UNITED CAPITAL INVESTMENT CORP.
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
FINANCIAL STATEMENTS
Table of Contents Page
Accountants' Review Report . . . . . . . . . . . . . . 1
Statements of Assets and Liabilities of United Capital
Investment Corp. as of June 30, 1996 and 1995 . . 3
Statements of Operations for the six months ended June
30, 1996 and 1995
and the year ended December 31, 1995 . . . . . . . 5
Statements of Cash Flows for the six months ended June
30, 1996 and 1995
and the year ended December 31, 1995 . . . . . . . 6
Statements of Stockholders' Equity for the six months
ended June 30, 1996 and 1995
and the year ended December 31, 1995 . . . . . . . 7
Notes to the Financial Statements. . . . . . . . . . . 8
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule of Portfolio Investments . . . . . . . . . . 14
Selected Per Share Data and Ratios . . . . . . . . . . 15
Board of Directors
United Capital Investment Corp.
Accountant's Review Report
We have reviewed the accompanying statements of financial
position of United Capital Investment Corp. (the "Company"), as
of June 30, 1996 and 1995 and the related statements of
operations, cash flows and stockholders' equity for the years
then ended. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Accountants A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying reviewed
financial statements in order for them to be in conformity with
generally accepted accounting principles.
Our review was made for the purpose of expressing limited
assurance that there are no material modifications that should be
made to the financial statements in order for them to be in
conformity with generally accepted accounting principles. The
information included in the accompanying schedule of portfolio
investments and per share data and ratios is presented only for
supplementary analysis purposes. Such information has been
subjected to the inquiry and analytical procedures applied in the
review of the basic financial statements and we are not aware of
any material modifications that should be made thereto.
August 20, 1996
Certified Public Accountants
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF ASSETS AND LIABILITIES
ASSETS
<TABLE>
June 30,
1996 1995
<C> <C> <C>
Loans Receivable - Long Term Portion
(Note 2) $3,429,076 $3,405,149
Less: Unrealized Depreciation on
Loans Receivable (64,033) (97,135)
---------- ----------
3,365,043 3,308,014
Less: Current Maturities - Loans
Receivable 480,071 476,721
---------- ----------
Total Loans Receivable - Net of
Current Maturities 2,884,972 2,831,293
---------- ----------
Current Assets:
Cash
1,433,257 1,516,926
Accrued Interest
30,332 27,948
Current Maturities - Loans
Receivable (Note 2) 480,071 476,721
Other Assets
10,740 10,156
--------- -----------
Current Assets
1,954,400 2,031,751
--------- ----------
Total Assets
$4,839,372 $4,863,044
========= =========
</TABLE>
See Accountants' Review Report and Notes to the Financial
Statements
-3-
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF ASSETS AND LIABILITIES
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
June 30,
1996 1995
<C> <C> <C>
Long Term Debt:
Debenture Payable to SBA (Note 4)
$1,400,000 $1,400,000
Class B, 4% Cumulative, 15 Year
Redeemable
Preferred Stock (Note 5)
900,000 900,000
--------- ----------
Total Long Term Debt
2,300,000 2,300,000
--------- ----------
Current Liabilities
Loans Payable - Credit Line (Note 3)
350,000 350,000
Accrued Interest
20,640 22,744
Other Current Liabilities
27,107 26,800
Accrued SBA Dividends
18,000 66,668
Total Current Liabilities --------- ---------
415,747 466,212
---------- ----------
Total Liabilities
2,715,747 2,766,212
---------- -----------
Commitments and Contingencies - -
Stockholders' Equity :(Notes 5, 6 and 8)
Class A, 3% Cumulative Preferred
Stock, $1,000 Par Value;
1,000 Shares Authorized; 1,000
Shares Issued and
Outstanding, Respectively - -
Class B, 4% Cumulative, 15 Year
Redeemable Preferred Stock,
$1,000 Par Value; 3,000 Shares
Authorized: 900 Shares
Issued and Outstanding (See Long - -
Term Debt and Note 5)
Restricted Capital
288,113 415,662
Common Stock, $.01 Par Value; 300,000
Shares Authorized:
199,000 Shares Issued and
Outstanding 1990 1990
Additional Paid in Capital
1,778,380 1,650,831
Retained Earnings
55,142 28,349
--------- ---------
Total Stockholders' Equity
2,123,625 2,096,832
--------- ---------
Total Liabilities and $ $
Stockholders' Equity 4,839,372 4,863,044
========= =========
</TABLE>
See Accountants' Review Report and Notes to the Financial
Statement
-4-
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF OPERATIONS
<TABLE>
Six Months Ended Year Ended
June 30, December
31,
1996 1995 1995
<C> <C> <C> <C>
Revenue:
Interest Earned on Outstanding $ $ $
Receivables 182,513 198,397 412,245
Interest Income on Idle Funds
32,648 18,338 52,879
Other Income
4,546 8,499 3,560
------- ------- -------
Total Revenue
219,707 225,234 468,684
------- ------- -------
Expenses:
Interest
53,377 55,803 111,288
Officers Salaries
70,002 70,002 140,004
Professional Fees
16,928 18,993 31,650
Insurance Expense
9,464 8,814 19,523
Pension Expense
7,000 7,000 14,000
Payroll and Other Taxes
6,241 5,709 9,582
Depreciation and Amortization
964 - 1,598
Other Operating Expenses
18,463 18,134 36,147
------- ------- -------
Total Expenses
182,439 184,455 363,792
------- ------- -------
Net Investment Income
37,268 40,779 104,892
Unrealized Depreciation in
Value of
Investments and Bad Debt
Write-Off - - -
------- ------- --------
Net Income Before Taxes
37,268 40,779 104,892
Provision for Taxes
704 12,721 721
------- ------- --------
Net Income $ $ $
36,564 28,058 104,171
======= ======= ========
Earnings (Loss)
Per Common Share (Note 2) $ $ $
.09 .06 .53
======= ======= ========
Actual Dividends Paid Per $ $ $
Common Share .27 - -
======= ======= ========
</TABLE>
See Accountants' Review Report and Notes to the Financial
Statements
-5-
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
Six Months Ended Year Ended
June 30, December 31,
<C> <C> <C> <C>
1996 1995 1995
Cash Flow from Operating Activities:
Net Income $ $ $
36,564 28,058 104,171
Depreciation and Amortization
964 - 1,598
Decrease (Increase) in Accrued
Interest 304 8,897 6,209
Decrease (Increase) in Other Assets -
675 (2,471)
(Decrease) Increase in Accrued
Liabilities 11,510 1,836 (11,471)
Dividends Paid and Accrued the SBA
(201,219) (14,668) (32,667)
--------- --------- ---------
Net Cash Provided (Used) by Operating
Activities (151,877) 24,798 65,369
---------- --------- ---------
Cash Flow from Investing Activities:
Loans Receivable Originated
(177,085) (175,000) (877,500)
Repayment of Loans Receivable
345,175 683,283 1,160,664
---------- ---------- ---------
Net Cash Provided From Investing
Activities 168,090 508,283 283,164
--------- ---------- ---------
Cash Flow From Financing Activities:
Amortization of Restricted Capital
63,775 63,774 (127,548)
Increase in Additional Paid in
Capital (63,775) (63,774) 127,548
Decrease in Accrued SBA Dividends
66,667 14,668 32,667
Sale of Class B, 4% Preferred Stock - 500,000 500,000
-------- -------- ---------
Net Cash (Used) Provided by Financing
Activities 66,667 514,668 532,667
-------- -------- --------
Net Increase in Cash
82,880 1,047,749 881,200
Cash Balance - Beginning of Year
1,350,377 469,177 469,177
--------- --------- ---------
Cash Balance - End of Period $ $ $
1,433,257 1,516,926 1,350,377
========= ========= =========
Supplemental Disclosures of Cash Flow
Information
Cash Paid During the Year For:
Interest $ $ $
55,606 55,736 111,096
====== ====== =======
Taxes $ $ $
704 721 721
==== ==== ====
</TABLE>
See Accountants' Review Report and Notes to the Financial
Statement
-6-
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
Six Months Ended Year Ended
June 30, December 31,
<C> <C> <C>
1996 1995 1995
Class A, 3% Cumulative Preferred Stock,
$1,000 Par Value,
1,000 Shares Authorized; 1,000 Shares
Issued and Outstanding $ $ $
- - -
Repurchase of 3% Cumulative Preferred
Stock - - -
Balance - End of Period
- - -
Class B, 4% Cumulative, 15 Year
Redeemable Preferred Stock,
$1,000 Par Value; 3,000 Shares
Authorized: 900 Shares
Issued and Outstanding (See Long Term
Debt and Note 5) - - -
Common Stock, $.01 Par Value, 300,000
Shares Authorized;
199,000 Shares Issued and Outstanding
1990 1990 1990
--------- -------- ----------
Additional Paid in Capital - Beginning of
Period 1,714,605 1,587,057 1,587,057
Amortization of Restricted Capital
63,775 63,774 127,548
--------- ---------- ----------
Additional Paid in Capital - End of
Period 1,778,380 1,650,831 1,714,605
---------- ---------- -----------
Restricted Capital
Balance - Beginning of Period
351,888 479,436 479,436
Amortization of Restricted Capital
(63,775) (63,774) (127,548)
--------- --------- ---------
Balance - End of Period
288,113 415,662 351,888
--------- --------- ---------
Retained Earnings
Balance, Beginning of Period
86,463 14,959 14,959
Net Income
36,564 28,058 104,171
Less: Dividends Paid and Accrued to
the SBA (67,885) (14,668) (32,667)
--------- -------- ----------
Balance End of Period
55,142 28,349 86,463
--------- ---------- ---------
Total Stockholders' Equity $ $ $
2,123,625 2,096,832 2,154,946
========= ========= =========
</TABLE>
See Accountants' Review Report and Notes to The Financial
Statements
-7-
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 1 ORGANIZATION
United Capital Investment Corp. (The "Company") was formed on May
11, 1984, for the purpose of operating as a specialized small
business investment company (SSBIC), licensed under the Small
Business Investment Act of 1958 and regulated and financed in
part by the Small Business Administration (SBA). The Company's
business is to provide financing to persons who qualify as
disadvantaged persons under applicable SBA and SSBIC by the SBA
on February 5, 1985.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
applied by the Company in the preparation of its financial
statements. The Company maintains its accounts and prepares its
financial statements on the accrual method of accounting in
conformity with generally accepted accounting principles for
investment companies.
Valuation of Loans and Investments
As of June 30, 1996, all investments made by the Company have
been in the form of loans to closely held corporations. The
Board of Directors has valued the investment portfolio based upon
the cost of such investments, less a provision for loan losses.
However, because of the inherent uncertainty of the valuation,
the estimated values might otherwise be significantly higher or
lower than the values that would exist in a ready market for such
loans which market has not and does not exist. The provision for
loan losses of $64,033 represents a good faith determination by
the Board of Directors. Substantially, all loans are
collateralized by real estate. See schedule for analysis of loan
portfolio.
Recognition of Interest Income
It is the Company's policy to record interest on loans and debt
securities only to the extent that management and the Board of
Directors anticipate such amounts may be collected. As of June
30, 1996, the Board of Directors elected to accrue interest on
substantially all outstanding loans.
Gains or Losses on Securities
Cost of securities sold is reported on the average cost basis.
Amounts reported as realized gains and losses are measured by the
difference between the proceeds of sale and the cost basis of the
investment without regard to unrealized gain or loss reported in
prior years.
No gain is recognized on the exchange of one investment security
for another, or on the exchange of an equity or debt investment
for other tangible or intangible assets.
-8-
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Furniture, Fixtures and Equipment
Fixed assets are recorded at cost. Depreciation is computed on
the straight line basis.
Pension Plan
The Company maintains a defined contribution money purchase plan
covering all qualifying employees. A provision of $7,000 was
included for both the six month periods ended June 30, 1996 and
1995.
Income Taxes
Tax provisions for the various periods were as follows:
June 30, 1996 $ 704
December 31, $ 721
1995
The Company has registered as an investment company under the
Investment Company Act of 1940 for the first year ended December
31, 1989 and intends to make the election for the current period
ending December 31, 1996. A regulated investment company can
generally avoid taxation at the corporate level to the extent 90%
of the income is distributed to its stockholders.
Earnings Per Share
Earnings per share of common stock are based on a weighted
average number of shares outstanding during the period, less
preferred stock dividend.
NOTE 3 LOANS PAYABLE - LINE OF CREDIT
Effective February 25, 1993, the Company renewed a $500,000 line
of credit with the Hong Kong Shanghai Banking Corp., at a rate of
1% above the New York prime rate, secured by a blanket lien on
all assets and guaranteed personally for the first $150,000 by
Mr. Paul Lee, President of the Company.
-9-
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 3 LOANS PAYABLE - LINE OF CREDIT
(Continued)
The Company will pay a commitment fee of .5% per annum payable
monthly on the unused balance of the credit line. As of December
31, 1993, the Company repaid the balance on its line of credit.
There are no restrictions on advances under the agreement. The
balance outstanding as of June 30, 1996 was $350,000.
<TABLE>
<C> <C> <C> <C> <C>
Maximum Average
Weighted Amount Amount
Category Balance Average Outstanding Outstanding
of End of Interest During During
Borrowing Period Rate Period Period
June 30, 1996 $350,000 4.875% $350,000 $350,000
June 30, 1995 350,000 4.875% 350,000 350,000
</TABLE>
NOTE 4 LONG TERM DEBT - SBA SUBORDINATED DEBENTURES
On April 18, 1994, the Company prepaid a $1,000,000 subordinated
debenture to the Small Business Administration maturing on
September 8, 1997. As a condition of the prepayment, the Company
may not file any application for financial assistance in the form
of subordinated debentures from the date of the prepayment until
the original maturity date of September 8, 1997. However, the
Company may seek funding in the form of four percent preferred
stock or a regular debenture during this period.
As of June 30, 1996 and 1995, long term debt to the Small
Business Administration consisted of the following subordinated
debentures:
First Second
Due Date Five Years Principal
Amount
October 29, 1996 4.25% 7.25%
$1,000,000
September 1, 2001 5.33% 8.33%
400,000
$1,400,000
NOTE 5 REDEEMABLE PREFERRED STOCK
Effective November 21, 1989 Congress passes legislation which
alters the preferred stock to a 4 percent cumulative dividend and
a fifteen year call provision for all preferred stock sold
subsequent to the effective date.
-10-
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 5 REDEEMABLE PREFERRED STOCK
(Continued)
The Company amended its certificate of incorporation to create a
class A preferred stock $1,000 par value which will consist of
the 1,000 outstanding preferred stock and to change the existing
3,000 authorized but unissued shares of preferred stock into a
new class B preferred stock $1,000 par value which will carry a 4
percent cumulative dividend rate and a mandatory 15 year
redemption. Subsequent to the repurchase of the 3% preferred
stock (see note 8), the Company retired the class A preferred
stock. On February 17, 1995 the Company sold 500 shares of its 15
year redeemable, 4% cumulative preferred stock to the SBA for
$500,000 and on September 20, 1991, the Company sold 400 shares
of its 15 year redeemable, 4 percent cumulative preferred stock
to the SBA for $400,000. The mandatory redemption provisions
call for the preferred stock to be repurchased by the Company at
its face value. In accordance with Regulation S-X, the Company's
financial statements present the preferred stock as Long Term
Debt.
NOTE 6 PREFERRED STOCK
As of June 30, 1996 the Company was authorized to issue 4,000
shares of cumulative preferred stock, consisting of 1,000 shares
of 3 percent cumulative preferred stock and a second class of 4
percent cumulative, 15 year redeemable preferred stock, $1,000
par value.
As of June 30, 1996, 900 shares of 4 percent preferred stock were
issued to the SBA. Each share is entitled to receive 4 percent
per annum. Dividends are not required to be paid to the SBA on
an annual or other periodic basis, so long as cumulative
dividends are paid to the SBA before any other payments are made
to shareholders. Such dividends on the preferred stock will be
deemed to be earned at the time dividends on the Company's common
stock are declared, and accordingly will reduce the amounts
available for distribution to the Company's shareholders. As of
June 30, 1996, the Company was contingently liable to the SBA on
the 4 percent redeemable preferred stock from January 1, 1996 to
June 30, 1996 in the amount of $18,000.
NOTE 7 LEASE AGREEMENT
Minimum rental commitments under operating leases in effect as of
June 30, 1996 are as follows:
Rental expense for the current period was $8,141. The lease
expires on April 30, 1997 with a minimum rental of $12,936 per
year.
NOTE 8 REPURCHASE OF 3% PREFERRED STOCK
Effective August 23, 1993, the Company amended its certificate of
incorporation granting the SBA a liquidating interest in a newly
created restricted capital surplus account.
-11-
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 8 REPURCHASE OF 3% PREFERRED STOCK
(Continued)
The Company and the SBA entered into a repurchase agreement dated
October 5, 1993. Pursuant to the agreement, the Company
repurchased all 1,000 shares of its 3% preferred stock, $1,000
par value, from the SBA for a purchase price of $362.257 per
share, or an aggregate of $362,257. The repurchase price was at
a substantial discount to the original sale price of $1,000 per
share. As a condition precedent to the repurchase, the Company
granted the SBA a liquidating interest in the restricted capital
surplus account.
The surplus account is equal to the amount of the repurchase
discount less expenses associated with the repurchase. The
initial value of the liquidating interest was equal to $637,743.
the amount of the repurchase discount on the date of repurchase,
and is being amortized over a sixty (60) month period on a
straight-line basis. Should the Company be in default under the
repurchase agreement, at any time, the liquidating interest will
become fixed at the level immediately preceding the event of
default and will not decline further until such time as the
default is cured or waived. The liquidating interest will expire
on the earlier of (I) sixty (60) months from the date of the
repurchase agreement, or (ii) if any event of default has
occurred and such default has been cured or waived, such later
date on which the liquidating interest is full amortized. Should
the Company voluntarily or involuntarily liquidate prior to the
expiration of the liquidating interest, any assets which are
available, after the payment of all debts of the Company, shall
be distributed first to the SBA until the amount of the then
remaining liquidating interest has been distributed to the SBA.
Such payment, if any, would be prior in right to any payments
made to the Company's shareholders.
NOTE 9 MANAGEMENT FEES
Effective February 9, 1993, the SBA approved the Company's
request for an increase in total compensation to $160,200
retroactive to January 1, 1993.
NOTE 10 RELATED PARTY TRANSACTION
Certain officers and directors of the Company are also
shareholders of the Company. Officers' salaries are set by the
Board of Directors and are also subject to maximum compensation
by the SBA.
NOTE 11 FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISKS
The Company maintains an aggregate of approximately $892,149 in
various banks in excess of amounts that would be insured by the
Federal Depository Insurance Company.
-12-
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 12 COMMITMENTS AND CONTINGENCIES
Pursuant to SBA regulations, all SSBIC's issuing debentures
subsequent to April 25, 1994, were required to amend their
certificates of incorporation to indicate that they have
consented , in advance, to the SBA's right to require the removal
of officers or directors and to the appointment of the SBA, or
its designee, in the event of certain default provisions.
Effective November 1994, the Company amended its certificate of
incorporation in accordance with the current provision of the SBA
regulation.
NOTE 13 SIGNIFICANT CONCENTRATION OF CREDIT RISK
Approximately thirty percent (30%) of the Company's loan
portfolio consists of loans made for the financing and purchase
of New York City Taxicab Medallions and related assets.
-13-
UNITED CAPITAL INVESTMENT CORP.
SCHEDULE OF PORTFOLIO INVESTMENTS
AS OF JUNE 1996
<TABLE>
<C> <C> <C> <C> <C>
Original
Outstanding Number Maturity Balance
Type of Loan of Interest Date Outstand
Loans Rate ing
Taxi Cab 9 8.75% - 4 - 15 $
13.50% years 1,015,18
2
Restaurant 5 11.50% - 4 - 15 548,608
17.00% years
Dry Cleaning 8 10.00% - 5 - 10 643,385
16.25% years
Manufacturin 2 9.75% - 5 - 10 289,053
g 14.50% years
Food Supply 5 12.00% - 4 - 5 275,607
12.50% years
Contractor 1 14.50% 5 years 39,270
Laundromat 1 13.87% 5 years 50,276
Bakery 1 16.25% 5 years 27,881
Garage 5 10.00% - 5 years 229,215
Service 13.00%
Hair Salon 1 10.00% 10 years 138,613
Physicians 2 10.00% - 10 years 67,723
Office 12.50%
Import & 1 11.00% 4 years 52,616
Export
Deli Grocery 2 11.75 - 5 years 51,647
14.00% ----------
$ 3,429,076
============
</TABLE>
-14-
UNITED CAPITAL INVESTMENT CORP.
SUPPLEMENTARY INFORMATION
PER SHARE DATA AND RATIOS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 AND
THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
June 30 December
31,
1996 1995 1995
<C> <C> <C> <C>
Per Share Data
Investment Income $1.10 $1.13 $2.36
Investment Expenses (.92) (.99) 1.84
----- ----- -----
Net Investment .18 .14 .52
Income ----- ----- -----
Net Realized and
Unrealized Gains
and Losses on - (.07) -
Securities
Dividends (.33) - (.17)
------ ----- ------
Net Increase/Decrease in (.15) .07 .35
Net Asset Value
Net Asset Value - $10.82 $10.47 $10.47
Beginning of Period ------ ------ ------
Net Asset Value - End of $10.67 $10.54 $10.82
Year ====== ====== ======
Ratios
Ratio of Expenses to 8.6% 9.4% 17.2%
Average Net Assets ======= ====== ======
Ratio of Net Investment
Income to
Average Net Assets 1.7% 1.3% 4.9%
======= ====== =======
</TABLE>
