UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 AND 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15D OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission File Number 0-3825
MPEL HOLDINGS CORP.
(Formerly Computer Transceiver Systems, Inc.)
(Exact name of registrant as specified in its current charter)
NEW YORK 22-1842747
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
25 MELVILLE PARK ROAD, MELVILLE, NY 11747
(Address of principal executive offices)
(516) 364-2700
(Registrant's telephone number, including area code)
6851 JERICHO TURNPIKE, SYOSSET, NEW YORK 11791
(Former Name and former Address, if Changed Since Last Report)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months(or for such shorter period the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
---
As of September 30, 1998, the registrant had 9,408,462 shares outstanding
of common stock, $.01 par value. The shares of common stock represent the only
class of common stock of the registrant.
<PAGE>
MPEL HOLDINGS CORP. AND SUBSIDIARY
Index
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at
September 30, 1998 (Unaudited) and December 31, 1997
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1998 and 1997
(Unaudited)
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997 (Unaudited)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matter to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
MPEL HOLDINGS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1998 1997
------------------ ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 713,145 $ 377,709
Mortgage loans held for sale 6,974,887 6,300,764
Due from investors 5,743,418 6,959,131
Other receivables and other assets 1,160,919 1,684,676
Due from stockholders 283,646 263,646
Deferred offering costs 0 122,283
Property and equipment-net 670,681 508,624
================== ==================
$ 15,546,696 $ 16,216,833
================== ==================
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES
Warehouse line of credit $ 10,987,157 $ 10,532,994
Loans closed to be disbursed 1,529,550 1,989,264
Notes Payable 891,899 1,241,652
Subordinated debt 378,000 878,000
Obligation under capital lease 124,651 193,184
Accounts payable and accrued expenses 1,175,525 786,158
------------------ ------------------
15,086,782 15,621,252
STOCKHOLDERS' EQUITY
Common stock-$.01 par value; authorized
15,000,000; issued and outstanding
9,368,462 and 9,408,462 shares at September
30, 1998 and December 31, 1997, respectively, 94,085 80,560
Additional paid-in capital 2,941,089 591,723
Accumulated deficit (2,575,260) (76,702)
------------------ ------------------
459,914 595,581
------------------ ------------------
================== ==================
$ 15,546,696 $ 16,216,833
================== ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MPEL HOLDINGS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
REVENUE:
Mortgage origination, net $ 2,199,956 $ 1,653,554 $ 6,644,409 $ 5,291,388
Interest earned 281,906 249,062 853,026 692,951
------------------ ------------------ ------------------ ------------------
TOTAL REVENUE 2,481,862 1,902,616 7,497,435 5,984,339
------------------ ------------------ ------------------ ------------------
EXPENSES:
Commissions, wages and benefits 2,262,126 1,808,681 6,076,087 4,116,969
Selling and administrative 734,064 637,974 2,628,010 1,832,935
Interest expense 433,803 274,079 1,291,896 712,484
------------------ ------------------ ------------------ ------------------
TOTAL EXPENSES 3,429,993 2,720,734 9,995,993 6,662,388
------------------ ------------------ ------------------ ------------------
OPERATING LOSS (948,131) (818,118) (2,498,558) (678,049)
Other income 0 1,000,000 0 1,000,000
================== =================== ================== ==================
NET GAIN (LOSS) $ (948,131) $ 181,882 $ (2,498,558) $ 321,951
================== ===================== ================== ==================
BASIC AND DILUTED GAIN (LOSS) PER SHARE $ (0.10) $ 0.02 $ (0.29) $ 0.04
================== ================== ================== ==================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 9,214,969 8,000,000 8,591,486 8,000,000
================== ================== ================== ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MPEL HOLDINGS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
Nine Months Ended
September 30,
1998 1997
------------------ ------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net gain (loss) $ (2,498,558) $ 321,951
Adjustments to reconcile net loss
to net cash used in operating activities
Shares issued in payment of interest expense 0 56,000
Depreciation 91,283 79,773
Compensation charge for stock purchase 341,232 0
Amortization of notes payable discount
regarding warrants issued 271,132 0
Net changes in:
Due from investors 1,215,713 0
Other receivables and other assets 526,809 (1,159,176)
Mortgage loans held for sale (674,123) (1,597,570)
Accounts payable and accrued liabilities 103,488 (162,191)
---------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (623,024) (2,461,213)
CASH FLOW USED IN INVESTING ACTIVITIES
Purchase of fixed assets (253,340) (267,167)
------------------ ------------------
CASH FLOW FROM FINANCING ACTIVITIES
Net change in warehouse line of credit 454,163 836,608
Net change in loans closed to be disbursed (459,714) 0
Bank overdraft included in accounts payable 285,878 0
Advances from related parties (20,000) (263,646)
Repayments of obligation under capital lease (68,532) 0
Changes in notes payable (620,885) 1,448,815
Change in deferred offering costs 122,283 (122,283)
Net proceeds from sale of stock 2,018,607 0
Change in subordinated debt (500,000) 878,000
------------------ ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,211,800 2,777,494
------------------ ------------------
INCREASE IN CASH AND CASH EQUIVALENTS 335,436 49,114
Cash and cash equivalents at beginning of period 377,709 328,897
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 713,145 $ 378,011
================== ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MPEL HOLDINGS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
Nine Months Ended
September 30,
1998 1997
------------------ ------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 914,366 $ 681,760
================== ==================
</TABLE>
<PAGE>
MPEL HOLDINGS CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements include the
accounts of MPEL Holdings Corp. and its wholly-owned subsidiary, Mortgage Plus
Equity and Loan Corp., a full service retail mortgage banker.
INTERIM FINANCIAL STATEMENTS
The results of the interim period are not necessarily indicative of results
to be expected for the entire fiscal year. The figures contained in this interim
report are unaudited and may be subject to year-end adjustments. In the opinion
of management, all adjustments necessary for a fair presentation of financial
position and results of operations have been included, such as normal accruals
and elimination of significant intercompany balances and transactions, in
consolidation. It is suggested that these financial statements be read in
conjunction with financial statements and notes thereto included in the
Company's Post-Effective Amendment No. 1 to Form SB-2, filed with Securities and
Exchange Commission on June 10, 1998.
COMMON STOCK OFFERING
The Company filed Registration Statement SB-2 with The Securities and
Exchange Commission on March 17, 1998, for the purpose of offering 1,300,000
shares of common stock at $2.50 per share (the "Offering"). The effective date
of the Offering was May 15, 1998. To date, the Company has received $2,395,800
in net proceeds from the sale of these shares. The Company expects to receive an
additional $854,200 from the net sale proceeds in the fourth quarter and will
utilize substantially all of the net proceeds for working capital, expansion and
debt repayment.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share calculations
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. Earnings per share have been computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding during the period
STOCKHOLDERS' EQUITY
On May 1, 1998, the estate of a deceased stockholder sold 420,220 shares to
the Company's principal stockholders (who are the officers of the Company) for
total consideration of $551,646. As a result of this transaction, the Company
has recognized a one time compensation charge and credit to additional paid in
capital of $341,232 representing the excess of the fair value of the shares
(estimated at $2.50 per share) acquire by the officers over the purchase price.
INTEREST EXPENSE
Interest expense includes $271,123, representing the amortization of a note
payable discount, which resulted from the issuance of warrants to purchase
888,888 shares of common stock. The Company valued the warrants at $328,889 and
reduced the note payable by the $328,889 discount, which is being amortized over
the life of the note.
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
On June 15, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). FAS 133 is effective for fiscal
years beginning after June 15, 1999. FAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earning or in
other comprehensive income, depending on whether the derivative is designed as
part of a hedge transaction and, if it is, the type of hedge transaction.
Management of the Company anticipates that the adoption of FAS 133 will not have
a material effect on the Company's results of operations or its financial
position.
IMPACT OF YEAR 2000
Like most corporations, the Company is reliant upon technology to run its
business. Many computer systems process dates using two digits to identify the
year, and some systems are unable to properly process dates beginning with the
year 2000. The Company is currently assessing and addressing this "Year 2000"
issue and does not believe the costs connected with this assessment will have a
material adverse effect on the Company's results of operations. Non-compliance
with the year 2000 issue by third parties with whom the Company has a relation
will not have a material effect on the Company's business, financial condition
and results of operations.
FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements are inherently subject to risks
and uncertainties, many of which cannot be predicted with accuracy and some of
which might not even be anticipated. Future events and actual results, financial
and otherwise, could differ materially from those set forth in or contemplated
by the forward-looking statements contained herein. Important factors that could
contribute to such differences are: increased competition; increase in
unemployment or other changes in domestic economic conditions which adversely
effect the sale on new and used homes; changes in interest rates; changes in
government regulations effecting consumer credit and other risks factors
identified in the Company's filings with the Securities and Exchange Commission,
including under the caption "Risk Factors" on page 8 of the Post-Effective
Amendment No. 1 to Form SB-2 filed on June 10, 1998.
<PAGE>
MPEL HOLDINGS CORP. AND SUBSIDIARY
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company, through its wholly owned subsidiary, Mortgage Plus, is a full
service retail mortgage banking company providing a broad range of residential
mortgage products, since 1987, (including first mortgages, second mortgages and
home equity loans) to (i) prime, or "A" credit, borrowers who qualify for
conventional mortgages (including loans which conform to the standards of
certain institutional investors, such as Federal National Mortgage Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC")), (ii) borrowers
who are classified as sub-prime, or B/C credit borrowers, and (iii) borrowers
who qualify for mortgages insured by the Federal Housing Administration ("FHA")
or guaranteed by the Veterans Administration ("VA").
The following is management's discussion and analysis of certain
significant factors which have effected the Company's financial position and
operating results during the period included in the accompanying condensed
consolidated financial statements.
RESULTS OF OPERATIONS
The three-month period ended September 30, 1998, compared to the
three-month period ended September 30, 1997
MORTGAGE ORIGINATION. The Company increased its mortgage loan origination
volume to $45.0 million during the three month period ended September 30, 1998
from $33.3 million during the corresponding period of 1997, an increase of
35.1%. This increase in mortgage loan origination volume was primarily due to
origination volume at new branches and increased origination volume at existing
branches, resulting from expanded marketing campaign which included increased
telemarketing, television exposure and loan officers.
REVENUE. Mortgage origination, net, increased $546,402 or 33.0% to $2,200.0
million. The increase was due to increased volume of operations and the
expansion program. Interest income increased $32,844, or 13.2% to $281,906. The
increase was due to increased volume of operations and higher percentage of
"B/C" credit-rated mortgage loans.
EXPENSES. Commissions, wages and benefits increased $453,445, or 25.1% to
$2,262.1 million. The increase in commissions, wages and benefits was primarily
due to an increase in sales staff and administrative personnel required to
process the increased volume of mortgage loan originations and new branch
start-up expenses. As of September 30, 1998, the Company had 153 employees as
compared to 118 employees as of September 30, 1997. Selling and administrative
expenses, which consist of marketing, occupancy, supplies, selling and other
expenses increased $96,090, or 15.1% to $734,064. This increases was due to
increased volume of operations and start up expenses of new branches. Interest
expense increased $159,724, or 58.3% to $433,803. This increase was due to
increased volume of operations and amortization of notes payable discount
regarding warrants issued.
The nine-month period ended September 30, 1998, compared to the nine-month
period ended September 30, 1997
MORTGAGE ORIGINATION. The Company increased its mortgage loan origination
volume to $143.8 million during the nine-month period ended September 30, 1998
from $100.1 million during the corresponding period of 1997, an increase of
43.7%. This increase in mortgage loan origination volume was primarily due to
increased origination volume at existing branches and origination volume of new
branches.
<PAGE>
REVENUE. Mortgage origination, net, increased $1,353.0 million, or 25.6% to
$6,644,409. The increase was due to increased volume of operations and the
expansion program. Interest income increased $160,075, or 23.1% to $853,026. The
increase was due to increased volume of operations and higher percentage of
"B/C" credit-rated mortgage loans.
EXPENSES. Commissions, wages and benefits increased $1,959.1 million, or
47.6% to $6,076.1 million. The increase in commissions, wages and benefits was
primarily due to an increase in sales staff and administrative personnel
required to process the increased volume of mortgage loan originations and new
branches start up expenses. Selling and administrative expenses, which consist
of occupancy, marketing supplies, selling and other expenses increased $795,075,
or 43.4% to $2,628.0 million. This increase was due to increased volume of
operations and start up expenses of new branches. Interest expense increased
$579,412, or 81.3% to $1,291.9 million. This increase was due to increased
volume of operations and amortization of notes payable discount regarding
warrants issued.
Under the expansion program, the Company expanded existing branches and
opened several new branch offices in Puerto Rico, Arkansas, Missouri, Ohio and
Illinois.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash flow from operations,
warehouse credit facility and stock offering. The cash flow from operations
consists of fees received from its borrowers for mortgage originations, the sale
of mortgage loan in the secondary market and interest income on loans held for
sale. The Company's primary operating cash requirements include the funding or
payment of: (i) loan originations; (ii) interest expense incurred on borrowings
under its warehouse facility; (iii) capital expenditures; (iv) personnel and
commission costs; and (v) other operating and administrative expenses.
Management expects to increase its production of mortgage loans
originations, through, among other things, increased advertising and promotion,
expanded telemarketing capabilities and continued expansion into new markets.
This expected increase in mortgage loan originations is expected to be funded by
cash flow from operations and increased borrowings under warehouse facilities.
To the extent that additional borrowings under the warehouse facilities or other
arrangements are not available on satisfactory terms, the Company will explore
alternative means of financing, including raising capital through additional
offerings of securities.
In August 1998, the Company entered into a $10,000,000 warehouse credit
facility with Green Shield Limited, L.L.C. ("Green Shield") for a one year term.
The facility, a revolving credit facility, permits the Company to borrow to
originate mortgage loans, repay and borrow again to originate additional
mortgage loans. Interest is charged on the outstanding principal balance at
prime plus 1.5%. The term of the facility may be extended by the Company and
Green Shield.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
MPEL is involved as a party to certain legal proceedings incidental to its
business. MPEL believes that the outcome of such proceedings will not have a
material effect upon its business or financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27 Financial Data Schedule
b) Reports
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 1998 By: /s/ STEVEN M. LATESSA
-----------------------------------
STEVEN M. LATESSA - President,
Principal Executive Officer
Dated: November 13, 1998 By: /s/ CARY WOLEN
------------------------------------
CARY WOLEN - Chief Operating Officer,
Treasurer and Principal Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENT DATED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<ARTICLE> 5
<CIK> 0001048644
<NAME> MPEL HOLDINGS CORP.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 713,145
<SECURITIES> 0
<RECEIVABLES> 7,187,983
<ALLOWANCES> 0
<INVENTORY> 6,974,887
<CURRENT-ASSETS> 0
<PP&E> 670,681
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,546,696
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 94,085
<OTHER-SE> 65,829
<TOTAL-LIABILITY-AND-EQUITY> 15,546,696
<SALES> 0
<TOTAL-REVENUES> 7,497,435
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,704,097
<LOSS-PROVISION> 1,291,896
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,498,558)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,498,558)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,498,558)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
