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 Quarter Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 33-2248-FW
COMPULOAN ORIGINATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 75-2072205
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1935 East Vine Street, Suite 400, Salt Lake City, Utah 84121
(Address of principal executive offices)
Registrant's telephone no., including area code: (801) 278-9944
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding as of September 30, 1996
Common Stock, $.0001 par value 7,649,659<PAGE>
TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . 1
Consolidated Balance Sheets -- September 30,
1996 and December 31, 1995 . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations -- three
months and nine months ended September 30,1996 . . . . . 4
Consolidated Statement of Stockholders' Equity
(Deficit). . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows -- three
months and nine months ended September 30, 1996 . . . . 6
Notes to Consolidated Financial Statements . . . . . . . 8
Item 2. Management's Discussion and Analysis and
Results of Operations. . . . . . . . . . . . . . . . . .13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . .16
Item 2. Changes In Securities. . . . . . . . . . . . . . . . . .16
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . .16
Item 4. Submission of Matters to a Vote of
Securities Holders . . . . . . . . . . . . . . . . . . .16
Item 5. Other Information. . . . . . . . . . . . . . . . . . . .16
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . .16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . .17
-i-<PAGE>
PART I
Item 1. Financial Statements
The following unaudited Consolidated Financial Statements for
the period ended September 30, 1996, have been prepared by
CompuLoan Originations, Inc. (the "Company").
COMPULOAN ORIGINATIONS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and December 31, 1995<PAGE>
COMPULOAN ORIGINATIONS, INC.
(Formerly Intellichip Holdings Corporation)
Consolidated Balance Sheets
ASSETS
September 30, December 31,
1996 1995
(Unaudited)
CURRENT ASSETS
Cash (except escrows) (Note 2) $ - $ 82,845
Accounts receivable 1,916 -
Pre-paid expenses 532 1,063
Total Current Assets 2,448 83,908
NON-CURRENT ASSETS
Pre-paid interest (Note 9) 277,554 444,086
Note receivable - related party,
net of allowance
for bad debts of $49,900 (Note 5) 149,700 149,700
Goodwill, net of accumulated
amortization (Note 4) 53,333 64,000
Property and equipment, net of accumulated
depreciation (Note 3) 99,555 134,917
Organization costs, net of accumulated
amortization (Note 4) 13,568 16,034
Deposits 12,054 12,054
Total Non-Current Assets 605,764 820,791
TOTAL ASSETS $ 608,212 $ 904,699<PAGE>
COMPULOAN ORIGINATIONS, INC.
(Formerly Intellichip Holdings Corporation)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, December 31,
1996 1995
(Unaudited)
CURRENT LIABILITIES
Bank overdraft $ 27,392 $ -
Accounts payable 399,247 136,206
Accrued expenses 465,551 192,937
Royalty payable (Note 9) 362,154 314,410
Notes payable (Note 6) 669,500 150,000
Notes payable - related parties (Note 7) 285,065 147,000
Total Current Liabilities 2,208,909 940,553
LONG-TERM LIABILITIES
Royalty payable (Note 9) 352,083 352,083
TOTAL LIABILITIES 2,560,992 1,292,636
COMMITMENTS AND CONTINGENCIES (Note 9) - -
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 10,000,000 shares
authorized of $0.0001 par value, 7,649,659
and 6,689,659 shares issued and
outstanding, respectively 765 669
Additional paid-in capital 1,796,250 1,316,346
Accumulated deficit (3,749,795) (1,704,952)
Total Stockholders' Equity (Deficit) (1,952,780) (387,937)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 608,212 $ 904,699<PAGE>
COMPULOAN ORIGINATIONS, INC.
(Formerly Intellichip Holdings Corporation)
Consolidated Statements of Operations
<TABLE>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Commissions $ 121,066 $ 52,445 $ 426,172 $ 105,726
Fees 10,800 - 39,450 3,290
Interest income 85 1,247 357 1,247
Total Revenue 131,951 53,692 465,979 110,263
EXPENSES
Salaries and related taxes 274,677 320,099 1,063,995 512,701
Rent 71,246 58,987 210,399 108,750
Professional fees 305,314 27,129 350,712 35,650
Advertising and promotion 11,890 40,776 69,466 100,242
Depreciation and amortization 16,124 10,295 52,149 19,149
Commissions - 6,700 4,415 7,200
Royalties 15,145 - 48,043 -
Loan costs 29,146 5,340 127,572 9,295
Travel 4,762 31,433 77,853 43,225
Insurance 18,649 16,823 78,337 20,256
Maintenance and repairs 1,315 5,757 12,823 10,396
Supplies 14,197 1,045 36,295 5,671
Telephone and utilities 31,037 13,381 89,918 27,351
Dues and licenses 13,327 8,920 30,541 9,394
Shipping 7,470 6,117 27,671 9,023
Interest 73,906 3,710 209,695 4,877
Other operating expenses 13,484 139 20,938 1,030
Total Expenses 901,689 556,651 2,510,822 924,210
NET INCOME (LOSS) $(769,738) $(502,959) $(2,044,843) $(813,947)
NET LOSS PER SHARE $ (0.10) $ (0.08) $ (0.27) $ (0.12)<PAGE>
</TABLE>
COMPULOAN ORIGINATIONS, INC.
(Formerly Intellichip Holdings Corporation)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balances, January 24, 1995 - $ - $ - $ -
Acquisition of A+ Mortgage - - 11,058 -
Issuance of shares to acquire
CompuLoan Originations, Inc. 5,150,000 515 324,485 -
Liabilities paid by officer prior
to acquisition of CompuLoan
Originations, Inc. - - 3,557 -
Acquisition of Intellichip, Inc. 249,459 25 (125) -
Common stock issued for cash 1,165,200 117 715,283 -
Additional paid-in capital for
territorial rights - - 199,600 -
Common stock issued for
consulting services 125,000 12 62,488 -
Net loss for the period ended
December 31, 1995 - - - (1,704,952)
Balances, December 31, 1995 6,689,659 669 1,316,346 (1,704,952)
Common stock issued for cash 200,000 20 99,980 -
Common stock issued for cash 50,000 5 24,995 -
Common stock issued for cash 110,000 11 54,989 -
Common stock issued for
consulting services 600,000 60 299,940 -
Net loss for the nine months
ended September 30, 1996 - - - (2,044,843)
Balances, September 30, 1996
(Unaudited) 7,649,659 $ 765 $1,796,250 $(3,749,795)<PAGE>
</TABLE>
COMPULOAN ORIGINATIONS, INC.
(Formerly Intellichip Holdings Corporation)
Consolidated Statements of Cash Flows
<TABLE>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Income (loss) from operations $(769,738) $(502,959) $(2,044,843) $ (813,947)
Depreciation and amortization 16,124 10,295 52,149 19,149
Common stock issued for services 300,000 - 300,000 -
Pre-paid interest amortization 55,511 - 166,532 -
Loss on disposal of fixed assets 9,601 - 9,601 -
Changes in operating assets and liabilities:
(Increase) decrease in certificate of deposit - (1,247) - (1,247)
(Increase) decrease in pre-paid expenses - 1,594 531 (2,127)
(Increase) decrease in deposits - (1,825) - (12,055)
(Increase) decrease in accounts receivable 5,893 20,738 (1,916) -
(Decrease) increase in accounts payable 73,474 (10,614) 263,041 60,112
(Decrease) increase in accrued expenses 54,211 36,552 272,614 49,931
(Decrease) increase in bank overdraft 26,189 - 27,392 -
(Decrease) increase in royalty payable 14,847 - 47,744 -
Net Cash (Used) by Operating Activities (213,888) (447,466) (907,155) (700,184)
Cash Flows from Investing Activities:
Purchase of certificate of deposit - - - (50,000)
Purchases of fixed assets (2,112) (55,147) (13,255) (148,339)
Organizational costs - - - (18,497)
Net Cash (Used) by Investing Activities (2,112) (55,147) (13,255) (216,836)
Cash Flows from Financing Activities:
Paid in capital at inception - - - 322,512
Issuance of common stock - 621,378 180,000 621,378
Issuance of notes payable 216,000 - 712,500 100,000
Principal payments on notes payable - (10,000) (54,935) (10,000)
Net Cash Provided by Financing
Activities 216,000 611,378 837,565 1,033,890
Net Increase (Decrease) in Cash and
Cash Equivalents - 108,765 (82,845) 116,870<PAGE>
</TABLE>
COMPULOAN ORIGINATIONS, INC.
(Formerly Intellichip Holdings Corporation)
Consolidated Statements of Cash Flows (Continued)
<TABLE>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
(Unaudited) Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash and Cash Equivalents at Beginning
of Period - 8,105 82,845 -
Cash and Cash Equivalents at End of Period $ - $ 116,870 $ - $ 116,870
NONCASH FINANCING ACTIVITIES
Common stock issued for services $ 300,000 $ - $300,000 $ -<PAGE>
</TABLE>
COMPULOAN ORIGINATIONS, INC.
(Formerly Intellichip Holdings Corporation)
Notes to the Consolidated Financial Statements
September 30, 1996 and December 31, 1995
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements presented are those of CompuLoan
Originations, Inc. (Originations). Originations was incorporated in
April of 1995 under the laws of the State of Utah. Originations owns
CompuLoan Financial Services Group, L.L.C. (Financial Services), which
was incorporated under the laws of the State of Utah on January 24,
1995. These two companies were organized to conduct and promote the
service of providing commercial and residential mortgages, and to
develop, own and operate computer loan origination systems.
On October 20, 1995, Intellichip Holdings Corporation (Intellichip) and
CompuLoan Originations, Inc. completed a stock purchase agreement
whereby Intellichip issued 5,150,000 shares of its common stock in
exchange for all of the outstanding common stock of Originations.
Pursuant to this reorganization, the name of Intellichip was changed to
CompuLoan Originations, Inc.
Since the shareholders of Originations control the Company, the acquisi-
tion was accounted for as a reorganization by Originations.
The accompanying consolidated financial statements include the accounts
of Originations from January 24, 1995, the date of the formation of
Financial Services, through December 31, 1995, and the period January 1,
1996 through September 30, 1996. Collectively, Originations and
Financial Services are referred to herein as "the Company".
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual basis
of accounting. The Company has elected a calendar year end.
b. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company
had $4,400 and $8,849 of client funds held in escrow at September 30,
1996 and December 31, 1995, respectively. Also, the company had a
certificate of deposit in the amount of $50,000 at December 31, 1995
which collateralized a note payable with a financial institution (See
Note 6).
c. Loss Per Share
The computations of loss per share of common stock are based on the
weighted average number of shares outstanding at the date of the
financial statements.
d. Income Taxes
At September 30, 1996 and December 31, 1995, the Company had net
operating loss carryforwards of approximately $3,700,000 and $1,700,000,
respectively, that may be offset against future taxable income through
2010. Because the Company cannot reasonably estimate the future benefit
of this carryforward, no deferred tax asset has been reported.<PAGE>
COMPULOAN ORIGINATIONS, INC.
(Formerly Intellichip Holdings Corporation)
Notes to the Consolidated Financial Statements
September 30, 1996 and December 31, 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. Principles of Consolidation
The consolidated financial statements include those of Originations and
its wholly-owned subsidiary, Financial Services.
All material intercompany accounts and transactions have been
eliminated.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major additions and
improvements are capitalized; however, minor replacements, maintenance
and repairs that do not increase the useful lives of the assets are
expensed as incurred. Depreciation of property and equipment is deter-
mined using accelerated methods over the expected useful lives of the
assets of five to seven years.
September 30, December 31,
1996 1995
(Unaudited)
Furniture, fixtures and leasehold
improvements $ 23,221 $ 31,141
Computers and equipment 142,695 135,337
Sub-total 165,916 166,478
Less: accumulated depreciation (66,361) (31,561)
Property and Equipment, Net $ 99,555 $ 134,917
NOTE 4 - INTANGIBLE ASSETS
Goodwill in the amount of $80,000 resulted from the purchase of
A+ Mortgage. This amount is being amortized over 5 years, resulting in
amortization expense of $12,000 for the nine months ended September 30,
1996 and 1995.
Organization costs are recorded at the original cost of $20,043. These
costs are being amortized over 5 years, resulting in amortization
expense of $4,009 for the period ended December 31, 1995, and $3,006
for the nine months ended September 30, 1996.<PAGE>
COMPULOAN ORIGINATIONS, INC.
(Formerly Intellichip Holdings Corporation)
Notes to the Consolidated Financial Statements
September 30, 1996 and December 31, 1995
NOTE 5 - NOTE RECEIVABLE - RELATED PARTY
During the period ending December 31, 1995, an independent represen-
tative agreement was entered into with a shareholder in California. Per
this agreement, the shareholder agreed to pay $199,600 for the right to
act as an independent representative in Southern California and the
Company agreed to pay the shareholder $100 for each broker contract and
$50 for each agent contract. In addition, the commission shall be $50
for each loan that is submitted and funded by the contracted builders,
real state agents and brokers. The Company shall withhold 15% of the
commissions due until the shareholder's obligation is fulfilled.
NOTE 6 - NOTES PAYABLE
Notes payable consisted of the following:
Note payable to West One Bank, September 30, December 31,
bears an interest rate of 7%, 1996 1995
paid off in February of 1996, (Unaudited)
collateralized by certificate of deposit $ - $ 50,000
Note payable to an individual, bears
an interest rate of 18%, due in a
lump sum in December of 1996 100,000 100,000
Note payable to Jupiter Capital, bears
an interest rate of 8%, payable in
lump sums through June of 1997 569,500 -
Total notes payable $669,500 $ 150,000
NOTE 7 - NOTES PAYABLE - RELATED PARTIES
Notes payable to related parties consisted of the following:
Note payable to shareholder, bears September 30, December 31,
an interest rate of 8%, payable in 1996 1995
monthly installments of $5,000 of (Unaudited)
principal and interest, due December
1996, personally guaranteed by
officers of the Company $ 30,065 $ 35,000
Note payable to shareholder, bears no
interest rate, payable in a lump
sum in December of 1996 27,000 27,000
Note payable to shareholder, bears no interest rate,
payable in a lump sum in December of 1996. 27,000 27,000
Balance forward $ 84,065 $ 89,000<PAGE>
COMPULOAN ORIGINATIONS, INC.
(Formerly Intellichip Holdings Corporation)
Notes to the Consolidated Financial Statements
September 30, 1996 and December 31, 1995
NOTE 7 - NOTES PAYABLE - RELATED PARTIES (Continued)
September 30, December 31,
1996 1995
(Unaudited)
Balance forward $ 84,065 $ 89,000
Note payable to shareholder, bears an
interest rate of 8%, payable in monthly
installments of $2,000 until balance
is paid off - 8,000
Note payable to a shareholder, bears an
interest rate of 8%, payable in stock
before February of 1997 15,000 -
Note payable to a shareholder/officer, bears
an interest rate of 8%, payable in a lump
sum in March of 1997. 186,000 50,000
Total notes payable to related parties $285,065 $147,000
NOTE 8 - OPERATING LEASES
The Company has entered into a lease agreement for office space until
March 1, 1998. Minimum future rental obligations will be $184,980,
$192,378, and $49,038 for the years ending December 31, 1996, 1997 and
1998, respectively.
The Company has also entered into a lease agreement for office furniture
until August 5, 1997. Minimum future rental obligations will be $24,422
and $16,281 for the years ended December 31, 1996 and 1997,
respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Return of Capital and Guaranteed Payments to a Shareholder
One shareholder has an agreement with the Company to receive double the
amount of his initial $325,000 capital contribution. The total amount
to be paid to the shareholder is to be made in twenty-four equal monthly
payments. The payments to the shareholder are to start on the first day
of the thirteenth month following the formation of the Company in
January 1995 and continue on the first day of each succeeding twenty-
three months. $650,000 has been recorded as a royalty payable with an
offset to pre-paid interest. Pre-paid interest will be amortized over a
three year period, from the time the original $325,000 investment was
made to the time the commitment is paid off. The amortization of the
pre-paid interest resulted in interest expense of $205,914 for the
period ended December 31, 1995 and $166,532 for the nine months ended
September 30, 1996<PAGE>
COMPULOAN ORIGINATIONS, INC.
(Formerly Intellichip Holdings Corporation)
Notes to the Consolidated Financial Statements
September 30, 1996 and December 31, 1995
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)
Royalty Payments
The same shareholder that has an agreement for the "return of capital
and guaranteed payments," as noted above, also has an agreement with
the Company to receive royalty payments. The payments are based on
gross revenues for each calendar year after the formation of the
Company. The royalty payments will be paid on the tenth day of the
fourth month after formation of the Company and continue on the tenth
day of each succeeding month thereafter. The following is a schedule
of the royalty percentages for future calendar years:
Calendar year 1996 8%
Calendar year 1997 7%
Calendar year 1998 6%
Calendar year 1999 and thereafter 5%
The agreement also states that when the aforementioned "return of
capital and guaranteed payments" have been totally paid to the share-
holder, the royalty payments shall immediately be reduced to five
percent of gross revenues.
Another agreement was entered into with another investor where a royalty
of one dollar per closed mortgage loan for all loans originated after
July 24, 1995, shall be paid to the investor until the investor has
received all of his original investment of $100,000 back.
In addition, a stock purchase and royalty agreement was entered into
between the Company and two investors on August 14, 1995. The investors
agreed to invest $500,000 and the Company agreed to issue 1,000,000
shares and pay a royalty of five percent of gross income (not including
escrow flow deposits and disbursements) beginning January 1, 1996.
NOTE 10 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities
in the normal course of business. However, the Company does not have
significant cash or other material assets, nor does it have an
established source of revenues sufficient to cover its operating costs
and allow it to continue as a going concern. It is the intent of the
Company to seek additional financing through equity transactions and to
re-negotiate all royalty agreements.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
On October 20, 1995, the Company completed a Stock Purchase
Agreement (the "Agreement") with CompuLoan Originations, Inc., a
Utah corporation ("CompuLoan"), relating to the acquisition by the
Company of CompuLoan and it's subsidiaries. CompuLoan was
incorporated in April 1995 and owns CompuLoan Financial Services
Group, L.L.C. ("Financial Services"), which was incorporated under
the laws of the State of Utah on January 24, 1995. Because the
former shareholders of CompuLoan now control the Company, the
acquisition under the terms of the Agreement was accounted for as
a reorganization. The financial information presented herein
includes the accounts of CompuLoan from January 24, 1995, the date
of the formation of Financial Services, through December 31, 1995,
and the period January 1, 1996 through September 30, 1996.
Results of Operations
Total revenues of $121,066 for the three months ended September
30, 1996 ("third quarter of 1996") and $426,172 for the first nine
months of 1996 ("first nine months of 1996") represent increases of
approximately 131% and 303% when compared with the three month
period ended September 30, 1995 ("third quarter of 1995") and nine
month period ended September 30, 1995 ("first nine months of 1995"),
respectively. These results are due to increases in commissions and
fees received during the 1996 periods which were substantially
higher that the comparable 1995 periods, during which time the
Company was in its initial phase of operations. Management
attributes the increases in commissions and fees to increased
marketing by the Company during 1996.
Total expenses for the third quarter of 1996 and first nine
months of 1996 increased 62% and 172% respectively when compared to
the same periods for 1995, primarily due to the Company's limited
activity during the 1995 periods. Although salaries and related
taxes increased 108% for the first nine months of 1996 compared to
the 1995 period, reflecting the hiring of additional personnel to
handle the Company's expanded marketing efforts, salaries and
related taxes decreased 14% in the third quarter of 1996 due to a
reduction of personnel and elimination of a processing center. Rent
increased 21% and 93 % for the third quarter of 1996 and first nine
months of 1996, respectively, due to the Company's move to new
expanded facilities. Other increases during the 1996 periods
included increased professional fees of 1025% and 884% for the third
quarter of 1996 and first nine months of 1996, respectively,
primarily attributed to year end audit and legal fees associated
with the Agreement and year-end closing. Depreciation and
amortization increased 57% and 172% for the third quarter of 1996
and first nine months of 1996, respectively, due to additional
depreciation of certain new computer and office equipment in 1996.
The Company also experienced increases in other areas directly
related to the Company's expanded business operations including
increases in insurance, supplies and telephone and utilities.
Travel expenses also increased 80% for the first nine months of
1996, although for the third quarter of 1996 travel expenses
decreased 85% due to a change of marketing emphasis to magazine
advertisements, direct mail and fax back advertising methods instead
of travel. Loan costs increased 446% and 1272% for the third
quarter of 1996 and first nine months of 1996, respectively, due to
the increase in volume of loans for 1996 and the method of
accounting for 1995. Also, interest expense increased from $3,710
to $73,906 for the third quarter of 1996 and from $4,877 to $209,695
for the first nine months of 1996 due to the California note
receivable write-off and recognition of interest on notes payable.
The net loss for the third quarter of 1996 was $769,738
compared to a net loss of $502,959 for the 1995 period. The net
loss for the first nine months of 1996 was $2,044,843 compared to
a net loss of $813,947 for the first nine months of 1995. The
increased net loss for the 1995 periods is attributed to the
increase in salaries and related taxes reflected by the increase in
employees, the increase in professional fees and the increases in
loan costs and interest.
Net Operating Losses
The Company has accumulated approximately $3,700,000 and
$1,700,000 of net operating loss carryforwards as of September 30,
1996 and December 31, 1995, respectively, which may be offset
against future taxable income through the year 2010 when the
carryforwards expire. The use of these losses to reduce future
income taxes will depend on the generation of sufficient taxable
income prior to the expiration of the net operating loss
carryforwards. In the event of certain changes in control of the
Company, there will be an annual limitation on the amount of net
operating loss carryforwards which can be used. No tax benefit has
been reported in the Company's financial statements because the
Company believes there is a 50% or greater chance the carryforward
will expire unused. Accordingly, the potential tax benefits of the
loss carryforward is offset by valuation allowance of the same
amount.
Liquidity and Capital Resources
During the third quarter of 1996 and first nine months of 1996,
the Company used net cash of $213,888 and $907,155, respectively,
in its operating activities compared to $447,466 and $700,184 for
the corresponding 1995 periods. The increase for the first nine
months of 1996 is attributed primarily to its loss from operations,
although this was partially offset during the third quarter of 1996
by the issuance of shares of common stock for services rendered to
the Company. Cash flow from investing activities in 1996 were
minimal ($2,112 for the third quarter of 1996 and $55,147 for the
first nine months of 1996) compared to the 1995 periods, primarily
the purchase of fixed assets in 1995 valued at $148,339 and the
purchase of a $50,000 certificate of deposit in 1996.
Also during the third quarter of 1996 and first nine months of
1996, the Company realized net cash from financing activities of
$216,000 and $837,565, respectively, compared to $611,378 and
$1,033,890 for the corresponding 1995 periods. The decrease for the
third quarter was due to issuance of common stock in 1995 valued at
$621,378. The decrease for the first nine months of 1996 is
attributed to the $712,500 issuance of notes payable in 1996 and the
decrease in the issuance of common stock for the 1996 period.
Working capital at September 30, 1996 was a negative $2,206,461
compared to a negative $856,645 at December 31, 1995. This further
reduction in working capital for the first nine months of 1996 is
attributed to the Company's operating loss, decrease in cash, and
increases in accounts payable, accrued expenses and notes payable.
The cash decrease from $82,645 at December 31, 1995 to $-0- on
September 30, 1996 was due to the use of working capital and lack
of sufficient sales.
At September 30, 1996, the Company had total assets of $608,212
and total stockholders' deficiency of $1,952,780. In comparison,
at December 31, 1995, the Company had total assets of $904,699 and
total stockholders' deficiency of $387,937. The 33% decrease in
total assets for the nine month period ended September 30, 1996 is
due to depreciation and amortization of assets.
The Company anticipates meeting its working capital needs
during the remainder of the current fiscal year partially with
revenues from operations, but due to past losses the Company is also
investigating the possibility of interim financing to provide
working capital and to increase marketing activities related to the
Company's services. Although management has not made any
arrangements or definitive agreements, the Company is contemplating
both equity and debt financing through private sources, or through
the additional private placement of securities and/or a public
offering, although there can be no assurance that the Company could
successfully complete any such offerings. If the Company's
operations are not adequate to fund its operations and it is unable
to secure financing from the sale of its securities or from private
lenders, the Company could experience additional losses which could
curtail the Company's operations and services which could result in
the loss of current customers. The continuation of the Company as
a going concern is directly dependent upon the success of its future
operations and ability to obtain additional financing.
As of September 30, 1996, the Company was not in compliance
with certain net worth requirements established by the U.S.
Department of Housing and Development in July 1993. The Company has
been advised by its independent auditors that continued
noncompliance of these regulations could result in sanctions by HUD
and the potential loss of future business. The Company is presently
negotiating with a private investment group which would provide the
necessary funding to restructure the Company's equity and come into
compliance with the HUD net worth requirements. Although there can
be no assurance that such funding will be obtained by the Company,
management believes that the transaction could be finalized and
financing made available to the Company during the third quarter of
1996.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
PART II
Item 1. Legal Proceedings
There are presently no material pending legal proceedings to
which the Company is a party or to which any of its property is
subject and, to the best of its knowledge, no such actions against
the Company are contemplated or threatened.
Item 2. Changes In Securities
This Item is not applicable to the Company.
Item 3. Defaults Upon Senior Securities
This Item is not applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
On September 15, 1996, Leon J. Petersen resigned his position as CEO,
Chairman of the Board as well as a member of the Board of Directors.
James R. Jeppson is now the President, CEO and Chairman of the Board of
Directors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the
three month period ended September 30, 1996.<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COMPULOAN ORIGINATIONS, INC.
Date: November 20, 1996 By /S/ James R. Jeppson
James R. Jeppson, Chairman,
Chief Executive Officer and
Director
Date: November 20, 1996 By /S/ Stuart Palmer
Stuart Palmer, Chief
Financial Officer and
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPULOAN
ORIGINATIONS, INC. FINANCIAL STATEMENTS FOR THE
PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 201,516
<ALLOWANCES> 49,900
<INVENTORY> 0
<CURRENT-ASSETS> 2,448
<PP&E> 165,916
<DEPRECIATION> 66,361
<TOTAL-ASSETS> 608,212
<CURRENT-LIABILITIES> 2,208,909
<BONDS> 0
0
0
<COMMON> 765
<OTHER-SE> 1,796,250
<TOTAL-LIABILITY-AND-EQUITY> 608,212
<SALES> 426,172
<TOTAL-REVENUES> 465,979
<CGS> 0
<TOTAL-COSTS> 2,510,822
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 209,695
<INCOME-PRETAX> (2,044,843)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,044,843)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,044,843)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
