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: March 31, 1999
[ ] 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.
(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)
N/A
(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 April 30, 1999, the registrant had 11,201,142 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
FORM 10 - QSB
For the quarter ended March 31, 1999
Index
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<CAPTION>
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS PAGE
Condensed Consolidated Balance Sheets at
March 31, 1999 (Unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1999 and 1998(Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matter to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
MPEL HOLDINGS CORP. AND SUBSIDIARY
FORM 10 - QSB
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 152,264 $ 86,094
Mortgage loans held for sale 3,207,051 3,418,761
Due from investors 11,725,931 11,323,933
Other receivables and other assets 1,677,068 1,862,794
Deferred offering costs 108,901 0
Stock subscription receivable 0 430,000
Due from related parties 248,626 520,104
Property and equipment-net 624,753 649,805
----------- -----------
$17,744,594 $18,291,491
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES
Warehouse lines of credit $11,304,301 $10,922,185
Loans closed to be disbursed 2,742,250 3,019,800
Notes Payable 157,206 431,589
Subordinated debt 320,500 378,000
Obligation under capital lease 67,052 101,897
Accounts payable and accrued expenses 917,945 1,150,350
---------- ----------
Total liabilities 15,509,254 16,003,821
---------- ----------
STOCKHOLDERS' EQUITY
Common stock-$.01 par value; authorized
15,000,000 shares; issued 11,894,142;
outstanding 11,894,142 and 11,201,142 shares at
December 31, 1998 and March 31, 1999,
respectively. 118,941 118,941
Additional paid-in capital 4,026,826 4,026,826
Accumulated deficit (1,760,427) (1,848,097)
Treasury stock, at cost (140,000) 0
Stock subscription receivable (10,000) (10,000)
----------- -----------
2,235,340 2,287,670
----------- -----------
$17,744,594 $18,291,491
=========== ============
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3
<PAGE>
MPEL HOLDINGS CORP. AND SUBSIDIARY
FORM 10 - QSB
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
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REVENUE
Mortgage Origination, net $ 2,119,266 $ 2,100,339
Interest earned 251,892 277,705
----------- ----------
TOTAL REVENUE 2,371,158 2,378,044
----------- ----------
EXPENSES:
Commission, wages and benefits 1,143,453 1,315,783
Selling and administrative 880,804 1,131,081
Interest expense 259,231 419,254
----------- ---------
TOTAL EXPENSES 2,283,488 2,866,118
----------- ---------
NET INCOME (LOSS) $87,670 (488,074)
=========== =========
BASIC AND DILUTED INCOME (LOSS) PER SHARE $0.01 $(0.06)
=========== =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 11,624,642 8,153,685
=========== =========
</TABLE>
4
<PAGE>
MPEL HOLDINGS CORP. AND SUBSIDIARY
FORM 10 - QSB
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ 87,670 $(488,074)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation 31,296 27,357
Amortization of notes payable discount 37,582 113,661
Net changes in:
Due from investors (401,998) 512,167
Other receivables and other assets 185,726 (230,458)
Mortgage loans held for sale 211,710 (1,614,631)
Accounts payable and accrued liabilities (438,819) 461,464
--------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITES (286,833) (1,218,514)
CASH FLOW USED IN INVESTING ACTIVITIES
Purchase of fixed assets (6,244) (92,361)
--------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Net proceeds from repayments of warehouse lines
of credit 382,116 (103,488)
Loans closed to be disbursed (277,550) 1,158,091
Advances from related parties 271,478
Treasury stock (140,000)
Stock subscription receivable 430,000
Repayments of obligation under capital lease (34,845) (14,662)
Proceeds from (Repayment of) notes payable (311,965) 31,439
Repayment of subordinated debt (57,500)
Deferred offering costs (108,901) (97,198)
Bank overdraft 206,414
--------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 359,247 974,182
--------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 66,170 (336,693)
Cash and cash equivalents at beginning of period 86,094 377,709
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 152,264 41,016
========== ===========
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5
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MPEL HOLDINGS CORP. AND SUBSIDIARY
FORM 10 - QSB
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
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<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Interest expense $ 192,245 $ 325,264
========= ==========
Income taxes $ 0 $ 0
========= =========
Assets acquired thru capital lease obligations $ 0 $ 0
========= =========
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6
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MPEL HOLDINGS CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(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. (collectively, the "Company"). The Company is a full
service retail mortgage banking company which provides a broad range of
residential mortgage products (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 Company is an approved
nonsupervised mortgagee for the U.S. Department of Housing and Urban Development
and originates substantially all of its mortgage loans in New York, New Jersey,
Missouri, Connecticut, Ohio and Puerto Rico.
INTERIM FINANCIAL STATEMENTS
The results of operations for the three months ended March 31, 1999 are not
necessarily indicative of results to be expected for the remainder of the fiscal
year. The figures contained in this interim report are unaudited and may be
subject to year-end adjustments. Certain information and note disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to rules
and regulations of the Securities and Exchange Commission. 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 Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1998.
REVENUE RECOGNITION
The Company sells whole mortgage loans and pools of mortgage loans,
servicing released, on a non-recourse basis. Mortgage origination fees, net of
direct loan origination costs, are deferred and included in mortgage loans held
for sale until the loans are sold. Revenue recognition from the sale of mortgage
loans on a non-recourse basis occurs when the loans are shipped to investors
pursuant to sale commitments. Mortgage origination revenue is the differential
between the sale proceeds, including premium, if any, and the carrying amount of
the mortgage.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
Company's Condensed Consolidated Financial Statements included in Item 1 of this
Form 10-QSB.
7
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB may contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
section 21E of the Securities Exchange Act of 1934, as amended. 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 of new and used homes, changes in interest rates, changes in
government regulations effecting consumer credit and the risk factors identified
in the Company's filings with the Securities and Exchange Commission, including
under the caption "Risk Factors" in its most recent Registration Statement on
Form SB-2. Subsequent written and oral forward-looking statements attributable
to the Company or persons acting on its behalf are expressly qualified by the
precautionary statements in this paragraph and elsewhere in this Form 10-QSB.
RESULTS OF OPERATIONS. The three-month period ended March 31, 1999,
compared to the three-month period ended March 31, 1998:
MORTGAGE ORIGINATION. Mortgage loan origination volume decreased $1.4
million or 3.1% to $41.5 million during the three month period ended March 31,
1999 from $42.9 million during the corresponding period of 1998. This decrease
in mortgage loan origination volume was primarily due to the closing of five
branches and the 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 $19,000 or 1.0% to $2.1
million. The increase was due to increased points and fees collected, partially
offset by a reduction in overall volume. Interest income decreased $26,000, or
9.3% to $252,000. The decrease was due to a lower percentage of "B/C"
credit-rated mortgage loans, which have a generally higher interest rate.
EXPENSES. Commissions, wages and benefits decreased $172,000, or 13.1% to
$1.1 million as compared to the quarter ended March 31, 1998. The decrease in
commissions, wages and benefits was primarily due to a reduction of staff
resulting from the closing of five branches. As of March 31, 1999, the Company
had 101 employees, as compared to 154 employees as of March 31, 1998. Selling
and administrative expenses, which consist of marketing, occupancy, supplies,
selling and other expenses decreased $250,000, or 22.1% to $867,000. This
decrease was due primarily to the closing of five branches. Interest expense
decreased $160,000, or 38.2% to $259,000. This decrease was due to lower level
of debt during the quarter ended March 31, 1999 compared to the quarter ended
March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
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 facilities; (iii) capital expenditures; (iv) personnel and
commission costs; and (v) other operating and administrative expenses. The
Company generates cash flow from fees received from its borrowers for mortgage
originations, the sale of mortgage loans into the secondary market and interest
income on loans held for sale.
Management anticipates an increase in its production of mortgage loans
originations, through, among other things, increased advertising and promotion,
expanded telemarketing capabilities and continued expansion into new markets.
This anticipated 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.
8
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In October, 1998, the Company entered into a $10 million warehouse line of
credit expiring September 1, 1999, renewable annually. In February 1999, the
Company entered into an additional $10 million warehouse line of credit with
another lender. This warehouse line of credit may be canceled by the lender upon
30 days notice. The warehouse lines of credit are personally guaranteed by the
Company's principal shareholders and contain certain covenants requiring, among
other things, minimum adjusted net worth, and are collaterized by specific
mortgage loans held for sale and amounts due from investors. Interest is
variable, based on the prime rate and type of collateral. These revolving credit
facilities permit the Company to borrow the funds which are utilized to
originate mortgage loans, repay the debt and to borrow again to originate
additional mortgage loans. Interest is charged on the outstanding principal
balance.
IMPACT OF YEAR 2000
The Company recognizes the need to ensure that its operations and systems
(including information technology ("IT") and non-information technology
("non-IT") systems will not be adversely affected by Year 2000 ("Y2000")
hardware and software issues. The Y2000 problem is the result of the computer
programs being written using two digits (rather than four) to define the
applicable years. Any of the Company's programs that have time-sensitive
software may recognize the date using "00" as the year 1900 rather than the
2000, which could result in miscalculations or system failures. The Y2000
problem affects the Company's installed computer systems, software applications
and other business systems that have time sensitive programs.
The Company has conducted a review of its IT and non-IT systems to identify
those systems that could be affected by the Y2000 problem. Modifications to the
Company's systems as a result of the findings have been completed. Testing of
these modifications will be completed by September 1999. If the Company's major
suppliers, or others with whom the Company does business, experience problems
related to the Y2000 issues, the Company's business, financial condition or
results of operations could be materially adversely affected. Based on its
current estimates and information currently available, the Company does not
anticipate that the costs associated with Y2000 compliance issues will be
material to the Company's financial position or results of operation.
The Company believes that its Y2000 project will allow it to be Y2000
compliant in a timely manner. There can be no assurance, however, that the
Company's information system or those of a third party on which the Company
relies will be Y2000 compliant by year 2000. An interruption of the Company's
ability to conduct its business due to a Y2000 readiness problem could have a
material adverse affect on the Company's business, operations or financial
condition. There can be no guarantee that the Company's Y2000 goals or expense
estimates will be achieved, and actual results could be differ.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved as a party to certain legal proceedings incidental
to its business. The Company 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
None
DESCRIPTION
a) Exhibits
27 Financial Data Schedule
b) Reports
The registrant did not file any reports on Form 8-K during the quarter
ended March 31, 1999.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MPEL HOLDINGS CORP.
(Registrant)
By /s/ Steven Latessa
---------------------
STEVEN M. LATESSA
President and Chief Executive Officer
By /s/ Cary Wolen
-----------------
CARY WOLEN
Treasurer and Principal Financial Officer
Dated: May 14, 1999
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS DATED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001048644
<NAME> MPEL HOLDINGS CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 152,264
<SECURITIES> 0
<RECEIVABLES> 13,760,526
<ALLOWANCES> 0
<INVENTORY> 3,207,051
<CURRENT-ASSETS> 17,119,841
<PP&E> 624,753
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,744,594
<CURRENT-LIABILITIES> 15,509,254
<BONDS> 0
0
0
<COMMON> 118,941
<OTHER-SE> 2,116,399
<TOTAL-LIABILITY-AND-EQUITY> 17,744,594
<SALES> 0
<TOTAL-REVENUES> 2,371,158
<CGS> 0
<TOTAL-COSTS> 2,024,257
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 259,231
<INCOME-PRETAX> 87,670
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,670
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
