UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15D OF THE SECURITIES
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 registrant's principal executive offices including Zip Code)
(516) 364-2700
(Registrant's telephone number, including area code)
No Change (Former name, former address and former fiscal year 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 that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ x ]. No [ ].
As of June 30, 1999, the registrant had 11,201,142 shares outstanding of
common stock, $.01 par value.
<PAGE>
MPEL HOLDINGS CORP. AND SUBSIDIARY
Form 10 - QSB
Index
<TABLE>
<CAPTION>
Part I: Financial information
Item 1. Financial statements Page No.
<S> <C>
Condensed Consolidated Balance Sheet at June 30, 1999
(Unaudited) 3
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1999 and 1998 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
Three and Six Months Ended June 30, 1999 and 1998 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
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
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30,
1999
-----------
<S> <C>
Assets
Cash and cash equivalents $ 1,563,591
Mortgage loans held for sale 2,965,528
Due from investors 8,561,436
Other receivables and other assets 1,873,108
Deferred financing costs 244,443
Due from related parties 226,425
Property and equipment-net 593,357
----------
$16,027,888
==========
Liabilities and Stockholders' Equity
Liabilities:
Warehouse lines of credit $7,309,964
Loans closed to be disbursed 2,765,000
Notes payable 382,598
Subordinated debt 413,404
Obligation under capital lease 29,277
Accounts payable and accrued liabilities 502,197
----------
Total liabilities $11,402,440
----------
Stockholders' Equity:
Common stock-$.01 par value; authorized
15,000,000 shares; issued 11,894,142 shares;
outstanding 11,894,142 118,941
Additional paid-in capital 6,329,964
Accumulated deficit (1,683,457)
Treasury stock, at cost (693,000 shares) (140,000)
---------
Total stockholders' equity 4,625,448
---------
$16,027,888
==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
MPEL HOLDINGS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenue
Mortgage origination, net $1,901,644 $2,344,114 $4,020,910 $4,444,453
Interest earned 261,358 293,415 513,250 571,120
---------- ---------- ---------- ----------
Total Revenue 2,163,002 2,637,529 4,534,160 5,015,573
---------- ---------- ---------- ----------
Expenses
Commission, wages and benefits 972,928 2,176,517 2,116,381 3,502,961
Selling and administrative 437,573 659,865 1,318,377 1,893,946
Interest expense 675,531 552,500 934,762 858,093
---------- ---------- ---------- ----------
Total Expenses 2,086,032 3,388,882 4,369,520 6,255,000
---------- ---------- ---------- ----------
Net income (loss) $ 76,970 $ (751,353) $ 164,640 $(1,239,427)
========== =========== ========== ===========
Per share data:
Net income per common
share - basic and diluted $ 0.01 $ (0.09) $ 0.01 $ (0.15)
========== =========== ========== ==========
Weighted-average number
of shares outstanding 11,201,142 8,394,142 11,411,722 8,274,578
========== =========== ========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
MPEL HOLDINGS CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
---------- ----------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $164,640 $(1,239,427)
Adjustment to reconcile net income (loss)
to net cash used in operating activities:
Compensation charges relating to shares
acquired by the principal stockholders 341,232
Depreciation 68,311 60,367
Amortization of notes payable discount 308,454 209,446
Net changes in:
Mortgage loans held for sale 453,233 (6,168,761)
Due from investors 2,762,497 1,405,256
Other receivables and other assets (10,314) 787,358
Accounts payable and accrued liabilities (675,045) 1,128,734
--------- ---------
Net cash (used in) provide by operating activities 3,071,776 (3,475,795)
--------- ---------
Cash flow from investing activities:
Purchase of fixed assets (11,863) (224,224)
--------- ---------
Net cash used in investing activities (11,863) (224,224)
--------- ---------
Cash flow from financing activities:
Net change in warehouse line of credit (3,612,221) 3,440,382
Loans closed to be disbursed (254,800) 1,297,809
Advances from related parties 153,678
Net changes in subordinated debt 35,404 (500,000)
Proceeds from notes payable 2,250,000
Repayment of notes payable (362,513) (595,321)
Repayment of obligation under capital lease (72,620) (36,894)
Deferred Financing costs (159,344) (144,637)
Stock subscription receivable 440,000
--------- ---------
Net cash (used in) provided by financing activities (1,582,416) 3,461,339
--------- ---------
Net increase (decrease) in cash and cash equivalents 1,477,497 (238,680)
Cash and cash equivalents at beginning of period 86,094 377,709
--------- ---------
Cash and cash equivalents at the end of period $1,563,591 $139,029
========= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $360,777 $576,937
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
MPEL HOLDINGS CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
1. 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 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 mortgage 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.
2. Interim Financial Statements
The results of operations for the three and the six months ended June 30,
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.
3. 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
<PAGE>
Company's Condensed Consolidated Financial Statements included in Item 1 of
this Form 10-QSB.
Forward-looking Statements
Certain statements contained herein constitute forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Such statements include, without limitation, statement regarding
business and financing plans, business trends and future operating revenues and
expenses. Although the Company believes that the expectations reflected in such
statements are reasonable, it can give no assurance that such expectations will
prove to be correct. Forward-looking statements are typically identified by the
words: believe, expect, anticipate, intend, estimate and similar expressions, or
which by their nature refer to future events.
The company cautions investors that any forward-looking statements made by
the Company are not guarantees of future performance, and that the actual
results may differ materially from those in the forward-looking statements as a
result of various factors, including but not limited to: (i) increased
competition; (ii) increase in unemployment or other changes inn domestic
economic conditions which adversely effect the sale of new and used homes; (iii)
changes in interest rates; (iv) changes in government regulations effecting
consumer credit; and (v) other 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
Three Months Ended June 30, 1999 Compared to the Three Months Ended June
30, 1998
Mortgage origination. Mortgage loan origination volume decreased $4.1
million or 7.3% to $51.8 million during the three month period ended June 30,
1999 from $55.9 million during the corresponding period of 1998. The decrease in
mortgage loan origination volume was primarily due to the closing of five
branches, partially offset by increased origination volume at existing branches
which resulted from expanded marketing campaign, including increased
telemarketing, television exposure and loan officers.
Revenue. Mortgage origination revenue, net, decreased $442,470 or 18.9% to
$1.9 million. The decrease was due to decreased margins on B/C loans and a
reduction in overall volume. Interest income decreased $32,057, or 10.9% to
$261,358. The decrease was due a reduction in overall volume.
Expenses. Commissions, wages and benefits decreased $1,203,589, or 55.3% to
$1.0 million. The decrease in commissions, wages and benefits was primarily due
to a reduction of staff resulting from the closing of five branches. As of June
30, 1999, the Company had 95 employees as compared to 155 employees as of June
30, 1998. Selling and administrative expenses, which consist of marketing,
occupancy, supplies, selling and other expenses decreased $222,292, or 33.7% to
$437,573. This decrease was due primarily to the closing of five branches.
Interest expense increased $123,031, or 22.3%, to $675,531. This increase was
due to amortization of the convertible debentures discount, partially offset by
a reduction in overall volume
<PAGE>
Net income. During the three month period ended June 30, 1999 net income
increased $823,323 compared to the three month period ended June 30, 1998. This
increase is primarily the result of the decrease in commissions, wages and
benefits related to the closing of 5 branch locations, and is partially offset
by a $250,000 noncash charge related to the issuance of convertible debentures.
Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30,
1998
Mortgage origination. Mortgage loan origination volume decreased $5.5
million or 5.6% to $93.3 million during the six month period ended June 30, 1999
from $98.8 million during the corresponding period of 1998. This decrease in
mortgage loan origination volume was primarily due to the closing of five
branches, partially offset by increased origination volume at existing branches
which resulted from expanded marketing campaign, including increased
telemarketing, television exposure and loan officers.
Revenue. Mortgage origination, net, decreased $423,543 or 9.5% to $4.0
million. The decrease was due to decreased margins on B/C loans and a reduction
in overall volume. Interest income decreased $57,870, or 10.1% to $513,250. The
decrease was due to a reduction of overall volume.
Expenses. Commissions, wages and benefits decreased $1,386,580 or 39.6% to
$2.1 million. The decrease in commissions, wages and benefits was primarily due
to a reduction of staff resulting from the closing of five branches. As of June
30, 1999, the Company had 95 employees as compared to 155 employees as of June
30, 1998. Selling and administrative expenses, which consist of marketing,
occupancy, supplies, selling and other expenses decreased $575,569, or 30.4% to
$1,318,377. This decrease was due primarily to the closing of five branches.
Interest expense increased $76,669, or 8.9% to $934,762. This increase was due
to amortization of the convertible debentures discount, partially offset by a
reduction in overall volume.
Net income. During the six month period ended June 30, 1999 net income
increased $1,404,067 compared to the six month period ended June 30, 1998. This
increase is the result of the decrease in expenses relating to the closing of 5
branch locations. In addition, although interest expense increased, the increase
was the result of a $250,000 noncash charge related to the issuance of
convertible debentures, substantially offset by the reduction in overall
borrowing levels.
Liquidity and Capital Resources
The Company's primary operating cash requirements include the funding or
payment of: (i) mortgage loan originations pending their sale; (ii) interest
expense incurred on warehouse and other financing; (iii) capital expenditures;
(iv) personnel and commission costs; and (v) other ongoing 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. The Company must be
able to sell loans and obtain adequate credit facilities and other sources of
funding in order to continue to originate loans.
Management expects to increase its production of mortgage loan
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
<PAGE>
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 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 to originate mortgage loans, repay and
borrow again to originate additional mortgage loans. Interest is charged on the
outstanding principal balance. The Company expects to be able to renew or
replace the existing warehouse lines when the current terms expire.
The Company is required to comply with various operating and financial
covenants as provided in the agreements described above which are customary for
agreement of their type. The Company does not believe that its existing
financial covenants will restrict its operations or growth. The continued
availability of funds provided to the Company under these agreements is subject
to the Company's continued compliance with these covenants. Management believes
it is in compliance with all such covenants under these agreements as of June
30, 1999.
On June 14, 1999, the Company sold convertible debentures in the aggregate
principal amount of $2,250,000 convertible on or prior to June 14, 2003 and
convertible into common stock at the lesser of $0.60 per share or 70% of the
closing market value on the conversion date, as defined. Unless the Company is
in default, at maturity the outstanding debentures convert to the Company's
common stock. Interest at 10% per annum is payable in cash or in shares of
common stock of the Company, at the holders' option. In connection with the
debentures the Company issued warrants to purchase 2,437,500 shares at an
exercise price of $0.60 and 225,000 shares at an exercise price of $0.85.
Year 2000 Compliance
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 system 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
<PAGE>
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 the 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 differ.
Part II. Other Information
Item 1. Legal Proceedings.
The Company 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. Change in Securities. None
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission 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 on Form 8-K: 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.
MPEL HOLDINGS CORP.
(Registrant)
Dated: August 20, 1999 By:/s/ STEVEN M. LATESSA
------------------------
STEVEN M. LATESSA
President and Chief Executive Officer
Dated: August 20, 1999 By:/s/ CARY WOLEN
-----------------
CARY WOLEN
Treasurer and Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001048644
<NAME> MPEL HOLDINGS CORP.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,563,591
<SECURITIES> 0
<RECEIVABLES> 13,870,940
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,434,531
<PP&E> 593,357
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,027,888
<CURRENT-LIABILITIES> 11,402,440
<BONDS> 0
0
0
<COMMON> 118,941
<OTHER-SE> 4,506,507
<TOTAL-LIABILITY-AND-EQUITY> 16,027,888
<SALES> 0
<TOTAL-REVENUES> 4,534,160
<CGS> 0
<TOTAL-COSTS> 3,434,758
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 934,762
<INCOME-PRETAX> 164,640
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164,640
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
