephone ($11,144); office rent ($5,805); temporary staff ($23,849) and
miscellaneous of ($47,914). The increase in such expenses during the six month
period ended September 30, 1996 as compared to the comparable period during
1995, was due to the increase in lending activity and the increased costs
associated with the professional, financial consulting and similar services
which the Company has incurred by reason of its change in status from a
privately owned to a publicly held company.
NET LOSS. During the six month periods ended September 30, 1995
and 1996 the Company incurred net losses of $229,043 and $246,369, respectively.
Such losses were primarily due to the Company's inability during the former
period to attract additional warehouse lines of credit which it needs in order
to operate profitably, and the Company's inability to improve such lines of
credit during the latter period while it was seeking to obtain additional credit
lines from approximately 20 banks and other financial institutions following the
completion of the IPO. Such non-cash expenses as depreciation, amortization and
debt discount totaling $98,267 and $110,936, respectively, were also
contributing factors to such losses.
CASH FLOWS FROM OPERATIONS. The Company generated negative cash
flows from operations of $157,542 for the six month period ended September 30,
1995 which resulted primarily from a loss from operations of $229,043. The
negative cash flow from operations of $494,292 for the six month period ended
September 30, 1996 resulted primarily from a decrease in accounts payable and
accrued expenses ($150,277), an increase in other assets of ($191,900) and the
loss from operations of ($246,369).
In order to operate profitably, the Company needs to increase its
warehouse loan lines of credit beyond its current level of $4,000,000.
Accordingly, immediately after the closing of its IPO, the Company began to
focus its efforts on acquiring such additional credit lines. In that regard, the
Company has sought warehouse lending lines of credit from approximately 20
different banks and financial institutions. Several of such lenders have
declined to extend credit to the Company for a variety of reasons including, but
not limited to, the relatively small size of the Company's asset and equity
bases in relation to such lenders' lending parameters. As of the date of this
Prospectus, the Company is maintaining dialogues with approximately eight
financing sources who have expressed an interest in considering the Company's
application for financing, and it intends to make applications to additional
warehouse line of credit sources. Although the Company believes that the
addition of the $1,970,466 portion of the proceeds of the IPO which it is
employing in its mortgage warehousing operations will enable it to effect the
needed expansion of its credit facilities by as much as $10 - 20 million, and
thereby achieve profitability through the ability to increase its customer base
and aggregate dollar loan volume
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which such additional lending capacity will permit it to undertake, no
assurances can be given in that regard.
REALIZABILITY OF LONG-LIVED ASSETS. Management has evaluated the
realization of its long-lived assets (primarily furniture and equipment and
proprietary computer software) having a net book value of $175,089 at September
30,1996 in accordance with the provisions of Statement of Financial Accounting
Standards No. 121 "Accounting for Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of." Based on such evaluation and taking into
consideration the positive cash flows and earnings the Company believes it will
be able to generate in future periods, management does not believe that there is
an impairment of its long-lived assets at September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
On July 31, 1995, the Company paid UMB a $20,000 renewal fee in
connection with its consummation of a thirteen month extension (due to expire
August 31, 1996) of its $2,000,000 warehousing line of credit. On November 9,
1995 and February 23, 1996, respectively, the Company paid an additional $4,167
and $7,917 in consideration for the extension of said line of credit to
$2,500,000 and then to $4,000,000. In connection therewith, the Company also
granted to UMB a five year option to purchase up to 41,271 shares of Common
Stock at an exercise price of $5.50 per share. Said option shall expire with
respect to any unexercised portion thereof in the event that the Company's
credit line with UMB shall not be renewed or extended. See "Description of
Securities - UMB Option."
On September 10, 1996, the Company paid UMB a $40,000 renewal fee
in connection with the extension of its credit facility through August 31, 1997.
The Company's primary sources of the capital which it employs in its warehouse
lending operations are borrowings under its UMB line of credit and its net
equity capital funds of approximately $2,072,000.
PIONEER'S CHAPTER 11 BANKRUPTCY PROCEEDINGS. In April 1993,
Pioneer emerged from bankruptcy pursuant to a plan of reorganization, as
subsequently modified (the "Plan"), which provided, among other things, that
each unsecured creditor would receive a distribution equal to such creditor's
pro rata share of $150,000, plus a non-interest bearing unsecured note (the
"Note"). Pursuant to the terms of the Notes, if at the close of the fiscal year
ended March 31, 1995, the Company had any net income (net income, as reported in
the Company's audited financial statements, increased by any deductions taken
for depreciation or amortization, and decreased by certain interest earnings) in
excess of $400,000, each holder of a Note would have been entitled to receive
distributions equal to such creditor's pro rata share of 20% of the net income
in excess of said $400,000. However, the Company had no net income during said
fiscal year. Beginning with the close of the fiscal year ending March 31, 1996,
and for all fiscal years thereafter, each holder of a Note shall be entitled to
receive a distribution equal to such
35
creditor's pro rata share of 20% of the net income available for note payments,
if the net income for any such fiscal year exceeds $1,300,000. Holders of the
Notes shall continue to receive payments under the Notes, consistent with the
foregoing terms, until an aggregate of $1,350,000 is paid under the Notes. At
such time, the Notes shall be deemed fully satisfied and discharged and the
Company shall have no other or further obligations thereunder. The Company was
not required to make any payments to the Note holders with respect to the fiscal
year ended March 31, 1996.
The Plan, as assumed by operation of law by the Company at the
time of consummation of the Merger, further provides that, until such time as
said $1,350,000 has been paid in full, no dividends may be declared or paid to
the holders of any class of the Company's common stock, it may not redeem,
purchase or otherwise acquire for value any of its capital stock and it may not
return any of its assets or make any distribution of assets to any of its
shareholders, provided, however, that such prohibitions shall not be applicable
in the event that 50% of the proceeds in excess of $5,000,000 derived from any
public offering of securities made by the Company shall be utilized for payment
of said $1,350,000. The proceeds which the Company derived from the IPO did not
exceed said $5,000,000 threshold. The proceeds which the Company shall derive
from this Offering will exceed such threshold. The Board of Directors does not
anticipate that it will use any portion thereof to pay any part of said
$1,350,000 obligation. Therefore, it is not expected that the Company will be
undertaking any of the aforementioned currently prohibited actions in the
foreseeable future.
Accordingly, until such time as the Notes have been paid in full,
the Company will be obligated, to the extent hereinabove described, to pay to
Pioneer's pre-Chapter 11 unsecured creditors an aggregate of $1,300,000 of the
income that otherwise would be available for use in connection with the
Company's operations, or for distribution to its shareholders. No holder of any
of the Notes was affiliated with Pioneer, or is affiliated with the Company.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Number 109, Accounting for Income
Taxes ("FAS No. 109") which requires the use of an asset and liability approach.
The asset and liability approach computes deferred taxes based on expected
future tax consequences to be in effect when timing differences reverse, whereas
the deferred method utilizes the tax rate in effect at the time of the
origination of the timing differences. The Company adopted FAS No. 109 in its
current fiscal year. Implementation of FAS No. 109 did not have a material
effect on the Company's financial position and results of operations.
In January 1995, the Company adopted FAS 114, "Accounting by a
Creditor for Impairment of a Loan," FAS 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" and FAS 119,
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"Disclosure About Derivative Financial Instruments and Fair Value of Financial
Instruments." Adoption of these new accounting and disclosure standards did not
have a material effect on the Company's financial position or results of
operations.
IMPACT OF IPO ON NET OPERATING LOSS CARRYFORWARDS
As of September 30, 1996, the Company had available net operating
loss carryforwards of approximately $2.3 million. As a result of changes in the
Company's common stock ownership, the Company is subject to annual limitations
pertaining to the use of such operating loss carryforwards. The Company expects
that the amount of net operating loss carryforwards which may be utilized in any
future period will be limited to an amount not to exceed approximately $100,000
per year. Management believes that the losses that it has incurred since the
Merger (aggregating $896,000) are not subject to these limitations. The
Company's ability to use such net operating loss carryforwards is dependent upon
its ability to generate taxable income in the future. See Note 6 of Notes to
Pioneer's Financial Statements.
THE MERGER
In November 1994, PCF and Pioneer consummated the Merger pursuant
to an Agreement and Plan of Merger (the "Merger Plan") which provided, among
other things that (a) Pioneer would merge with and into PCF; (b) the Company, as
the surviving constituent of the merger would change its name to Pioneer
Commercial Funding Corp.; (c) upon consummation of the Merger, the persons who
were serving as the directors and officers of Pioneer would serve in the same
capacities as the directors and officers of the Company (see "Management"); and
(d) the Merger would be effected by issuing one share of the Company's Common
Stock in exchange and extinguishment of each share of Pioneer's common and
preferred stock then held by its shareholders. Upon consummation of the Merger,
the Company exchanged, on a share for share basis, 814,126 shares of its Common
Stock for the 318,017 shares of Pioneer's Class A common stock, the 333,311
shares of Pioneer's Class B common stock and the 162,798 shares of Pioneer's
Class A preferred stock which had been issued and outstanding immediately prior
to the Merger.
Further in accordance with the Merger Plan, all property, rights,
privileges, powers, contracts, and franchises and every other interest possessed
by Pioneer in any capacity became the property of the Company, all rights of
creditors and all liens upon any property of Pioneer were preserved unimpaired
and all debts, liabilities and duties of Pioneer attached to the Company and
became enforceable against it to the same extent as if said debts, liabilities,
and duties had been incurred or contracted by the Company.
The foregoing discussion is a summary of the principal terms of
the Merger Plan. It does not purport to be complete, and it is qualified in its
entirety by
37
reference to the Merger Plan, a copy of which is on file as an exhibit to the
Company's Registration Statement of which this Prospectus forms a part. See
"Available Information."
BUSINESS
GENERAL OVERVIEW
The Company is a specialized niche financial services company
currently engaged in (i) residential mortgage warehouse lending and (ii)
origination of consumer automobile loan and lease financings through a recently
acquired 50% interest in Trans Lending. Trans Lending presently represents AVCO,
ACC and Norwest who have agreed to purchase Contracts acquired by Trans Lending
from approximately 60 dealers located in Florida. The Company will seek to enter
other specialty financial service sectors primarily through acquisitions of
businesses or joint ventures with businesses or executives having extensive
experience in the targeted specialty.
The Company is a mortgage warehouse lender providing short-term
(generally 10 - 30 day) financing to small to medium sized mortgage bankers who
hold ("warehouse") the mortgage loans they originate pending the nonrecourse
sale of such loans to institutional investor agencies in the secondary mortgage
market such as GNMA, FNMA, and FHLMC and/or accredited financial institutions
such as banks, thrifts, insurance carriers and large mortgage bankers.
STRATEGY
The Company's multi-pronged growth strategy to maximize long-term
shareholder values is:
Expanding the scope of the Company's mortgage warehouse
lending activities by increasing its available lines of credit and the number of
mortgage bankers served.
Developing and expanding Trans Lending's automobile
financing activities through its representation of a greater number of banks and
other institutional purchasers of auto loans, and through the establishment of
Contract acquisition relationships with a greater number of franchised and
independent used car dealerships.
Expanding into other specialty finance niche activities
primarily through acquisitions of businesses, or joint ventures with businesses
or executives having extensive experience in the targeted specialty.
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Obtaining commitments from Arthur H. Goldberg, the
Company's Chief Executive Officer, and Elie Housman, the Company's President and
Chief Operating Officer, to devote substantial portions of their time to the
affairs of the Company.
MORTGAGE WAREHOUSE LENDING INDUSTRY OVERVIEW
General. Mortgage bankers (i) originate mortgage loans, as direct
lenders; (ii) act as intermediaries in the subsequent marketing and sale of
mortgage loans in the secondary mortgage market; (iii) warehouse mortgage loans;
and (iv) service mortgage loans.
Historically, mortgage banks have originated approximately 20% -
25% of all mortgage loans. However, according to the U.S. Department of Housing
and Urban Development, due to changes during the late 1980's and early 1990's in
the composition and liquidity of the savings and loan industry (the historic
market leader in mortgage loan originations), and the regulatory tightening of
commercial banking industry capital requirements, mortgage banks have increased
their share of the mortgage loan origination market to approximately 50%.
Mortgage warehouse lending transactions are collateralized
principally by its receipt of (i) an instrument of assignment of the original
mortgage loan note endorsed in blank by the primary lender; (ii) a certified
copy of the mortgage or deed of trust and an instrument of assignment thereof
executed in blank by the primary lender; and (iii) an executed commitment from
an Agency to purchase the mortgage loan at a specific price and time.
The Secondary Mortgage Market. After World War II, the United
States Government created three for-profit entities to stimulate the
availability of mortgage financing for residential dwellings, FNMA, FHLMC and
GNMA. Prior to the creation of these Agencies, commercial and savings banks made
mortgage loans only to the extent they could retain such loans in their own
portfolios or sell them to private investors. These Agencies created the
secondary mortgage market by issuing and guaranteeing mortgage-backed fixed
income securities to the investing public.
The Agencies obtain their funds by offering long-term bonds to
institutional investors which are secured by the underlying mortgages purchased
by the Agencies, and which pass through to the bondholders the mortgage
principal and interest payments received by the holders of such mortgages.
Additionally, inasmuch as GNMA is an organ of the United States government, its
bonds are also backed by the full faith and credit of the U.S. Treasury. The
Agencies rely on independent companies to service the loans they purchase. Often
the servicing agent is the same mortgage bank from whom an Agency purchases a
mortgage loan. Such services include collecting interest and principal payments
on a monthly basis
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and insuring that property taxes and property insurance premiums are paid as and
when they become due.
The Agencies purchase mortgages pursuant to commitments which
they issue to mortgage banks and other mortgage loan originators who have been
previously screened by the Agency and qualified as an Agency-approved mortgage
lender. The most prevalent commitment provides for the purchase by an Agency of
"standard pools" of mortgage loans in blocks ranging from $1 million to $5
million. That pool of mortgage loans, either separately or when aggregated with
other similar pools purchased by an Agency, becomes the underlying collateral
for the fixed income, so-called "mortgage-backed securities" that are issued and
guaranteed by the Agency.
During the five year period between 1991 and 1995, the dollar
volume of residential mortgage loans purchased by the FHLMC, FNMA, GNMA, VA and
FHA was, as follows:
[Download Table]
FHLMC FNMA GNMA VA FHA Totals
----- ---- ---- -- --- ------
(Billions of Dollars)
1995 $ 93.386 $167.048 $ 72.866 N/A $ 43.800 $382.120
1994 124.246 192.011 111.215 N/A 94.900 522.342
1993 229.706 313.751 138.000 N/A 102.200 783.657
1992 191.126 75.905 81.900 $24.500 50.900 424.331
1991 99.965 37.202 62.600 15.300 47.800 262.867
------------------------------
Source: Reports of FHLMC and FNMA for the years 1991 - 1995.
Mortgage bankers desiring to originate and sell mortgage loans to
the Agencies are required to produce such loans in accordance with very specific
Agency guidelines and criteria. As of the date of this Prospectus, the loan
limits imposed for the mortgage loans on owner-occupied residential properties
that the FHLMC, FNMA, GNMA, VA and FHA will purchase are, as follows:
[Download Table]
FHLMC(1) FNMA(1) GNMA(2) VA(2) FHA(1)
-------- ------- ------- ----- ------
Single Family $207,000 $207,000 $185,000 $185,000 $155,250
2 Units 264,750 264,750 198,550
3 Units 320,050 320,050 240,000
4 Units 397,800 397,800 298,350
-------------------------
Source: Reports of FHLMC and FNMA for the years 1991 - 1995.
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(1) The loan limits imposed by FHLMC, FNMA and FHA are generally applicable
throughout the United States.
(2) The loan limits set forth herein are those imposed by GNMA and the VA in
regions of the United States such as Southern California and Metropolitan New
York which they have designated as "High Cost Areas."
THE COMPANY'S MORTGAGE LENDING OPERATIONS
The Company provides financing for small to medium sized mortgage
bankers possessing at least $350,000 of capital who have been approved as a
seller or servicer of mortgage loans by one or more of the Agencies, and who
have been granted a mortgage warehouse line of credit by the Company after
satisfying its own financial, business and creditworthiness standards. The
mortgage loans for which the Company provides such financing are primarily
single family residences and other owner occupied residential properties
including one to four unit properties in which the owner is the occupant of at
least one of such units.
In a mortgage warehouse loan transaction, the Company's mortgage
banking customer will first purchase a funding commitment from an Agency for a
fee which is usually a fraction of a percent of the commitment amount. Then, the
Company's customer will seek to fill the commitment through the submission of
one or more loans to the Agency which conform not only to the Agency's
established loan criteria, but also to the commitment's rate and delivery date.
These commitments can take three forms: individual loan, small pool, and
standard pool. An individual loan commitment is an agreement by an Agency, with
a usual term of no longer than two weeks, to purchase a single whole loan of a
specified amount on or before a specified date at a specified rate. A small pool
commitment is an agreement by an Agency, with a usual term of no longer than
three weeks, to purchase an unrestricted number of whole loans of a specified
total amount on or before a specified date at a specified rate. A standard pool
commitment is an agreement by an Agency, with a usual term of no longer than
four weeks, to purchase an unrestricted number of whole loans of a specified
total amount of no less than $1 million on or before a specified date at a
specified rate.
In general, the Company's customers do not possess sufficient
capital or bank lines of credit to fully fund loans they originate during the
period of time that transpires between the date on which a loan is closed and
the Agency Commitment Date. Accordingly, the Company provides its customer with
a line of credit that is collateralized by each loan that it funds for its
customer, which line of credit enables the customer to warehouse the loan for
the period of approximately 10 to 30 days that typically occurs from the closing
of the loan until the Agency Commitment Date. During this period, the Company
holds the loan documents (generally, the promissory note and the first deed of
trust or mortgage securing the note), and upon its delivery of the loan
documents to the Agency, the Company is paid the aggregate amount of the loan.
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The Company derives its revenues from the transaction-based fees
that it charges its customers in connection with the loans it funds on their
behalf, and the interest rate spread (generally 0.75%) between the yield paid by
the Company to its financial sources for its borrowed funds, and the interest
rate charged by it for mortgage loans that it funds on behalf of its mortgage
banker customers.
Transaction fees are determined pursuant to a schedule based upon
the length of time between the funding of a loan by the Company and
reimbursement of same by an Agency. In each case, the Company's customer is
charged an initial fee of $70.00 to $90.00 upon funding of a loan. If the loan
is repaid within 30 days of the funding date, no additional fee is usually
earned by the Company on such loan. If such loan is not repaid within such
period, its customer must pay an additional fee of $150.00.
In the event that the Company disburses funds to a title company
in preparation for closing of a loan which thereafter does not close, only the
initial fee, plus interest for the one to three days that it normally takes
before such funds are returned by the title company to the Company are charged
by it to its customer.
Generally, the Company's mortgage warehouse loan customers pay
interest for the funds they borrow from it at a rate that ranges from one
quarter of one percentage point to one percentage point over the UMB Prime Rate
(as defined below).
THE COMPANY'S UMB LINE OF CREDIT
In accordance with the $4,000,000 revolving line of credit and
security agreement between the Company and UMB, as amended (the "UMB
Agreement"), the Company pays a fee of $30.00 per loan plus interest on advances
made under its credit line at a rate which is one percent above the highest
"prime rate" of interest, quoted from time to time by the Wall Street Journal as
the "base rate on corporate loans at large U.S. money center commercial banks"
(the "UMB Prime Rate"). As collateral security for its indebtedness to UMB under
said agreement, the Company has granted to UMB a security interest in various
assets including, but not limited to, all promissory notes acquired by the
Company with respect to any loan funded by it with moneys advanced under its UMB
credit line and all mortgages or other forms of collateral security obtained by
the Company in connection with the funding of such loans.
THE COMPANY'S MORTGAGE BANKING CUSTOMERS
During the fiscal year ended March 31, 1995, the Company did
business with three mortgage banking customers, Premium Mortgage Company
("Premium"), National Mortgage Banking Group, Inc. ("National") and The Mortgage
Group, Inc. ("TMG"). Premium is located in, and originates mortgage
42
loans in, California. National is located in, and originates mortgage loans in
Southern California. TMG is located in Virginia, and originates mortgage loans
in Virginia, Washington, D.C. and California. 82.25% of the Company's warehouse
lending business between the Inception Date and March 31, 1995 was conducted
with Premium. The Company suspended its customer relationship with Premium in
April 1995 due to Premium's failure to comply with the Company's underwriting
criteria.
Between April 1, 1994 and January 1, 1995, the date when National
ceased doing business, the Company funded four loans totalling $471,259 for
National. The average size of such loans was $117,815. The Company commenced
business operations with TMG on August 10, 1994. In January 1995, TMG began
processing its warehouse loan credit needs through another provider, and ceased
doing business with the Company. During the six month period when TMG was an
active customer, the Company funded 63 loans for TMG totalling $7,838,277. The
average size of such loans was $124,417.
In August 1995, the Company commenced business operations with
Windtree, and from said date through March 31, 1996, Pioneer funded 81 loans
with said customer totaling $7,249,533 The average size of such loans was
$89,500. On September 26, 1995 the Company commenced business operations with
1st Financial and funded 49 loans totaling $3,529,393 with said customer through
March 1996. The average size of such loans was $72,028. On November 9, 1995 the
Company commenced business operations with Home Funding, a FHLMC and FNMA
mortgage banker in California, and funded 70 loans with said customer totaling
$9,599,530 through March 31, 1996. The average size of such loans was $137,136.
As of September 20, 1996, the Company commenced doing business
with Citizens, a FNMA mortgage banker which does business in Pennsylvania, New
Jersey, Virginia and Delaware. On October 16, 1996, Pacific Crest, a Southern
California FNMA mortgage banker was added to the Company's approved list of
customers, and on December 16, 1996, AIB, a New York based mortgage banking
customer, also was added to the Company's list of approved customers.
During the six months ended September 30, 1996, the Company
funded a total of 331 loans for five customers aggregating $26,796,269. The
average size of such loans was $80,955, and the average duration thereof was 12
days. 210 of such loans aggregating $17,081,344 (average size - $$81.340) were
funded for Windtree, 92 of such loans aggregating $6,435,833 (average size -
$69,955) were funded for 1st Financial, 15 of such loans aggregating $2,154,724
(average size - $143,648) were funded for Home Funding and 14 of such loans
aggregating $1,124,368 (average size - $80,312) were funded for Citizens.
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The Company is currently analyzing applications from four other
potential customers who originate residential family mortgage loans in Arizona,
California, Colorado, Nevada, New Mexico, New Jersey, New York, Oregon, South
Carolina, Utah and Washington.
STANDARDS FOR APPROVAL AS A CUSTOMER
In order to be approved as a customer, a mortgage bank must
satisfy a set of standards that have been established by the Company. To insure
completeness, the process of reviewing and determining whether an applicant has
satisfied all of such standards is fully monitored through the CTS, a
proprietary set of computer-based standards, procedures and controls designed to
manage the risks inherent in the Company's business (see "-- The Collateral
Tracking System"). In accordance with those standards:
the applicant must be in business a minimum of three years and
possess certified financial statements conforming to generally
accepted accounting principles
the applicant must have been approved by at least two Agencies
the applicant must have a minimum net worth of $350,000
an applicant who possesses a net worth of $500,000 or less will
be restricted to a warehouse credit line of not more than
$2,000,000
the applicant must produce corporate and personal income tax
returns covering the three most recent years
the applicant must produce banking statements covering the most
recent six months of its operations for review by the Company
background and reference checks are performed on the customer's
principals and its key underwriting personnel
a credit analysis is performed using independent certified public
accountants
the customer's underwriting and quality control standards and
procedures are reviewed
after thorough screening, the Company determines which of the
secondary mortgage market investors (other than GNMA, FNMA and
FHLMC), as well as the appraisers, title companies and escrow
agents previously used by the customer meet the Company's
standards, and
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only they will be permitted to be used by the customer in
connection with loans funded by the Company
the customer must carry errors and omissions insurance coverage
satisfactory to the Company, and must name the Company as an
additional insured under such coverage
all title companies, escrow agents and appraisers approved by the
Company must carry errors and omissions insurance coverage
satisfactory to the Company. All of such title companies and
escrow agents must issue insured closing protection letters to
the Company with respect to the transactions that the Company
funds through each of them
the customer's principals must personally guaranty payment of all
moneys which the customer will borrow from the Company
After a customer has satisfied the Company's application
standards, a credit facility is entered into by it and the customer which
specifies, among other things, the maximum amount which can be borrowed by the
customer under the facility, the maximum percentage of any single mortgage loan
that will be advanced, the interest rate and terms of repayment. All funds
advanced by the Company under the credit facility are collateralized by a
security interest in, among other things, the note and mortgage or deed of
trust, as well as all instruments and documents comprising the loan
documentation on each loan funded by the Company.
THE COLLATERAL TRACKING SYSTEM
The Company manages the risks inherent in its business, and
prepares, tracks and confirms the on-time delivery of all necessary documents to
the appropriate Agency with its CTS, a proprietary set of computer-based
standards, procedures and controls which was developed principally by the
Company for its business, and not for resale to other mortgage financing
companies. The CTS programs enable the Company to avoid the problems caused by,
and the monetary losses that can result from, the frequent short-term processing
deadlines, the high volume of loan transactions and the complex document
structures of mortgage loan financing transactions which are integral parts of
the mortgage loan warehouse financing business. Substantial penalties for delay
in delivering loan documents to the secondary market, which may range from a
surcharge of 1% - 2% of the principal amount of a loan in the case of a delay
regarding an individual loan commitment, to a complete rejection and refusal to
purchase an entire pool of loans, in the case of a delay in filling a pool
commitment, are an integral part of the mortgage loan warehouse financing
business. An individual loan surcharge will not have any adverse effect upon the
Company, inasmuch as the amount thereof would be
45
deducted from the proceeds of the particular loan which the Company would
otherwise be obligated to remit to its mortgage banking customer upon its
acceptance and funding by an Agency. However, a delay which would cause an
Agency to refuse to purchase a pool, could result in a delay of indeterminate
length in replacing the rescinded pool commitment with a new pool commitment
from another Agency, or in selling the components of the pool as individual
loans. Although the Company would ultimately be compensated for the delay via
the generation of higher fees and interest charges payable by its customer on
the pool loans in question, the delay could hinder its ability to timely fund
additional loans submitted by other customers, and thereby adversely affect its
ongoing relations with such other customers as a reliable source of mortgage
warehouse financing. Since the Inception Date, none of the individual or pool
loans funded by the Company on behalf of its customers has been rejected by
reason of a delay in the delivery thereof to an Agency, and the Company has
suffered no loss of principal. See "-- The Mortgage Loan Process From
Application to a Customer Through Funding."
The CTS programs have been modified and altered over time so that
they fit the Company's business without seeking to create a standardized
exportable system, and they include all phases of the Company's mortgage
financing operations in their scope including, but not limited to the following:
Establishing a credit line with a mortgage banking customer
credit worthiness of the proposed customer
background checks of customer's principals
quality of loans financed by customer
loan underwriting procedures and safeguards
use of property appraisers approved by the Company
use of title insurance companies approved by the Company
Processing of loans to be financed by the Company
no funds will be transferred until appropriate verification has
been entered into CTS regarding the receipt, generation, review
and accuracy of each of the following documents
the original mortgage note manually executed by the
borrower and properly endorsed
a copy of the Agency's commitment to purchase the note
a certified copy of the mortgage instrument or deed of
trust
a duly executed assignment of the mortgage or deed of
trust to the Company
copies of any intervening assignments
a copy of the preliminary Title Report
46
a copy of the appraisal prepared in full compliance with
the applicable FHA VA loan guidelines
a copy of the borrower's signed loan application - an
executed Regulation Z Statement - a power of attorney,
when needed
a notice of right to cancel, when applicable
the Lender's escrow instructions
a mortgage insurance certificate, when applicable
proof of hazard insurance coverage and payment of the
premium therefor
a flood insurance certificate, when applicable
a copy of Grant/Warrantee Deed, when applicable
CTS automatically tracks the presence or absence of each of the
foregoing documents with respect to each loan being processed,
and provides appropriate on-screen warnings and reports regarding
deficiencies in documentation for any loan
Funding of Loans
CTS keeps track of all amounts funded under its customer's line
of credit, automatically determines whether a sufficient balance
remains thereunder to fund a particular loan; and updates the
available balance information upon transfer of funds
CTS generates all documentation pertaining to the transfer of
funds to the title company closing a loan, the transmittal and
release of loan documents to an Agency, the receipt of funds in
payment of loans purchased by an Agency and the distribution of
funds to the mortgage bank in repayment of the 2% portion of each
loan funded by it
THE MORTGAGE LOAN PROCESS FROM APPLICATION
BY A CUSTOMER THROUGH FUNDING
The Company's customers are Agency-approved mortgage banks that
generally originate two categories of mortgage loans which are purchased by such
Agencies, i.e., (i) residential mortgage loans which either have been insured by
the Federal Housing Administration, insured by the Farmer's Home Administration
or guaranteed by the Veteran's Administration (collectively, "FHA/VA Loans");
and (ii) conventional residential mortgage loans, i.e., non-FHA/VA Loans which
comply with the requirements for sale to, or conversion into, mortgage-backed
securities issued by FNMA or FHLMC ("conforming loans").
The Company is first contacted about a loan to be funded for one
of its mortgage bank customers after the mortgage bank has (i) already completed
the application review and underwriting process for the loan; (ii) satisfied
itself that the
47
loan complies with applicable FHA/VA Loan guidelines, as well as the applicable
Agency's loan requirements; and (iii) received a commitment from the Agency to
purchase the loan or a pool of loans which will encompass the loan in question.
In order to be able to gain access to its mortgage warehouse loan credit
facility, the CTS must confirm receipt from the mortgage bank of all of the loan
documentation hereinabove discussed.
In general, within one day of the CTS's confirmation that all of
such documentation has been received, reviewed by the Company's staff and
confirmed as to accuracy and completeness, it will wire transfer 98% of the
proceeds of the loan to the appropriate escrow agent or title company with
instructions to disburse same only upon consummation of the closing, or
otherwise return the funds to the Company. At the time of closing, the mortgage
banker funds the 2% balance of the loan proceeds.
On or shortly before expiration of the Agency Commitment Date,
the Company delivers all notes and mortgage instruments comprising the loans to
be purchased pursuant to the Agency's commitment to the Agency's payment agent
under cover of a "Bailee Flow Letter" which conditions the transfer of title of
such documents from the Company to the Agency upon payment to the Company of the
aggregate principal amount of the loans being delivered. Upon receipt of such
funds from the paying agent, the Company remits a part thereof to its mortgage
banking customer equal to the 2% portion of the loan proceeds funded directly by
the mortgage bank, less the Company's fees and the interest payable with respect
to the funds borrowed from the date of closing of the loan through the date of
the Company's receipt of the funds from the Agency's paying agent.
By limiting the mortgage loans to those that conform to Agency
criteria, which criteria define the prevalent standards for the entire secondary
mortgage market, the Company reduces its overall financing risks to those
mortgages which are the most liquid and readily acceptable by secondary mortgage
market lenders. Furthermore, by insisting on receipt of full documentation with
respect to a loan, the Company is assured that if, for any reason, an Agency
refuses to accept and pay for a loan subsequent to the closing thereof, the
Company will have all of the data and documentation necessary to sell the loan
to another Agency, or to a mortgage loan originator or warehouse lender which
will seek to pool the loan with other loans and market it in the secondary
mortgage market. In the event that an Agency, for any reason, were to fail to
accept a loan for purchase under a previously issued commitment, the Company
would be able to avail itself of one of the following three options: (i) the
Company could require its mortgage banking customer to resubmit the loan to the
same Agency after curing the error or other reason for its rejection which, in
most cases according to Pioneer's experience, is incomplete or illegible
documentation; (ii) the Company could require its customer to sell the loan to
another Agency or secondary market institutional investor that will accept
mortgage loans on an "as is" basis, in which case, the customer, not the
Company, would be required to absorb any loss accruing to such transaction; or
(iii)
48
the Company could exercise the right it possesses under the loan and security
agreement that it enters into with each of its mortgage banking customers to
demand that such customer refund all warehouse financing funds advanced by the
Company with respect to the rejected loan upon 24 hours' notice. Between the
Inception Date and September 30, 1996, no loan which was approved for funding by
the Company failed to close, and every loan which was closed with the Company's
funds during said period was sold to one of the Agencies in accordance with the
commitments given by them in advance of such closings. During the 18 month
period which preceded the November 1989 commencement of Pioneer's Chapter 11
bankruptcy proceedings, less than 100 of the approximately 12,000 loans
aggregating approximately $1.3 billion that Pioneer funded were rejected by the
Agencies which had originally committed to purchase them. Every one of those
rejected loans was sold by Pioneer to another purchaser in the secondary
mortgage market.
EMPLOYEES
As of the date of this Prospectus, the Company has three
executives, and three part time loan processors. Although the Company has been
accruing a compensation obligation to its Chief Executive Officer and its
President at the rate of $55,000 per annum for each executive, it has not paid
any portion thereof to either officer, although it is anticipated that such
payments will be made prior to the end of the current fiscal year. It is also
anticipated that, prior to the end of the current fiscal year, the Company's
part time employees will become full time employees and that it will hire up to
four additional employees to process the expanded volume of mortgage loan
transactions that the Company expects to fund with its use of the net proceeds
of the Offering. See "Use of Proceeds". The Company's Chief Executive Officer
and Chief Operating Officer have agreed to enter into employment agreements, and
its Chief Financial Officer has entered into an employment agreement. See
"Management -- Employment Agreements." None of the employees of the Company is
represented by a labor union or is subject to a collective bargaining agreement.
The Company believes that its relations with its employees are good.
FACILITIES
The Company maintains its office at 6660 Reseda Boulevard,
Reseda, California which is occupied pursuant to a five year lease which
commenced on November 1, 1996, and which provides for the payment of rent in the
amount of $2,178 per month. Following completion of the Offering, the Company
intends to lease executive office facilities in New York, New York.
COMPETITION - MORTGAGE WAREHOUSE LENDING
The business of originating and financing the origination of
residential mortgage loans in highly competitive. In order to obtain qualified
residential mortgage loans from small to medium sized originating mortgage
bankers, the
49
Company must compete with national, regional and local commercial banks and
mortgage banking companies who engage in mortgage loan warehouse lending. Many
of those institutions and companies, which have longer operating histories and
significantly greater resources than those of the Company, are engaged in
providing on much greater scales than the Company's resources will permit for
the foreseeable future, the same or similar kinds of computer-based bridge
financing of residential mortgage loans that Pioneer has heretofore offered to
its customers, and which the Company is presently offering. Larger established
mortgage warehouse lenders are making substantial investments in their computer
operations to achieve significant economies of scale and greater flexibility in
rendering services. Also, major bank-related organizations like the Mortgage
Warehouse Division of Bank of New York, Bank of America, PNC Bank, and other
businesses engaged in lending activities, such as CWM Mortgage Holding, Inc.'s
Warehouse Lending Corporation of America, The Associates First Collateral
Services and General Electric Capital Corp.'s Residential Funding Corporation
are entering or reentering the mortgage warehouse financing business. Similarly,
although the Company is not aware of any plans for any of the Agencies to enter
the mortgage warehouse lending business, any of these Agencies has the capital,
the expertise, and the industry know-how to enter this business in a significant
manner. Furthermore, if any of the Agencies did enter this business, it would
constitute very strong competition to the Company in its efforts to secure well
qualified customers on terms favorable to the Company. Such an increase in
competition in the mortgage warehouse business could have a material adverse
effect on the Company's business operations and prospects. There can be no
assurance that the Company will be able to compete effectively with such
competitors, that additional competitors will not enter the market, or that such
competition will not make it more difficult for the Company to secure a
sufficient number of high quality mortgage banking customers to realize its
anticipated business growth.
REGULATION - MORTGAGE WAREHOUSE LENDING
Although mortgage loan warehousing is not presently subject to
federal regulation, the California Finance Lenders Law went into effect July 1,
1995. That law imposes licensing obligations on the Company, requires the filing
of annual and periodic reports, establishes maximum interest rates and repayment
terms in certain cases, and provides for fines and imprisonment for violation of
the law. Other participants in the mortgage warehouse financing process, such as
title companies and appraisers, also may be regulated by the states in which
they reside and such regulations often determine the scope and approach of the
Company's collateral control monitoring program. Furthermore, mortgage banking
is a highly regulated industry. The Company's mortgage banking customers are
subject to the rules and regulations of, and examinations by, the FHA, VA, GNMA,
FNMA, FHLMC and state regulatory authorities with respect to originating,
processing, underwriting, selling, securitizing and servicing residential
mortgage loans. In addition, there are other federal and state statutes and
regulations affecting such activities. Potential future changes in these rules
and regulations could, among
50
other things, adversely impact its customers' business activities by, among
other things, establishing eligibility criteria for mortgage loan warehousing,
prohibiting discrimination, providing for inspections and appraisals of
properties, requiring credit reports on prospective borrowers, regulating
payment features, requiring disclosures to customers, governing secured
transactions, establishing collection, repossession and claims handling
procedures and other trade practices and, in some cases, fixing maximum interest
rates, insurance coverages, fees and loan amounts. Failure to comply with these
requirements could lead to loss of approved status, class action lawsuits and
administrative enforcement actions.
Although the Company is not presently aware of any pending or
proposed laws, rules or regulations which, if adopted, would make compliance
more difficult or expensive, restrict the Company's ability to fund the
warehousing of mortgage loans, restrict the Company's customers' ability to
originate or sell mortgage loans, further limit or restrict the amount of
interest and other charges earned from loans warehoused by the Company or
otherwise adversely affect the business or prospects of the Company, no
assurance can be given that limitations and/or restrictions of that nature will
not be adopted in the future.
PIONEER'S CHAPTER 11 BANKRUPTCY PROCEEDINGS
Pioneer was founded in 1980 as a financial services, merchant
banking, and mortgage warehouse lending company. Its principal business was the
financing of companies within the airline, mortgage, and heavy equipment
industries on both a secured and unsecured basis. Pioneer provided working
capital loans monthly to regional and commuter airlines, which loans were
generally secured by accounts receivable owed by the Airline Clearing House, an
agent for participating airlines in the settlement and reconciliation of certain
obligations that arise between the participating airlines in the ordinary course
of business. In 1988 and 1989, Pioneer processed over $1.3 billion in mortgage
warehouse loans which it made to approximately thirty mortgage companies
nationwide.
In 1989, Presidential Airways ("Presidential"), a United Airlines
("United") "feeder" carrier which was not affiliated with United's corporate
structure, and which did business under the name "United Express," owed Pioneer
approximately $19 million which was fully collateralized by a perfected security
interest in Presidential's accounts receivable, and it owed Pioneer $2 million
which was unsecured. At the same time, Presidential also owed United
approximately $7.5 million on an unsecured basis. In September, 1989,
Presidential informed Pioneer that, pursuant to a demand made by United,
Presidential had used $7.5 million of the collateral underlying its $19 million
secured indebtedness to Pioneer in order to pay an unsecured debt owed to
United. Shortly thereafter, Presidential filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Act.
The conversion of Pioneer's collateral essentially eliminated 80%
of Pioneer's net worth resulting in the violation of loan covenants that were
the
51
financial underpinnings of lines of credit aggregating approximately $130
million which Pioneer maintained with various domestic and international banking
institutions. Pioneer's management believes that the cancellation of such credit
lines which occurred by reason of such covenant violations resulted in Pioneer's
loss of revenues approximating $300,000 per month which otherwise would have
been available in the ordinary course of its financing business.
In October 1989, Pioneer commenced an action against United in
the United States District Court for the Southern District of New York (the
"United Litigation") seeking compensatory and punitive damages for United's
wrongful conversion of Pioneer's collateral and for tortious interference with
the financing agreement between Pioneer and Presidential.
After unsuccessfully attempting to formulate an out-of-court
settlement of its debts, Pioneer's creditors, over Pioneer's strenuous
objections, filed an involuntary petition in bankruptcy in January 1990 seeking
liquidation of Pioneer under Chapter 7 of the Bankruptcy Code. After weighing
all of its options, Pioneer determined that Chapter 11 would provide Pioneer a
means by which it could focus its financial resources on the prosecution of the
United Litigation, and thereby provide meaningful recoveries to creditors. At
the same time, Pioneer determined that the protection afforded under Chapter 11
would enable Pioneer to reestablish large scale financing operations, either
during, or upon the emergence from, Chapter 11. Accordingly, in April 1990,
Pioneer voluntarily converted its involuntary Chapter 7 case to a case under
Chapter 11 of the Bankruptcy Code.
In November 1992, United settled the United Litigation with
Pioneer and the lead banks who were Pioneer's principal secured creditors. Such
settlement entailed the payment by United of $5.5 million to Pioneer and its
creditors, plus Pioneer's receipt of another $500,000 from the liquidation of
receivables in which Pioneer held a security interest.
In April 1993, Pioneer emerged from bankruptcy in accordance with
the terms of the Plan. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources -
Pioneer's Chapter 11 Bankruptcy Proceedings."
THE COMPANY'S ACQUISITION OF TRANS LENDING
Pursuant to a stock purchase agreement dated as of December 23,
1996 (the "Stock Purchase Agreement"), the Company has acquired a 50% ownership
interest in Trans Lending. In accordance with the Stock Purchase Agreement, the
Company is entitled to designate two of the three members of Trans Lending's
Board of Directors (Messrs. Goldberg and Housman have been designated by the
Company to serve in such capacities), and the Company is entitled to designate
the
52
person who will serve as Trans Lending's Chief Executive Officer (the Company
has named Mr. Goldberg to serve in that capacity).
The Stock Purchase Agreement further provides for Trans Lending's
employment of Kenneth Germain, pursuant to a separate employment agreement, as
its President and Chief Operating Officer. That employment agreement provides
for Mr. Germain's employment for a period of three years commencing on December
23, 1996 at an initial base salary of $96,000 per annum. Also, in accordance
with the Stock Purchase Agreement, the Company has entered into a non-compete
agreement with Mr. Germain which precludes his engagement in any business
activities which would be competitive with Trans Lending's business activities
during the term of his employment and for various periods following the
termination of his employment, provided that Trans Lending continues to pay the
base salary which Mr. Germain shall be entitled to receive as of the date of his
termination during such period of non-competition. However, if Trans Lending
terminates Mr. Germain's employment without cause, the provisions of the
non-compete agreement will preclude him from soliciting the employment of any of
Trans Lending's employees, but will not prohibit him from otherwise engaging in
competitive activities with Trans Lending. Mr. Germain is the owner of 25% of
Trans Lending's outstanding common stock. Alan Mann, who is Mr. Goldberg's son
in law, also owns 25% of Trans Lending's outstanding common stock. Mr. Mann has
granted an irrevocable proxy to Mr. Germain to vote such shares on all matters
coming before a vote of the shareholders of Trans Lending during the three year
term of Mr. Germain's employment agreement with Trans Lending. See "Certain
Transactions."
From May 1989 to January 1992, Mr. Germain was Chairman and Chief
Executive Officer of American Lending Corporation, a finance company which
originated approximately $30,000,000 of non-prime loans acquired from dealers
located in ten states, and sold to MidLantic National Bank. From February 1992
to April 1995, Mr. Germain was Chairman and President of U.S. Lending
Corporation, a non-prime automobile lender which acquired Contracts aggregating
approximately $45,000,000 during that time period. Between September 1995 and
September 1996, Mr. Germain was President of Respect Capital Group, Inc., a
Florida based originator of non-prime loans which it acquired for its own
account and for the account of other lenders that it represented.
THE NON-PRIME AUTO FINANCE INDUSTRY
Historically, traditional automobile financing sources have not
serviced the non-prime market or have done so only through programs that were
not consistently available. An industry group of independent finance companies
specializing in non-prime automobile financing is now emerging, but it remains
highly fragmented, with no company having a significant share of the non-prime
market.
53
The National Automobile Dealers Association ("NADA") estimates
that the retail sales market for used vehicles exceeds $100 billion annually in
the United States and that new car dealers alone sold over 15 million used
vehicles in 1996. Based on NADA statistics, retail sales of used vehicles have
steadily increased over the past decade.
Sales prices of used vehicles range from high end sales, which
generally include vehicles having retail prices above $10,000, to low end sales,
which generally include vehicles having retail prices below $5,000. Purchasers
of vehicles in the high end category generally have access to traditional
sources of credit, such as banks and finance companies. Non-prime borrowers of
the low end vehicles generally cannot obtain financing from traditional credit
sources and must obtain financing from the small independent car dealers that
sell such vehicles, commonly known as "buy here, pay here" dealers.
TRANS LENDING'S AUTOMOBILE FINANCING OPERATIONS - OVERVIEW
Trans Lending commenced business operations in December of 1996.
It operates as a finance company licensed under the laws of the State of
Florida, and originates consumer automobile financing transactions for non-prime
borrowers (consumers who are typically unable to obtain financing from
traditional sources because they have past credit problems (including
bankruptcy), have limited or no credit histories and/or have low incomes) by
acquiring Contracts from franchised and independent used car dealers. Trans
Lending presently represents AVCO, ACC and Norwest who have agreed to purchase
Contracts acquired by Trans Lending from approximately 60 dealers located in
Florida.
THE LENDERS REPRESENTED BY TRANS LENDING
Trans Lending presently represents three lenders who have agreed
to purchase Contracts acquired by Trans Lending from its dealers.
AVCO, a wholly owned subsidiary of Textron Corp., generally will
advance 100% of the amount financed (the full lease or contract price less the
down payment) on Contracts of up to $25,000 having terms ranging between one and
ten years. Trans Lending will receive approximately $700 - $1,000 in combined
administrative fees and rate discounts on the amount financed on each Contract
which AVCO funds for one of Trans Lending's dealers. Although Trans Lending
expects to enter into a written representation agreement with AVCO, no assurance
in that regard can be given.
OFL-A Receivables Corp. ("O-FLA"), a subsidiary of ACC, has entered into
an agreement with Credit Central, Inc, a wholly owned subsidiary of Trans
Lending, which provides for the purchase by O-FLA and ACC of Contracts
originated by Trans Lending. As in the case of AVCO, O-FLA and ACC generally
will advance up to 100% of the amount financed on Contracts of up to $10,000
having terms ranging
54
between one and five years. Trans Lending will receive approximately $700 -
$1,000 in combined administrative fees and rate discounts on the amount financed
on each Contract which O-FLA and ACC fund for one of Trans Lending's dealers.
Trans Lending has contracted with Norwest to service the
Contracts originated by Trans Lending, whether owned by Trans Lending or sold as
whole loan sales after the acquisition date. See "-- Servicing of Contracts." In
addition, Trans Lending's agreement with Norwest provides that Trans Lending
will actually purchase and pay for all Contracts to be acquired by Norwest, and
hold same for a period of 90 days prior to their transfer to Norwest. In all
such instances the Contracts will have been pre-approved by Norwest for its
ultimate purchase from Trans Lending. The Contracts which are subject to Trans
Lending's agreement with Norwest must be for terms of not more than 24 months
and must not exceed $5,000. In addition to the $700 - $1,000 in combined fees
and discounts which Trans Lending will earn on each Contract, it will also earn
the first two monthly payments which become due and payable during said 90 day
holding period. Trans Lending expects to initially utilize approximately
$200,000 of its capital in connection with the purchase of Contracts which it
will be reselling to Norwest.
TRANS LENDING'S BUSINESS STRATEGY
Trans Lending's primary business objective is to acquire
Contracts originated by franchised car dealers and independent used car dealers
initially within the state of Florida, and thereafter throughout the United
States. Except in the case of Norwest, upon the acquisition of the Contracts,
the originating dealers will assign the installment loans (and the security
interests arising from the acquisition thereof) and the leases to Trans
Lending's lender. In the case of Contracts originated by Trans Lending for
Norwest, the dealers will assign the Contracts and related security interests to
Trans Lending, who will warehouse the Contracts, and collect all payments due
thereunder for the first 90 days of the terms thereof. At the end of such 90 day
period, Trans Lending will assign such Contracts and the related security
interests to Norwest. The originating dealers will also provide evidence that
proper applications for certificates of title have been made to ensure that the
purchaser of the Contract will be named as the lienholder on the certificates of
title relating to the financed vehicles.
Trans Lending will seek to purchase the Contracts at prices
approximating the average wholesale values of the vehicles being financed. In
addition, Trans Lending will seek to obtain Contracts with maturities that are
less than the remaining useful lives of the vehicles being financed, and which
require substantial minimum down payments of 10% (in cash or trade-in vehicle)
by the borrowers. The Company may lend up to $2,000,000 of the net proceeds of
the Offering to Trans Lending for use in connection with Trans Lending's direct
financing of Contracts. See "Use of Proceeds."
55
To achieve the foregoing objectives, Trans Lending has designed
criteria as to the price, purchase discount, term, down payment, installments
and interest rate for the Contracts and the price, cost to the dealers and
average wholesale value of the vehicles to qualify for purchase by Trans
Lending's lenders.
SALES AND MARKETING
Trans Lending will market its financing program primarily to
franchised automobile dealers and to a limited number of independent used
automobile dealers. Before acquiring Contracts from a dealer for one of Trans
Lending's lenders, Trans Lending and the dealer will enter in to an agreement
that will provide Trans Lending and/or its lender with recourse to the dealer in
cases of dealer fraud or a breach of the dealer's representations and
warranties. Trans Lending presently has established Contract acquisition
relationships with approximately 60 dealers located in the State of Florida.
Over the next 12 months, Trans Lending's management intends to seek authority to
conduct business in several competing markets, including Georgia, Texas, North
Carolina, Virginia, Pennsylvania, Tennessee and Ohio. Trans Lending will seek to
increase its representation of additional dealers in Florida, and to establish
such relationships with other dealers located elsewhere in the United States. No
assurance can be given that Trans Lending will be successful in that regard, or
if it successfully establishes such relationships, that it will be able to
maintain them. In the absence of establishing and maintaining a greater number
of Contract acquisition relationships with a greater number of dealers located
within Florida and elsewhere, Trans Lending's business would be materially
adversely affected. See "-- Regulation -- Non-Prime Automobile Financing;" and
"-- Competition -- Non-Prime Automobile Financing."
As of the date of this Prospectus, Trans Lending has three sales
representatives on salary covering the State of Florida. The
salesrepresentatives regularly meet with dealers, provide information about
Trans Lending's program, train dealer personnel as to Trans Lending's program
requirements and assist dealers in identifying consumers who qualify for Trans
Lending's program.
APPLICATION PROCESSING AND PURCHASE CRITERIA
Dealers will submit credit applications to Trans Lending's credit
center, typically by facsimile. Upon Trans Lending's receipt of a credit
application, a credit processor employed by Trans Lending will use an automated,
computer-based system to obtain credit histories, determine the wholesale value
of the vehicle and calculate the credit score of the application. Trans
Lending's credit officers will use the credit score as a guide to evaluate
applications, but the approval/declination decision will not be based solely on
the credit score. Trans Lending then will notify the dealers by facsimile of a
credit decision, usually within three hours of receipt of the application. Trans
Lending then will submit the completed package to its lender for funding.
56
SERVICING OF CONTRACTS
Trans Lending has contracted with NorWest to service the
Contracts it will originate, whether owned by Trans Lending or sold as whole
loan sales after the acquisition date. Norwest's servicing will include payment
and payoff processing, collecting, insurance tracking, title tracking,
responding to borrower inquiries, investigating delinquencies, repossessing and
reselling collateral, collection reporting and credit performance monitoring.
EMPLOYEES
As of the date of this Prospectus, Trans Lending has six full
time employees, including its three Florida sales representatives. Trans Lending
is not a party to any collective bargaining agreement.
COMPETITION - NON-PRIME AUTOMOBILE FINANCING
The non-prime consumer automobile finance market is highly
competitive. The level of competition has increased significantly in recent
years and this trend is expected to continue. Historically, commercial banks,
savings and loan associations, credit unions, captive finance subsidiaries of
automobile manufacturers and other consumer lenders, many of which have
significantly greater resources than Trans Lending, have not competed for
non-prime consumer business. To the extent that such lenders expand their
activities in the non-prime consumer market,Trans Lending's financial condition
and results of operations could be materially adversely affected. During the
past two years, several companies have devoted considerable resources to the
non-prime consumer market, including well-capitalized public companies.
Specifically, Ford Motor Credit Company has begun to finance non-prime
consumers, General Electric Capital Corporation established strategic alliances
with several regional non-prime consumer automobile finance companies and
KeyCorp. acquired AutoFinance Group, Inc., one of Trans Lending's competitors.
Other companies, including Mellon Bank Corporation and Southern National
Corporation, have also entered the market.
Trans Lending's business is also affected by certain demographic,
economic and industry trends. These trends include increased sales of used cars,
rising new car prices relative to used car prices, stability in non-prime
consumers' demand for used cars, the inability of non-prime consumers to find
lower cost financing from other sources and the overall level of interest rates
in general. A reversal of any of these trends or a change in any of these
conditions could have a material adverse effect on Trans Lending's financial
condition and results of operations.
REGULATION - NON-PRIME AUTOMOBILE FINANCING
57
Trans Lending is registered as a finance company in the State of
Florida, and will be required to comply with similar registration regulations in
many of the other states where it will be conducting business. Each of such
states will subject Trans Lending to varying degrees of regulation and periodic
examination. In addition, numerous federal and state consumer protection laws
impose requirements upon the origination and collection of consumer receivables.
The laws of some states impose finance charge ceilings and other restrictions on
consumer transactions and may require certain contract disclosures in addition
to those required under federal law. These requirements impose specific
statutory liabilities upon creditors who fail to comply with their provisions.
In addition, certain of these laws make an assignee of such loan liable to the
obligor thereon for any violations by the assignor. Trans Lending must verify
the accuracy of disclosure for each Contract that it will be purchasing;
however, if it becomes an assignee of the accounts receivable due under any
Contracts, it may be unable to enforce some of its receivables or may be subject
to liability to the obligors under some of its receivables if such receivables
do not comply with such laws.
In the event of default by an obligor on a Contract purchased by
Trans Lending, it will be entitled to exercise the remedies of a secured party
under the Uniform Commercial Code ("UCC") in effect in the state of residence of
the obligor. The UCC remedies of a secured party include the right to
repossession by self-help means, unless such means would constitute a breach of
the peace. Unless the obligor voluntarily surrenders a vehicle, self-help
repossession by an independent repossession specialist engaged by Trans Lending
generally will be employed by Trans Lending when an obligor defaults. Self-help
repossession is accomplished by retaking possession of the vehicle. If a breach
of the peace is likely to occur, or if applicable state law so requires, Trans
Lending will be obligated to obtain a court order from the appropriate state
court and repossess the vehicle in accordance with that order.
In most jurisdictions, the UCC and other state laws require the
secured party to provide the obligor with reasonable notice of the date, time
and place of any public sale or the date after which any private sale of the
collateral may be held. Unless the obligor waives his rights after default, the
obligor in most circumstances would have the right to redeem the collateral
prior to actual sale by paying the secured party all unpaid installments of the
receivable plus reasonable expenses for repossessing, holding, and preparing the
collateral for disposition and arranging for its sale, plus in some
jurisdictions, reasonable attorneys' fees, or, in some states, by payment of
past-due installments. It is anticipated that repossessed vehicles generally
will be resold by Trans Lending through wholesale auctions which are attended
principally by automobile dealers.
LITIGATION PROCEEDINGS
The Company is not a party to any litigation proceedings.
58
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as
follows:
[Download Table]
Name Age Position
Arthur H. Goldberg 54 Chairman of the Board, Chief Executive
Officer, Director
Elie Housman 59 President, Director
Glenda Klein 53 Director, Senior Vice President, Secretary,
Treasurer and Chief Financial Officer
Richard Fried 50 Director
Boaz Harel 40 Director
Tamar Lieber 54 Director
Mark Roth 35 Director
Mr. Goldberg is one of the original shareholders of, and was the
pre-Merger Chairman of the Board and President of PCF. He was appointed to
Pioneer's Board in February 1994. Upon consummation of the Merger, he
relinquished his positions as Chairman and President of the Company to Mr.
Lieber, but continued to serve as a director of the Company. Following Uri
Lieber's death in March 1995, Mr. Goldberg assumed the positions of Chairman of
the Board and Chief Executive Officer. Since December 1993, Mr. Goldberg has
served as President of Manhattan Associates, LLC, a merchant banking and
investment banking firm. Between April 1990 and December 1993, he served as
Chairman of Reich & Co., a securities brokerage and investment banking firm
which is a member of the New York Stock Exchange. Prior thereto, he served as
President and Chief Operating Officer of Integrated Resources, Inc.
("Integrated"), a diversified financial services company which commenced
proceedings under Chapter 11 of the Bankruptcy Code. In November 1994,
Integrated's sixth amended reorganization plan was consummated. In accordance
therewith, senior creditors of the reorganized company (now known as Presidio
Capital Corp. ("Presidio")) may receive as much as 70% of their original claims
totalling approximately $1.1 billion, and junior creditors will receive between
3.1% and 4.5% of their claims of approximately $672 million. As of December 31,
1995, holders of allowed and disputed Integrated
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senior general unsecured and subordinated claims (aggregating approximately $1.9
billion) received Presidio's 8.8 million Class A common shares ("Class A
Shares"), and 8.8 million shares of the common stock of XRC Corp., a Delaware
corporation which succeeded to assets of Integrated with a net value of less
than $5 million pursuant to Integrated's plan of reorganization. A reserve for
disputed claims in Integrated's bankruptcy case was established and funded by
Presidio with $46 million in cash and 162,932 Class A Shares. At December 31,
1995 approximately $7 million in cash and 47,081 shares remained in reserve. Mr.
Goldberg is a trustee of Ramco Gershenson Property Trust, a New York Stock
Exchange listed real estate investment trust.
Mr. Housman is one of the original shareholders of, and was a
director, Vice President and Secretary of, PCF. He was appointed to Pioneer's
Board in February 1994, and his position as a director of the Company continued
upon consummation of the Merger. Following Mr. Lieber's death in March 1995, Mr.
Housman assumed the position of President of the Company. Since 1989, Mr.
Housman has been Managing Director and Principal of Charterhouse Group
International, a privately held merchant bank. Prior thereto, Mr. Housman
engaged in financial and business consulting through E. Housman, Inc., a
corporation wholly owned by him. Mr. Housman is also President, Chief Operating
Officer and a director of Satellite Tracking Technologies, Inc., a privately
held company.
Ms. Klein joined Pioneer in 1986 as a Vice President, and served
as its Senior Vice President and Secretary since 1988. She has served as a
director of Pioneer since 1993, and was appointed to serve as Pioneer's
Treasurer and Chief Financial Officer in 1994. She assumed the same directorial
and official positions with the Company upon consummation of the Merger. In 1993
Mrs. Klein and her husband filed a petition pursuant Chapter 7 of the Bankruptcy
Code. After receiving a discharge in bankruptcy, Mr. and Mrs. Klein reopened the
bankruptcy proceedings and converted same to a case under Chapter 11 of the
Bankruptcy Code. In April 1995, Mr. and Mrs. Klein deposited $100,000 into the
Bankruptcy Court for the purpose of paying in full, with interest, any of the
creditors of their bankrupt estate who had filed claims against in said
proceedings. In October 1995, such proceedings were closed.
Mr. Fried was appointed to Pioneer's Board in February 1994. Upon
consummation of the Merger, he became a Vice President and director of the
Company. He relinquished his position as an officer in November 1996. From
December 1986 through February 1991, Mr. Fried was a shareholder, President and
Chairman of Kanon Bloch Carre & Co., Inc., an SEC registered investment advisor
and stock brokerage firm which was an NASD member firm. Between February 1991,
when said firm was sold to an unrelated party, and June 1991, he was engaged as
a business consultant. In addition thereto, (i) since June 1991, Mr. Fried has
served as President of Medical Systems, Inc., an application software developer,
and he has been a principal shareholder thereof since June 1993; (ii) since
February 1993, he has also served as President of Montgomery Associates, Inc., a
corporation wholly
60
owned by him which is engaged in business as an importer-exporter; (iii) since
April 1993, Mr. Fried has been a principal shareholder, and has served as
President of Sea Change Systems, Inc., a software tools developer; (iv) from
April 1993 to May 1994, he was a Branch Manager of LPL Financial Services, a
stock brokerage firm which is an NASD member firm; (v) since November 1994, Mr.
Fried has been a controlling shareholder and has served as President of
Smartpay, Inc., a collection service; and (vi) since October 1996, Mr. Fried has
been a controlling shareholder, and has served as President of Leeward Software,
Inc. d/b/a Advanced Medical Systems, an application software developer.
Mr. Harel was appointed to the Board, effective November 11,
1996. Mr. Harel has been the Managing Director of Leedan Business Enterprise
Ltd., ("Leedan") a publicly held Israeli holding company which has a class of
securities listed on the Israeli Stock Exchange. Leedan's holdings include ICTS
Holland Production, B.V. ("ICTS Holland"), a publicly held provider of enhanced
aviation security services which has a class of securities listed on the Nasdaq
Stock Market. From 1991 to 1993, Mr. Harel was the founder and managing director
of Mashik Business and Development Ltd., an engineering consulting company.
Since September 1996, and in addition to his capacity as the Managing Director
of Leedan, Mr. Harel relocated to New York and has served as the Chairman of
ICTS USA (1194), Inc., a wholly owned subsidiary of ICTS Holland, and in this
capacity, he has been responsible for the business development of ICTS Holland
in the United States. Leedan Systems & Properties Promotion 1993 Ltd. ("Leedan
Systems"), one of the Company's principal shareholders, is an affiliate of
Leedan. See "Principal Security Holders."
Mrs. Lieber was appointed to the Board on June 5, 1995 to fill
the vacancy created by reason of the death of her husband, Uri Lieber, the
former Chairman and Chief Executive Officer of the Company. Mrs. Lieber has been
engaged in private practice as a psychotherapist for more than the past five
years.
Mr. Roth was appointed to the Board, effective November 11, 1996.
Mr. Roth is an attorney who engaged in the private practice of law between 1989
and September 1995. In 1992, Mr. Roth began representing National Securities
Corporation ("National"), the underwriter of the Company's IPO, in transactional
and litigation matters. He became a full time employee of, and was appointed
General Counsel of, National in October 1995, and continues to serve in that
capacity. In accordance with the underwriting agreement executed by the Company
with National in connection with the IPO, National is entitled to designate one
member of the Company's Board during the three year period which commenced on
August 16, 1996. Mr. Roth was appointed to the Board as National's designee. See
"Certain Transactions."
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EXECUTIVE COMPENSATION
Prior to the Merger, the Company did not pay any form of
compensation to any of its executives. The following table sets forth
compensation awarded to, earned by or paid to Uri Lieber and Arthur Goldberg in
their capacities as Chief Executive Officer of the Company. No executive officer
of the Company earned a salary and bonus of more than $100,000 during any of the
three fiscal years ended March 31, 1996. The Company has agreed to enter into
employment agreements with Arthur H. Goldberg and Elie Housman, and has entered
into an employment agreement with Glenda Klein. See "Management Employment
Agreements."
The Company did not, prior to commencement of its fiscal year
ending March 31, 1996 (a) grant any restricted stock awards or stock
appreciation rights to any of its executives; (b) pay compensation to any of its
executives that would qualify as "All Other Compensation;" or (c) make payments
to any of its executives which may be categorized as "Other Annual Compensation"
or "LTIP Payouts."
[Download Table]
Other Securities
Annual Restricted Underly-
Name and Fiscal Compen- Stock ing
Principal Year Salary($) Bonus($) sation($) Awards($) Options/
Position ----- --------- -------- --------- ---------- SARs (#)
-------- -----------
Uri Lieber
Former CEO 1995 $55,747(1) --- $6,924(2) --- ---
1994 41,392 --- 1,079(2) --- ---
Arthur Gold-
berg, CEO 1996 --- --- --- --- 75,758/0
------------------------
(1) Represents compensation paid to Mr. Lieber through the date of his death.
The Company also has accrued approximately $36,000 representing amounts due to
Mr. Lieber under his employment agreement with the Company.
(2) Represents the premiums paid by the Company with respect to term life
insurance owned by Mr. Lieber and payable to his designated beneficiary.
EMPLOYMENT AGREEMENTS
Prior to his death in March 1995, the Company was party to an
employment agreement with Uri Lieber, the former Chairman and President of
Pioneer, which: (a) provided for Mr. Lieber's employment as Chairman and Chief
Executive through June 30, 1996; (b) provided for base compensation to Mr.
Lieber at
62
the rate of $110,000 per annum, subject to such discretionary increases and
bonuses as the Compensation Committee of the Board of Directors may deed
appropriate; (c) obligated the Company to pay the premiums with respect to two
term life insurance policies owned by Mr. Lieber and payable to his designated
beneficiary in the aggregate amount of $1,200,000, or to provide similar
insurance benefits with other policies to be purchased by the Company; (d)
obligated the Company to provide to Mr. Lieber all categories of benefits
offered to other executives and employees; (e) terminated upon Mr. Lieber's
death, and was terminable by the Company upon his disability or in the event of
his gross malfeasance, gross misconduct, conviction of a felony, or other
similar good cause materially detrimental to the Company; and (f) also provided
for Mr. Lieber's indemnification, subject to any limits imposed thereof by law,
and/or the Company's Certificate of Incorporation and By-Laws, with respect to
certain claims which may be brought against him, and to pay his legal defense
costs in connection therewith.
Messrs. Goldberg and Housman have agreed to enter into employment
agreements with the Company, pursuant to which Mr. Goldberg will devote
substantial portions of his time to the affairs of the Company as Chairman and
Chief Executive Officer, and Mr. Housman will devote substantial portions of his
time to the affairs of the Company as President and Chief Operating Officer.
Although the terms of such agreements have not been fully negotiated as of the
date of this Prospectus, the Company believes that each agreement will have a
term of three years, will provide for payment of base compensation at the rate
of $75,000 per annum and also provide for the receipt by Messrs. Goldberg and
Housman of all other perquisites and benefits conferred by the Company to any
other officer. The agreements will further provide for the indemnification of
Messrs. Goldberg and Housman to the fullest extent permitted by applicable law
with respect to all claims for compensatory damages (but not punitive damages or
the expenses incurred by her in defending against such claims) alleged against
them in any action, suit or proceeding commenced against them by reason of their
status as present or former officers, directors or employee of the Company, or
any subsidiary or affiliate of the Company, including actions brought by or in
the right of the Company to procure a judgment in its favor. As an inducement to
Messrs. Goldberg and Housman to enter into such employment agreements with the
Company, the Board has authorized the Company to grant to each of them a five
year option to purchase 350,000 shares of Common Stock, subject to a three year
vesting schedule, which shall be exercisable at a price of $1.99 per share,
subject to the consummation and execution of such employment agreements, and the
receipt of appropriate shareholder authorization. See "Description of Securities
-- Options Issued to Executives."
The Company has entered into an employment agreement with Glenda
Klein, which: (a) provides for Ms. Klein's employment as Senior Vice President,
Secretary, Treasurer and Chief Financial Officer through March 31, 1997; (b)
provides for base compensation to Ms. Klein at the rate of $90,000 per annum
during the first year of the term and $100,000 per annum during the second year
of
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the term; (c) provides for the grant of a five-year option to purchase 75,758
shares of Common Stock of the Company exercisable at a price of $5.00 per share;
(d) provides for the grant of a second five-year option on May 1, 1996, provided
that Ms. Klein is still employed by the Company on said date, entitling her to
purchase 37,879 shares of Common Stock of the Company at a price of $5.00 per
share; (e) obligates the Company to pay the premiums with respect to a term life
insurance policy payable to Ms. Klein's designated beneficiary in the aggregate
amount of $750,000 during the first year of the term and $1,000,000 during the
second year of the term; (f) obligates the Company to pay the premiums with
respect to a long-term disability policy in an amount sufficient to cover the
salary payable to Ms. Klein pursuant to the employment agreement; (g) obligates
the Company to lease a vehicle for use by Ms. Klein during the two-year term of
the employment agreement (which lease payments shall not exceed $800 per month)
and to pay all associated insurance, gasoline and maintenance costs for such
vehicle; (h) obligates the Company in the event of the termination of Ms.
Klein's employment in connection with a change in control of the Company to pay
to her the balance of the salary payable under the employment agreement plus an
additional $100,000 and to continue medical coverage for the balance of the
two-year term; (i) obligates the Company to provide to Ms. Klein and her spouse
medical and vision coverage; and (j) terminates upon Ms. Klein's death, and is
terminable by the Company upon her disability or in the event of her gross
malfeasance, gross misconduct, conviction of a felony, or other similar good
cause materially detrimental to the Company. The Company has also agreed to
indemnify Ms. Klein, pursuant to said agreement, to the fullest extent permitted
by applicable law with respect to all claims for compensatory damages (but not
punitive damages or the expenses incurred by her in defending against such
claims) alleged against Ms. Klein in any action, suit or proceeding commenced
against her by reason of her status as a present or former officer, director or
employee of the Company, or any subsidiary or affiliate of the Company,
including actions brought by or in the right of the Company to procure a
judgment in its favor See "Management - Executive Compensation - Stock Option
Plan;" and "Description of Securities - Options Issued to Executives."
COMPENSATION PAYABLE TO, AND OPTIONS ISSUED TO OTHER EXECUTIVES
In June 1995, the Board authorized the Company to pay salaries to
each of Messrs. Goldberg and Housman in the amount of $55,000. However, the
Company has not paid any portion thereof to either officer, although it is
anticipated that such payments will be made prior to the end of the current
fiscal year. In consideration of the services to be rendered by Messrs. Goldberg
and Housman without payment of salaries between June 1995 and the closing of the
IPO, the Company issued five year options to each of them to purchase 75,758
shares of Common Stock at an exercise price of $5.00 per share. Such options
were not issued pursuant to the Company's Incentive Stock Option Plan. See
"Description of Securities - Options Issued to Executives."
64
STOCK OPTION PLAN
The Company, pursuant to the shareholders' authorization, has
adopted (with effect from August 1, 1994) a Non-Qualified Stock Option Plan (the
"Plan") which provides for the issuance of options to purchase up to 151,515
shares of Common Stock to persons who are at the time of grant, employees
(including officers and directors who are employees) of, or consultants to, the
Company. The Plan must be administered by the Compensation Committee of the
Board of Directors of the Company. Such committee must consist of two
"non-employee directors," as such term is defined by Rule 16b-3 of the Exchange
Act ("Rule 16b-3").
The Plan, as modified with effect from November 4, 1994, further
provides for the automatic issuance of options to non-employee directors of the
Company pursuant to a formula which satisfies the requisites of Rule 16b-3. On
January 2 in each of 1997, 2000 and 2003 (each of which dates is hereinafter
called a "Regular Grant Date"), each non-employee director shall automatically
receive an option to purchase 15,000 shares of the Company's Common Stock (a
"Regular Option"), and such Regular Option shall vest and become exercisable on
the first, second and third anniversaries of such grant at the rate of 5,000
shares per anniversary, provided, that each person who becomes a director after
a Regular Grant Date, shall receive a Regular Option to purchase a pro rata
portion of 15,000 shares of Common Stock based upon the number of months
remaining until the next Regular Grant Date. Also in accordance with such
formula, on the date of each non-employee director's initial election to the
Board or, if such initial election shall have occurred prior to the date of
adoption of the Plan, then on said date of adoption, he or she shall
automatically receive an option to purchase a prorata portion of 15,000 shares
of Common Stock based upon the number of months remaining until the next Regular
Grant Date (an "Initial Option"). No Initial Option or Regular Option shall vest
or be exercisable unless the grantee shall have served continuously on the Board
during the year preceding the applicable vesting date.
Michael Barnea, Esq., a former director of the Company, is the
holder of 7,892 fully vested options. Boaz Harel and Mark Roth, Esq., who were
appointed to the Board in November 1996, and Richard Fried, who qualified for
receipt of a grant as a director upon cessation of his status as a Vice
President in November 1997, have received Initial Options to purchase 316 shares
of Common Stock. The grants to Messrs. Harel and Roth will not vest until
November 1997. The grant to Mr. Fried is fully vested. In addition, Messrs.
Fried, Harel and Roth will receive Regular Grants in January 1997. By reason of
the fact that Mrs. Lieber is deemed to be the beneficial owner of all the Common
Stock which her late husband owned, i.e., more than 10% of the total number of
shares of Common Stock outstanding, she is ineligible to receive any grants
under the Plan. See "Principal Security Holders." No other options have been
granted under the Plan as of the date of this Prospectus.
65
The exercise price for all options issuable under the Plan must
be 100% of the fair market value of the Common Stock underlying the option at
the time of grant. Pursuant to the Plan, as long as the Common Stock is listed
on the Nasdaq SmallCap Market, its fair market value shall be equal to the
closing sales price thereof on the date of grant.
In November 1996, Glenda Klein received an option issued under
the Plan to purchase 75,000 shares of Common Stock at an exercise price of $1.99
per share.
Mrs. Lieber and Richard Fried, who are non-employee directors,
serve as the Compensation Committee of the Company's Board of Directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VIII of the Company's bylaws provide for the
indemnification of directors and officers to the fullest extent permitted by
law.
Section 722 of the New York Business Corporation Law (the "BCL")
provides that a corporation may indemnify an individual made party to a
proceeding because he is or was a director or officer in certain situations,
provided that the director acted in good faith for a purpose which he reasonably
believed to be in the best interests of the corporation. In addition, Section
723 of the BCL provides that a corporation shall indemnify a director or officer
who prevails entirely in the defense of any proceeding to which he was a party
because he is or was a director, against reasonable expenses incurred by him in
connection with the proceeding. Section 724 of the BCL provides that,
notwithstanding any action taken by the corporation, or by its shareholders or
directors to deny indemnification to any officer or director, he may apply for
and receive such indemnification, upon good cause shown, to the same extent
permitted under BCL Section 722 upon application for such relief to the
appropriate court.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
The Company maintains directors' and officers' liability
insurance providing for limits of $1,000,000 per occurrence.
The Company intends to enter into employment agreements with
Arthur H. Goldberg, Elie Housman, and it has entered into an employment
agreement with Glenda Klein, providing for the Company's indemnification of each
of such individuals to the fullest extent permitted by law. The Company has
66
entered into indemnification agreements with its other directors which also
shall provide for indemnification to the fullest extent permitted by law. See
"Management - Employment Agreements."
DIRECTORS' COMPENSATION
Directors do not receive cash compensation for services rendered
to the Company in such capacity.
Non-employee directors are reimbursed for the reasonable costs of
travel to and from meetings of the Board of Directors.
CERTAIN TRANSACTIONS
In September 1994, Pioneer borrowed an aggregate of $411,000 and
paid interest thereon at 7.75% per annum with respect to $120,000 borrowed from
Tamar Lieber, the widow of Uri Lieber, at 10% per annum on $100,000 borrowed
from RDA Trading Company, Inc. a corporation solely owned by Michael Loewenthal,
one of the Company's shareholders, on $150,000 borrowed directly from Mr.
Loewenthal at 12% per annum, and on $41,000 borrowed from Hedy Goldberg, the
wife of Arthur H. Goldberg, a shareholder and Chairman of the Board and Chief
Executive Officer of the Company. $20,000 of such borrowings was repaid to Mrs.
Lieber in September, 1994, and the balance thereof, plus interest in the
aggregate amount of approximately $2,110, was repaid to the lenders on October
11, 1994. During the relevant period, the interest rate charged by UMB for funds
borrowed under Pioneer's credit line with that institution was 8.75%. Although,
Pioneer paid higher interest rates with respect to $291,000 of such borrowings
from Mrs. Goldberg, RDA and Mr. Loewenthal, it was not required to pay any fees
to such lenders. Accordingly, the actual cost of such funds was approximately
$480 less than such borrowings would have cost if effected under the UMB credit
line. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
In November 1995 the Company borrowed $35,000 from Glenda Klein,
$38,000 from Tamar Lieber and $40,000 from Dr. Theodore Reingold, a former
officer and director of Pioneer. Each of such loans earned interest at the prime
rate published from time to time by the Wall Street Journal plus 1/4% per annum,
pursuant to a revolving credit and security agreement which provided that
advances under such lines were secured by the mortgage liens created as a result
of the loans funded with such advances. Mrs. Klein was paid a fee of $588.17 to
cover the penalties she incurred from the early redemption of certificates of
deposit which were used to provide such loan funds. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
67
Although no specific measures to resolve conflicts of interest
have been formulated, the officers and directors of the Company have a fiduciary
obligation to deal fairly and in good faith with the Company. The Company's
management believes that the terms and conditions pertaining to each of the
foregoing transactions were comparable to and competitive with the terms and
conditions which it would have obtained if such transactions had been effected
with persons and entities unaffiliated with the Company. All ongoing and future
transactions between the Company and any of its affiliates will be no less
favorable to the Company than such transactions would be if consummated with
unaffiliated third parties, and will be approved by a majority of the Company's
disinterested directors. The directors intend to exercise reasonable judgment
and take such steps as they deem necessary under all of the circumstances in
resolving any specific conflict of interest which may occur and will determine
what, if any, specific measures, such as retention of an independent advisor,
independent counsel or special committee, may be necessary or appropriate. There
can be no assurance that the Company will employ any of such measures or that
conflicts of interest will be resolved in the best interest of the shareholders
of the Company.
The Company has agreed to enter into employment agreements with
Arthur H. Goldberg and Elie Housman, and it has entered into an employment
agreement with Glenda Klein, who are shareholders and directors, and
respectively, the Chairman and Chief Executive Officer, the President and Chief
Operating Officer and the Senior Vice President, Secretary, Treasurer and Chief
Financial Officer of the Company. See "Management -- Employment Agreements."
During the years ended March 31, 1995 and 1996, the Company paid
Glenda Klein's husband, Philip Klein, $10,284 and $815, respectively, for
accounting services rendered by him. Mr. Klein is a certified public accountant.
During the year ended March 31, 1995, the Company paid Glenda Klein's son,
Andrew Klein, $4,007 for office-administrative services which he rendered to the
Company. During the year ended March 31, 1996, the Company paid Oren Lieber, the
son of Uri and Tamar Lieber, $2,291 for office-administrative services which he
rendered to the Company.
In accordance with the underwriting agreement executed by the
Company with National in connection with the IPO, National is entitled to
designate one member of the Company's Board during the three year period which
commenced on August 16, 1996. Mark Roth, Esq. was appointed to the Board as
National's designee on November 11, 1996. See "Management -- Executive Officers
and Directors."
Alan Mann, Arthur's Goldberg's son in law, owns 25% of the
outstanding common stock of Trans Lending. Mr. Goldberg disclaims beneficial
ownership of such shares, as well as any voting or investment powers pertaining
thereto. Mr. Mann has granted an irrevocable proxy to Kenneth Germain to vote
such shares on all matters coming before a vote of the shareholders of Trans
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Lending during the three year term of Mr. Germain's employment agreement with
Trans Lending. See "Business -- The Company's Acquisition of Trans Lending."
PRINCIPAL SECURITY HOLDERS
The following table sets forth the holdings of the Common Stock
of the Company as of the date of this Prospectus by (1) each person or entity
known to the Company to be the beneficial owner of more than five percent (5%)
of the outstanding shares of common stock of the Company; (2) each director and
named executive officer; and (3) all directors and executive officers as a
group. All of the holders of the Company's Common Stock are entitled to one vote
per share. See "Description of Securities."
[Enlarge/Download Table]
Common Stock
-------------------------------------------------
Name and Address of Number of Shares Percent Owned Prior Percent Owned After
Beneficial Owner Beneficially Owned to Offering (1) Offering (2)
------------------- ------------------ ------------------- -------------------
Tamar Lieber (3) 322,122 22.3 6.2
Leedan Systems (4) 176,136 12.2 3.4
Boaz Harel (5) * * *
Mark Roth (6) * * *
Elie Housman (7) 131,411 (8) 8.6 2.5
Arthur H. Goldberg (9) 168,513 (10) 11.1 3.2
Richard Fried (11) 12,362 (12) * *
Glenda Klein (13) 191,046 (14) 13.2 3.5
All Directors and
Executive Officers
as a Group (6 persons) 1,165,607 (15) 65.4 21.0
--------------------
* Represents less than one percent
(1) Based on 1,442,272 shares of Common Stock outstanding as of the date of this
Prospectus.
(2) Based upon 5,192,272 shares of Common Stock outstanding after the Offering.
Does not include (a) up to 1,125,000 shares of Common Stock issuable in the
events that (i) the Underwriters' over-allotment option is fully exercised; and
(ii) the Class A Warrants to be issued in connection therewith are fully
exercised; or (b) up to 750,000 shares of Common Stock issuable in the events
that (i) the Representative's
69
Warrants are fully exercised; and (ii) the Class A Warrants to be issued in
connection therewith are fully exercised. See "Underwriting."
(3) Mrs. Lieber's address is 160 West 66th Street, New York, New York.
(4) The address of Leedan Systems is c/o Harel & Partners, 555 Madison Avenue,
New York, New York. The Company believes that Leedan Systems is controlled by
Ezra Harel, the brother of Boaz Harel.
(5) Mr. Harel's address is c/o Harel & Partners, 555 Madison Avenue, New York,
New York.
(6) Mr. Roth's Address is c/o National Securities Corporation, 1001 Fourth
Avenue, Seattle, Washington.
(7) Mr. Housman's address is 535 Madison Avenue, 28th floor, New York, New York.
(8) Includes 75,758 shares which Mr. Housman has the right to acquire within 60
days from the date hereof upon exercise of an option. Percentages shown assume
full exercise of such option. Does not include 350,000 shares of Common Stock
which shall be issuable upon exercise of a five year option to be granted to Mr.
Housman upon consummation of an employment agreement with the Company, subject
to approval by the Company's shareholders under New York law, 18,551 shares of
the Company's Common Stock held by Daniel Housman, and 18,551 shares of the
Company's Common Stock held by Jon Housman, who are Mr. Housman's sons. Mr.
Housman disclaims beneficial ownership of such shares, as well as any voting or
investment powers pertaining thereto. See "Certain Transactions."
(9) Mr. Goldberg's address is 375 Park Avenue, New York, New York. See "Certain
Transactions."
(10) Includes 75,758 shares which Mr. Goldberg has the right to acquire within
60 days from the date hereof upon exercise of an option. Percentages shown
assume full exercise of such option. Does not include 350,000 shares of Common
Stock which shall be issuable upon exercise of a five year option to be granted
to Mr. Goldberg upon consummation of an employment agreement with the Company,
subject to approval by the Company's shareholders under New York law.
(11) Mr. Fried's address is 3 Centennial Drive, Suite G, Peabody, Massachusetts.
(12) Includes 316 shares which Mr. Fried has the right to acquire within 60 days
from the date hereof upon exercise of an option.
(13) Ms. Klein's address is 6660 Reseda Boulevard, Suite 108, Reseda,
California.
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(14) Includes 188,637 shares which Ms. Klein has the right to acquire within 60
days from the date hereof upon exercise of an option. Does not include 1,205
shares of Common Stock held by Ms. Klein's daughter, Allyson. Ms. Klein
disclaims beneficial ownership with respect to such shares, as well as any
voting or investment powers pertaining thereto. Percentages shown assume full
exercise of all of such options.
(15) Includes 340,469 shares which the holders thereof have the right to acquire
within 60 days from the date hereof upon exercise of an option held by them.
Percentages shown assume full exercise of all of such options.
DESCRIPTION OF SECURITIES
GENERAL
The Company, a New York corporation, is authorized to issue
25,000,000 shares, of which 20,000,000 may be Common Stock, $.01 par value, and
5,000,000 may be preferred shares,$.01 par value, which may be authorized for
issuance by the Board and issued without further action by the shareholders in
classes or series possessing such designations, powers, preferences and
relative, participating, optional or other special rights within each class or
series, and further possessing such qualifications, limitations and restrictions
as the Board may determine, subject to any limitations imposed thereon by the
Company's Certificate of Incorporation.
UNITS
Each Unit consists of one share of Common Stock and one Class A
Warrant.
COMMON STOCK
As of the date of this Prospectus, 1,442,272 shares of Common
Stock are issued and outstanding.
Except as otherwise required by law, each holder of Common Stock
is entitled to one vote per share on all matters on which shareholders are
entitled to vote. There are no cumulative voting rights regarding elections of
directors. Holders of shares of Common Stock are entitled to share pro rata in
dividends, if any, as may lawfully be declared on the Common Stock from time to
time by the Company's Board of Directors.
PREFERRED STOCK
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The Board of Directors has the authority, without further action
by the shareholders, to issue up to 5,000,000 shares of preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
thereof, including divided rights, conversion rights, voting rights terms of
redemption, liquidation preferences and the number of shares constituting any
series and the designation of such series. The issuance of preferred stock
could, among other things, adversely affect the voting power of holders of
Common Stock and could have the effect of delaying, deferring or preventing a
change in control of the Company.
As of the date of this Prospectus, no shares of preferred stock
of any class or series have been issued, or have been authorized to be issued by
the Board. The Company has no present intention to issue any preferred shares in
the foreseeable future, However, no assurance can be given regarding the change
of such intentions in the event that the Board deems it appropriate to issue
such securities in connection with any transaction or other circumstance which
is not presently known to the Board.
CLASS A WARRANTS
The redeemable Class A Warrants will be exercisable at a price of
the Market Price per share at any time during the five year period commencing
on , 1997 and ending on , 2002 (the "Exercise Period"). Unless
exercised, the Class A Warrants will automatically expire at 3:00 p.m., New
York time on , 2002.
As used in this Prospectus, the term Market Price means the lower
of the last sale price of the Common Stock on the Nasdaq SmallCap Market on the
trading day immediately preceding the date of this Prospectus, or the average of
the last sales prices of the Common Stock on the Nasdaq SmallCap Market for the
30 trading days immediately preceding the date of this Prospectus.
The Class A Warrants, which will be issued pursuant to a warrant
agreement between the Company and American Stock Transfer & Trust Company, will
be in registered form and will be saleable, assignable, and conveyable
separately and apart from the Units and Common Stock.
Commencing one year after the date of this Prospectus and
continuing through the end of the Exercise Period, the Company, at its option,
upon 30 days' written notice, may redeem the Class A Warrants at a price of $.10
per Class A Warrant, provided that the closing sale price of the Common Stock as
quoted on the principal market on which such shares shall then be trading shall
be not less than 140% of the Market Price per share during any period of 30
consecutive trading days ending on the third day preceding the date of such
notice; and further provided that the Class A Warrant holders may exercise their
Class A Warrants at any time prior to the redemption date specified in such
notice.
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The Class A Warrants contain protections against dilution
affecting both the exercise price of, and number of shares of Common Stock
purchasable under, such warrants. Such protections shall become operative upon
(a) any issuance of Common Stock, warrants or other securities convertible into
Common Stock at a price below the then market value of the Common Stock during a
period of five years from the date of this Prospectus; (b) any issuance of
Common Stock, warrants or other securities convertible into Common Stock as a
dividend; or (c) a subdivision or combination of the outstanding Common Stock,
warrants or other securities convertible into Common Stock as the result of a
merger, consolidation, spin-off or otherwise.
The holders of the Class A Warrants have no right to vote on
matters submitted to the shareholders of the Company and have no right to
receive dividends. The holders of the Class A Warrants are not entitled to share
in the assets of the Company in the event of liquidation, dissolution, or the
winding up of the Company's affairs.
The Class A Warrants issued pursuant to this Prospectus may not
be exercised unless the Company maintains an effective registration statement
covering the shares of Common Stock issuable upon exercise of the Class A
Warrants with the SEC and the various securities administrators for the states
in which the Class A Warrant holders reside, or unless issuance of such shares
of Common Stock is exempt from registration. Although the Company will make
every reasonable effort to maintain such registration, no assurances can be
given that the Company will be successful in this regard.
The Class A Warrants may not be exercised after ,
1997 (nine months after the date of this Prospectus) unless and until a
Post-Effective Amendment has been filed with the SEC and becomes effective.
Although the Company has undertaken and intends to file and keep current a
prospectus that will permit the purchase and sale of the Common Stock underlying
the Class A Warrants, there can be no assurance that the Company will be able to
do so.
The Company's transfer agent, American Stock Transfer & Trust
Company, as warrant agent, will be responsible for all record-keeping and
administrative functions in connection with the Class A Warrants. A copy of the
form of Class A Warrant Agreement is filed as an exhibit to the Registration
Statement. The discussion of the Class A Warrants herein does not purport to
be complete and is qualified in its entirety by reference to the Warrant
Agreement.
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IPO WARRANTS
In connection with its IPO, the Company issued 690,000 redeemable
warrants (the "IPO Warrants"), each of which entitles the holder thereof to
purchase one share of Common Stock at an exercise price of $5.50 per share at
any time during the four year period which commenced on August 13, 1996 and
which will end on August 12, 2000.
The IPO Warrants, were issued pursuant to a warrant agreement
between the Company and American Stock Transfer & Trust Company, are in
registered form and are saleable, assignable, and conveyable separately and
apart from the Common Stock.
Unless exercised, the IPO Warrants will automatically expire at
3:00 p.m., New York time on August 12, 2000.
Commencing August 12, 1998 and continuing through August 12,
2000, the Company, at its option, upon thirty (30) days' written notice, may
redeem the IPO Warrants at a price of $.05 per IPO Warrant, provided that the
closing sale price of the Common Stock as quoted on the principal market on
which such shares shall then be trading shall be not less than $7.50 per share
during any period of twenty (20) consecutive trading days ending on the tenth
day preceding the date of such notice; and further provided that the IPO Warrant
holders may exercise their IPO Warrants at any time prior to the redemption date
specified in such notice. Investors should be aware that closing prices do not
necessarily reflect actual purchase or sale transactions.
The holders of the IPO Warrants are protected against dilution of
their interests represented by the number of shares of Common Stock underlying
the IPO Warrants upon the occurrence of certain events, including share
dividends, share splits, mergers, reclassification, and the sale by the Company
of Common Stock below the then market price (other than employee benefits and
stock option plans).
The holders of the IPO Warrants have no right to vote on matters
submitted to the shareholders of the Company and have no right to receive
dividends. The holders of the IPO Warrants are not entitled to share in the
assets of the Company in the event of liquidation, dissolution, or the winding
up of the Company's affairs.
OPTIONS ISSUED TO EXECUTIVES
In April 1995, the Company issued a five year option to Mrs.
Klein pursuant to her employment agreement to purchase 75,758 shares of Common
Stock at an exercise price of $5.00 per share. In June, 1995, the Company issued
five year options to each of Messrs. Goldberg and Housman to purchase 75,758
shares of Common Stock at an exercise price of $5.00 per share. In May 1996, the
Company
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issued a five year option to Mrs. Klein pursuant to her employment agreement to
purchase 37,879 shares of Common Stock at an exercise price of $5.00 per share.
The number of shares of Common Stock purchasable upon exercise of
such options and the purchase price shall be subject to adjustment to protect
the holder thereof against dilution in the event that the Company shall (i) pay
a dividend in, or make a distribution of, shares of Common Stock on its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a lesser number of shares, or (iv) reorganize or consolidate with or
merge into another corporation or transfer all or substantially all of its
assets to another entity.
The holders of such options shall not be entitled to exercise any
voting rights or any other rights of a shareholder of the Company unless and
until the holder exercises the option.
In November 1996, the Board granted to each of Messrs. Goldberg
and Housman, subject to the consummation of written employment agreements with
each of them, and such approvals from the Company's shareholders as part of the
consideration for their agreement to enter into such employment agreements, five
year options to purchase 350,000 shares of Common Stock at an exercise price of
$1.99 per share. Such options shall vest over a three year period, and shall be
substantially identical to the form of option previously issued to them.
REPRESENTATIVE'S WARRANTS
Upon the completion of the Offering, the Company will sell to the
Representative, individually and not as representative of the Underwriters, the
Representative's Warrants for consideration of one mil ($.001) per
Representative's Warrant, exercisable for 375,000 Units in the aggregate. Each
Representative's Warrant shall (i) entitle the holder thereof to purchase one
Unit at an exercise price equal to 120% of the public offering price per Unit
offered by the Company hereby; (ii) be exercisable for a period of four years
commencing one year after the date of this Prospectus; and (iii) contain
appropriate anti-dilution provisions. Such anti-dilution provisions include
protection against dilution in both price and percentage of the Company (to the
extent permitted by the rules and regulations of the NASD) upon (a) any issuance
of Common Stock, warrants or other securities convertible into Common Stock at a
price below the then market value of the Common Stock during a period of five
years from the date of this Prospectus; (b) any issuance of Common Stock,
warrants or other securities convertible into Common Stock as a dividend; or (c)
a subdivision or combination of the outstanding Common Stock, warrants or other
securities convertible into Common Stock as the result of a merger,
consolidation, spin-off or otherwise.
During the four-year period commencing one year from the date of
this Prospectus, the Company is required to use its best efforts to assist the
holders of the
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Representative's Warrants and the underlying securities in publicly selling such
Representative's Warrants and the underlying securities, when and if requested
by the Representative or the holders of a majority thereof. These best efforts
include the preparation and filing of one or more registration statements during
such four-year period at the demand of the holders of not less than a majority
of the Representative's Warrants or underlying securities, and the maintenance
of the effectiveness thereof for at least nine months, the first of which such
filings is at the Company's sole cost and expense, including, without
limitation, blue sky fees and expenses and the fees and expenses (not to exceed
$25,000) of one counsel to the holders of the Representative's Warrants or
underlying securities, but not including any underwriting or selling
commissions, discounts or other charges of any broker-dealer acting on behalf of
such holders. In addition, for the period from the first through the seventh
anniversary of the date of this Prospectus, the Company is required to notify
all holders of the Representative's Warrants and underlying securities of the
Company's intention to undertake another public offering of the Company's
securities (whether by the Company or by any security holder of the Company). If
requested by any holder of Representative's Warrants, the Company is required to
include in such public offering any Representative's Warrants and underlying
securities of such requesting holder at the Company's sole cost and expense
(other than any applicable underwriting discounts or commissions, but including,
without limitation, the fees and disbursements of counsel for any holder of
Representative's Warrants and blue sky fees and expenses) and maintain the
effectiveness of any registration statement relating to such public offering for
at least nine months after the date such registration statement is declared
effective. The Representative's Warrants will not be transferable, saleable,
assignable or hypothecatable for one year from the date of this Prospectus,
except that they may be assigned in whole or in part during such year to any
NASD member participating in the Offering or any officer or representative of
the Representative or any such NASD member.
For the life of the Representative's Warrants, the holders
thereof have the opportunity to profit from a rise in the market price of the
Common Stock without assuming the risk of ownership of the shares of Common
Stock issuable upon the exercise of the Representative's Warrants (and the Class
A Warrants issuable upon exercise thereof), with a resulting dilution in the
interests of the Company's shareholders by reason of exercise of warrants at a
time when the exercise price is less than the market price for the Common Stock.
Further, the terms on which the Company could obtain additional capital during
the life of the Representative's Warrants may be adversely affected. The holders
of the Representative's Warrants may exercise their warrants at a time when the
Company would in all likelihood, be able to obtain any needed capital on terms
more favorable than those provided for by the Representative's Warrants.
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IPO UNDERWRITER'S WARRANTS
In connection with its IPO, the Company issued to National
Securities Corporation, the underwriter of the IPO, underwriter's warrants (the
"IPO Underwriter's Warrants") to purchase from the Company up to 60,000 shares
of Common Stock at an exercise price of $6.00 per share and 60,000 IPO Warrants
at an exercise price equal to $.12 per Warrant. The IPO Underwriter's Warrants
are exercisable during the four year period which will commence on August 12,
1997, and are not transferable, except to either a partner or an officer of the
IPO Underwriter or by will or by operation of law.
UMB OPTION
In connection with the extension of the Company's warehousing
line of credit with UMB from $2,500,000 to $4,000,000 which became effective in
February, 1996, the Company granted to UMB a five year option to purchase up to
41,271 shares of Common Stock at an exercise price of $5.50 per share. Such
option shall vest at the rate of 25% of the aggregate amount of such shares on
August 16 of each year commencing in 1997 and continuing through 2000, and shall
expire as to any unexercised portion thereof if, at any time during the term of
the option, said line of credit is terminated, canceled or not renewed for any
reason.
The number of shares of Common Stock purchasable upon exercise of
the option and the purchase price shall be subject to adjustment to protect the
holder thereof against dilution in the event that the Company shall (i) pay a
dividend in, or make a distribution of, shares of Common Stock on its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a lesser number of shares, or (iv) reorganize or consolidate with or
merge into another corporation or transfer all or substantially all of its
assets to another entity.
UMB shall not be entitled to exercise any voting rights or any
other rights of a shareholder of the Company unless and until the holder
exercises the option.
REGISTRATION RIGHTS
The Representative's Warrants confer certain registration rights
upon the holders thereof. See "-- Representative's Warrants."
The IPO Underwriter's Warrants accord to the holders thereof
rights to register the Common Stock and IPO Warrants underlying the IPO
Underwriter's
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Warrants under the Securities Act. The warrants issuable upon exercise of the
Underwriter's Warrants are identical in all respects to the IPO Warrants.
The options granted to Arthur H. Goldberg, Elie Housman, Glenda
Klein and UMB accord "piggyback" registration rights to the holders thereof
which obligate the Company, during a period of five years from the dates of
issuance of such options, to include, upon request of the holders thereof, the
shares of Common Stock underlying such options in any registration of capital
stock under the Securities Act which the Company may undertake (other than (a)
in an offering in which the underwriter thereof may object to such registration;
(b) in a merger; or (c) pursuant to SEC Form S-8).
These registration rights could result in substantial future
expense to the Company and could adversely affect the Company's ability to
complete future equity or debt financings. Furthermore, the registration and
sale of securities of the Company held by or issuable to the holders of
registration rights, or even the potential of such sales, could have an adverse
effect on the market price of the securities offered hereby.
NASDAQ SMALLCAP MARKET LISTING; BOSTON STOCK EXCHANGE AND PACIFIC STOCK EXCHANGE
LISTING APPLICATIONS
The Company's Common Stock and the warrants issued in connection
with its IPO are listed for trading in the Nasdaq SmallCap Market under the
symbols PCFC and PCFCW. The Company has applied for additional listing of the
Common Stock which are components of the Units being offered hereby, and has
applied for inclusion of the Units and the Class A Warrants in the Nasdaq
SmallCap Market . It has also applied for listing of the Units, Common Stock and
Class A Warrants on the Boston Stock Exchange and the Pacific Stock Exchange. It
is anticipated that the Units and Class A Warrants will trade on the Nasdaq
SmallCap Market under the symbols PCFCU and PCFC[A], upon official notice of
issuance. It is also anticipated that the Units, Common Stock and Class A
Warrants will trade on the Boston Stock Exchange and the Pacific Stock Exchange
under the symbols, [ ], [ ] and [ ], and [ ], [ ] and [ ],
respectively, upon official notice of issuance.No assurance can be given that
the Company's application for listing of the Units and/or Class e.No A Warrants
on the Nasdaq SmallCap Market, or its applications for listing of the Units,
Common Stock and/or Class A Warrants on the Boston Stock Exchange and/or the
Pacific Stock Exchange will be granted.
Recently, a proposal has been made to increase the continued
listing criteria on the Nasdaq SmallCap Market. If implemented as proposed,
stricter criteria for continued listing on the Nasdaq SmallCap Market would be
imposed, including the implementation of a $2,000,000 net tangible assets test,
requirements for a greater number of publicly held securities and a higher
market value for such securities and the implementation of new corporate
governance criteria. No assurance can be given that such proposal will be
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adopted, or, if adopted, will be adopted in its current form.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York 10005, serves as the transfer agent and registrar of the Common
Stock, and as warrant agent of the Class A Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have
outstanding [ ] shares of Common Stock ([ ] shares if the
Underwriters' over-allotment option is exercised in full). Of these shares,
[ ] shares will be freely tradeable without restriction under the
Securities Act. The remaining [ ] shares of Common Stock held by existing
shareholders are restricted securities within the meaning of Rule 144. Subject
to compliance with the provisions of Rule 144, said shares presently are
eligible for sale to the public, notwithstanding the fact that such shares have
not been registered under the Securities Act.
In general, under Rule 144 as currently in effect, an affiliate
of the Company, or a person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least two years but less than three
years, will be entitled to sell in any three month period a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock (approximately 51,922 shares immediately after the Offering) or
(ii) the average weekly trading volume during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or person whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding the sale and who has
beneficially owned his or her shares for at least three years is entitled to
sell such shares pursuant to Rule 144(k) without regard to the limitations
described above. Rule 144A under the Act as currently in effect permits the
immediate sale of restricted shares to certain qualified institutional buyers
without regard to volume restrictions. The Commission has proposed an amendment
to Rule 144 which, if adopted, would reduce the above mentioned two year and
three year holding periods to one year and two years, respectively.
Pursuant to certain restrictions upon sale imposed by a "lockup"
agreement which each of such existing shareholders executed and delivered to the
underwriter of the IPO as a condition to the closing of that offering, none of
said 802,272 shares will be eligible for sale in the public market until August
15, 1997, provided that, after May 15, 1997, each of the holders of such shares
may sell up to
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10% of his, her or its shares pursuant to Rule 144. In addition to the foregoing
lockup restrictions, the Representative has required, as a condition to the
closing of the Offering, that each of the Company's directors, officers, key
employees and holders of 2% or more of the Common Stock must execute written
lockup agreements providing that, for a period of 12 months from the date of
this Prospectus, they shall not offer, register, sell, contract to sell, grant
an option for the sale of, issue, assign, transfer or otherwise dispose of any
of the Company's securities held by them without the Representative's prior
written consent. The lockup agreements will have no effect on the date on which
shares become eligible for sale pursuant to Rule 144.
There has been no prior market for the Units or the Class A
Warrants, and there can be no assurance a significant public market for such
securities will develop or be sustained after the offering. Sales of substantial
amounts of Units, Common Stock or Class A Warrants in the public market could
adversely affect the market prices of the Company's securities.
UNDERWRITING
The underwriters named below, for whom LT Lawrence & Co., Inc. is
acting as the Representative (the "Underwriters"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company, and the Company has agreed to sell to the Underwriters, the
respective number of Units set forth opposite each Underwriter's name below:
[Download Table]
NUMBER
UNDERWRITERS OF UNITS
------------ --------
LT Lawrence & Co., Inc.................................
---------
Total 3,750,000
---------
---------
The Company is obligated to sell, and the Underwriters are
obligated to purchase, all of the Units offered hereby through the
Representative, if any are purchased.
The Company has been advised by the Representative that, the
Underwriters propose initially to offer the Units to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow a
concession of not more than $. per Unit to selected dealers; and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $. per Unit to certain other dealers. After the consummation of the
Offering, the concession to selected dealers and the reallowance to other
dealers may be changed by the Underwriters. The Units are offered subject to
receipt and acceptance by the Underwriters and to certain other conditions,
including the right to reject orders in whole or in part.
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The Company has granted to the Underwriters an option to purchase
up to 562,500 additional Units solely to cover over-allotments, if any. The
option is exercisable within 45 days from the date of this Prospectus at the
price to public, less the underwriting discounts and commissions set forth on
the cover page of this Prospectus. To the extent the Underwriters exercise
the option, the Underwriters will be committed, subject to certain conditions,
to purchase the additional Units.
See "Shares Eligible For Future Sale" for a description of
certain lock-up agreements.
The Company has agreed to indemnify the Underwriters against, or
contribute to the losses arising from, certain liabilities, including
liabilities arising under the Securities Act.
The Company has paid the Representative $50,000 on account of the
Underwriters' expenses in connection with the Offering to be applied to a
non-accountable expense allowance equal to 3% of the aggregate offering price of
the Units to be sold in the Offering.
The Company has agreed to sell to the Representative, for an
aggregate of $375, Representative's Warrants to purchase 375,000 Units, at an
exercise price per Unit equal to 120% of the public offering price set forth on
the cover page of this Prospectus. The Representative's Warrants will be
exercisable for a period of four years, commencing one year from the date of
this Prospectus, and will contain anti-dilution provisions providing for
appropriate adjustment of the exercise price and number of Units that may be
purchased upon the occurrence of certain events. The Representative's Warrants
may not be sold, transferred or pledged until one year from the date of this
Prospectus, except that they may be transferred, in whole or in part, at any
time to, among others, any officer, director or stockholder of the
Representative or successors to the Representative. Holders of the
Representative's Warrants have demand and piggyback registration rights with
respect to the Representative's Warrants and the underlying securities. See
"Description of Securities -- Registration Rights."
The Representative was organized in February 1992 and was
registered as a broker-dealer in 1994. Prior to this Offering, the
Representative has participated as a sole or co-manager in four public
offerings. See "Risk Factors--Lack of Underwriting History."
The Representative has informed the Company that the Underwriters
do not intend to confirm sales to any accounts over which they exercise
discretionary authority.
The Representative has agreed to pay a finder's fee of
approximately $30,000 to Andrew Racz, who is unaffiliated with the Company or
the Representative.
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The Company has agreed that, during the five year period
commencing on the date of closing of the Offering, the Representative shall have
the right to appoint two members of the Company's Board of Directors, and to
designate one person to attend all meetings of the Company's Board of Directors.
The Representative has advised the Company that, as of the date of this
Prospectus, the Representative has not made any determination as to whether, and
if so, when, it may exercise its right to appoint any director.
Upon the exercise of any Class A Warrants, which exercise was
solicited by the Representative, and to the extent not inconsistent with the
guidelines of the NASD and the Rules and Regulations of the Commission, the
Company has agreed to pay the Representative a commission which shall not exceed
5% of the aggregate exercise price of such Class A Warrants in connection with
bona fide services provided by the Representative relating to any Class A
Warrant solicitation. In addition, the individual must state in writing (either
within or accompanying the warrant exercise notice) whether the exercise of the
individual's warrants was solicited by the Representative in order for the
Representative to be entitled to such Class A Warrant solicitation fee. Pursuant
to the Warrant Agreement, the warrant agent will monitor the warrant exercise
notices to determine whether a Class A Warrant holder's exercise was solicited
by the Representative. However, no compensation will be paid to the
Representative in connection with the exercise of the Class A Warrants if (a)
the market price of the Common Stock is lower than the exercise price; (b) the
Class A Warrants were held in a discretionary account; or (c) the Class A
Warrants are exercised in an unsolicited transaction. The Company has agreed
not to solicit the exercise of any Class A Warrants other than through the
Representative unless the Representative is legally unable to solicit such
exercise, in which event the Company may solicit such exercise, either by itself
or with the assistance of a third party.
The Underwriters and certain selling group members that currently
act as market makers for the Common Stock may engage in "passive market making"
in the Company's securities on the Nasdaq SmallCap Market in accordance with
Rule 10b-6A under the Exchange Act ("Rule 10b-6A"). Rule 10b-6A permits, upon
satisfaction of certain conditions, underwriters and selling group members
participating in a distribution that are also Nasdaq market makers in the
security being distributed to engage in limited market making activities during
the period when Rule 10b-6A would otherwise prohibit such activity. In general,
under Rule 10b-6A, any underwriter or selling group member engaged in passive
market making activities in the Company's securities (i) may not effect
transactions in, or display bids for, such securities at a price that exceeds
the highest bid for such securities displayed on Nasdaq by a market maker that
is not participating in the distribution of such securities, (ii) may not have
net daily purchases of such Company securities during the later of nine business
days before the commencement of offers or sales of the securities to be
distributed or the time such person becomes a participant in the distribution
that exceed 30% of the average daily trading volume in such securities for the
two full consecutive calendar months
82
immediately preceding the filing date of the Registration Statement of which
this Prospectus is a part and (iii) must identify its bids as made by a passive
market maker.
The foregoing is a summary of the principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made to
the forms of Underwriting Agreement and Representative's Warrant Agreement,
copies of which are on file as exhibits to the Company's Registration Statement
of which this Prospectus forms a part. See "Additional Information."
LEGAL MATTERS
The validity of the Units, Common Stock and Class A Warrants
being offered hereby will be passed upon for the Company by Hall Dickler Kent
Friedman & Wood, LLP. Certain legal matters in connection with the Units, Common
Stock and Class A Warrants offered hereby will be passed upon for the
Representative by Rubin Baum Levin Constant & Friedman.
EXPERTS
The financial statements of Pioneer Commercial Funding Corp. for
the years ended March 31, 1995 and 1996 included in this Prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
AVAILABLE INFORMATION
The Company has filed a registration statement on Form SB-2 (the
"Registration Statement") under the Securities Act which includes this
Prospectus. This Prospectus, which constitutes a part of the Registration
Statement does not contain all the information set forth in the Registration
Statement and exhibits thereto. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement and the exhibits thereto. All of these documents may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W. Washington D.C. 20549; and at the
SEC's Regional Office at Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies may be obtained at the prescribed rates from the Public
Reference Section of the SEC at its principal office in Washington, D.C.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other
83
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
The Company is subject to the informational requirements of the
Securities and Exchange Act of 1934, as amended, and in accordance therewith
electronically files reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information statements
and other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C.; and 7 World Trade Center, Suite 1300, New
York, New York; and copies of such material can be obtained from the Public
Reference Section of the Commission, Washington, D.C. at prescribed rates. In
addition thereto, such reports, proxy and information statements and other
information may be accessed and retrieved from the Website maintained by the
Commission at http://www.sec.gov.
The Common Stock is listed on the Nasdaq SmallCap Market. The
Company has applied for listing of the Units and Class A Warrants on said
Market. The Company has also applied for listing of the Units, Common Stock and
Class A Warrants on the Boston Stock Exchange and the Pacific Stock Exchange.
Copies of the reports, proxy and information statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Nasdaq Stock Market at 1735 K Street, N.W.,
Washington, D.C. 20006.
84
INDEX TO FINANCIAL STATEMENTS
[Download Table]
PAGE
----
Report of Independent Public Accountants............................. F-1
Balance Sheet as of March 31, 1996................................... F-2
Statements of Operations for the
years ended March 31, 1995 and 1996.................................. F-3
Statements of Changes in Shareholders'
Equity for the years ended March 31,
1995 and 1996....................................................... F-4
Statements of Cash Flows for the
years ended March 31, 1995 and 1996.................................. F-5
Notes to Financial Statements
March 31, 1995 and 1996............................................. F-6
Balance Sheet as of September 30, 1996 (Unaudited)................... F-19
Statements of Operations for the Three and Six Month
Periods ended September 30, 1996 and 1995 (Unaudited)................ F-21
Statement of Changes in Shareholders' Equity for
the Six Month Period ended September 30, 1996 (unaudited)............ F-21
Statements of Cash Flows for the Six Months
ended September 30, 1996 and 1995 (Unaudited)........................ F-22
Notes to Unaudited Financial Statements.............................. F-23
85
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Pioneer Commercial Funding Corp.:
We have audited the accompanying balance sheet of Pioneer Commercial Funding
Corp. (a New York corporation) as of March 31, 1996, and the related statements
of operations, changes in stockholders' equity and cash flows for the years
ended March 31, 1995 and 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pioneer Commercial Funding
Corp. as of March 31, 1996, and the results of its operations and its cash flows
for the years ended March 31, 1995 and 1996 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As further discussed in Note 1 to the
financial statements, the Company has incurred substantial losses for the period
since its emergence from bankruptcy in April 1993 through March 31, 1996 which
has resulted in the deterioration of the Company's financial condition. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding these matters are also described in
Note 1. The financial statements do not include any adjustments that may result
from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
New York, New York
July 1, 1996
F-1
PIONEER COMMERCIAL FUNDING CORP.
BALANCE SHEET
MARCH 31, 1996
[Download Table]
ASSETS
------
CASH AND TEMPORARY CASH INVESTMENTS $ 98,349
LOANS RECEIVABLE, MORTGAGE WAREHOUSE 3,512,775
ACCRUED INTEREST AND FEES RECEIVABLE 30,007
DEFERRED COSTS OF EQUITY OFFERING 445,731
FIXED ASSETS:
Furniture and equipment 50,370
Proprietary computer software 469,655
-----------
520,025
Less- Accumulated depreciation and amortization 302,035
-----------
Net fixed assets 217,990
-----------
OTHER ASSETS 26,087
-----------
Total assets $ 4,330,939
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Loans payable, mortgage warehouse $ 3,254,235
Revolving lines of credit 79,400
Bridge financing (notes totaling $100,000 less unamortized
discount of $37,500) 62,500
Accrued interest payable 43,564
Due to mortgage banking companies 20,917
Accounts payable and accrued expenses 261,163
Deferred legal fees 76,743
-----------
Total liabilities 3,798,522
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value; authorized 5,000,000 shares;
835,000 shares issued and outstanding 8,350
Additional paid-in capital 8,598,634
Accumulated deficit (8,074,567)
-----------
Total stockholders' equity 532,417
-----------
Total liabilities and stockholders' equity $ 4,330,939
===========
The accompanying notes are an integral part of this balance sheet.
F-2
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1995 AND 1996
[Enlarge/Download Table]
1995 1996
---- ----
INCOME:
Interest income $ 99,453 $ 76,957
Commissions and fees 7,500 4,500
Processing fees 65,073 15,733
---------- ----------
Total income 172,026 97,190
---------- ----------
DIRECT COSTS:
Interest expense, warehouse loan and revolving line of credit 58,117 81,104
Interest expense, bridge financing 142,748 79,231
Bank charges and fees 7,645 9,711
Bank processing fees 2,790 4,593
---------- ----------
Total direct costs 211,300 174,639
---------- ----------
LOSS BEFORE OPERATING EXPENSES (39,274) (77,449)
OPERATING EXPENSES 544,462 433,709
---------- ----------
Loss from operations (583,736) (511,158)
---------- ----------
OTHER INCOME (EXPENSE):
Loss on retirement of assets, net of gains on sales (4,279) -
Interest income -- other 5,021 12,685
Interest expense -- other (4,712) (4,712)
Other income - 24,570
---------- ----------
Total other income (expense), net (3,970) 32,543
---------- ----------
LOSS BEFORE INCOME TAXES (587,706) (478,615)
PROVISION FOR INCOME TAXES 1,449 1,188
---------- ----------
Net loss $ (589,155) $ (479,803)
========== ==========
LOSS PER SHARE OF COMMON STOCK $ (.78) $ (.58)
WEIGHTED AVERAGE NUMBER OF SHARES 753,053 826,644
The accompanying notes are an integral part of these statements.
F-3
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1995 AND 1996
[Enlarge/Download Table]
Additional Total
Common Paid-in Subscriptions Deferred Accumulated Stockholders'
Stock Capital Receivable Compensation Deficit Equity
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, March 31, 1994 $ 6,595 $ 7,915,139 $ (153,170) $ (160,750) $(7,000,655) $ 607,159
Issuance of 45,033 shares of Class A
preferred stock of Pioneer equivalent
to 45,033 shares of common stock of
the Company (postmerger) 451 199,549 -- -- -- 200,000
Issuance of 176,136 shares of Class B
common stock of Pioneer equivalent
to 176,136 shares of common stock of
the Company (postmerger) 1,761 498,239 -- -- -- 500,000
Payment of subscriptions -- -- 153,170 -- -- 153,170
Amortization of deferred compensation
for consulting services -- -- -- 96,000 -- 96,000
Dividends paid on preferred stock of
Pioneer prior to the merger -- -- -- -- (4,954) (4,954)
Cancellation of contract for consulting
services effective September 30, 1994
and return and cancellation of related
55,682 common shares (557) (64,193) -- 64,750 -- --
Net loss for the period -- -- -- -- (589,155) (589,155)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, March 31, 1995 8,250 8,548,734 -- -- (7,594,764) 962,220
Issuance of 10,000 shares of the Company's
common stock in connection with the
bridge financing 100 49,900 -- -- -- 50,000
Net loss for the period -- -- -- -- (479,803) (479,803)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, March 31, 1996 $ 8,350 $ 8,598,634 $ -- $ -- $(8,074,567) $ 532,417
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
F-4
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1995 AND 1996
[Enlarge/Download Table]
1995 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (589,155) $ (479,803)
----------- -----------
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 232,965 164,080
Expenses for consulting services paid for in stock 96,000 -
Net loss on dispositions of assets 4,279 -
(Increase) decrease in-
Accrued interest receivable 7,608 (10,866)
Other assets (2,661) (6,654)
Increase (decrease) in-
Accrued interest payable 33,710 (1,543)
Due to mortgage banking companies (69,663) (15,054)
Due to creditors - -
Accounts payable trade and accrued expenses 93,013 96,921
----------- -----------
Total adjustments 395,251 226,884
----------- -----------
Net cash used in operating activities (193,904) (252,919)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in mortgage warehouse loans receivable 1,604,828 (2,579,116)
Proceeds from sale of fixed assets - -
Purchase of fixed assets (9,850) (4,805)
----------- -----------
Net cash provided by (used in) investing activities 1,594,978 (2,583,921)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in borrowings used in operations, net
of issuance costs (1,471,683) 2,680,185
Payment of dividends on preferred stock (4,954) -
Increase in deferred costs of equity offering (245,690) (182,570)
Proceeds from stock transactions 653,170 -
----------- ----------
Net cash provided by (used in) financing activities (1,069,157) 2,497,615
----------- -----------
Net increase (decrease) in cash and temporary
cash investments 331,917 (339,225)
CASH AND TEMPORARY CASH INVESTMENTS, beginning of year 105,657 437,574
----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS, end of year $ 437,574 $ 98,349
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 29,119 $ 65,620
=========== ===========
The accompanying notes are an integral part of these statements.
F-5
PIONEER COMMERCIAL FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996
1. ORGANIZATION AND MERGER, PIONEER'S
REORGANIZATION AND OPERATIONS
Organization and Merger
PCF Acquisition Corp. ("PCF") was organized and commenced operations on March 8,
1994. The initial 185,511 shares of PCF's common stock were issued at a price of
$.81 per share on March 9, 1994 to the two founding stockholders. Such shares
were paid for on July 1, 1994. PCF was organized for the express purpose of
raising capital through an initial public offering ("IPO") for the benefit of
Pioneer Commercial Funding Corp. ("Pioneer"), a mortgage warehouse lender that
emerged from Chapter 11 Bankruptcy on April 2, 1993. Pioneer is related to PCF
through common interests. On November 23, 1994, in contemplation of the IPO and
in accordance with a resolution ratified by the Board of Directors of PCF and
Pioneer, Pioneer merged with and into PCF in a one-for-one exchange of all of
the outstanding shares of the Class A and Class B common stock and the Class A
preferred stock of Pioneer for common shares of PCF. Immediately subsequent to
the merger, PCF changed its name to Pioneer Commercial Funding Corp. (hereafter
referred to as the "Company"). The merger has been accounted for as an exchange
between companies under common control and the assets and liabilities of the
merged entity are recorded at their historical cost. All amounts presented have
been restated to give effect to the merger as if it had occurred on the first
day of each period presented.
Pioneer's Reorganization
On April 2, 1993 (the "Effective Date"), Pioneer emerged from Chapter 11
("Chapter 11") of the United States Bankruptcy Code (the "Bankruptcy Code")
pursuant to a confirmed First Amended Modified Plan of Reorganization ("POR").
These financial statements have been prepared starting on the day after
Pioneer's emergence from bankruptcy.
The POR confirmed by the Bankruptcy Court provided for the following:
- Substantially all of Pioneer's assets (which were primarily loans and
accrued interest receivable) were remitted to the secured creditors in
settlement of Pioneer's outstanding obligations.
- All other recoverable assets have been placed in a distribution fund.
Liquidation of these assets are first to be used to pay administrative
expense obligations (estimated to be
F-6
approximately $1.9 million) with any residual funds to be distributed to
the unsecured creditors on a pro rata basis.
- As further discussed in Note 12, unsecured creditors also received
noninterest-bearing notes totaling $1,350,000 which are to be paid only
upon Pioneer attaining certain pre-defined income levels in future
periods.
- Subsequent to the confirmation date, Pioneer paid the unsecured creditors
$252,000 ($102,000 from cash on hand as of the confirmation date and
$150,000 from proceeds of Pioneer's issuance of preferred stock
subsequent to the confirmation date). Such payment was distributed to the
unsecured creditors on a pro rata basis.
- Pioneer received $131,000 from the creditors' trust fund after the
confirmation for working capital purposes.
- After the confirmation date, Pioneer was reimbursed $50,000 from a
certain law firm which provided services to Pioneer during the
reorganization period. Such amount will be repaid to the law firm only
after the $1,350,000 notes to the unsecured creditors discussed above are
paid in full.
As discussed above, Pioneer remitted its loans and other receivables to the
secured and unsecured creditors in satisfaction of its debt obligations.
Collection and recovery of these outstanding receivables were the responsibility
of the creditors committee, therefore, Pioneer is unable to determine the
overall recovery by the secured and unsecured creditors groups of their claims
against Pioneer. Claims for administrative expenses have been fully recovered by
the creditors.
Operations
The Company is engaged in the business of mortgage warehouse lending which
primarily consists of providing lines of credit, in the form of "warehouse
financing," to mortgage banking companies to enable them to close real estate
loans on single family, owner-occupied dwellings and sell such loans to
investors in the secondary market. The Company obtains its funds to provide such
financing from third-party funding sources with which it has available lines of
credit. The Company's loans receivable from the mortgage banking company are
secured by an interest in the underlying real property which are then assigned
to the Company's funding sources. Investor groups who purchase the mortgages
(which generally occurs within two weeks from the time the Company makes the
loan) remit the proceeds directly to the Company in satisfaction of the loan and
interest receivable from the mortgage banking company. The Company will
simultaneously use the funds to pay off its loan and accrued interest payable to
its funding sources. The Company's primary sources of income from operations are
processing fees received from the mortgage banking company for each loan
financed and the interest rate spread (usually 0.5%) between the rate at which
the Company borrows from its funding source and the rate it charges the mortgage
banking company.
The Company's operations are subject to certain risks which are inherent to its
industry. Its results of operations depend heavily upon the ability of its
mortgage banking customers to originate mortgage loans. This ability is largely
dependent upon general economic conditions in the geographic areas that the
Company serves. Because these general economic conditions fluctuate, there can
be no assurance that prevailing economic conditions will always favor the
Company's business and operations. In addition, mortgage banking firms have
historically experienced a wide range of financial results, from highly
profitable to highly unprofitable. These financial
F-7
results are due to many factors which affect most, if not all, firms in the
mortgage banking business at about the same time. Three of these factors which
predominate are: changes in mortgage interest rates, the availability of
affordable credit, and the state of the domestic economy. These three factors,
among others, affect the demand for new and used housing and thus the demand for
financing and refinancing of mortgages. Lastly, although the Company's mortgage
banking customers must have a commitment for each loan from an approved
third-party agency ("Agency") before the Company will extend mortgage warehouse
financing, there is no guarantee that the Agency will, in fact, accept the
mortgage loan when delivered due to certain deficiencies in the loan or other
unanticipated circumstances which may exist. If for any reason an Agency does
not accept the mortgage loan, and the Company's mortgage banking customer is
unable to pay back its obligation to the Company through other means, the
Company could find itself the owner of a long-term loan of less than market
value instead of short-term bridge financing receivable.
As of June 14, 1993, when the Company began its first active operations since
its emergence from Chapter 11, the Company had an available line of credit of
$1.0 million from one source which was subsequently increased to available lines
of credit from two funding sources in the total amount of $2.35 million as of
March 31, 1995 and $4.1 million as of May 1996. Substantially all of the
business conducted by the Company during the period from April 3, 1993 to March
31, 1994 and for the year ended March 31, 1995 was with one active mortgage
banking company who had a credit line approved by the Company in the amount of
$2.0 million. In April, 1995, the Company discontinued the credit line with this
customer as a result of the customer not complying with all of the terms of the
credit line agreement. The Company had substantially no mortgage lending
activities from April 1995 through August 1995. During the period from August
1995 through November 1995, the Company developed customer relationships with
three new mortgage banking companies. For the period from August 1, 1995 through
May 30, 1996, the Company generated approximately $31.6 million in mortgage
warehouse lending volume from these three new customers. The Company is in the
process of evaluating the creditworthiness of several other potential customers.
Although the Company expects to conduct business in the future with a greater
number of mortgage banking customers, and thereby reduce the risks attendant in
relying upon a small number of sources to support its business, no assurance can
be given that it will receive applications from potential customers who will be
able to satisfy its standards, or if it does receive such applications, that
such applicants will thereafter engage in the volume of mortgage warehouse
lending transactions that are required to sustain the Company's operations. The
cessation of business of any of the Company's active customers or the inability
of its customers to provide the Company with an increased level of loan volume
could materially adversely affect the Company's ability to generate sufficient
revenues to operate profitably and to continue to meet its cash obligations in
future periods.
During the period from April 3, 1993 to March 31, 1994 and the years ended March
31, 1995 and 1996, the Company incurred net losses of $399,000, $589,000 and
$480,000, respectively. Such losses were partly attributable to noncash expenses
(primarily depreciation, amortization, debt discount expenses and deferred
consulting agreement expenses) totaling $130,000, $329,000 and $164,000 during
1994, 1995 and 1996, respectively, and the inability of the Company to generate
a sufficient volume of loan transactions with its customers. These matters have
resulted in the deterioration of the Company's financial condition and raise
substantial doubt about its ability to continue as a going concern. These
financial statements have been prepared assuming the Company will continue as a
going concern and do not include any adjustments that may result from the
outcome of this uncertainty. In order for the Company to strengthen its
financial condition and to operate profitably in future periods, it will need to
continue to increase its capacity to fund loan transactions and correspondingly
increase loan originations. Such increases
F-8
are dependent upon the Company's ability to (1) increase funds available from
financing sources, and (2) develop new customer relationships with mortgage
banking companies which will supply the Company with a sufficient volume of loan
transactions. As discussed above, the Company is actively pursuing new
relationships with mortgage banking companies and believes that they will be
able to significantly increase loan volume demand in future periods. The
Company's ability to attract and retain new funding sources or to increase
available financing from its existing sources is contingent upon the Company's
ability to raise additional capital.
The Company is currently exploring several opportunities to raise additional
capital including its current intent to issue common stock in an IPO
transaction. Management anticipates that the terms of the IPO shall consist of
an offer to sell, in tandem, 690,000 shares of common stock of the Company and
690,000 common stock purchase warrants (of which the underwriter has the option
to purchase up to 90,000 of such shares of common stock and warrants in the
event of an over-allotment) at a per unit price of $5.00 and $0.10,
respectively, and 40,000 shares of the existing issued and outstanding common
stock of the Company (currently owned by the bridge financers as discussed in
Note 5) at a price per share of $5.00 (proceeds from the sale of these shares
will not revert back to the Company). The warrants will give the owner the right
to purchase an additional share of common stock at a price of $5.50 for a period
of four years commencing one year after the completion of the IPO (the "Exercise
Period"). Such warrants will be immediately tradable separate from the common
stock. Commencing two years after the completion of the IPO and through the end
of the exercise period, the warrants may be redeemed by the Company upon 30
days' written notice at a price of $.05 per warrant, provided that (1) the
closing sale price of the Company's common stock shall not be less than $7.50
per share for any period 20 days subsequent to the issuance of the written
notice, or (2) that the warrant holders have not exercised their warrants at any
time prior to the period 30 days after the issuance of the written notice. In
addition, the underwriter will be issued the right for a period of four years
commencing one year after the completion of the IPO to purchase, in tandem,
60,000 shares of common stock of the Company and 60,000 common stock purchase
warrants at a price of $6.12 for each combined share and warrant. The terms of
the warrants acquired by the managing underwriter would be the same as those
discussed above except that such options are nontransferable.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Use of Estimates
The accompanying financial statements, which are prepared in conformity with
generally accepted accounting principles, require the use of estimates made by
management. The most significant estimates with regard to these financial
statements relate to the valuation allowance for deferred income taxes and the
estimated obligations due under the plan of reorganization, as more fully
described in Notes 6 and 12. Actual results may differ from those assumed in
management's estimates.
Cash and Temporary Cash Investments
Temporary cash investments include all liquid interest-bearing investments with
original maturities of three months or less.
Effective April 25, 1996, a certificate of deposit in the amount of $25,000 was
pledged in order for the Company to receive the right to conduct business in the
State of California.
F-9
Fixed Assets
Depreciation expense is computed generally on a straight-line basis. Leasehold
improvements are amortized over the life of the asset or the term of the lease,
whichever is shorter. The ranges of estimated useful lives used in computing
depreciation and amortization are as follows:
[Download Table]
Years
------
Furniture and equipment 3 to 10
Autos and trucks 5
Leasehold improvements 3 to 10
Proprietary computer software 5
Proprietary computer software consists of a set of computer programs that were
developed internally by the Company for use in its business and are not for
resale to other mortgage finance companies.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS
No. 109, deferred income taxes are provided for at the statutory rates on the
difference between financial statement basis and tax basis of assets and
liabilities and are classified in the balance sheets as current or noncurrent
consistent with the assets and liabilities which give rise to such deferred
income taxes.
Deferred Costs of Equity Offering
and Debt Issuance
Certain costs associated with the IPO have been paid by the Company and are
deferred on the balance sheets. Upon the successful completion of the IPO, these
costs will be shown as a direct reduction to additional paid-in capital.
However, should the IPO not be consummated, such deferred costs will be
immediately written off by the Company in its statements of operations. In
addition, costs incurred in connection with the issuance of debt have been
deferred and are being amortized over the term of the debt instrument.
Loss Per Share of Common Stock
The loss per share of common stock was computed using the net loss for the year,
divided by the weighted average number of shares outstanding during such year
(adjusted for the reverse stock split effective in August 1994 and June 1996).
Weighted average shares outstanding are further adjusted for the impact of
shares issued and options granted for which the share price/option exercise
price is less than the anticipated IPO per share offering price of $5.00.
Prospective Changes in Accounting Policies
The following new financial accounting standards must be adopted by the Company
effective April 1, 1996:
- SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and
for Long-lived Assets to be Disposed of," requires that, if certain
changes in events or circumstances occur which indicate that the
carrying amount of a long-lived asset may not be recoverable, a company
must evaluate whether the asset is impaired, as defined. If an asset is
considered
F-10
to be impaired, a valuation allowance must be established
equal to the difference between the carrying value of the asset and the
estimated discounted value of the asset based on certain realization
assumptions.
- SFAS No. 123, "Accounting for Stock-Based Compensation," establishes
financial accounting and reporting standards for stock-based employee
compensation plans and will allow companies to choose either (1) a fair
value method of valuing stock-based compensation plans which will affect
reported net income, or (2) to continue following the existing
accounting rules for stock option accounting but disclose what the
impact would have been had the new standard been adopted. The Company
will choose the disclosure option of this standard which would require
disclosing the pro forma net income and earnings per share amounts
assuming the fair value method was adopted on April 1, 1995.
Management believes that the adoption of these new accounting standards on April
1, 1996 will not have a material impact on the Company's financial condition or
results of operations.
3. MORTGAGE WAREHOUSE
LOANS RECEIVABLE/PAYABLE
Loans receivable are generally due within thirty to forty-five days from the
date funded, with an average outstanding period of twelve days and interest
payable at prime plus 1.5%. Similarly, all of the loans payable are due within
the same time frame with interest payable at prime plus 1%. The Company's line
of credit with its loan payable funding source is limited to $4.1 million (as a
result of an increase from $2.0 million in February 1996) and matures on August
31, 1996. In consideration for this increase, the Company paid a financing fee
of $7,900 and has agreed to issue to the funding source upon the closing of the
IPO, a five year option to purchase up to 41,271 shares of the Company's common
stock at an exercise price of $5.50 per share. These options vest at a rate of
10,318 shares per year on the first through fourth anniversaries of the IPO
closing date. If the credit line is terminated, any unexercised warrants will
immediately expire. For the years ended March 31, 1995 and 1996, the weighted
average interest rate on loans receivable was 8.84% and 9.93%, respectively, and
on loans payable was 7.01% and 9.53%, respectively. Loans receivable are
collateralized by a security interest in the underlying real property which the
Company then assigns to its funding sources as security for the loans payable.
The Company is required to comply with certain operating covenants in accordance
with the debt agreement with its funding source. As of March 31, 1996, the
Company was in compliance with these covenants.
4. REVOLVING LINES OF CREDIT
As of March 31, 1995, the Company had a Revolving Line of Credit ("LOC") from a
related party in the amount of $350,000. Such LOC had a maturity date of
November 15, 1995 and was not renewed when it matured. As of March 31, 1995 and
through November 15, 1995, no amounts were outstanding under this LOC.
In November 1995, the Company entered into revolving credit agreements with
certain officers, directors and former officers of the Company to borrow an
aggregate of $113,000 at an interest rate of prime plus 1/4 percent. These
agreements mature in December 1996. As of March 31, 1996, $79,400 was
outstanding under these LOCs.
F-11
Borrowings on all of the LOCs described above are secured by an assignment of
the general security interest in the mortgage notes underlying the mortgage
warehouse loans receivable.
5. BRIDGE FINANCING
In March 1994, the Company entered into a loan arrangement with various
individuals (original bridge financers) to provide $200,000 in additional funds
to be used in the ordinary course of the Company's warehouse lending operations
and to defray certain expenses of the anticipated IPO. The loans bore interest
at a rate of 12% and were due at the earlier of the successful completion of the
IPO or August 31, 1995. As an inducement to make these loans, the Company issued
22,727 shares of its common stock to the original bridge financers. The original
22,727 shares issued and the additional 7,273 shares issued discussed below were
assigned a $5.00 per share value (which is equal to the price that these shares
will be offered at in the IPO) resulting in a $150,000 discount to the debt.
Such discount was being amortized to interest expense over the term of the debt
agreements resulting in an effective interest rate of 248%.
On August 31, 1995, the bridge loans matured but were not paid by the Company.
On January 16, 1996, the Company paid off in full loans outstanding to two of
the bridge financers with an aggregate unpaid balance as of such date totaling
$122,492 (which includes $22,492 of unpaid accrued interest). On February 1,
1996, the Company entered into agreements with the remaining two bridge
financers (the remaining bridge financers) with aggregate outstanding loans to
the Company as of such date totaling $123,708 (which includes $23,708 of unpaid
accrued interest), whereby the maturity date of the bridge loan obligations was
extended to the earlier of three days following the consummation of the IPO or
December 31, 1996. The Company received waivers from all of the original bridge
financers for any defaults which may have occurred as a result of the Company's
failure to pay off its debt obligations on their original maturity date of
August 31, 1995. In consideration for the waivers received and in order to
adjust the number of shares given to the original bridge financers for the
impact of the June reverse stock split which reduced their number of shares
owned from 30,000 to 22,727 shares, the Company issued to the original bridge
financers an additional 7,273 shares of common stock in June 1996. In addition,
the Company issued 10,000 more post-split shares to the remaining bridge
financers in consideration for extending the maturity on their debt in February
1996. A value of $5.00 per share was assigned to these shares on the date of the
debt modification resulting in a $50,000 discount to the debt. Such discount is
being amortized to interest expense over the remaining term of the modified debt
agreements resulting in an effective interest rate of 133% for the period from
February 1, 1996 through December 31, 1996.
6. INCOME TAXES
For the years ended March 31, 1995 and 1996, the Company provided $1,449 and
$1,188, respectively, for income taxes which represents provisions for minimum
state taxes. The 1995 and 1996 federal tax benefit of $219,000 and $191,000,
respectively, attributable to the Company's loss before taxes was offset by a
corresponding provision to increase the Company's deferred tax asset valuation
allowance. As of March 31, 1996, the Company's federal deferred tax attributes
consisted primarily of net operating loss carryforwards ("NOL") in the
approximate amount of $2.0 million. Approximately $1.3 million of the NOL is
limited to use (approximately $100,000 per year) due to a change in ownership in
November 1994 resulting from the merger between Pioneer and PCF. The deferred
tax asset for the NOL is reduced by a corresponding valuation allowance for the
same tax effected amount. Utilization of the NOL, which expire in varying
amounts between 2000 and 2011, is dependent upon the Company's ability to
generate taxable income in the future.
F-12
7. DUE TO MORTGAGE
BANKING COMPANIES
The Company generally will only finance up to 98% of the total loan amount
closed by the mortgage banking company. Upon sale of the loan to the investor
group, proceeds for 100% of the loan amount are remitted to the Company by the
investor. The Company applies such funds against amounts due from the mortgage
banking company for principal and accrued interest on the 98% financed and will
then remit the excess funds back to the mortgage banking company.
8. FIXED ASSETS
During the year ended March 31, 1995, the Company abandoned its rented office
located in New York and correspondingly wrote off the unamortized balance of the
related leasehold improvements totaling $4,279.
9. DEFERRED LEGAL FEES
Deferred legal fees are a consequence of the POR and are payable in four annual
installments beginning on April 16, 1994. The Company has not paid the April
1995 installment of $28,990 and as of March 31, 1996, the following payments
remain:
[Download Table]
April 1995 and 1996 $ 57,988
April 1997 20,728
--------
Total payments 78,708
Less - Discount factor (1,965)
---------
Net book value - March 31, 1996 $ 76,743
========
10. STOCKHOLDERS' EQUITY
Reverse Stock Splits and Merger
Effective in August 1994, the Board of Directors of Pioneer authorized a .31 for
1 reverse stock split for its Class A and Class B common stock and its Class A
preferred stock. In connection with the merger of Pioneer with and into PCF in
November 1994, all of the common and preferred shares of Pioneer outstanding as
of the date of the merger (240,922 Class A common shares, 252,508 Class B common
shares and 123,332 Class A preferred shares -- all after giving effect of the
June 1996 reverse stock split described below) were exchanged on a one-for-one
basis for common shares of PCF. Effective June 1996, the Board of Directors of
the Company authorized a .758 for 1 reverse stock split of all of its then
outstanding common stock. All share and per share amounts in these financial
statements have been restated to give effect to the reverse stock splits and
merger as if they had occurred on the first day of each period presented.
Share Voting Agreements
On October 25, 1994, in connection with a stock purchase agreement with an
unrelated third party, Pioneer issued an additional 176,136 shares of its Class
B common stock for $500,000 (which were exchanged for 176,136 common shares of
PCF upon the consummation of the merger). The agreement gives the third party
the right to acquire additional shares, if, in future periods, additional shares
are issued to other parties so that this third party's percentage ownership in
the Company does not fall below 20% of the total outstanding common shares. In
connection with
F-13
this stock purchase transaction, the unrelated third party entered into a
share voting agreement with certain existing shareholders of the Company, who
after the merger, own greater than 50 percent of the Company in the aggregate.
The share voting agreement requires that all parties to the agreement will vote
on all matters subject to shareholder approval in a consistent fashion. The
agreement is in effect until the successful completion of the stock offering
discussed in Note 1.
Dividend Restriction
The holders of the Company's common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. The
common stockholders are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
However, it is not presently anticipated that dividends will be paid on common
stock in the foreseeable future as certain of the debt instruments to which the
Company is a party prohibit or restrict the payment of dividends (see Note 12
for further discussion).
Preferred Stock
Prior to the merger between PCF and Pioneer, Pioneer had issued for $525,000,
123,332 shares of its Class A preferred shares with a 5% cumulative dividend
(including the 45,033 shares converted from outstanding LOC borrowings during
1995). Parties related to executive officers of Pioneer owned 25,297 of such
outstanding Class A preferred shares. All outstanding preferred shares were
exchanged on a one-for-one basis for common shares of PCF on November 23, 1994
in connection with the merger between PCF and Pioneer. Through November 23,
1994, Pioneer accrued for the 5% dividend payment totaling $15,077, of which
$4,954 has been paid. The remaining unpaid balance totaling $10,123 was forgiven
by the preferred shareholders and the accrual was reversed by the Company.
11. STOCK OPTION PLAN
The Company has adopted a Non-Qualified Stock Option Plan (the "Plan") which
provides for the issuance of options to purchase up to 151,515 shares of the
Company's common stock to persons who are at the time of grant, employees of, or
consultants to, the Company.
The Plan further provides for the automatic issuance of options to nonemployee
directors of the Company. Each nonemployee director shall be granted options to
acquire 15,000 shares of the Company's common stock on January 2, 1997, January
2, 2000 and January 2, 2003 (45,000 to each in total). Each grant shall vest at
a rate of 3,788 shares per year of service and will expire 10 years from the
date of grant to the extent not exercised.
Upon completion of the merger between the Company and Pioneer, three directors
of Pioneer became the first nonemployee directors of the Company. In accordance
with the Initial Options provision, the directors received options to purchase
24,306 shares of common stock in the aggregate at an exercise price of $5.00 per
share. Such options vest at the rate of 316 shares per month, provided, however,
that none of these options shall be exercisable prior to March 1995.
On March 1, 1995, two of the nonemployee directors were named President and
Chief Executive Officer of the Company, respectively. As a result, the Initial
Options granted to these individuals totaling 16,414 were forfeited. In
addition, in June 1995, these two individuals were each granted additional
options to purchase 75,758 shares of the common stock at an exercise price of
$5.00 per share. These options (which were not granted pursuant to the Plan) are
immediately exercisable and expire 5 years from the date of grant.
F-14
The exercise price for all options issued/issuable under the Plan must be 100%
of the fair market value of the Common Stock underlying the option at the time
of grant.
12. COMMITMENTS AND CONTINGENCIES
Plan of Reorganization
Under the POR, the Company is contingently liable to its pre-Chapter 11
unsecured creditors, for such creditors' pro rata shares of noninterest-bearing
notes (the "Notes") totaling $1,350,000. The payment terms are as follows:
(i) Commencing as of the close of fiscal year 1995 (ending March 31,
1995) each Note holder shall receive a cash distribution in an
amount equal to such holder's pro rata share of twenty percent of
the Net Income Available for Note Payments, as defined, if Net
Income, also as defined, for such fiscal year exceeds $400,000;
(ii) Commencing with the close of fiscal year 1996, (ending March 31,
1996), and for all succeeding years thereafter, until full aggregate
payment of $1,350,000 is made under the Notes, each Note holder
shall receive a cash distribution equal to such Creditors' pro-rata
share of twenty percent of the Net Income Available for Note
Payments, if the Net Income for any such year exceeds $1,300,000.
In addition, approximately $50,000 in professional fees incurred in connection
with the POR were deferred and will only be paid to the extent the Notes are
paid in full.
In accordance with the POR, certain operating restrictions have been placed upon
the Company until the time that all amounts due on the Notes have been paid in
full. These restrictions include:
- Incurring new debt in excess of $25,000, except for secured lending
required in the ordinary course of the Company's mortgage lending
operations.
- Expending more than $25,000 in the aggregate in a calendar year to
purchase or lease capital assets, except to replace existing assets.
- Merging or consolidating with another business.
- Expending more than $320,000 annually in the aggregate to the officers of
the Company and placing limitations on salary increases.
- Declaring dividends on any class of common stock, except that, if there
should be a public offering of the securities of the Company, and, if at
the option of the Company, fifty percent of the proceeds in excess of
$5,000,000 from such offering are utilized for the payment of the Notes,
then such dividend restriction shall be deemed waived.
As of March 31, 1996, the Company was unable to determine whether it is probable
that it will generate income in future years which would result in payments on
the Notes. As such, no liability has been reflected in the Company's balance
sheet for the Notes or the professional fees.
F-15
Consulting Contract
On February 15, 1994, the Company entered into a contract with an independent
consultant to provide assistance to the Company with respect to the anticipation
of a public offering of its stock (the Proposed Offering). Services to be
provided include determining an appropriate structure for its Proposed Offering,
to evaluate potential underwriters of such Proposed Offering, to assist in
negotiating the terms of an agreement for an underwriter acceptable to the
Company and to provide guidance to the Company's management with respect to the
process that the Company must undertake in connection with the registration and
public sale of its stock. The contract terminates on January 31, 1995.
In consideration for these services, the Company issued to the independent
consultant 55,682 shares of its Class B Common Stock. The value for these shares
for financial reporting purposes was estimated to be $3.30 per share which
management believes approximates the fair value per share for an unregistered
share of common stock of the Company. It is anticipated that the shares issued
to the independent consultant would not be registered in the proposed IPO. The
Company is amortizing the expense on a straight-line basis over the term of the
contract resulting in an expense of $23,000 and $96,000 in 1994 and 1995,
respectively. The unamortized portion of the contract is reflected as a
reduction to shareholders' equity.
Effective September 30, 1994, as a result of a position taken by the National
Association of Securities Dealers, Inc. that the value of the shares issued to
the independent consultant must be considered as underwriters compensation
(which would limit the amount of compensation allowed to be paid to the
Underwriter in connection with the Company's anticipated equity offering), the
Company and the independent consultant terminated their contract and the
consultant returned all 55,682 shares of common stock back to the Company which
were immediately canceled. The independent contractor further waived any and all
entitlements and claims for payment for services rendered during the contract
period through September 30, 1994. The unamortized portion of the consulting
contract as of September 30, 1994 totaling $64,750 was reversed against
additional paid-in capital and common stock.
Employment Contracts
On March 1, 1995, the Company entered into a two-year employment agreement with
its Chief Financial Officer ("CFO") which provides for a base annual salary of
$90,000 and $100,000 for the fiscal years ending March 31, 1996 and 1997,
respectively. In addition, the Company must reimburse the CFO certain
business-related expenses, provide for the use of a Company automobile and pay
the premiums for life and long-term disability insurance. In the event of
termination in connection with a change in control, the CFO is entitled to the
balance of the amount due under this agreement plus an additional $100,000.
The agreement also provides for the granting to the CFO an option to purchase
75,758 shares of the Company's common stock at an exercise price of $5.00 per
share and a second grant on May 1, 1996 to purchase an additional 37,879 shares
at the market price of the common stock estimated at that date to be $5.00 per
share. Both options are immediately exercisable and expire five years from the
date of grant.
In June 1995, the Company entered into employment contracts with the chief
executive officer and president providing for an annual salary of $55,000 for
each individual commencing after the completion of the IPO. For the period from
June 1995 through the completing of the IPO these
F-16
officers were not entitled to any salary compensation. See Note 11 for a
discussion of stock options awarded to these officers in June 1995.
13. OPERATING EXPENSES
Operating expenses consisted of the following for the years ended March 31, 1995
and 1996:
[Download Table]
1995 1996
---- ----
Salaries and benefits $ 159,427 $ 134,555
Depreciation and amortization 110,498 101,300
Professional fees (includes amortization of
consulting contract totaling $96,000 and
$0 in 1995 and 1996, respectively) 167,010 114,382
Utilities 22,352 19,782
Rent 23,803 11,609
Repairs and maintenance 3,383 4,616
Other 57,989 47,465
---------- ----------
$ 544,462 $ 433,709
========== ==========
14. RELATED PARTY TRANSACTIONS
Transactions with related parties (which consist of executive officers and
shareholders of the Company and their related interests and family members) not
disclosed elsewhere in these financial statements consist of the following:
- On July 1, 1994, the Company paid in full $150,000 outstanding under
two of the LOC Agreements to two related parties. Such related parties
simultaneously satisfied their stock subscription obligation for shares
of the Company's common stock in the amount of $150,000.
- During September 1994, short-term advances were made by several related
parties to the Company which were used in the Company's mortgage
warehouse operations. As of September 30, 1994, approximately $391,000
of such advances were outstanding bearing interest at amounts ranging
from the prime rate of interest to 10%. These advances plus the related
accrued interest were paid in full on October 11, 1994.
- For the years ended March 31, 1995 and 1996, certain family members of
an executive officer of the Company were engaged to perform accounting
and consulting services for the Company. Such individuals were
compensated approximately $14,291 and $3,106 for these services in 1995
and 1996, respectively.
15. EVENTS OCCURRING SUBSEQUENT TO THE DATE OF THE AUDITOR'S REPORT (UNAUDITED)
Consummation of IPO
On August 16, 1996, the Company consummated its IPO as further described in Note
1 above. The transaction resulted in the issuance of approximately 690,000
common shares and net proceeds to the Company of approximately $2.7 million.
F-17
Proposed Equity Offering
The Company is currently contemplating raising additional funds through the
registration and sale of new shares of its common stock. The Company anticipates
that it will issue a certain number of shares of its common stock
along with detachable warrants in order to raise gross proceeds of approximately
$7.5 million before consideration of the underwriter's discount and other
offering expenses. The per share offering price for the common stock and
warrants will be determined based upon the current market price of the Company's
common stock on the transaction date. The Company's common stock was trading at
approximately $1.63 per share on December 20, 1996. The warrants will be
exercisable immediately after the consummation of the proposed equity offering
for a period of five years. The warrants are also subject to the redemption by
the Company for a four year period commencing on the first anniversary date of
the consummation of the offering for a price of $.10 per warrant, provided
certain conditions exist.
F-18
PIONEER COMMERCIAL FUNDING CORP.
BALANCE SHEETS
[Enlarge/Download Table]
September 30 March 31
1996 1996
(unaudited)
------------- --------
ASSETS
Cash and temporary cash investments $586,707 $98,349
Loans receivable, mortgage warehouse lending 3,086,542 3,512,775
Accrued interest and fees receivable 24,204 30,007
Deferred cost of equity offering -- 445,731
Fixed Assets
Furniture and equipment 54,910 50,370
Proprietary computer software 472,865 469,655
------------ ------------
527,775 520,025
Less accumulated depreciation and amortization 352,686 302,035
------------ ------------
Net Fixed Assets 175,089 217,990
------------ ------------
Other assets 197,558 26,087
------------ ------------
Total Assets $4,070,100 $4,330,939
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Loans payable, mortgage warehouse $1,581,605 $3,254,235
Revolving lines, of credit -- 79,400
Bridge financing (notes totaling $100,000 less
unamortized discount of $37,500) -- 62,500
Accrued interest payable 5,893 43,564
Due to mortgage banking companies 36,103 20,917
Accounts payable and accrued expenses 115,192 261,163
Deferred legal fees 74,793 76,743
------------ ------------
Total Liabilities 1,813,586 3,798,522
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Common stock-$.01 par value; authorized 5,000,000 shares;
1,442,272 and 835,000 shares issued and outstanding
at September 30 and March 31, 1996, respectively 14,423 8,350
Additional paid-in capital 10,563,027 8,598,634
Accumulated deficit (8,320,936) (8,074,567)
------------ ------------
Total shareholders' equity 2,256,514 532,417
------------ ------------
Total liabilities and shareholders' equity $4,070,100 $4,330,939
============ ============
The accompanying notes are an integral part of these balance sheets.
F-19
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTH & SIX MONTH PERIODS ENDED SEPTEMBER 30, 1996 & 1995
(Unaudited)
[Enlarge/Download Table]
Three Months Ended Six Months Ended
September 30 September 30
---------------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
INCOME
Interest income $42,713 $1,966 $103,280 $6,452
Commissions and fees 1,500 3,000 1,500 3,000
Processing fees 12,275 1,940 24,943 1,940
Total income 56,488 6,906 129,723 11,392
DIRECT COSTS
Interest expense - warehouse and
revolving lines of credit 42,282 5,975 108,682 6,205
Interest expense - bridge financing 25,355 21,920 42,385 57,568
Bank charges and fees 2,289 1,693 5,905 2,846
Bank processing fees 3,300 -- 6,300 --
Total direct costs 73,226 29,588 163,272 66,619
LOSS BEFORE OPERATING EXPENSES (16,738) (22,682) (33,549) (55,227)
OPERATING EXPENSES 121,913 93,639 218,379 193,870
Loss from operations (138,651) (116,321) (251,928) (249,097)
OTHER INCOME (EXPENSE)
Interest income - other 9,037 16,796 9,307 23,590
Interest expense - other (1,178) (1,178) (2,356) (2,356)
Total other income (expense) 7,859 15,618 6,951 21,234
LOSS BEFORE INCOME TAXES (130,792) (100,703) (244,977) (227,863)
PROVISION FOR INCOME TAXES -- -- 1,392 1,180
Net loss ($130,792) ($100,703) ($246,369) ($229,043)
LOSS PER SHARE OF COMMON
STOCK ($0.11) ($0.12) ($0.25) ($0.28)
WEIGHTED AVERAGE NUMBER OF
SHARES 1,155,315 825,000 996,629 825,000
The accompanying notes are an integral part of these statements.
F-20
PIONEER COMMERCIAL FUNDING CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTH PERIOD ENDED SEPTEMBER 30, 1996
(Unaudited)
[Download Table]
Common Additional Accumulated Total
Stock Paid-in Deficit Stockholders'
Capital Equity
------ ---------- ----------- -------------
Balances
March 31,1996 $8,350 $8,598,634 ($8,074,567) $532,417
Issuance of 7,272 common
shares in connection with
bridge financing 73 (73) -- --
Issuance of 600,000 shares of
common stock and warrants 6,000 1,964,466 -- 1,970,466
Net loss for the period -- -- (246,369) (246,369)
------- ------------ ----------- ------------
$14,423 $10,563,027 ($8,320,936) $2,256,514
The accompanying notes are an integral part of this statement.
F-21
PIONEER COMMERCIAL FUNDING CORP.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED SEPTEMBER 30, 1996 and 1995
(Unaudited)
[Enlarge/Download Table]
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($246,369) ($229,043)
----------- -----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 110,936 98,267
(Increase) decrease in
Accrued interest receivable 5,803 10,360
Other assets (191,900) (20,758)
Increase (decrease) in
Accrued interest payable (37,671) (7,792)
Due to mortgage banking companies 15,186 (34,834)
Accounts payable and Accrued expenses (150,277) 26,258
Total adjustments (247,923) 71,501
Net cash used in operating activities (494,292) (157,542)
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in Mortgage Warehouse Loans Receivable 426,233 509,642
Purchase of Fixed Assets (7,750) (350)
Net cash provided by investing activities 418,483 509,292
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in borrowings used in operations,
net of issuance costs (1,672,630) (545,930)
Decrease in revolving line of credit and bridge financing (179,400)
(Increase) decrease in deferred costs of equity offering 445,731 (81,585)
Proceeds from issuance of stock 1,970,466
Net cash provided by (used in) financing activities 564,167 (627,515)
Net increase (decrease) in cash 488,358 (275,765)
CASH AND TEMPORARY CASH INVESTMENTS
APRIL 1,1996 and 1995 98,349 437,574
CASH AND TEMPORARY CASH INVESTMENTS
SEPTEMBER 30,1996 and 1995 $586,707 $161,809
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid $130,468 $2,872
The accompanying notes are an integral part of these statements.
F-22
PIONEER COMMERCIAL FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (Unaudited)
NOTE 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 September 30, 1996, the results of operations for the three and
six month periods ended September 30, 1996 and 1995 and its cash flows for the
six months ended September 30, 1996 and 1995. The results of operations for the
six month and three month periods ended September 30, 1996 and 1995 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 the instructions to Form 10-QSB 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 March 31, 1996 audited financial statements and
notes thereto, together with the Managements Discussion and Analysis of
Financial Condition and Results of Operations as of March 31, 1996 and for the
year then ended included in the Company's definitive prospectus dated August 12,
1996.
F-23
PIONEER COMMERCIAL FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1996 (Unaudited)
2. OPERATING EXPENSES
Operating expenses consisted of the following:
[Download Table]
Three Month Period Ended Six Month Period Ended
September 30, September 30,
------------------------ ------------------------
1996 1995 1996 1995
---- ---- ---- ----
Salaries and benefits $33,488 $29,759 $52,821 $66,859
Depreciation and amortization 25,325 25,325 50,650 50,650
Professional fees 13,140 12,703 26,196 25,203
Utilities 5,599 4,555 11,144 8,853
Temporary staff services 13,165 9,785 23,849 15,776
Rent 2,903 2,903 5,805 5,805
Other 28,293 8,609 47,914 20,724
-------- ------- -------- --------
$121,913 $93,639 $218,379 $193,870
======== ======= ======== ========
3. INITIAL PUBLIC OFFERING
The Company consummated its initial public offering (the "Offering") on August
16, 1996, at which time it issued 600,000 shares of common stock (.01 par value)
for $5.00 per share and redeemable warrants to purchase 600,000 additional
shares of the Company's common stock at an exercise price of $5.50 per share for
$.10 per warrant (the "Warrants"). The Warrants are exercisable until August 12,
2000. On October 4, 1996, the Company issued an additional 90,000 Warrants
pursuant to the over-allotment option granted to its underwriter with respect to
the Offering. The Company received net proceeds from the Offering of $2,675,556
(excluding the proceeds of $7,830 derived from the underwriter's exercise of the
over-allotment option), and recorded an increase to stockholders' equity in the
amount of $1,970,466 which is net of $705,090 in deferred costs of the equity
offering which were paid for by the Company prior to consummation of the
transaction.
F-24
======================================= =====================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, BY ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER,
SOLICITATION OR SALE MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THE PROSPECTUS.
-----------------
TABLE OF CONTENTS
Page
Available Information...............
Prospectus Summary..................
Risk Factors........................
Use of Proceeds.....................
Capitalization......................
Dividend Policy.....................
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.......................
Business............................
Management..........................
Certain Transactions................
Principal Security Holders..........
Shares Eligible for Future Sale.....
Underwriting........................
Legal Matters.......................
Experts.............................
Financial Statements................
-----------------
3,750,000 UNITS
EACH UNIT CONSISTING OF ONE
SHARE OF COMMON STOCK AND
ONE CLASS A COMMON STOCK
PURCHASE WARRANT
PIONEER COMMERCIAL
FUNDING CORP.
----------------------
P R O S P E C T U S
----------------------
LT LAWRENCE & CO., INC.
_________, 1997
======================================= =====================================
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VIII of the bylaws of Pioneer Commercial Funding Corp.
(the "Company") provide for the indemnification of directors and officers to the
fullest extent permitted by law.
Section 722 of the New York Business Corporation Law (the "BCL")
provides that a corporation may indemnify an individual made party to a
proceeding because he is or was a director or officer in certain situations,
provided that the director acted in good faith for a purpose which he reasonably
believed to be in the best interests of the corporation. In addition, Section
723 of the BCL provides that a corporation shall indemnify a director or officer
who prevails entirely in the defense of any proceeding to which he was a party
because he is or was a director, against reasonable expenses incurred by him in
connection with the proceeding. Section 724 of the BCL provides that,
notwithstanding any action taken by the corporation, or by its shareholders or
directors to deny indemnification to any officer or director, he may apply for
and receive such indemnification, upon good cause shown, to the same extent
permitted under BCL Section 722 upon application for such relief to the
appropriate court.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
The Company maintains directors' and officers' liability
insurance coverage with limits of $1,000,000 per occurrence.
The Company has agreed to enter into employment agreements with
Arthur H. Goldberg and Elie Housman, and it has entered into an employment
agreement with Glenda Klein, providing for indemnification to the fullest extent
permitted by law. The Company has also entered into indemnification agreements
with each of its other directors which provide for indemnification to the
fullest extent permitted by law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
Common Stock being registered. All amounts are estimates except the registration
fee, the NASD and Nasdaq SmallCap Market fees and the Boston Stock Exchange and
pacific Stock Exchange fees.
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[Download Table]
Amount To
Be Paid
---------
SEC Registration fee....................................... $ 4,668
NASD Filing fee............................................ 2,041
Nasdaq SmallCap Market fees................................ 14,100
Boston Stock Exchange listing fees......................... 15,000
Pacific Stock Exchange filing fees......................... 22,500
Printing expenses.......................................... 75,000
Legal fees and expenses.................................... 135,000
Accounting fees and expenses............................... 45,000
Blue sky fees and expenses................................. 45,000
Warrant agent fees......................................... 7,500
Stock and Class A Warrant certificates..................... 3,500
Miscellaneous.............................................. 30,691
--------
Total............................................... $400,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following tables set forth (i) the number of shares of Common
Stock issued by the Company and the number of shares of common stock and
preferred stock issued by Pioneer during the past three years without
registration under the Securities Act, (ii) the date of such issuance, and (iii)
the consideration per share for each issuance. There were no underwriting
discounts or commissions paid in connection with the issuance of any of these
securities. Unless otherwise noted, the consideration was paid in cash.
[Download Table]
The Company:
------------ Number of Shares Consideration
Purchaser Date of Common Stock Per Share ($)
--------- ---- ----------------- -------------
Arthur H. Goldberg 3/23/94 92,755 (1) (2)
Elie Housman 3/23/94 55,653 (1) (2)
Jon Housman 3/23/94 18,551 (1) (2)
Daniel Housman 3/23/94 18,551 (1) (2)
Richard Friedman 3/10/94 7,576 (1) (3)
1/15/96 2,424 (4)
Richard Gurian 3/10/94 1,893 (1) (3)
2/01/96 3,107 (5)
Jeffrey Markowitz 3/10/94 7,576 (1) (3)
1/15/96 2,424 (4)
Christian D. and
Katherine Ericksen 3/10/94 5,682 (1) (3)
2/01/96 9,318 (5)
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[Download Table]
Pioneer (3):
------------ Class B Class A
Purchaser Date Common Stock Preferred Stock Per Share($)
--------- ---- ------------ --------------- ------------
Uri Lieber 5/3/93 237,000 (6a) (7)
Esther Bier 5/3/93 20,000 (6b) (7)
Richard Fried 5/3/93 50,000 (6c) (7)
Glenda Klein 5/3/93 10,000 (6d) (7)
Harry Falk 1/27/94 40,000 (6e) 1.00
Uri Guefan 1/27/94 25,000 (6f) 1.00
Imperial Valley
Emergency Phy-
sicians Retire-
ment Trust 1/27/94 25,000 (6g) 1.00
Allyson Klein 1/27/94 5,000 (6h) 1.00
Tamar Ruth Lieber 1/27/94 100,000 (6i) 1.00
Michael Loewenthal 1/27/94 100,000 (6j) 1.00
Martha Jacob Reis 1/27/94 30,000 (6k) 1.00
Shamiz, S.A. 6/7/94 186,916(6l) 1.07(8)
ICTS Holland
Production B.V. 10/25/94 176,136 (1) 2.84(1)
-------------------------------
(1) Adjusted to account for the 1 to .758 reverse split of the Company's Common
Stock implemented in June 1996 (the "June 1996 Stock Split").
(2) The per share price (adjusted to account for the June 1996 Stock Split) of
$.81 was determined prior to the negotiation of the Bridge Financing
transactions to be the fair market value of such shares on the basis of the high
risk undertaken by such investors in subscribing for the shares of a company
which had no business operations of its own, and which would not be able to
merge with Pioneer in the absence of any assurance, at that time, that the
public offering upon which the merger of PCF and Pioneer was conditioned, would
be achieved. A valuation of $150,000 was determined arbitrarily and did not
reflect any inherent fair market value therein.
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(3) Represents shares issued as additional consideration in connection with
certain interim financing arrangements between the Company and certain lenders.
(4) Represents shares issued to counter the dilutive effects of the June 1996
Stock Split in consideration of the shareholder's waiver of any defaults which
may have existed under a Bridge Financing agreement.
(5) Represents shares issued to counter the dilutive effects of the June 1996
Stock Split in consideration of the shareholder's waiver of any defaults which
may have existed under a Bridge Financing agreement, and additional shares
issued in consideration of the shareholder's agreement to extend the maturity
date under such Bridge Financing agreement.
(6) In August, 1994, Pioneer implemented, in contemplation of its merger with
and into the Company, a reverse stock split, pursuant to which the aggregate
number of issued and outstanding shares of all classes of its capital stock were
reduced from 2,060,035 shares to 655,126 shares (the "Stock Split"). As a result
thereof, and the June 1996 Stock Split, the number of shares of common and
preferred stock held by each of Pioneer's shareholders was reduced and
thereafter converted into the following shares of the Company's Common Stock:
(6a) 57,098 (6b) 4,818 (6c) 12,046 (6d) 2,409
(6e) 9,636 (6f) 6,023 (6g) 6,023 (6h) 1,205
(6i) 24,092 (6j) 24,092 (6k) 7,228 (6l) 45,033
(7) These shares were issued immediately subsequent to Pioneer's emergence from
bankruptcy. The per share price thereof of $.01 per share was determined
arbitrarily and did not reflect any inherent fair market value therein.
(8) On June 7, 1994, this shareholder's revolving credit loan in the principal
amount of $200,000 was converted into preferred shares at the rate of $1.07 per
share.
Exemption from the registration provisions of the 1933 Act for
the transactions set forth above is claimed under Section 4(2) of the Securities
Act, among others, on the basis that such transactions did not involve any
public offering and the purchasers were sophisticated with access to the kind of
information registration would provide. No underwriting fees were paid in
connection with the foregoing transactions. However, a finder's fee of $20,000
was paid to The Blackmor Group, Inc., an unaffiliated party, for arranging the
Bridge Financing.
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ITEM 27. EXHIBITS.
Exhibit No. Description
1.1 Form of Underwriting Agreement.*
1.2 Form of Agreement Among Underwriters.*
1.3 Form of Selected Dealers Agreement.*
2.1 Modified Plan of Merger Between the Company and Pioneer.
3.1 Certificate of Incorporation of the Company.
3.2 Bylaws of the Company.
3.3 Certificate of Amendment of the Company's Certificate of
Incorporation.
4.1 The Company's Non-Qualified Stock Option Plan.
4.2 Specimen Stock Certificate of the Company's Common
Stock.
4.3 Specimen Class A Warrant Certificate.*
4.4 Form of Class A Warrant Agreement. *
4.5 Form of Lockup Agreement.*
4.6 Form of Representative's Warrant Agreement and
Representative's Warrant Certificate.*
4.7 Form of Option issued to the Company's Executives.
4.8 Form of Option issued to United Mizrahi Bank & Trust
Company.
5 Opinion of Hall Dickler Kent Friedman & Wood, regarding
the legality of the Units, Common Stock and the Class A
Warrants. *
10.1 Revolving Line of Credit and Security Agreement between
United Mizrahi Bank and Trust Company and the Company, as
amended.
10.2 Employment Agreement between the Company and Glenda S.
Klein.
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10.3 Stock Purchase Agreement dated as of December 23, 1996
between the Company and Trans Lending Corporation
10.4 Noncompete Agreement dated as of December 23, 1996 between
the Company and Kenneth Germain
10.5 Employment Agreement dated as of December 23, 1996 between
Trans Lending and Kenneth Germain.*
10.6 Employment Agreement between the Company and Arthur H.
Goldberg.*
10.7 Employment Agreement between the Company and Elie
Housman.*
23.1 Consent of Independent Certified Public Accountants (See
Part II, Page 10).
23.2 Consent of Counsel (See Part II, Page 11).
24 Power of Attorney (See Part II, Page 9).
----------------------------------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS.
A. Certificates
The Registrant hereby undertakes to provide to the Underwriter at
the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
B. Rule 415 Offering
The Registrant hereby undertakes:
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(1) To file, during any period in which it offers or sells any of
the securities which are the subject of the prospectus included within this
Registration Statement, a post-effective amendment to this Registration
Statement: (i) to include any prospectus required by Section 10(a)(3) of the
Securities Act; (ii) to reflect in the prospectus any facts or events which,
individually or together, represent fundamental change in the information set
forth in the Registration Statement; (iii) to include any additional or changed
material information with respect to the plan of distribution.
(2) For purposes of determining any liability under the
Securities Act, the Registrant will treat each post-effective amendment as a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
C. Request for Acceleration of Effective Date
The Company may elect to request acceleration of the effective
date of the Registration Statement under Rule 461 of the Securities Act of 1933.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
D. Reliance on Rule 430A
(1) For purposes of determining liability under the Securities
Act, the Registrant will treat the information omitted from the form of
prospectus filed
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as part of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant under Rule 424(b)(1) or (4) or
497(h) under the Securities Act ('ss.''ss.'230.424(b)(1), (4) or 230.497(h)) as
part of this Registration Statement as of the time the Commission declared it
effective.
(2)For purposes of determining liability under the Securities
Act, the Registrant will treat each post-effective amendment as a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
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SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in the
City, County and State of New York on the 27th day of December, 1996
Pioneer Commercial Funding Corp.
By: /s/ Arthur H. Goldberg
--------------------------------
Arthur H. Goldberg, Chief Executive Officer
(Principal Executive Officer)
In accordance with the requirements of the Securities Act of
1933, this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Arthur H. Goldberg his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as full to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or
either of them or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
SIGNATURE TITLE DATE
--------- ----- -----
/s/ Arthur H. Goldberg Director, Chief December 27, 1996
--------------------------- (Principal) Executive
Arthur H. Goldberg Officer
/s/ Elie Housman Director, December 27, 1996
--------------------------- President
Elie Housman
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/s/ Glenda Klein Director, Sr. Vice Pres., December 27, 1996
--------------------------- Secretary, Treasurer,
Glenda Klein Chief Financial
(Principal Accounting)
Officer)
--------------------------- Director December , 1996
Tamar Lieber
/s/ Richard Fried Director December 27, 1996
---------------------------
Richard Fried
--------------------------- Director December , 1996
Boaz Harel
/s/ Mark Roth Director December 27, 1996
---------------------------
Mark Roth
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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Pioneer Commercial Funding Corp.
As independent public accountants, we hereby consent to the use
of our report (and all references made to our firm) with respect to the
financial statements for the years ended March 31, 1995 and 1996 for Pioneer
Commercial Funding Corp. included in or made part of this registration statement
and prospectus.
ARTHUR ANDERSEN LLP
New York, New York
December 27, 1996
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CONSENT OF COUNSEL
We consent to use of our firm's name and to statements with
respect to our Firm, as they appear under the heading "Legal Matters" in the
Prospectus which is included in Part I of this Registration Statement.
HALL DICKLER KENT FRIEDMAN & WOOD LLP
New York, New York
December 27, 1996
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EXHIBIT INDEX
Exhibit
Number Description
-------- ------------
2.1 Modified Plan of Merger Between the Company
and Pioneer.
3.1 Certificate of Incorporation of the Company.
3.2 Bylaws of the Company.
3.3 Certificate of Amendment of the Company's Certificate
of Incorporation.
4.1 The Company's Non-Qualified Stock Option Plan.
4.2 Specimen Stock Certificate of the Company's Common Stock.
4.7 Form of Option issued to the Company's Executive.
4.8 Form of Option issued to United Mizrahi Bank & Trust Company
10.1 Revolving Line of Credit and Security Agreement between United
Mizrahi Bank and Trust Company and the Company, as amended
10.2 Employment Agreement between the Company and Glenda S. Klein.
10.3 Stock Purchase Agreement dated as of December 23, 1996 between
the Company and Trans Lending Corporation
10.4 Noncompete Agreement dated as of December 23, 1996 between the
Company and Kenneth Germain
23.1 Consent of Independent Certified Public Accountants (See Part II,
Page 10).
23.2 Consent of Counsel (See Part II, Page 11).
24 Power of Attorney (See Part II, Page 9).
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as .....'ss'.
Dates Referenced Herein and Documents Incorporated by Reference
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