Form 10-QSB
[ x ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending September 30, 1998
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 333-10109
UNITED MORTGAGE TRUST
(Exact Name of Registrant as Specified in its
Governing Instruments)
(a Maryland trust) (IRS Employer Identification
Number 75-6496585)
1701 N. GREENVILLE, SUITE 403
RICHARDSON TX 75081
(972) 705-9805
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange
Act 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 ___
UNITED MORTGAGE TRUST
INDEX TO FORM 10-QSB
Page Number
PART I -- FINANCIAL INFORMATION . . . . . . . . . . . . 3
Item 1. Financial Statements . . . . . . . . . . . . . . 3
Balance Sheets
September 30, 1998 and December 31, 1997 . . . F1
Statements of Operations
Three and Nine Months Ending
September 30, 1998 and 1997 . . . . . . . . . . F2
Statements of Cash Flows
Nine Months Ending
September 30, 1998 and 1997 . . . . . . . . . . F3
Notes to Financial Statements . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations . . .10
PART II -- OTHER INFORMATION . . . . . . . . . . . . . .14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . .14
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . 15
PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
Balance Sheets
September 30, 1998 and December 31, 1997
<CAPTION>
Sept 30, Dec 31,
1998 1997
(unaudited) (audited)
ASSETS
<S> <C> <C>
Cash $ 1,240 $ 248
Investment in first lien mortgage notes 8,407,679 2,722,036
Interim mortgage loans 2,885,140 877,275
Accrued interest receivable 99,239 38,746
Receivable from affiliate (Note 4) -- 12,116
Equipment, less accumulated depreciation
of $1,126 and $736, respectively 2,076 1,850
Other assets 12,952 2,337
Total Assets $11,408,326 $3,654,608
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Note payable (Note 3) $ 431,000 $ 138,000
Dividend payable 100,826 33,799
Accounts payable & accrued
liabilities (Note 5) 5,056 883
Total Liabilities $ 536,882 $ 172,682
Shareholders' equity:
Shares of beneficial interest; $.01 par
Value; 100,000,000 shares authorized
608,262 and 202,508 shares
outstanding $ 6,083 $ 2,025
Additional paid-in capital 10,815,012 3,467,964
Retained earnings 50,349 11,937
Total Shareholders' Equity $10,871,444 $3,481,926
Total $11,408,326 $3,654,608
<FN>
See accompanying notes to financial statements.
Page F1
</FN>
</TABLE>
<TABLE>
Statements of Operations
For the Three Months and Nine Months Ended
September 30, 1998 and 1997
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(unaudited) (unaudited) (audited) (audited)
<S> <C> <C> <C> <C>
Revenues:
Gain on sale of notes $ 4,533 $ -- $ 4,533 $ --
Interest income 313,275 58,950 700,147 60,773
Expenses:
Salaries and wages 16,148 13,456 29,832 46,051
General and
administrative 45,311 27,079 162,082 36,157
Interest expense 7,416 1.954 17,222 3,362
Expense reimburse-
ment from affiliate
(Note 4) (41,223) -- (150,161) --
27,652 42,489 58,975 85,570
Net income (loss) $290,156 $ 16,461 $645,705 $(24,797)
Net income (loss) per
share of beneficial
interest $0.52 $.0.12 $1.60 $(0.46)
Weighted average shares
outstanding 555,169 140,663 404,269 53,554
<FN>
See accompanying notes to financial statements.
Page F2
</FN>
</TABLE>
<TABLE>
Statements of Cash Flows
For the Nine Months Ending September 30, 1998 and 1997
<CAPTION>
Sept 30, Sept 30,
1998 1997
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 645,705 $ (24,797)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 525 (4,055)
Amortization of discount on
Gain on sale of notes (4,533) --
mortgage notes (38,988) --
Accrued interest receivable (60,492) (26,921)
Other assets (6,365) (1,600)
Accounts payable and accrued
liabilities 4,174) (17,081)
Net cash provided by operating
activities: $ 540,026 $ (74,454)
Cash flows from investing activities:
Investment in first lien mortgage note $(5,586,840) $(2,528,847)
Principal receipts on first lien
mortgage notes 33,688 1,382
Mortgage notes sold 84,701 --
Investment in interim mortgage notes (2,007,865) --
Loan acquisition costs (173,674) --
Net cash used in investing
activities: $(7,649,990) $(2,527,465)
Cash flows from financing activities:
Proceeds from issuance of shares of
beneficial interest $ 7,351,106 2,406,213
Offering costs -- (48,437)
Net borrowings on note payable 293,000 160,000
Receivable from affiliate 7,116) 140,468
Dividends (540,226) --
Net cash provided by financing
activities: $ 7,110,956 $2,589,142
Net increase (decrease) in cash 992 (12,777)
Cash at beginning of period 248 13,051
Cash at end of period $ 1,240 $ 274
Interest paid $ 17,222 $ --
<FN>
See accompanying note to financial statements.
Page F3
</FN>
</TABLE>
UNITED MORTGAGE TRUST
Notes to Financial Statements
September 30, 1998
1. Description of Business
The Company
United Mortgage Trust ("UMT" or the "Company") is a
Maryland real estate investment trust which intends to
qualify as a real estate investment trust under federal
income tax laws. The advisor to the Company is Mortgage
Trust Advisors, Inc. (the "Advisor"), a Texas corporation.
The Company invests in the following types of Mortgage
Investments: (1) first lien, fixed rate mortgages and
contracts for deed secured by single family residential
property throughout the United States ("Residential
Mortgages"), and (2) loans of 12 months or less in term,
made to borrowers for the purchase, renovation and sale of
single family homes ("Interim Mortgages"). Such loans will
be originated by others to the Company's specifications or
to specifications approved by the Company. Most, if not
all, of such loans are not insured or guaranteed by a
federally owned or guaranteed mortgage agency.
Operations commenced on March 5, 1997 when approval
was given by the Securities and Exchange Commission for the
Company's initial public offering of shares. The Company is
currently offering up to 2,500,000 shares at an offering
price of $20 per share.
2. Basis of Presentation
The accompanying unaudited financial statements have
been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-QSB of Regulation S-B.
They do not include all information and footnotes required
by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein,
there has been no material change in information disclosed
in the notes to the financial statements for the year
ending December 31, 1997 included in the Company's 10-KSB
filed with the Securities and Exchange Commission. The
interim unaudited financial statements should be read in
conjunction with those financial statements. In the opinion
of management, all adjustments considered necessary for a
fair presentation, consisting solely of normal recurring
adjustments, have been made. Operating results for the
three months and nine months ending September 30, 1998 are
not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
3. Notes Payable
On March 27, 1998 the Company renewed and increased
its Revolving Loan Agreement (the "Agreement") with Abrams
Centre National Bank (the "Bank"), wherein the Company can
borrow up to $500,000 on a revolving basis for a term of
one year from the date of the Agreement. Interest on the
outstanding principal balance of the loan is paid monthly
at a varying rate per annum of one and one-half percent (1-
1/2%) in excess of the Bank's prime rate of interest. The
borrowing base in the Agreement is an amount equal to fifty
percent (50%) of the aggregate unpaid principal of the
Collateral pledged to the Bank. Collateral for the
Agreement is $1,000,000 unpaid principal balance of
residential mortgages owned by the Company. As security for
the prompt satisfaction of all obligations of the
Agreement, the Company agreed to assign, transfer and set
over to the Bank all of its right, title and interest in
and to the Collateral. As of September 30, 1998 the
outstanding balance of the Revolving Line of Credit was
$431,000. The Company used the funds to purchase Mortgage
Investments.
4. Related Party Transactions
In 1997 UMT entered into a Funding Agreement with the
Advisor whereby the Advisor agreed to fund the Company's
general and administrative expenses. In connection with
this Agreement, the Company received $41,223 and $150,161
in expense reimbursements for the three months and nine
months ending September 30, 1998, respectively. In
consideration of the Agreement, the Company contributed to
the Advisor an amount equal to one-half of one percent
(.5%) of the Company's average invested assets for the
immediately preceding month.
The Company also paid the Advisor Acquisition Fees of
$80,049 and $173,674 during the three months and nine
months ending September 30, 1998,respectively, calculated
at 3% of the unpaid principal balance of the Residential
Mortgages as of the purchase date.
5. Accounts Payable
On November 12, 1998, the Company entered into an
Order Assessing Administrative Penalty, Offer of Rescission
and Consent to Same ("Order") with the Arizona Corporation
Commission ("ACC"). The Order arose from the inadvertent
sale of approximately $169,000 worth of the Company's
securities to ten Arizona residents during a time when, due
to a lapse in communications, the Company believed that an
effective order of registration of the Company's securities
existed. In fact, the ACC had not issued such an order.
Under the Order, the Company has paid a $5,000
administrative penalty, and is required to make a written
offer to repurchase the securities sold to the Arizona
residents.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Results of Operations
During the quarter ending September 30, 1998 UMT
purchased 64 Residential Mortgages secured by single
family, residential property in Texas, with an unpaid
principal balance of $2,713,951 as of the purchase dates of
the notes. The Residential Mortgages were acquired for
$2,605,245, or for 95.99% of the outstanding unpaid
principal balance of the notes, as of the purchase date.
They had a blended annual interest rate of 11.55%, a
current annual yield of 12.03% and an investment-to-value
ratio of 84.0% (the Company's investment in the note
divided by the value of the home that is security for the
note.) On average, the notes had an unpaid principal
balance $42,399 and a term remaining of 329 months. Thirty-
seven of the notes were acquired from South Central
Mortgage, Inc. and twenty-seven were acquired from private
individuals.
For the nine months ending September 30, 1998 UMT
purchased 137 Residential Mortgages secured by single
family, residential property in Texas, with an unpaid
principal balance of $5,834,773 as of the purchase dates of
the notes. The Residential Mortgages were acquired for
$5,528,370, or for 94.75% of the outstanding unpaid
principal balance of the notes, as of the purchase date.
They had a blended annual interest rate of 11.53%, a
current annual yield of 12.17% and an investment-to-value
ratio of 83.54% (the Company's investment in the note
divided by the value of the home that is security for the
note.) On average, the notes had an unpaid principal
balance $40,355 and a term remaining of 331 months. Ninety-
two of the notes were acquired from South Central Mortgage,
Inc. and forty-five were acquired from private individuals.
By comparison, during the three months and nine
months ending September 30, 1997 UMT purchased 53
Residential Mortgages secured by single family, residential
property in Texas, with an unpaid principal balance of
$2,056,756 as of the purchase dates of the notes. The
Residential Mortgages were acquired for $1,896,003, or for
92.18% of the outstanding unpaid principal balance of the
notes, as of the purchase date. They had a blended annual
interest rate of 11.26%, a current annual yield of 12.24%
and an investment-to-value ratio of 82.33% (the Company's
investment in the note divided by the value of the home
that is security for the note.) On average, the notes had
an unpaid principal balance $38,807 and a term remaining of
312 months. Forty-nine of the notes were acquired from
South Central Mortgage, Inc. and four were acquired from
private individuals.
UMT's total portfolio of Residential Mortgages as of
September 30, 1998 consisted of 209 Residential Mortgages
with an aggregate unpaid principal balance of $8,658,631 as
of the purchase dates of the notes. The Residential
Mortgages were acquired for an aggregate sum of $8,163,896,
or for 94.29% of the outstanding principal balance of the
notes as of the purchase date. The Residential Mortgages
had a blended annual interest rate of 11.48%, a current
annual yield of 12.18% and an investment-to-value ratio of
83.40%. On average the notes had an unpaid principal
balance of $41,425 and a term remaining of 323 months.
As of September 30, 1998 the Company had investments
in 80 Interim Mortgages for an aggregate total of
$2,885,140. The Interim Mortgages had terms of no greater
than 12 months and were made to borrowers for the purchase,
renovation and sale of single family homes. These loans,
which are first lien mortgage notes secured by properties
in Texas, had a blended interest rate of 13.16% and
investment-to-values of 46%.
By comparison, as of September 30, 1997 the Company
had investments in 16 interim mortgage loans for an
aggregate total of $570,665. The Interim Mortgages had
terms of no greater than 12 months and were made to
borrowers for the purchase, renovation and sale of single
family homes. These loans, which are first lien mortgage
notes secured by properties in Texas, had a blended
interest rate of 16.75% and investment-to-values of 50%.
All of the properties that are security for the
Residential Mortgages and Interim Mortgages are located in
Texas. Each of the properties was adequately covered by a
mortgagees title insurance policy and hazard insurance.
The Company's Residential Mortgages and Interim
Mortgages generated $317,808 of income during the quarter
ending September 30, 1998. Expenses of $68,875 were offset
by reimbursement from the Advisor of $41,223. During the
quarter the Company realized net income of $290,156 and
earnings per share of $.52. This compares to income during
the quarter ending September 30, 1997 of $58,950 and
expenses of $42,489, resulting in net income of $16,461 or
$.12 per share.
For the nine months ending September 30, 1998
Residential Mortgages and Interim Mortgages generated
$704,680 of income. Expenses of $209,136 were offset by
reimbursement from the Advisor of $150,161. During the
nine-month period the Company realized net income of
$645,705 and earnings per share of $1.60. This compares to
income during the nine months ending September 30, 1997 of
$60,773 and expenses of $85,570, resulting in a net loss of
$24,797 or $.46 per share.
Capital Resources and Liquidity
During the quarter ending September 30, 1998 UMT added
88 new shareholders increasing the total number of
shareholders to 388. The Company issued 186,845 shares of
beneficial interest thereby increasing the outstanding
shares to 608,262. Gross Offering Proceeds received
increased by $3,736,900 resulting in aggregate Gross
Offering Proceeds received of $12,165,240. The Gross
Offering Proceeds received for the quarter ending September
30, 1998 were distributed as follows: $3,343,946 to the
Company as Net Offering Proceeds; 10% or $373,690 to the
Selling Group Manager for Selling Commissions; 0.5% or
$18,685 to the Selling Group Manager for Due Diligence
Fees; and $580 to the Escrow Agent as compensation for
distributing interest accrued to subscribers.
For the nine months ending September 30, 1998 UMT
added 216 new shareholders increasing the total number of
shareholders to 388. The Company issued 405,754 shares of
beneficial interest thereby increasing the outstanding
shares to 608,262. Gross Offering Proceeds received
increased by $8,115,080 resulting in aggregate Gross
Offering Proceeds received of $12,165,240. The Gross
Offering Proceeds for the nine months ending September 30,
1998 were distributed as follows: $7,261,747 to the Company
as Net Offering Proceeds; 10% or $811,508 to the Selling
Group Manager for Selling Commissions; 0.5% or $40,575 to
the Selling Group Manager for Due Diligence Fees; and
$1,250 to the Escrow Agent as compensation for distributing
interest accrued to subscribers.
By comparison, during the three months and nine months
ending September 30, 1997 UMT added 137 new shareholders
increasing the total number of shareholders to 138. The
Company issued 134,463 shares of beneficial interest
thereby increasing the outstanding shares to 144,463. Gross
Offering Proceeds received increased by $2,689,260
resulting in aggregate Gross Offering Proceeds received of
$2,889,260. The Gross Offering Proceeds for the nine months
ending September 30, 1997 were distributed as follows:
$2,406,213 to the Company as Net Offering Proceeds; 10% or
$268,926 to the Selling Group Manager for Selling
Commissions; 0.5% or $13,446 to the Selling Group Manager
for Due Diligence Fees; and $675 to the Escrow Agent as
compensation for distributing interest accrued to
subscribers.
During the quarter ending September 30, 1998 UMT used
Net Offering Proceeds to purchase 64 Residential Mortgages
for $2,605,245, or for 95.99% of the unpaid principal
balance of the notes as of the purchase date. Net Offering
Proceeds were used to increase the Interim Mortgage Loan
balance outstanding from $1,744,911, at June 30, 1998, to
$2,885,140. Net Offering Proceeds were also used to pay an
Acquisition Fee of $80,093 to the Advisor, calculated at 3%
of the unpaid principal balance of the Residential
Mortgages as of the purchase date.
During the nine months ending September 30, 1998 UMT
used Net Offering Proceeds to purchase 137 Residential
Mortgages for $5,528,370, or for 94.75% of the unpaid
principal balance of the notes as of the purchase date. Net
Offering Proceeds were used to increase the Interim
Mortgage Loan balance outstanding from $1,774,911, at June
30, 1998, to $2,885,140 at September 30, 1998. Net Offering
Proceeds were also used to pay an Acquisition Fee of
$173,718 to the Advisor, calculated at 3% of the unpaid
principal balance of the Residential Mortgages as of the
purchase date.
By comparison, during the three months and nine months
ending September 30, 1997 UMT used Net Offering Proceeds to
purchase 53 Residential Mortgages for $1,896,003 or for
92.18% of the unpaid principal balance of the notes as of
the purchase date. Net Offering Proceeds were used to
increase the Interim Mortgage Loan balance outstanding to
$570,665. Net Offering Proceeds were also used to pay an
Acquisition Fee of $61,702 to the Advisor, calculated at 3%
of the unpaid principal balance of the Residential
Mortgages as of the purchase date.
UMT declared and paid three dividends to shareholders
during the quarter ending September 30, 1998. The
annualized rate-of-return to shareholders was 10.05%. Nine
dividends were declared and paid to shareholder during the
nine months ended September 30, 1998. The annualized rate-
of-return to shareholders for the nine months period was
10.33%.
By comparison, UMT declared and paid its first
dividend during the three months and nine months ending
September 30, 1997, subsequent to the Initial Escrow
Closing. Dividends paid to shareholders during the periods
provided annualized rates-of-return to shareholder of
10.44%.
On March 27, 1998 UMT renewed and increased its
Revolving Loan Agreement (the "Agreement") with its lending
bank (the "Bank") wherein the Company can borrow up to
$500,000 on a revolving basis for a term of one year from
the date of the Agreement. Interest on the outstanding
principal balance of the loan is paid monthly at a varying
rate per annum, which is one and one-half percent (1-1/2%)
in excess of the Bank's prime rate of interest. The
outstanding balance of the line of credit at September 30,
1998 was $431,000. The Company uses the line of credit to
purchase Mortgage Investments prior to its two monthly
closings.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
During the period covered by this report, the Company
filed reports on Form 8-K dated July 31, 1998 and September
10, 1998 to report the status of its offering of shares.
SIGNATURES
In accordance with the requirements of the Exchange
Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunder duly authorized.
UNITED MORTGAGE TRUST
(Registrant)
Date: November 7, 1998 /S/Christine A. Griffin
Christine A. Griffin
President
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