UNITED CAPITAL INVESTMENT CORP.
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
FINANCIAL STATEMENTS
Table of Contents Page
Accountants' Review Report 1
Statements of Assets and Liabilities of United Capital
Investment Corp. as of June 30, 1997 and 1996 3
Statements of Operations for the six months ended June
30, 1997 and 1996
and the year ended December 31, 1996 5
Statements of Cash Flows for the six months ended June
30, 1997 and 1996
and the year ended December 31, 1996 6
Statements of Stockholders' Equity for the six months
ended June 30, 1997 and 1996
and the year ended December 31, 1996 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 assets and
liabilities of United Capital Investment Corp. (the "Company"),
as of June 30, 1997 and 1996 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 8, 1997
Certified Public Accountants
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF ASSETS AND LIABILITIES
ASSETS
<TABLE>
June 30,
1997 1996
<S> <C> <C>
Loans Receivable - Long Term Portion
(Note 2) $3,420,993 $3,429,076
Less: Unrealized Depreciation on
Loans Receivable (66,966) (64,033)
_________ _________
3,354,027 3,365,043
Less: Current Maturities - Loans
Receivable 478,939 480,071
_________ _________
Total Loans Receivable - Net of
Current Maturities 2,875,088 2,884,972
_________ _________
Current Assets:
Cash 1,803,242 1,433,257
Accrued Interest 30,626 30,332
Current Maturities - Loans
Receivable (Note 2) 478,939 480,071
Other Assets 56,937 10,740
_________ _________
Current Assets 2,369,744 1,954,400
_________ _________
Total Assets $5,244,832 $4,839,372
========= =========
</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,
1997 1996
<S> <C> <C>
Long Term Debt:
Debenture Payable to SBA (Note 4) $1,800,000 $1,400,000
Class B, 4% Cumulative, 15 Year
Redeemable Preferred Stock (Note 5) 900,000 900,000
_________ _________
Total Long Term Debt 2,700,000 2,300,000
_________ _________
Current Liabilities
Loans Payable - Credit Line (Note 3) 350,000 350,000
Accrued Interest 23,257 20,640
Other Current Liabilities 21,477 27,107
Accrued SBA Dividends 54,000 18,000
_________ _________
Total Current Liabilities 448,734 415,747
_________ _________
Total Liabilities 3,148,734 2,715,747
_________ _________
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 160,565 288,113
Common Stock, $.01 Par Value; 300,000
Shares Authorized:
199,000 Shares Issued and
Outstanding 1,990 1,990
Additional Paid in Capital 1,905,928 1,778,380
Retained Earnings 27,615 55,142
_________ _________
Total Stockholders' Equity 2,096,098 2,123,625
_________ _________
Total Liabilities and
Stockholders' Equity $5,244,832 $4,839,372
========= =========
</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,
1997 1996 1996
<S> <C> <C> <C>
Revenues:
Interest Earned on Outstanding
Receivables $220,826 $182,513 $366,559
Interest Income on Idle Funds 32,433 32,648 51,991
Other Income 5,834 4,546 10,171
________ ________ ________
Total Revenue 259,093 219,707 428,721
________ ________ ________
Expenses:
Interest 81,636 53,377 117,448
Officers Salaries 70,002 70,002 140,004
Professional Fees 21,790 16,928 36,323
Insurance Expense 10,969 9,464 19,632
Pension Expense 7,000 7,000 14,000
Payroll and Other Taxes 5,913 6,241 10,523
Depreciation and Amortization 3,460 964 955
Other Operating Expenses 19,435 18,463 42,240
________ ________ ________
Total Expenses 220,205 182,439 381,125
________ ________ ________
Net Investment Income 38,888 37,268 47,596
Unrealized Depreciation in
Value ofInvestments and Bad Debt
Write-Off 39,085 - 863
________ ________ ________
Net Income Before Taxes (197) 37,268 46,733
Provision for Taxes 795 704 704
________ ________ ________
Net (Loss) Income $ (992) $ 36,564 $ 46,029
======== ======== ========
Earnings (Loss)
Per Common Share (Note 2) $ - $.09 $ .05
======== ======== ========
Actual Dividends Paid Per
Common Share $ - $.27 $ .09
======== ======== ========
</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,
<S> <C> <C> <C>
1997 1996 1996
Cash Flow from Operating Activities:
Net (Loss) Income $ (992) $ 36,564 $ 46,029
Depreciation and Amortization 3,460 964 955
(increase) Decrease in Accrued
Interest (2,939) 304 2,949
(Increase) in Other Assets - - (49,649)
(Decrease) Increase in Accrued
Liabilities 7,386 11,510 1,111
Dividends Paid and Accrued the SBA (18,000) (67,885) (85,885)
Unrealized Depreciation in Value
of Investments 39,085 - 864
_________ __________ _________
Net Cash Provided (Used) by Operating
Activities 28,000 (18,543) (83,626)
_________ __________ _________
Cash Flow from Investing Activities:
Loans Receivable Originated (700,280) (177,085) (1,398,550)
Repayment of Loans Receivable 970,168 345,175 1,267,820
_________ _________ _________
Net Cash Provided (Used by) Investing
Activities 269,888 168,090 (130,730)
_________ _________ _________
Cash Flow From Financing Activities:
Net Increase in Debentures Payable
to SBA - - 400,000
Amortization of Restricted Capital 63,774 63,775 127,549
Increase in Additional Paid in
Capital (63,774) (63,775) (127,549)
(Increase) Decrease in Accrued SBA
Dividends 18,000 (66,667) (48,667)
__________ __________ _________
Net Cash Provided by Financing
Activities 18,000 (66,667) 351,333
__________ __________ __________
Net Increase in Cash
315,888 82,880 136,977
_________ _________ _________
Cash Balance - Beginning of Period
1,487,354 1,350,377 1,350,377
_________ _________ _________
Cash Balance - End of Period $1,803,242 $1,433,257 $1,487,354
========= ========= =========
Supplemental Disclosures of Cash Flow
Information
Cash Paid During the Year For:
Interest $76,286 $55,606 $122,410
========= ========= =========
Taxes $ 795 $ 704 $ 704
========= ========= =========
</TABLE>
See Accountants' Review Report and Notes to the Financial
Statements
-6-
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended Year Ended
June 30, December 31,
<TABLE>
<S> <C> <C> <C>
1997 1996 1996
Class A, 3% Cumulative Preferred Stock,
$1,000 Par Value,
1,000 Shares Authorized; No Shares
Issued and Outstanding $ - $ - $ -
_________ _________ _________
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
1,990 1,990 1,990
_________ _________ _________
Additional Paid in Capital - Beginning
of Period 1,842,154 1,714,605 1,714,605
Amortization of Restricted Capital
63,774 63,775 127,549
_________ __________ _________
Additional Paid in Capital - End of
Period 1,905,928 1,778,380 1,842,154
_________ _________ _________
Restricted Capital
Balance - Beginning of Period 224,339 351,888 351,888
Amortization of Restricted Capital (63,774) (63,775) (127,549)
_________ ________ _________
Balance - End of Period 160,565 288,113 224,339
Retained Earnings
Balance, Beginning of Period 46,607 86,463 86,463
Net Income (992) 36,564 46,029
Less: Dividends Paid and Accrued
to the SBA (18,000) (67,885) (85,885)
_________ ________ _________
Balance End of Period 27,615 55,142 46,607
_________ ________ _________
Total Stockholders' Equity $2,096,098 $2,123,625 $2,115,090
========= ========= =========
</TABLE>
See Accountants' Review Report and Notes to The Financial
Statements
-7-
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
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, 1997, 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 $66,966 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, 1997, 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, 1997 AND 1996
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, 1997 and
1996.
Income Taxes
Tax provisions for the various periods were as follows:
June 30, 1997 $ 795
June 30, 1996 $ 704
December 31, 1996 $ 704
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.
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, 1997 AND 1996
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. There are no
restrictions on advances under the agreement.
<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, 1997 $350,000 4.875% $350,000 $350,000
June 30, 1996 $350,000 4.875% $350,000 $350,000
Dec. 31, 1996 $350,000 4.875% $350,000 $350,000
</TABLE>
NOTE 4 LONG TERM DEBT - SBA SUBORDINATED DEBENTURES
On December 18, 1996 the Company issued a $1,400,000 subordinated
debenture to the SBA and paid off its previously issued
subordinated debenture maturing on October 29, 1996 for
$1,000,000.
As of June 30, 1997, long term debt to the Small Business
Administration consisted of the following subordinated
debentures:
<TABLE>
<S> <C> <C> <C> <C>
First Second June 30, 1997 June 30, 1996
Due Date Five Years Principal Principal
Amount Amount
December 1, 2006 8.08% 8.08% $1,400,000 -
October 29, 1996 4.25% 7.25% - 1,000,000
September 1, 2001 5.33% 8.33% 400,000 400,000
__________ __________
$1,800,000 $1,400,000
========== ==========
</TABLE>
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, 1997 AND 1996
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, 1997 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, 1997, 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, 1997, the Company was contingently liable to the SBA on
the 4 percent redeemable preferred stock from January 1, 1996 to
June 30, 1997 in the amount of $54,000.
NOTE 7 LEASE AGREEMENT
Minimum rental commitments under operating leases in effect as of
June 30, 1997 are as follows:
Rental expense for the current period was $6,964. Effective
April 16, the Company renegotiated its lease agreement for a
period of three years commencing May 1, 1997 and expiring on
April 30, 2000. The minimum annual rental of the extended lease
term is $13,860. The total commitment for the three year period
aggregates $41,580.
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, 1997 AND 1996
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 $1,502,893 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, 1997 AND 1996
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 twenty seven percent (27%) of the Company's loan
portfolio consists of loans made for the financing and purchase
of Dry Cleaning Stores and related assets, sixteen percent (16%)
in Food Supply Stores and twelve percent (12%) in Restaurants.
-13-
UNITED CAPITAL INVESTMENT CORP.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1997
<TABLE>
<S> <C> <C> <C> <C>
Original
Outstanding Number Maturity Balance
Type of Loan of Interest Date Outstand
Loans Rate ing
Taxi Cab 4 8.75% - 4 - 15
13.50% years $ 271,182
Restaurant 4 11.50% - 4 - 15
15.00% years 420,354
Dry Cleaning 13 10.00% - 5 - 10
16.25% years 926,029
Manufacturin 2 9.75% - 5 - 10
g 14.50% years 230,919
Food Supply 7 12.00% - 4 - 5
15.00% years 557,667
Contractor 1 14.50% 5 years 18,349
Laundromat 1 13.87% 5 years 26,513
Bakery 1 16.25% 5 years 27,881
Physicians 2 10.00% - 4 - 10 115,892
Office 15.00% years
Import & 1 11.00% 4 years 39,944
Export
Deli Grocery 8 11.75% - 5 years 372,536
15.00%
Art Supply 1 14.50% 4 years 33,454
Sneaker Shop 1 14.50% 4 years 42,746
Beauty Salon 2 10.00% - 4 years 177,288
15.00%
Photo Shop 1 14.50% 4 years 35,501
Dental Lab 1 14.50% 4 years 35,543
Sporting 1 15.00% 4 years 35,000
Goods
Fashion 1 14.00% 4 years 54,195
Distributor ______ __________
52
$3,420,993
</TABLE>
-14-
UNITED CAPITAL INVESTMENT CORP.
SUPPLEMENTARY INFORMATION
PER SHARE DATA AND RATIOS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 AND
THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
June 30 December 31,
1997 1996 1996
Per Share Data
Investment Income $1.30 $1.10 $2.15
Investment Expenses (1.11) (.92) (1.91)
______ ______ _______
Net Investment Income .19 .18 .24
Net Realized and Unrealized
Gains and Lossed On
Securities (.19) - -
Dividends (.09) (.33) (.44)
_______ _______ _______
Net Increase/Decrease in
Net Asset Value (.09) (.15) (.20)
Net Asset Value -
Beginning of Period 10.62 10.82 10.82
_______ _______ _______
Net Asset Value - End of
Year $10.53 $10.67 $10.62
======== ======= ========
Ratios
Ratio of Expenses to 10.50% 8.6% 17.9%
Average Net Assets ======= ======== ========
Ratio of Net Investment
Income to
Average Net Assets - 1.7% 2.2%
======= ======== ========
</TABLE>
