UNITED CAPITAL INVESTMENT CORP.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1996 , 1995 AND 1994
FINANCIAL STATEMENTS
Table of Contents
Page
Auditor's Report 1
Statements of Assets and Liabilities of
United Capital Investment Corp. as of
December 31, 1996 and 1995 3
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 5
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 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.
Auditors' Report
We have audited the accompanying statements of assets and
liabilities of United Capital Investment Corp. (the "Company"),
including the schedule of portfolio investments, as of December
31, 1996 and 1995 and the related statements of operations, cash
flows and stockholders' equity for the three years then ended.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
As described in Note 2, these financial statements were
prepared in conformity with the accounting practices prescribed
by the Small Business Administration, which provides for specific
allocations of certain types of income to specific capital
accounts. As explained in Note 2, the financial statements
include securities valued at $3,662,999 and $3,533,133 (172% and
163% of the net assets), whose values have been estimated by the
Board of Directors in the absence of readily ascertainable market
values. We have reviewed the procedures used by the Board of
Directors in arriving at its estimate of value of such securities
and have inspected underlying documentation, and, in the
circumstances, we believe the procedures are reasonable and the
documentation appropriate. However, because of the inherent
uncertainty of valuation, those estimated values may differ
significantly from values that would have been used had a ready
market for the securities existed, and the differences could be
material.
In our opinion, the financial statements referred to above,
present fairly, in all material respects, the Company's financial
position as of December 31, 1996 and 1995 and the results of its
operation and its cash flows for the three years then ended in
conformity with generally accepted accounting principles.
February 24, 1997
Certified Public Accountants
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
ASSETS
December 31
1996 1995
<S> <C> <C>
Loans Receivable - Long Term Portion
(Note 2) $3,690,880 $3,597,166
Less: Unrealized Depreciation on
Loans Receivable (27,881) (64,033)
__________ __________
3,662,999 3,533,133
Less: Current Maturities - Loans
Receivable 519,243 529,970
__________ __________
Total Loans Receivable - Net of
Current Maturities 3,143,756 3,003,163
__________ __________
Current Assets:
Cash 1,487,354 1,350,377
Accrued Interest 27,687 30,636
Current Maturities - Loans
Receivable (Note 2) 519,243 529,970
Other Assets 60,398 11,704
__________ __________
Current Assets 2,094,682 1,922,687
__________ __________
Total Assets $5,238,438 $4,925,850
========== ==========
</TABLE>
See Notes to the Financial Statements
-3-
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF ASSETS AND LIABILITIES
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
December 31
1996 1995
<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 17,907 22,869
Other Current Liabilities 19,441 13,368
Accrued SBA Dividends 36,000 84,667
__________ __________
Total Current Liabilities 423,348 470,904
__________ __________
Total Liabilities 3,123,348 2,770,904
__________ __________
Commitments and Contingencies - -
Stockholders' Equity: +(Notes 5, 6 and 8)
Class A, 3% Cumulative Preferred
Stock, $1,000 Par Value;
1,000 Shares Authorized; 0
Shares Issued - -
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 224,339 351,888
Common Stock, $.01 Par Value; 300,000
Shares Authorized:
199,000 Shares Issued and
Outstanding 1,990 1,990
Additional Paid in Capital 1,842,154 1,714,605
Retained Earnings 46,607 86,463
__________ __________
Total Stockholders' Equity 2,115,090 2,154,946
__________ __________
Total Liabilities and
Stockholders' Equity $5,238,438 $4,925,850
========== ==========
</TABLE>
See Notes to the Financial Statement
-4-
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF OPERATIONS
Years Ended December 31,
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Revenue:
Interest Earned on Outstanding
Receivables $366,559 $412,245 $408,643
Interest Income on Idle Funds 51,991 52,879 23,446
Other Income 10,171 3,560 15,724
________ ________ ________
Total Revenue 428,721 468,684 447,813
________ ________ ________
Expenses:
Interest 117,448 111,288 141,917
Officers Salaries 140,004 140,004 140,004
Professional Fees 36,323 31,650 42,774
Insurance Expense 19,632 19,523 18,564
Pension Expense 14,000 14,000 14,000
Payroll and Other Taxes 10,523 9,582 10,687
Depreciation and Amortization 955 1,598 954
Other Operating Expenses 42,240 36,147 45,517
________ ________ ________
Total Expenses 381,125 363,792 414,417
Net Investment Income 47,596 104,892 33,396
Unrealized Depreciation in
Value of
Investments and Bad Debt Write-Off 863 - 18,330
________ ________ ________
Net Income Before Taxes 46,733 104,892 15,066
Provision for Taxes 704 721 2,288
________ ________ ________
Net Income $ 46,029 $104,171 $ 12,778
======== ======== ========
Earnings Per Common Share
(Note 2) $ .14 $ .35 $ -
======== ======== ========
Actual Dividends Paid Per
Common Share $ .27 $ - $ .02
======== ======== ========
</TABLE>
See Notes to the Financial Statements
-5-
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF CASH FLOWS
Years Ended December 31
1996 1995 1994
<TABLE>
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net Income $ 46,029 $104,171 $ 12,778
Depreciation and Amortization 955 1,598 954
Decrease in Accrued Interest 2,949 6,209 18,330
(Increase) in Other Assets (49,649) (2,471) (7,088)
(Decrease) Increase in Accrued
Liabilities 1,111 (11,471) (4,401)
Unrealized Depreciation in Value of
Investments 864 - (29,234)
Dividends Paid and Accrued the SBA (85,885) (32,667) (16,000)
________ ________ ________
Net Cash Provided (Used) by Operating
Activities (83,626) 65,369 (24,661)
________ ________ ________
Cash Flows from Investing Activities:
Loans Receivable Originated (1,398,550) (877,500) (835,045)
Repayment of Loans Receivable 1,267,820 1,160,664 837,519
__________ _________ _________
Net Cash Provided (Used by) Investing
Activities (130,730) 283,164 2,474
Cash Flow From Financing Activities:
Net Increase in Debentures Payable
to SBA 400,000 - (1,000,000)
Amortization of Restricted Capital 127,549 (127,548) (127,549)
Increase in Additional Paid in Capital (127,549) 127,548 127,549
Decrease in Accrued SBA Dividends (48,667) 32,667 16,000
Sale of Class B, 4% Preferred Stock - 500,000 -
________ ________ __________
Net Cash Provided by Financing
Activities 351,333 532,667 (984,000)
Net Increase in Cash 136,977 881,200 (1,006,187)
Cash Balance - Beginning of Year 1,350,377 469,177 1,475,364
_________ ________ _________
Cash Balance - End of Period $1,487,354 $1,350,377 $ 469,177
========== ========== ==========
Supplemental Disclosures of Cash Flow
Information
Cash Paid During the Year For:
Interest $ 122,410 $ 111,096 $ 166,254
========== ========== =========
Taxes $ 704 $ 721 $ 2,288
========== ========== =========
</TABLE>
See Notes to the Financial Statement
-6-
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
Years Ended December 31
1996 1995 1994
<S> <C> <C> <C>
Class A - See Balance Sheet $ - $ - $ -
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 1,714,605 1,587,057 1,459,508
Amortization of Restricted Capital 127,549 127,548 127,549
_________ _________ _________
Additional Paid in Capital - End of
Period 1,842,154 1,714,605 1,587,057
_________ _________ _________
Restricted Capital
Balance - Beginning of Period 351,888 479,436 606,985
Amortization of Restricted Capital (127,549) (127,548) (127,549)
__________ __________ _________
Balance - End of Period 224,339 351,888 479,436
__________ __________ _________
Retained Earnings
Balance, Beginning of Period 86,463 14,959 18,181
Net Income 46,029 104,171 12,778
Less: Dividends Paid and Accrued
to the SBA (85,885) (32,667) (16,000)
__________ _________ _________
Balance End of Period 46,607 86,463 14,959
__________ _________ _________
Total Stockholders' Equity $2,115,090 $2,154,946 $2,083,442
========== ========== ==========
</TABLE>
See Notes to The Financial Statements
-7-
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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 Regulations. The company
was granted a license to operate as a SBIC 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 December 31, 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 $27,881 represents a good faith determination by
the Board of Directors. Substantially, all loans are
collateralized by business assets and 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
December 31, 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
DECEMBER 31, 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 $14,000 was
included for the years ended December 31, 1996 and 1995.
Income Taxes
Tax provisions for the various periods were as follows:
December 31, 1996 $ 704
December 31, 1995 $ 721
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
DECEMBER 31, 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. There are no
restrictions on advances under the agreement. The balance
outstanding as of December 31, 1996 was $350,000.
<TABLE>
<S> <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 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 December 31, 1996, long term debt to the Small Business
Administration consisted of the following subordinated
debentures:
First Second
Due Date Five Years Principal
Amount
September 1, 2001 5.33% 8.33% $ 400,000
December 18, 2006 7.08% 7.08% 1,400,000
___________
$1,800,000
===========
NOTE 5 REDEEMABLE PREFERRED STOCK
Effective November 21, 1989 Congress passes legislation which
altered 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
DECEMBER 31, 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 December 31, 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 December 31, 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
December 31, 1996, the Company was contingently liable to the SBA
on the 4 percent redeemable preferred stock from January 1, 1996
to December 31, 1996 in the amount of $36,000.
NOTE 7 LEASE AGREEMENT
Minimum rental commitments under operating leases in effect as of
December 31, 1996 are as follows:
Rental expense for the current period was $16,396. 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
DECEMBER 31, 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 $885,915 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
DECEMBER 31, 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 twenty three percent (23%) 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
DECEMBER 31, 1996
<TABLE>
<S> <C> <C> <C> <C>
Original
Outstanding Number Maturity Balance
Type of Loan of Interest Date Outstanding
Loans Rate
Taxi Cab 9 8.75% - 13.50% 4 - 15 years $ 834,229
Restaurant 5 11.50% - 15.00% 4 - 15 years 126,330
Dry Cleaning 8 10.00% - 16.25% 5 - 10 years 102,323
Manufacturing 2 9.75% - 14.50% 5 - 10 years 42,575
Food Supply 5 12.00% - 15.00% 4 - 5 years 135,682
Contractor 1 14.50% 5 years 37,476
Laundromat 1 13.87% 5 years 47,672
Bakery 1 16.25% 5 years 390,025
Garage Service 5 10.00% - 13.00% 5 years 38,719
Hair Salon 1 10.00% 10 years 29,122
Physicians Office 2 10.00% - 12.50% 10 years 260,615
Import & Export 1 11.00% - 14.00% 4 years 509,908
Deli Grocery 2 11.75% - 14.00% 5 years 50,000
Art Supply 1 14.50% 4 years 27,881
Sneaker Shop 1 14.50% 4 years 39,380
Nail Salon 1 14.50% 4 years 872,102
Photo Shop 1 14.50% 4 years 106,454
Dental Lab 1 14.50% 4 years 39,387
----- ---------
49 $3,690,880
==========
</TABLE>
-14-
UNITED CAPITAL INVESTMENT CORP.
SUPPLEMENTARY INFORMATION
PER SHARE DATA AND RATIOS
FOR THE FIVE YEARS ENDED
<TABLE>
<S> <C> <C> <C> <C> <C>
December 31,
1996 1995 1994 1993 1992
Per Share Data
Investment Income $2.15 $2.36 $2.25 $2.49 $3.03
Investment Expenses 1.19 1.84 (2.09) (2.30) (2.14)
----- ----- ----- ----- -----
Net Investment Income .24 .52 .16 .19 .89
Net Realized and Unrealized
Gains and Losses on
Securities - - (.09) (.11) (.72)
Dividends (.44) (.17) (.09) - -
Gain on Repurchase of
Preferred Stock - - - 2.98 -
----- ----- ----- ----- -----
Net Increase/Decrease
in Net Asset Value (.20) .35 (.02) 3.06 .17
Net Asset Value -
Beginning of Period $10.82 $10.47 $10.49 $ 7.43 $ 7.26
------ ------ ------ ------ ------
Net Asset Value - End
of Year $10.62 $10.82 $10.47 $10.49 $ 7.26
====== ====== ====== ====== ======
Ratios
Ratio of Expenses to
Average Net Assets 17.9% 17.2% 20.9% 25.5% 29.1%
====== ====== ====== ====== =======
Ratio of Net Investment
Income to
Average Net Assets 2.2% 4.9% .6% 2.3% 12.1%
====== ====== ====== ====== =======
</TABLE>
-15-
