UNITED CAPITAL INVESTMENT CORP.
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND 1999
<PAGE>
FINANCIAL STATEMENTS
Table of Contents Page
Accountants' Review Report ......................................... 1
Statements of Assets and Liabilities of United Capital
Investment Corp. as of June 30, 2000 and 1999 ................. 3-4
Statements of Operations for the six months ended June 30, 2000
and 1999 and the year ended December 31, 1999 ................. 5
Statements of Cash Flows for the six months ended June 30, 2000
and 1999 and the year ended December 31, 1999 ................. 6
Statements of Stockholders' Equity for the six months ended
June 30, 2000 and 1999 and the year ended December 31, 1999 ... 7
Notes to the Financial Statements .................................. 8-11
Schedule of Portfolio Investments .................................. 12
Selected Per Share Data and Ratios ................................. 13
<PAGE>
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, 2000 and 1999
and the related statements of operations, cash flows and stockholders' equity
for the six month periods 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 Public 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 same
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.
New York, New York
August 17, 2000
Michael C. Finkelstein
Certified Public Accountant
Certified Public Accountants
<PAGE>
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
ASSETS
June 30,
2000 1999
----------- -----------
<S> <C> <C>
Portfolio Securities - Long Term Portion (Note 2) $ 1,709,918 $ 2,796,423
Less: Unrealized Depreciation on Loans Receivable (89,654) (93,441)
----------- -----------
1,620,264 2,702,982
Less: Current Maturities - Loans Receivable 222,289 363,535
----------- -----------
Total Loans Receivable - Net of Current Maturities 1,397,975 2,339,447
----------- -----------
Current Assets:
Cash 1,454,492 2,094,139
Accrued Interest 15,712 23,847
Current Maturities - Loans Receivable (Note 2) 222,289 363,535
Other Assets 13,984 43,212
----------- -----------
Current Assets 1,706,477 2,524,733
----------- -----------
Total Assets $ 3,104,452 $ 4,864,180
=========== ===========
</TABLE>
See Accountants' Review Report and Notes to the Financial Statements
-3-
<PAGE>
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
2000 1999
----------- -----------
<S> <C> <C>
Long Term Debt:
Debenture Payable to SBA (Note 4) $ 400,000 $ 1,800,000
Class B, 4% Cumulative, 15 Year Redeemable
Preferred Stock (Note 5) 900,000 900,000
----------- -----------
Total Long Term Debt 1,300,000 2,700,000
----------- -----------
Current Liabilities
Accrued Interest 17,750 20,034
Other Current Liabilities 5,859 62,060
Accrued SBA Dividends 162,000 126,000
----------- -----------
Total Current Liabilities 185,609 208,094
----------- -----------
Total Liabilities 1,485,609 2,908,094
----------- -----------
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 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
Additional Paid in Capital 2,066,493 2,066,493
Retained Earnings (Deficit) (449,640) (112,397)
----------- -----------
Total Stockholders' Equity 1,618,843 1,956,086
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,104,452 $ 4,864,180
=========== ===========
</TABLE>
See Accountants' Review Report and Notes to the Financial Statement
-4-
<PAGE>
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
2000 1999 1999
--------- --------- ---------
<S> <C> <C> <C>
Revenue:
Interest Earned on Outstanding Receivables $ 92,990 $ 149,955 $ 273,992
Interest Income on Idle Funds 63,270 45,176 89,499
Other Income 7,292 4,949 9,499
--------- --------- ---------
Total Revenue 163,552 200,080 372,990
--------- --------- ---------
Expenses:
Interest 92,000 72,462 146,000
Officers Salaries 68,335 77,022 147,000
Professional Fees 22,792 14,306 46,215
Insurance Expense 2,878 2,945 7,104
Pension Expense 7,000 7,700 15,075
Payroll and Other Taxes 5,648 6,105 10,904
Depreciation and Amortization 35,883 3,345 6,690
Other Operating Expenses 18,567 19,418 40,206
--------- --------- ---------
Total Expenses 253,103 203,303 419,194
--------- --------- ---------
Net Investment Income (Loss) (89,551) (3,223) (46,204)
Unrealized Depreciation in Value of
Investments and Bad Debt Write-Off 92,394 54,961 130,850
--------- --------- ---------
Net Income Before Taxes (181,945) (58,184) (177,054)
Provision for Taxes 455 707 680
--------- --------- ---------
Net (Loss) Income $(182,400) $ (58,891) $(177,734)
========= ========= =========
Earnings (Loss)
Per Common Share, Net of Preferred Dividends (Note 2) $ (1.01) $ (.30) $ (.89)
========= ========= =========
Actual Dividends Paid Per Common Share $ -- $ -- $ --
========= ========= =========
Common Stock Outstanding 199,000 199,000 199,000
========= ========= =========
</TABLE>
See Accountants' Review Report and Notes to the Financial Statements
-5-
<PAGE>
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash Flow from Operating Activities:
Net (Loss) Income $ (182,400) $ (58,891)
Depreciation and Amortization 35,883 3,345
Decrease (Increase) in Accrued Interest 19,203 (1,466)
(Decrease) in Accrued Liabilities (10,642) (148)
Dividends Paid and Accrued to the SBA (18,000) (18,000)
(Increase) in Other Assets (10,000) --
Unrealized Depreciation in Value of Investments 92,394 54,961
----------- -----------
Net Cash Provided (Used) by Operating Activities (73,562) (20,199)
----------- -----------
Cash Flow from Investing Activities:
Loans Receivable Originated (50,000) (130,000)
Repayment of Loans Receivable 655,879 506,528
----------- -----------
Net Cash Provided by Investing Activities 605,879 376,528
----------- -----------
Cash Flow From Financing Activities:
Repayment of SBA Debentures (1,400,000) --
(Increase) in Accrued SBA Dividends 18,000 18,000
----------- -----------
Net Cash Provided by Financing Activities (1,382,000) 18,000
----------- -----------
Net (Decrease) Increase in Cash (849,683) 374,329
Cash Balance - Beginning of Period 2,304,175 1,719,810
----------- -----------
Cash Balance - End of Period $ 1,454,492 $ 2,094,139
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year For:
Interest $ 66,310 $ 72,928
=========== ===========
Taxes $ 455 $ 707
=========== ===========
</TABLE>
See Accountants' Review Report and Notes to the Financial Statements
-6-
<PAGE>
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
2000 1999 1999
----------- ----------- -----------
<S> <C> <C> <C>
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 - End of Period 2,066,493 2,066,493 2,066,493
----------- ----------- -----------
Retained Earnings (Deficit)
Balance, Beginning of Period (249,240) (35,506) (35,506)
Net Income (Loss) (182,400) (58,891) (177,734)
Less: Dividends Paid and Accrued to the SBA (18,000) (18,000) (36,000)
----------- ----------- -----------
Balance End of Period (449,640) (112,397) (249,240)
----------- ----------- -----------
Total Stockholders' Equity $ 1,618,843 $ 1,956,086 $ 1,819,243
=========== =========== ===========
</TABLE>
See Accountants' Review Report and Notes to the Financial Statements
-7-
<PAGE>
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
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.
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, 2000, 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 $89,654 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 June 30, 2000, 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-
<PAGE>
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
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 and $7,700 was included for the six
months ended June 30, 2000 and 1999, respectively.
Income Taxes
Tax provisions for the various periods were as follows:
June 30, 2000 $ 455
June 30, 1999 $ 707
December 31, 1999 $ 680
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, 2000. 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 LONG TERM DEBT - SBA SUBORDINATED DEBENTURES
As of June 30, 2000 and 1999, long term debt to the Small Business
Administration consisted of the following subordinated debentures:
First Second June 30,
Due Date Five Years 2000 1999
-------- ---------- ---------- ----------
September 1, 2001 5.33% 8.33% $ 400,000 $ 400,000
December 18, 2006 7.08% 7.08% -- 1,400,000
---------- ----------
$ 400,000 $1,800,000
========== ==========
-9-
<PAGE>
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
NOTE 3 LONG TERM DEBT - SBA SUBORDINATED DEBENTURES
(Continued)
One June 1, 2000 the Company prepaid the subordinated debenture payable to the
Small Business Administration in the amount of $1,400,000. This subordinated
debenture was originally due on December 18, 2006. However, the Company elected
to prepay the entire principle balance including a 2% prepayment penalty
totaling $28,000. Additionally, origination costs associated with the issuance
of this subordinated debenture, aggregating $50,750 paid in 1996 were being
amortized over a ten-year period. The remaining unamortized balance of $35,314
was charged to earnings during the current period.
NOTE 4 REDEEMABLE PREFERRED STOCK
Effective November 21, 1989 Congress passed 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. 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 5 PREFERRED STOCK
As of June 30, 1999 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, 1999, 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, 2000, the Company was contingently liable to the
SBA on the 4 percent redeemable preferred stock from January 1, 1996 to June 30,
2000 in the amount of $162,000.
-10-
<PAGE>
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
NOTE 6 LEASE AGREEMENT
Minimum rental commitments under operating leases in effect as of June 30, 2000
are as follows:
Rental expense for the current period was $10,687. The lease expires on October
31, 2000, and calls for minimum monthly rental costs of $2,400.
NOTE 7 MANAGEMENT FEES
Effective February 9, 1993, the SBA approved the Company's request for an
increase in total compensation to $160,200. Total compensation paid to officers
aggregated $68,335 and $77,022 for the six months ended June 30, 2000 and 1999,
respectively.
NOTE 8 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 9 FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISKS
The Company maintained an aggregate of approximately $1,134,630 in various banks
in excess of amounts that would be insured by the Federal Depository Insurance
Company.
NOTE 10 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 11 SIGNIFICANT CONCENTRATION OF CREDIT RISK
Approximately thirty seven percent (37%) of the Company's loan portfolio
consists of loans made for the financing and purchase of Dry Cleaners and
related equipment.
-11-
<PAGE>
UNITED CAPITAL INVESTMENT CORP.
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 2000
Original
Outstanding Number Maturity Balance
Type of Loan of Loans Interest Rate Date Outstanding
------------ -------- ------------- ---- -----------
Dry Cleaners 10 10.00% - 15.00% 4 - 12 years $ 584,485
Restaurant 5 12.50% - 14.50% 4 - 10 years 371,324
Deli - Grocery 5 9.50% - 15.00% 4 - 10 years 208,260
Taxi Cabs 1 12.00% 4 years 12,545
Medical Clinic 4 11.50% - 14.00% 4 - 6 years 46,040
Beauty Salons 2 12.00% - 15.00% 4 - 15 years 125,360
Herb Store 2 9.00% - 14.00% 4 - 5 years 132,519
Clothing 1 15.00% 4 years 9,446
Sporting Goods 1 15.00% 4 years 16,383
Food & Bakery 1 9.00% 5 years 10,486
Manufacturing 1 Prime + 1.00% 15 years 37,389
Import - Export 1 12.00% 4 years 25,567
Fruit & Vegetable 4 12.00% - 15.00% 4 years 124,793
Photo Supply 1 14.50% 4 years 5,321
-- ----------
39 $1,709,918
== ==========
-12-
<PAGE>
UNITED CAPITAL INVESTMENT CORP.
SUPPLEMENTARY INFORMATION
PER SHARE DATA AND RATIOS
<TABLE>
<CAPTION>
June 30, December 31,
-------- ------------
2000 1999 1999 1998 1997 1996 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Data
Investment Income $ .82 $ 1.00 $ 1.87 $ 2.45 $ 2.55 $ 2.15 $ 2.36
Investment Expenses (1.27) (1.02) (2.11) (2.22) (2.15) (1.91) (1.84)
--------- --------- --------- --------- --------- --------- ---------
Net Investment Income (.45) (.02) .24 .23 .40 .24 .52
Net Realized and Unrealized Gains
and Losses on Securities (.46) (.28) (.66) (.28) (.39)
Dividends (.09) (.09) (.18) (.18) (.18) (.44) (.17)
--------- --------- --------- --------- --------- --------- ---------
Net Increase/Decrease in Net Asset Value (1.00) (.39) (1.08) (.23) (.17) (.20) .35
Net Asset Value - Beginning of Period $ 9.14 $ 10.22 $ 10.22 $ 10.45 $ 10.62 $ 10.82 $ 10.47
--------- --------- --------- --------- --------- --------- ---------
Net Asset Value - End of Year $ 8.14 $ 9.83 $ 9.14 $ 10.22 $ 10.45 $ 10.62 $ 10.82
========= ========= ========= ========= ========= ========= =========
Ratios
Ratio of Expenses to Average Net Assets 14.75% 12.9% 21.7% 21.8% 20.4% 17.9% 17.2%
========= ========= ========= ========= ========= ========= =========
Ratio of Net Investment Income to
Average Net Assets (10.61)% (2.9)% (9.3)% 2.3% 3.8% 2.2% 4.9%
========= ========= ========= ========= ========= ========= =========
</TABLE>
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