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REGISTRATION NO.
PAGE 1 OF PAGES INVESTMENT COMPANY
ACT FILE NO. 33-26356
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
TO
FORM N-5
REGISTRATION STATEMENT OF SMALL BUSINESS
INVESTMENT COMPANY
UNDER
THE INVESTMENT COMPANY ACT OF 1940
DATED OCTOBER 17, 2000
------------------------
UNITED CAPITAL INVESTMENT CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
60 EAST 42ND STREET, SUITE 1515
NEW YORK, NEW YORK 10165
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
RAYMER W. MCQUISTON
HOLLAND & KNIGHT
195 BROADWAY
NEW YORK, NEW YORK 10007
(NAME AND ADDRESS OF AGENT FOR SERVICE)
The Registrant hereby amends this Registration Statement in accordance with
Section 8(b) of the Investment Company Act of 1940.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NO.
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<C> <S> <C>
1. Organization and Business................................... 1
2. Fundamental Polices of the Registrant....................... 3
3. Policies With Respect to Security Investments............... 5
Ownership of Voting and Convertible Securities of Other
4. Issuers..................................................... 6
5. Special Tax Provisions Applicable to Registrant............. 6
6. Pending Legal Proceedings................................... 8
7. Summary of Earnings......................................... 8
8. Persons in Control Relationship With Registrant............. 9
9. Persons Owning Equity Securities of Registrant.............. 10
10. Number of Holders of Equity Securities...................... 10
11. Directors and Executive Officers............................ 10
12. Members of Advisory Board of Registrant..................... 10
Remuneration of Directors, Officers and Members of Advisory
13. Board....................................................... 11
14. Indemnification of Directors and Officers................... 11
15. Custodians of Portfolio Securities.......................... 11
16. Investment Advisers......................................... 11
Business and Other Connections of Investment Advisers and
17. Their Managements........................................... 11
18. Interest of Affiliated Persons in Certain Transactions...... 11
19. Capital Stock............................................... 12
20. Long-term Debt.............................................. 13
21. Other Securities............................................ 13
22. Financial Statements........................................ 14
</TABLE>
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PART I. INFORMATION REQUIRED IN REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
ITEM 1. ORGANIZATION AND BUSINESS
United Capital Investment Corp. (the "Company") was formed as a New York
corporation on May 11, 1984 for the purpose of operating as a Specialized Small
Business Investment Company ("SSBIC") (formerly characterized as a Minority
Enterprise Small Business Investment Company), is licensed under the Small
Business Investment Act of 1958 (the "1958 Act"), and regulated and financed in
part by the United States Small Business Administration ("SBA"). The Company
currently maintains offices at 60 East 42nd Street, Suite 1515, New York, New
York 10165 (telephone: 212-682-7210).
The Company is registered as a non-diversified, closed-end investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and is taxed as a "regulated investment company" under the Internal Revenue Code
of 1954, as amended (the "Code"). See "Item 5." The Company's business is to
provide financing to persons who qualify under SBA regulations as socially or
economically disadvantaged persons or to entities which are at least 50% owned,
controlled and managed by such persons. The Company concentrates at least twenty
percent (20%) or more of the value of its assets in the following group of
industries: wholesale and retail trade; services; and manufacturing. These
businesses are primarily comprised of restaurants, fast food businesses, grocery
stores, dry cleaners and laundromats, import-export businesses, garage services
and taxi cabs located primarily in New York, New Jersey and Connecticut.
The Company was granted a license to operate as an SSBIC by the SBA on
February 5, 1985. At such time, the shareholders of the Company consisted of
Paul Lee, Pei Chung Lee, Simon Lai and James Yu. The initial shareholders had
contributed a total of approximately $1,030,000 to the capitalization of the
Company. In 1986 and 1987, the Company received its initial financing from the
SBA through the sale of the SBA of 1,000 shares of Preferred Stock for a total
of $1,000,000 and the issuance to the SBA of Subordinated Debentures in the
aggregate principal amount of $2,000,000. The Company is actively operating as
an SSBIC.
In 1989, the Company offered 49,000 shares of its common stock, $.01 par
value (the "Common Stock"), at a purchase price of $10.40 per share pursuant to
its Registration Statement. The Company currently has outstanding a total of
199,000 shares of Common Stock.
SSBIC BENEFITS
(a) General. As an SSBIC, the Company is eligible to receive certain
financing from the SBA on favorable terms, and the Company and its stockholders
are entitled to certain tax benefits, both described below. The SBA has a
certain amount of discretion in determining the type of amount of financing that
will be made available to an SSBIC. In addition, there are certain restrictions
and requirements to which the Company is subject by virtue of its being an
SSBIC; See "SBA Regulations", below.
(b) Background. Small Business Investment Companies ("SBICs") were created
under the 1958 Act as a vehicle for providing equity capital, long-term loan
funds and management assistance to small business. In general, the SBA considers
a business to be "small," and therefore eligible to receive loans from an SSBIC,
only if its net worth does not exceed $6,000,000 and if the average of it net
annual income after taxes for these preceding two years was not more than
$2,000,000 or the Borrower meets the size standard adopted by the SBA for the
industry in which it is then engaged. Although SBICs are privately owned, they
are licensed, regulated and sometimes financed in pat by the SBA. SSBICs are
SBICs which specialize in providing equity funds, long-term loans and management
to individuals, or to small business concerns at least 50% owned and managed by
individuals, from groups in the United States that are socially or economically
disadvantaged, such as Blacks, Indians, Eskimos, persons of Mexican, Puerto
Rica, Cuban, Filipino or Asian extraction, Vietnam War era veterans, and other
groups which fall within SBA guidelines relating to socially or economically
disadvantaged persons.
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(c) Benefits. The principal benefits to the Company as a result of its
being licensed as an SSBIC are as follows:
(1) The SBA is authorized to purchase shares of nonvoting preferred
stock of an SSBIC which provide for preferred and cumulative dividends. For
a discussion of the amount of preferred stock of the Company previously
acquired by the SBA, see "Item 20" below.
(2) The SBA is also authorized to purchase debentures issued by an
SSBIC which loans funds to, but does not invest in the equity of, small
businesses. For a discussion of the amount of debentures sold to the SBA,
see "Item 20" below.
(3) The tax benefits to a company licensed as an SSBIC and to its
shareholders are discussed below in "Item 5."
SBA REGULATION
The Company, as a holder of a license from the SBA to operate as an SSBIC
is subject to broad regulations by the SBA with respect to various aspects of
its ownership and operation. The Company is subject to certain restrictions and
requirements under the 1958 Act and SBA regulations thereunder. These
restrictions and requirements include, but are not limited to, the following:
(i) The interest rate charged by SSBICs on loans to small businesses
may not exceed the greater of 19% per annum or 11% above the current
announced rate of the most recent sale of debentures by the SBIC funding
corporation.
(ii) The aggregate commitments by an SSBIC to any single small
business enterprise may not exceed 30% of the aggregate paid-in capital and
paid-in surplus of the SSBIC.
(iii) Management and advisory services must be performed by an SSBIC
in accordance with a written contract and certain record-keeping
requirements must be satisfied.
(iv) The term of SSBIC loans to small businesses may not exceed 20
years.
(v) Prior written consent of the SBA is required in the event of any
proposed transfer of control of an SSBIc and any proposed transfer of 10%
or more of any class of an SSBIC's stock ownership by any person or group
of persons acting in concert owning 10% or more of any class of an SSBICs
stock.
(vi) Limitations are imposed on the ability of the officers,
directors, managers or 10% stockholders of an SSBIC to become an officer,
director, manager of 10% stockholder of another SSBIC.
(vii) Prior written consent of the SBA is required in the event of a
merger, consolidation or reorganization of the SSBIC.
(viii) SSBIC funds in excess of $1,000 not invested or loaned to small
businesses and not applied to the conduct of its operations are required to
be deposited in, or invested in time deposits of, federally-insured banks.
An SSBIC may not control its investee companies except to the extent
temporarily required to protect its investment. Additionally, SBA regulations
require SSBICs to conduct active operations. An SSBIC is inactive and thus
violates SBA Regulations if at the close of any fiscal year it has more than 20%
of its assets in idle funds and if it has failed to provide financing
aggregating 20% of the average amount of its idle funds during the past eighteen
months. The SBA requires the SSBIC to submit written justification of such
inactivity.
As part of the regulatory framework, SSBICs are subject to examinations by
SBA agents at least once annually and are required to pay examination fees and
maintain certain records, files, internal control programs and reports.
Moreover, the SBA is authorized to suspend an SSBIC's license, issue cease and
desist orders, remove officers and directors of an SSBIC, subpoena witnesses and
records, apply for injunctions to the appropriate district court, and apply for
further acts of enforcement to the appropriate U.S. Circuit Court of Appeals.
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ITEM 2. FUNDAMENTAL POLICIES OF THE REGISTRANT
(a) Issuance of Senior Securities. United Capital Investment Corp. (the
"Company") is authorized by its Certificate of Incorporation to issue shares of
3% cumulative preferred stock, $1,000 par value (the "Class A Preferred Stock"),
4% cumulative Class preferred stock, $1,000 par value (the "Class B Preferred
Stock") and subordinated debentures to the Small Business Administration ("SBA")
pursuant to the applicable provisions of the Small Business Investment Act of
1958, as amended (the "1958 Act"), and the regulations promulgated thereunder.
As of December 31, 1996, the Company had repurchased its Class A Preferred Stock
through the SBA Repurchase Program. As of December 31, 1997, the Company had
issued 900 shares of its Class B Preferred Stock to the SBA for a total of
$900,000. The Company has issued ten-year subordinated debentures ("Subordinated
Debentures") to the SBA as follows:
<TABLE>
<CAPTION>
ANNUAL RATE OF INTEREST
--------------------------
PRINCIPAL AMOUNT DATE OF MATURITY 1ST 5 YEARS 2ND 5 YEARS
---------------- ------------------ ----------- -----------
<S> <C> <C> <C>
$400,000................................. September 1, 2001 5.33% 8.33%
$1,400,000............................... December 18, 2006 7.08% 7.08%
</TABLE>
The Company intends to issue preferred stock and subordinated debentures to the
SBA in the maximum amounts permissible under the 1958 Act and the applicable
regulations. The SBA's claims are subordinated only in favor of lenders not
Associated with the Company with respect to the Subordinated Debentures unless
the SBA otherwise consents to subordinate any of its claims in writing.
(b) Borrowing of Money. The Company is authorized by its Certificate of
Incorporation to borrow money and issue debenture bonds, promissory notes and
other obligations, subject to SBA regulatory limitations. The Company reserves
the right to borrow additional funds if determined by the Company's Board of
Directors to be in the best interests of the Company. The Company has the power
to borrow funds from banks, trust companies, other financial institutions, the
SBA or any successor agency and/or other private or governmental sources, if
determined by the Company's Board of Directors to be in the best interests of
the Company. As of December 31, 1998, the $350,000 line of credit with the Hong
Kong & Shanghai Banking Corporation was fully repaid to the bank.
(c) Underwriting. The Company has not engaged, and does not intend to
engage, in the business of underwriting the securities of other issuers.
(d) Concentration of Investments. The Company has engaged, and intends to
continue to engage, primarily in the business of financing the acquisition
and/or operation of a variety of retail businesses which include but are not
limited to restaurants, fast food operations, grocery stores, dry cleaners and
laundromats, import-export businesses, garage services and taxi cabs located
primarily in New York, New Jersey and Connecticut, by those persons defined by
SBA regulations as socially or economically disadvantaged persons or entities
which are at least 50% owned by persons so defined as socially or economically
disadvantaged. The Company will concentrate at least twenty-five percent (25%)
or more of the value of its assets in the following group of industries:
wholesale and retail trade; services; and manufacturing. No loans are to
businesses owned or controlled by affiliated or interested persons of the
Company as defined in Sections 2(a)(3) and (19) of the 1940 Act.
(e) Real Estate. The Company has not engaged, and does not intend to
engage, in the purchase and sale of real estate.
(f) Commodities Contracts. The Company has not engaged, and does not
intend to engage, in the purchase and sale of commodities or commodities
contracts.
(g) Loans. The Company has made, and will continue to make, loans to small
business concerns in accordance with the provisions of the 1958 Act and the
regulations issued by the SBA thereunder. Since obtaining its SBA license on
February 5, 1985, the Company had, as of December 31, 1999, made loans to small
business concerns in the aggregate principal amount of $18,731,701, of which
$2,486,133 was outstanding on December 31, 1999.
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A substantial portion of the Company's loans have been made in the past to
owners of wholesale and retail trade; services, and manufacturing businesses.
The Company currently anticipates that a substantial portion of its financing
operations will continue to be directed at purchasers or owners of wholesale and
retail trade; services,; and manufacturing businesses. The Company reserves the
right, subject to any limitations imposed by SBA regulations or the 1940 Act or
to shareholder approval of a change in what constitutes a fundamental policy of
the Company, if its Board of Directors deems it to be in the Company's best
interest, to make loans to and investments in any business that would be allowed
by applicable SBA regulations.
Loans made by the Company are subject to certain restrictions imposed by
the SBA as to interest rates (as described above ) and term (currently, no more
than 20 years). Reference is made to the discussion under the heading "SBA
Regulations, Item 1" for more detailed information in this regard. Generally,
such loans have been and will continue to be made to finance the acquisition and
operation of retail businesses, will be secured by fixtures, equipment, other
related assets, real estate (if available) and shares of stock of the borrower
(if available) and will in many cases be personally guaranteed by owners of the
company owning the retail business. As stated above, the Company may revise the
nature of its loan portfolio at such time as its Board of Directors determines,
in its sole discretion, that such revision is in the best interests of the
Company in light of then existing business and financial conditions. (No such
revision is currently contemplated.) The Company does not currently anticipate
that its loan portfolio will realize an annual turnover in excess of 50%. The
Company will not lend to, or otherwise invest more than, the lesser of (i) 10%
of its total assets, or (ii) 30% of its paid-in capital attributable to its
Common Stock, in any one small business concern. (See "SBA Regulations, Item 1")
The Company has not made, and is prohibited by applicable SBA regulations from
making, loans to officers, directors or principal stockholders of the Company or
"Associates" of the Company, as such term is defined in applicable SBA
Regulations.
The Company's currently outstanding loans represented loans made to finance
certain diversified businesses. The following table sets forth certain
diversified businesses. The following table sets forth a classification of the
Company's outstanding loans as of December 31, 1999:
UNITED CAPITAL INVESTMENT CORP.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ORIGINAL
OUTSTANDING NUMBER MATURITY BALANCE
TYPE OF LOAN OF LOANS INTEREST RATE DATE OUTSTANDING
------------ -------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Dry Cleaners............................. 11 10.00%-15.00% 4-12 years $ 893,439
Restaurants.............................. 11 12.50%-14.50% 4-10 years 635,378
Deli -- Grocery.......................... 7 9.50%-15.00% 4-10 years 302,597
Taxi Cabs................................ 3 8.75%-13.50% 4-15 years 111,576
Beauty Salons............................ 3 12.00%-15.00% 4-15 years 133,267
Manufacturers............................ 1 Prime +1.00% 15 years 97,005
Medical Clinics.......................... 4 11.50%-14.00% 4-6 years 67,709
Sporting Goods........................... 2 14.00%-15.00% 4 years 52,529
Herb Store............................... 2 9.00%-14.00% 4-5 years 159,658
Clothing Store........................... 1 13.50%-15.00% 5-8 years 18,261
Sporting Goods........................... 1 15.00% 4 years 17,143
Art Supplies............................. 2 14.50% 4-6 years 19,662
Bakery & Food............................ 1 9.00% 5 years 19,119
Manufacturing............................ 1 Prime 1.00% 15 years 58,308
Import -- Export......................... 1 12.00% 4 years 32,016
----------
49 $2,468,133
== ==========
</TABLE>
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The average loan made by the Company to finance the acquisition and/or
operation of retail or commercial businesses varies from 25% to 50% of the
market value of fixtures and related assets and, in certain cases, real estate
used to collateralize the loan. In many cases, the loans are also personally
guaranteed by the stockholders of the borrower. The balance of the acquisition
price of a retail or manufacturing business is typically financed through a
combination of loans secured by a second subordinated mortgage on real estate
and cash furnished by the owners. In many instances the Company has obtained a
relatively higher rate of interest in connection with these subordinated
financings. The Company has not committed more than 10% of its assets to any one
business concern. The interest rate charged by the Company on its currently
outstanding loans ranges from 8.75% to 15% per annum. For the month of December
31, 1999, the average annual unweighted rate per loan was 13%.
As an SSBIC, the Company is required by applicable SBA regulations to
submit to the SBA annual valuations of its investment portfolio, as determined
by its Board of Directors which considers numerous factors including but not
limited to financial strength of borrowers to determine "good" or "bad" status,
any fluctuations in interest rates to determine marketability of loans. The
Board of Directors has valued the investment portfolio based upon the cost of
such investments, less a provision for loan losses. The provision for loan
losses represents a good faith determination by the Board of Directors. In the
event the Company invests in the future in securities for which price quotations
are readily available, the Company will value such investments at their fair
market value, based on such quoted prices. With respect to securities for which
price quotations are not readily available, such securities will be valued at
fair value as determined by the Board of Directors.
In evaluating each applicant for a loan, the Company considers the
following factors: (1) the application (or fifty percent (50%) in interest of
the concern's principal owners) must be classified as a disadvantaged person
under SBA regulations, (2) the applicant must be credit-worthy (which normally
included an analysis of the income and assets of the borrower) as determined on
the basis of a standard credit check performed or commissioned by the Company,
and (3) the value and type of collateral proposed by the prospective borrower to
collateralize the loan.
The Company's current provision of $97,073 for depreciation on loan losses
is deemed sufficient.
SBICs, SSBICs, smaller banks and private lenders have traditionally
financed the acquisition and/or operation of small retail and manufacturing
businesses. The Company expects to continue to encounter substantial competition
from these concerns, many of which are well established and have resource which
far exceed those available to the Company.
ITEM 3. POLICIES WITH RESPECT TO SECURITY INVESTMENTS
(a) Types of Investments. The Company has been organized primarily to
provide long term loan funds to small business concerns, as described in item
2(g) above. The Company's Certificate of Incorporation provides the Company with
the authority to invest in the equity capital of small business concerns. The
Company will concentrate at least 20% of the value of its assets in the
following group of industries: wholesale and retail trade; services; and
manufacturing.
The Company has filed a Notice of Registration on Form N-8A with the
Securities and Exchange Commission ("SEC") on September 27, 1989 stating its
intention to qualify as a closed-end, non-diversified investment company as such
terms are defined in Section 5 of the Investment Company Act of 1940. The
Registration was declared effective on October 18, 1989 by the SEC.
(b) Maximum Investment. The Company will not lend or otherwise invest more
than the lesser of (i) 10% of its total assets or (ii) 30% of its paid-in
capital attributable to its Common Stock with respect to any one small business
concern.
(c) Percentage of Voting Securities. The percentage of voting securities
of any one small business concern which the Company may acquire may not exceed
49% of the outstanding voting securities of such small business, directly or
indirectly, if there are fewer than 50 shareholders, except as set forth in
paragraph (d) of this Item 3.
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(d) Management Control. The Company does not intend to invest in any
company for the purpose of exercising control of management. However, the
Company may elect to acquire control in order to protect any of its prior
investments which it considers at risk.
(e) Investment Companies. The Company intends to make changes in its
portfolio when, in the judgment of its Board of Directors, such changes will be
in the best interest of the Company's stockholders in light of the existing
business and financial conditions.
(f) Loan Portfolio Turnover. The Company does not anticipate that its loan
portfolio will realize an annual turnover in excess of 50%, although there can
be no assurance with respect thereto.
The policies set forth in response to this Item 3 constitute fundamental
policies of the Company which may be changed only by the vote of majority of its
outstanding voting securities.
ITEM 4. OWNERSHIP OF VOTING AND CONVERTIBLE SECURITIES OF OTHER ISSUERS
The Company does not own, control or hold the power to vote 5% or more of
the voting securities of any company, nor does it own securities of any company
which are convertible into voting securities of such company and which would,
upon such conversion, represent 5% or more of the voting securities of such
company. See paragraph (d) of item 3 above.
ITEM 5. SPECIAL TAX PROVISIONS APPLICABLE TO REGISTRANT
The following discussion is based on the currently existing provisions of
the Code and the currently existing regulations thereunder. No assurance can be
given that future legislation or administrative changes or court decisions will
not significantly modify the statements expressed herein. The following
discussion is only a general summary of some of the federal tax principles
applicable to the Company and to an investment in the Company's Common Stock,
and does not purport to be a complete description of the tax considerations
applicable to such investment. Prospective investors should consult their own
tax advisers with respect to the tax considerations which pertain to their
purchases of the Company Common Stock.
TAXATION OF A REGULATED INVESTMENT COMPANY
Under Section 851 of the Code, a domestic corporation which qualifies may
elect to be taxed as a regulated investment company. A regulated investment
company can generally avoid federal income taxation at the corporate level to
the extent its income is distributed to its stockholders, since it can deduct
most dividends paid. In order for the Company to qualify for the tax status of a
regulated investment company for a given fiscal year, it must meet each of the
following conditions for that fiscal year:
(a) The Company must elect to be treated as a regulated investment
company on its return for the current taxable year or must have made such
election in a prior taxable year.
(b) The Company must be registered as an investment company under the
1940 Act during the entire year.
(c) At least 90% of the Company's gross income for the year must be
derived from interest, gains on the sale or other disposition of stocks or
other securities, dividends, and payments with respect to securities loans.
(d) Less than 30% of the Company's gross income must be derived from
the sale or other disposition of securities held for less than three
months.
(e) At the close of each quarter, at least 50% of the value of the
Company's total assets must be represented by cash, cash items (including
receivables), government securities and securities of other regulated
investment companies. There are also limitations on the extent to which the
Company's holdings may be concentrated in the securities of a single
issuer.
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(f) The Company's deduction for dividends paid (as defined in the Code
equals or exceeds the sum of (i) 90% of its investment company taxable
income (as defined in the Code) and (ii) 90% of the excess of its
tax-exempt income over certain disallowed tax-exempt interest deductions.
A regulated investment company is subject to tax on its "investment company
taxable income", which is, in general, determined by excluding from its taxable
income any net capital gain and without allowing the deduction for net operating
losses and the dividend received deductions for corporations. A deduction for
dividends paid computed without regard to the capital gains dividend and exempt
interest is allowed. Also a tax at capital gains rates is imposed upon the
excess of net capital gain over the amount of the capital gains dividends paid
to shareholders during the year.
The Company is also subject to a non-deductible excise tax equal to four
percent (4%) of the excess, if any of the "required distributions" for each
calendar year over the "distributed amount" for such calendar year. For these
purposes, the term "required distribution" means, in general, the sum of (i) 98%
of the Company's ordinary income for the calendar year, and (ii) 98% of the
Company's capital gain for the 12-month period ending December 31 of the
calendar year (unless the Company elects to also use the calendar year for
purposes of computing its capital gain), plus an amount denominated as "prior
year shortfall". The term "distributed amount" means, in general, the deduction
for dividends paid for such calendar year plus the amount, if any, of corporate
tax payable by the Company.
The tax benefits available to a qualified regulated investment company are
prospective commencing with the fiscal year in which all the conditions listed
above are met, and would not permit the Company to avoid income tax at the
corporate level on income earned during prior taxable years.
If the Company fails to elect or fails to qualify as a regulated investment
company, the Company's earnings will generally be subject to corporate income
taxation, and distributions by the Company in the form of dividends will
generally be taxed as ordinary income to its shareholders to the extent of the
Company's current and accumulated earnings and profits.
TAXATION OF REGULATED INVESTMENT COMPANY SHAREHOLDER
A shareholder of a regulated investment company is taxable on the
distributions received from a regulated investment company. The portion of the
dividend that represents a capital gains distribution is reportable as long term
capital gains, regardless of how long the shareholder may have owned the stock.
Individuals' capital gains distributions are taxed at the individuals regular
rates, but subject to the maximum 28% rate; net long term capital gain received
by corporations are subject to regular corporate rates, but subject to maximum
rate of 35%. Long term capital gain distributions do not qualify for the
corporate dividends received by a corporate shareholder may qualify for the
dividends received deduction if regulated investment company designates the
amount distributed as an ordinary dividend, and the aggregate amount received
does not exceed the aggregate amount of dividends received by the regulated
investment company. In general, part of the ordinary income dividends received
by a regulated investment company will qualify for the dividend received
deductions available to corporate shareholders in the same ratio that the
regulated investment company's dividend income from domestic corporations for a
taxable year bears to its gross income for such year (excluding from the
Company's gross income gain from the sale or other disposition of stock or other
securities). The Company has and will only enter into transactions that will
result in interest income, and, therefore, it is unlikely that any part of the
ordinary dividends payable by the Company will qualify for the dividend received
deduction.
The Tax Reform Act of 1986 ("1986 Act") and subsequent statutory amendments
have significantly changed the Federal income tax system. The marginal Federal
income tax rate of individuals and other taxpayers were reduced thereby
decreasing the favorable capital gains treatment available upon the sale,
exchange or other taxable disposition of a capital assets. In addition, the
dividend exclusion available to individuals was eliminated and the dividend
received deduction available to corporations was reduced from 85% to 80% or 70%
of the dividends received.
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Under the Code, the miscellaneous itemized deductions of a taxpayer are
only allowed as a deduction to the extent that such miscellaneous itemized
deductions exceed two percent (2%) of the taxpayer's adjusted gross income. The
limit on such itemized deductions will apply to a shareholder of regulated
investment companies if such company is not a "publicly offered" regulated
investment company, in which case the shareholder is treated as if he had earned
his allocable share of the company's income and incurred his allocable share of
the expenses of the company directly. For this purpose, substantially all of the
expenses of the Company (compensation to employees, allocable office expenses,
management fees, etc.) will be treated as miscellaneous itemized deductions of
the shareholders.
TAX BENEFITS OF SSBICS
The Company and its shareholders should qualify for certain tax benefits
not ordinarily not available to corporations not licensed as SSBICs,
specifically:
1. Under Section 1243 of the Code, the Company would be entitled to an
ordinary loss (rather than capital loss) for losses sustained on stock
derived from the conversion of convertible debentures. Because the Company
does not presently intend to purchase convertible debentures, however, this
potential benefit is not likely to be of practical significance to
investors.
2. Under Section 1242 of the Code, the Company's shareholders would be
entitled to take a deduction for an ordinary loss rather than a capital
loss on losses resulting from the worthlessness or the sale or exchange of
the company's Common Stock. Shareholders may treat such losses as if they
were attributable to a trade or business of the Shareholder, thereby
enabling them to treat such losses as net operating losses. The
shareholders may also qualify for ordinary loss treatment under Section
1244 of the Code or losses arising from the sale, exchange or worthlessness
of shares.
ITEM 6. PENDING LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 7. SUMMARY OF EARNINGS
The following table sets forth certain financial information of the Company
for the fiscal years ended December 31, 1997, 1998 and 1999 and should be read
in conjunction with the more detailed financial information included herein. In
the opinion of the Company, all adjustments necessary to a fair presentation of
the results of the unaudited periods have been included:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Total Revenue........................................ 372,990 485,871 508,258
Interest Expense..................................... 146,000 165,081 164,292
Other Expense........................................ 273,194 274,470 263,835
Total Expense........................................ 419,194 439,551 428,127
Investment Income Before Taxes and Loan Loss
Reserve............................................ (46,204) 46,320 80,131
Unrealized Depreciation in Value of Investments...... 130,850 57,547 77,704
Provision (Benefit) for Income Taxes (State and
Federal)........................................... 680 625 688
Net Investment Income (Loss)......................... (177,734) (11,852) 1,739
Dividends on Preferred Stock to SBA Restricted....... -- -- --
Net Investment Income (Loss) Available to Common
Stock.............................................. -- -- 46,029
Earnings (Loss) per Share of Common Stock (after
payment of Preferred Stock dividend)............... (0.89) (0.06) 0.23
Dividends............................................ -- -- --
Shares of Common Stock Outstanding................... 199,000 199,000 199,000
</TABLE>
8
<PAGE> 11
ITEM 8. PERSONS IN CONTROL RELATIONSHIP WITH REGISTRANT
The following table sets forth certain information concerning the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME ADDRESS POSITION
---- ------------------------------------- ----------------------
<S> <C> <C>
Paul Lee......................... c/o United Capital Investment Corp. President and Director
60 East 42nd Street
New York, New York 10065
Linda Lee........................ c/o United Capital Investment Corp. Secretary
60 East 42nd Street
New York, New York 10065
Robert Lee....................... c/o United Capital Investment Corp. Vice President
60 East 42nd Street
New York, New York 10065
Simon Lai........................ c/o United Capital Investment Corp. Treasurer and Director
60 East 42nd Street
New York, New York 10065
Pei Chung Lee.................... c/o United Capital Investment Corp. Director
60 East 42nd Street
New York, New York 10065
Robert Hsieh..................... c/o United Capital Investment Corp. Director
60 East 42nd Street
New York, New York 10065
Chek Jun Chan.................... c/o United Capital Investment Corp. Director
60 East 42nd Street
New York, New York 10065
</TABLE>
PAUL LEE, 74, has been President and a Director of the Company since May
1984. From 1975 to April 1984, Mr. Lee served as President and Director of World
Wide Marine, Inc.
LINDA LEE, 64, was Vice President of the Company from May 1984 to 1996. Ms.
Lee is the wife of Paul Lee, President and a Director of the Company.
ROBERT LEE, 52, has been a Vice President of the Company since May 1984.
Mr. Lee resigned in April 19, 1991 but rejoined the Company on December 27,
1996. From September 1978 to May 1987, Mr. Lee was employed by Time, Inc. Mr.
Lee is the son of Pei Chung Lee, a Director of the Company.
SIMON LAI, 66, has been Treasurer and a Director of the Company since May
1984. From 1968 to the present, Mr. Lai has served as Director of General
Accounting for St. Luke's-Roosevelt Hospital Center located in New York, New
York.
PEI CHUNG LEE, 79, has been a Director of the Company since May 1984. From
1980 to the present, Mr. Lee has served as director for World International
Holdings Ltd. In addition, Mr. Lee has served as Vice Chairman for World Wide
Shipping Agency Ltd. from 1973 to 1994.
ROBERT HSIEH, 65, has been a Director of the Company since May 1984. From
1985 to 1995, he has served as President of Suntan Knitwear Inc. and from 1976
to 1985 he served as President of ATA Knit Inc.
CHEK JUN CHAN, 64, has been a Director of the Company since January 1989.
Mr. Chan is the Manager of the Accounting Department of World Wide Marine, Inc.
from 1970 to the present.
9
<PAGE> 12
ITEM 9. PERSONS OWNING EQUITY SECURITIES OF REGISTRANT
The following table sets forth certain information as to those persons who,
to the knowledge of the Company, owned beneficially 5% or more of the
outstanding Common Stock of the Company as of December 31, 1999, and as to the
officers and directors of the Company as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENTAGE AS OF
NAME AND ADDRESS OWNED DECEMBER 30, 1999
---------------- ------------------- -----------------
<S> <C> <C>
Paul Lee
c/o United Capital Inv. Corp.
60 East 42nd Street
New York, New York 10165........................ 68,250 34.30%
Pei Chung Lee
c/o United Capital Inv. Corp.
60 East 42nd Street
New York, New York 10165........................ 52,753 27.50%
Linda Lee
c/o United Capital Inv. Corp.
60 East 42nd Street
New York, New York 10165........................ 19,200 9.6%
Rita Lee
c/o United Capital Inv. Corp.
60 East 42nd Street
New York, New York 10165........................ 18,900 9.5%
Simon Lai
c/o United Capital Inv. Corp.
60 East 42nd Street
New York, New York 10165........................ 15,000 7.5%
James Yu
c/o United Capital Inv. Corp.
60 East 42nd Street
New York, New York 10165........................ 14,260 7.20%
All officers and directors as a group (7
persons)........................................ 157,243 79%
</TABLE>
ITEM 10. NUMBER OF HOLDERS OF EQUITY SECURITIES
The following table indicates the approximate number of holders of record
of each class of equity securities of the Company as of December 31, 1999:
<TABLE>
<CAPTION>
TITLE OF CLASS NUMBER OF HOLDERS
-------------- -----------------
<S> <C>
Common Stock........................................ 114
Class A Preferred Stock............................. 0
Class B Preferred Stock............................. 1
</TABLE>
ITEM 11. DIRECTORS AND EXECUTIVE OFFICERS
See Item 8 of this Registration Statement.
ITEM 12. MEMBERS OF ADVISORY BOARD OF REGISTRANT
The Company does not have an Advisory Board or similar board, other than
its Board of Directors.
10
<PAGE> 13
ITEM 13. REMUNERATION OF DIRECTORS, OFFICERS AND MEMBERS OF ADVISORY BOARD
The following table sets forth all remuneration for services rendered to
the Company during the year ended December 31, 1999, paid to or accrued for the
account of all executive officers as a group. Paul Lee received $82,000 in
salary in 1999 as president of the Company and Linda Lee received $65,000 in
salary in 1999 as Secretary of the Company.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR
NUMBER OF PERSONS IN GROUP SALARIES
-------------------------- --------
<S> <C>
All executive officers as a group(2).................... $147,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
By action of its Board of Directors, the Company has modified its by-laws
to provide indemnification to its past and present directors and officers as
follows:
The Company shall indemnify its past and present officers and directors
against reasonable expenses (including attorneys' fees) and, in non-derivative
suits, against judgments, fines, and amounts paid in settlement resulting from
any action or proceeding, whether civil or criminal, by reason of the fact of
such officership or directorship. Such indemnification is only available,
however, if the liability of such officer or director did not arise by reason of
the proposed indemnitee's willful malfeasance, bad faith, gross negligence or
reckless disregard of duties (such conduct to be referred to hereinafter as
"disabling conduct"). The proposed indemnitee shall be deemed to have not
engaged in disabling conduct if (a) a final decision on the merits is entered by
a court or other body before whom the proceeding is brought that the proposed
indemnitee was not liable by reason of disabling conduct (which shall be
understood to include the dismissal of an action or proceeding for insufficiency
of evidence of disabling conduct with which the proposed indemnitee is charged),
(b) in the absence of such a decision, a reasonable determination, based upon a
review of the facts, is made that the proposed indemnitee was not liable by
reason of disabling conduct by (i) the vote of a majority of a quorum of
directors who are neither "interested persons" (as defined in the 1940 Act) nor
parties to the proceeding ("independent directors") or (ii) independent legal
counsel in a written opinion. The Company may also advance attorneys' fees or
other expenses incurred by a proposed indemnitee (or another party on his
behalf) undertakes to repay the advance unless it is ultimately determined that
the is entitled to indemnification, and further provided, that (a) the proposed
indemnitee shall provide security for his undertaking, (b) the Company shall be
insured against losses arising by reason of lawful advances, or (c) a majority
of a quorum of independent directors, or independent legal counsel in a written
opinion, shall determine, based upon a review of readily available facts, that
there is reason to believe that the proposed indemnitee will ultimately be found
entitled to indemnification.
ITEM 15. CUSTODIANS OF PORTFOLIO SECURITIES
The Company acts as custodian for all securities held in its portfolio. As
such, the Company is subject to the "self-custodian" provisions of Rule 17f-2
under the 1940 Act. The Company maintains its securities at Chase Manhattan
Bank, 60 East 42nd, New York 10165 in a safe deposit box maintained by the
Company.
ITEM 16. INVESTMENT ADVISERS
Not applicable.
ITEM 17. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS AND THEIR
MANAGEMENT
Not applicable.
ITEM 18. INTERESTS OF AFFILIATED PERSONS IN CERTAIN TRANSACTIONS
The Board of Directors of the Company has adopted policies governing
potential conflicts of interest between the Company and its directors and
officers. Together, these policies comprise the Company's "Code
11
<PAGE> 14
of Ethics" as required under the 1940 Act. The Company complies with SBA
regulations prohibiting conflicts of interest in providing financings to
associated entities.
These policies generally provide that no officer, director or employee of
the Company will make any loan which might be deemed to be appropriate for the
Company, unless and until such transaction is first approved by a majority of
the directors of the Company who are not "interested persons" of the Company
within the meaning of the 1940 Act and who have no financial or other material
interest in the transaction. In reviewing any such transaction, the directors
will examine, among other factors, whether the transaction would deprive the
Company of an opportunity or whether it would otherwise conflict with the best
interests of the Company and its stockholders. A complete record of any such
review and the results of the review will be maintained by the Company as part
of its permanent records.
A copy of the Company's Code of Ethics has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part and the discussion
thereof in this Prospectus is qualified in its entirety by this reference
thereto.
See Item 13 of this Registration Statement.
ITEM 19. CAPITAL STOCK
The authorized capital stock of the Company consists of 1,000 shares of
Cumulative Class A Preferred Stock, $1,000 par value, 3,000 shares of Cumulative
Class B Preferred Stock, $1,000 par value, and 300,000 shares of Common Stock,
$.01 par value.
COMMON STOCK
Each share of Common Stock is entitled to one vote on all matters submitted
to a vote of stockholders. The Common Stock does not have cumulative voting
rights, which means that the holders of a majority of the outstanding share of
Common Stock may elect all of the Directors of the Company. The Common Stock
does not have any preemptive rights.
All shares of the Common Stock outstanding upon the completion of this
Offering, upon payment therefor, will be fully paid and non-assessable. Upon
liquidation, dissolution or winding up of the affairs of the Company, its assets
remaining after provision for payment of creditors would be distributed pro rata
among holders of the Common Stock.
Dividends may be paid to the holders of the Common Stock when and if
declared by the Board of Directors out of funds legally available therefor, but
only after the Company has paid all cumulated dividends then in arrears on its
Preferred Stock. In order to qualify as a "regulated investment company" for
federal income tax purposes, the Company is required to distribute annually as
dividends at least 90% of its taxable income, to the extent earned. As of
December 31, 1997, the Company had issued and outstanding 199,000 shares of
Common Stock. See "Item 5."
PREFERRED STOCK
Shares of Preferred Stock may be issued only to the SBA. Such shares are
nonvoting and dividends thereon are preferred and cumulative to the extent of 4%
of par value per annum for class B Preferred Stock. Since the Company, in order
to continue to qualify as a "regulated investment company", will be required to
make dividend distributions to its stockholders, the Company will be required to
pay the cumulative dividend on the Class B Preferred Stock on a current basis.
Prior to any liquidation or redemption or repurchase of Common Stock, the SBA,
as the holder of the Preferred Stock, will be entitled to the payment of the par
value of such shares, and to the payment of all cumulative dividends then in
arrears. The Company had dividends in arrears on its Class B Preferred Stock of
$144,000 as of December 31, 1999. As of December 31, 1999, the Company had
issued and outstanding 900 shares of Preferred Stock. Under the 1940 Act, the
Company is not permitted to issue any senior securities other than the Preferred
Stock and debentures.
12
<PAGE> 15
The following table sets forth the capitalization of the Company as of
December 31, 1999.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
-----------------
(UNAUDITED)
<S> <C>
Subordinated Debentures............................ $1,800,000
Class B Preferred Stock............................ 900,000
Common Stock....................................... 1,990
Total Capitalization and Additional................ 2,700,000
Class B Preferred Stock Net Assets Per Share of
Common Stock..................................... 9.14
Number of Shares of Common Stock Outstanding....... 199,000
</TABLE>
ITEM 20. LONG-TERM DEBT
In the past, the Company has sought, and will continue to seek, to obtain
financing from the SBA to the maximum extent permitted under the 1958 Act for
the MESBIC which loans funds to, but does not generally invest in, the equity of
small business concerns.
GENERAL
The SBA may purchase shares of cumulative preferred stock of an MESBIC for
cash up to an amount equal to the MESBICs aggregate paid-in capital and paid-in
surplus, net of organizational expenses and excluding any amounts paid by the
SBA. As required by statute, such preferred stock must be non-voting and must
yield preferred and cumulative dividends to the extent of 4% of par value per
share per annum. Because the Company, in order to preserve certain federal
income tax benefits available to it as a regulated investment company (see "Item
5"), will make distributions to its stockholders of at least 90% of its
investment company taxable income, the Company will be required to pay this 4%
dividend on a current basis. The amount of the dividends in arrears was $144,000
as of December 31, 1999 and will be paid from earnings before distribution of
dividends to shareholders.
The SBA may also purchase debentures issued by an SSBIC equal in value to
the lesser of $10 million or 200% of the SSBIC's aggregate paid-in capital and
paid-in surplus, net of organization and start-up expenses and excluding any
amounts paid by the SBA. As required by statute, such debentures may not be
issued for a term exceeding 15years and must bear an interest rate determined by
statute and described above under the heading "Item 1." The actual rate of
interest which will be borne by any debentures issued in the future will be
determined in accordance with the applicable statutes and will depend on
economic factors existing at the time the debentures are issued. The SBA's
policy is to purchase such debentures only after the MESBIC has committed and/or
invested 50% or more of its aggregate paid-in capital and paid-in surplus
(including the amount paid by the SBA for preferred stock) to loans for small
businesses, and only to the extent the SSBIC can demonstrate a need for
additional financing at that time. Although such debentures may be issued for a
term up to 15 years, the term of issuance is typically ten years.
PRIOR SBA FINANCING
The Company has been able to obtain substantial financing from the SBA
since its initial capitalization in 1985. As of December 31, 1999, the Company
had obtained $2,700,000 of SBA financing for which it was eligible on the basis
of its then existing paid-in capital. This SBA financing consisted of $900,000
received as payment for 900 Shares of the Company's Preferred Stock and
$1,800,000 received in exchange for Subordinated Debentures in such total
principal amount. See "Item 19."
ITEM 21. OTHER SECURITIES
The Company does not have authorized any security other than the capital
stock described in response to Item 19 above and the long-term debt described in
response to Item 20 above.
13
<PAGE> 16
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
----------------- ----
<S> <C>
Report of Independent Certified Public Accountants.......... 15
Statements of Assets and Liabilities of United Capital
Investment Corp. as at December 31, 1999 and 1998......... 16
Statements of Operations for the Years Ended December 31,
1999, 1998 and 1997....................................... 17
Statements of Cash Flow for the Years Ended December 31,
1999, 1998 and 1997....................................... 18
Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997.......................... 19
Notes to the Financial Statements........................... 20
Schedule-Investments........................................ 24
Information Per Share and Ratios............................ 25
</TABLE>
14
<PAGE> 17
MICHAEL C. FINKELSTEIN
CERTIFIED PUBLIC ACCOUNTANT
<TABLE>
<S> <C>
704 Ginesi Drive -- Suite 23 1370 Avenue of the Americas
Morganville, New Jersey 07751 New York, New York 10019
Tel. (732) 972-2700 Tel. (212) 689-4633
Fax. (732) 972-5001 Fax. (212) 664-1700
</TABLE>
Board of Directors
United Capital Investment Corp.
INDEPENDENT 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, 1999 and 1998 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. 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 $2,371,060 and $3,134,471 (130% and 154%
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,
1999 and 1998 and the results of its operation and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
Certified Public Accountants
February 16, 2000
New York, New York
15
<PAGE> 18
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Loans Receivable -- Long Term Portion (Note 2).............. $2,468,133 $3,172,951
Less: Unrealized Depreciation on Loans Receivable......... (97,073) (38,480)
---------- ----------
2,371,060 3,134,471
Less: Current Maturities -- Loans Receivable.............. 345,539 444,213
---------- ----------
Total Loans Receivable -- Net of Current
Maturities...................................... 2,025,521 2,690,258
---------- ----------
Current Assets:
Cash...................................................... 2,304,175 1,719,810
Accrued Interest Receivable............................... 34,915 22,381
Current Maturities -- Loans Receivable (Note 2)........... 345,539 444,213
Other Assets.............................................. 39,867 46,557
---------- ----------
Current Assets.................................... 2,724,496 2,232,961
---------- ----------
Total Assets...................................... $4,750,017 $4,923,219
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Long Term Debt:
Debenture Payable to SBA (Note 4)......................... $1,800,000 $1,800,000
Class B, 4% Cumulative, 15 Year Redeemable Preferred Stock
(Note 5)............................................... 900,000 900,000
---------- ----------
Total Long Term Debt.............................. 2,700,000 2,700,000
---------- ----------
Current Liabilities
Accrued Interest Payable.................................. 20,060 20,500
Other Current Liabilities................................. 66,714 61,742
Accrued SBA Dividends..................................... 144,000 108,000
---------- ----------
Total Current Liabilities......................... 230,774 190,242
---------- ----------
Total Liabilities................................. 2,930,774 2,890,242
---------- ----------
Commitments and Contingencies............................... -- --
Stockholders' Equity :(Notes 5, 6 and 8) Class A, 3%
Cumulative Preferred Stock, $1,000 Par Value; 1,000 Shares
Authorized................................................ -- --
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.......................................... -- --
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........................................... (249,240) (35,506)
---------- ----------
Total Stockholders' Equity........................ 1,819,243 2,032,977
---------- ----------
Total Liabilities and Stockholders' Equity........ $4,750,017 $4,923,219
========== ==========
</TABLE>
See Notes to the Financial Statement
16
<PAGE> 19
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Revenue:
Interest Earned on Outstanding Receivables.............. $ 273,992 $402,694 $409,898
Interest Income on Idle Funds........................... 89,499 72,110 82,833
Other Income............................................ 9,499 11,067 15,527
--------- -------- --------
Total Revenue................................... 372,990 485,871 508,258
--------- -------- --------
Expenses:
Interest................................................ 146,000 165,081 164,292
Officers Salaries....................................... 147,000 154,000 140,004
Professional Fees....................................... 46,215 39,833 30,393
Insurance Expense....................................... 7,104 5,550 21,644
Pension Expense......................................... 15,075 15,700 14,000
Payroll and Other Taxes................................. 10,904 11,348 10,469
Depreciation and Amortization........................... 6,690 6,920 6,921
Other Operating Expenses................................ 40,206 41,119 40,404
--------- -------- --------
Total Expenses.................................. 419,194 439,551 428,127
--------- -------- --------
Net Investment Income..................................... (46,204) 46,320 80,131
Unrealized Depreciation in Value of Investments and Bad
Debt Write-Off.......................................... 130,850 57,547 77,704
--------- -------- --------
Net (Loss) Income Before Taxes............................ (177,054) (11,227) 2,427
Provision for Taxes....................................... 680 625 688
--------- -------- --------
Net (Loss) Income............................... $(177,734) $(11,852) $ 1,739
========= ======== ========
(Loss) Earnings Per Common Share (Note 2)................. $ (.89) $ (.06) $ .01
========= ======== ========
Actual Dividends Paid Per Common Share.................... $ -- $ -- $ --
========= ======== ========
Common Stock Outstanding.................................. 199,000 199,000 199,000
========= ======== ========
</TABLE>
See Notes to the Financial Statements
17
<PAGE> 20
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net Income (Loss)................................... $ (177,734) $ (11,852) $ 1,739
Depreciation and Amortization....................... 6,690 6,920 6,921
(Increase) Decrease in Accrued Interest............. (12,533) 8,319 (3,013)
Increase in Accrued Liabilities..................... 4,531 58,643 22,252
Unrealized Depreciation in Value of Investments..... 130,850 21,548 77,704
Dividends Paid and Accrued.......................... (36,000) (36,000) (36,000)
---------- ---------- -----------
Net Cash Provided (Used) by Operating Activities...... (84,196) 47,578 69,603
---------- ---------- -----------
Cash Flows from Investing Activities:
Loans Receivable Originated......................... (330,000) (544,524) (1,458,280)
Repayment of Loans Receivable....................... 962,561 972,343 1,423,736
---------- ---------- -----------
Net Cash Provided (Used) by Investing Activities...... 632,561 427,819 (34,544)
---------- ---------- -----------
Cash Flow From Financing Activities:
Amortization of Restricted Capital.................. -- (96,791) (127,548)
Increase in Additional Paid in Capital.............. -- 96,791 127,548
Increase (Decrease) in Accrued SBA Dividends........ 36,000 36,000 36,000
Decrease in Loans Payable -- Bank................... -- (350,000) --
---------- ---------- -----------
Net Cash (Used) Provided by Financing Activities...... 36,000 (314,000) 36,000
---------- ---------- -----------
Net Increase in Cash.................................. 584,365 161,397 71,059
Cash Balance -- Beginning of Year..................... 1,719,810 1,558,413 1,487,354
---------- ---------- -----------
Cash Balance -- End of Period......................... $2,304,175 $1,719,810 $ 1,558,413
========== ========== ===========
Supplemental Disclosures of Cash Flow Information Cash
Paid During the Year For:
Interest............................................ $ 146,440 $ 168,309 $ 158,471
========== ========== ===========
Taxes............................................... $ 680 $ 625 $ 688
========== ========== ===========
</TABLE>
See Notes to the Financial Statement
18
<PAGE> 21
UNITED CAPITAL INVESTMENT CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1999 1997 1996
---------- ---------- ----------
<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...... 2,066,493 1,969,702 1,842,154
Amortization of Restricted Capital..................... -- 96,791 127,548
---------- ---------- ----------
Additional Paid in Capital -- End of Period............ 2,066,493 2,066,493 1,969,702
---------- ---------- ----------
Restricted Capital
Balance -- Beginning of Period....................... -- 96,791 224,339
Amortization of Restricted Capital................... -- (96,791) (127,548)
---------- ---------- ----------
Balance -- End of Period............................. -- -- 96,791
---------- ---------- ----------
Retained Earnings
Balance, Beginning of Period......................... (35,506) 12,346 46,607
Net Income (Loss).................................... (177,734) (11,852) 1,739
Less: Dividends Paid and Accrued to the SBA.......... (36,000) (36,000) (36,000)
---------- ---------- ----------
Balance End of Period................................ (249,240) (35,506) 12,346
---------- ---------- ----------
Total Stockholders' Equity........................... $1,819,243 $2,032,977 $2,080,829
========== ========== ==========
</TABLE>
See Notes to The Financial Statements
19
<PAGE> 22
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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 December 31, 1999, 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 $97,073 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, 1999, 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.
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 $15,075 and $15,700 was included for
the years ended December 31, 1999 and 1998, respectively.
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<PAGE> 23
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Tax provisions for the various periods were as follows:
<TABLE>
<S> <C>
December 31, 1999........................................... $680
December 31, 1998........................................... $625
December 31, 1997........................................... $688
</TABLE>
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, 1999. 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 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.
During December 1998 the Company paid off the entire balance of the line of
credit totaling $350,000 and reduced the total available line of credit to
$150,000.
<TABLE>
<CAPTION>
MAXIMUM AVERAGE
WEIGHTED AMOUNT AMOUNT
BALANCE AVERAGE OUTSTANDING OUTSTANDING
END OF INTEREST DURING DURING
DATE PERIOD RATE PERIOD PERIOD
---- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1999................................ -- -- -- --
December 31, 1998................................ -- 4.875% 350,000 320,833
</TABLE>
NOTE 4 LONG TERM DEBT -- SBA SUBORDINATED DEBENTURES
As of December 31, 1998 and 1997, long term debt to the Small Business
Administration consisted of the following subordinated debentures:
<TABLE>
<CAPTION>
FIRST SECOND
----- ------
DUE DATE FIVE YEARS PRINCIPAL AMOUNT
-------- --------------- ----------------
<S> <C> <C> <C>
September 1, 2001.................................... 5.33% 8.33% $ 400,000
December 18, 2006.................................... 7.08% 7.08% 1,400,000
----------
$1,800,000
==========
</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. 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.
21
<PAGE> 24
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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, 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 December 31, 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 December 31, 1999, the Company was
contingently liable to the SBA on the 4 percent redeemable preferred stock from
January 1, 1996 to December 31, 1999 in the amount of $144,000.
NOTE 7 LEASE AGREEMENT
Minimum rental commitments under operating leases in effect as of December
31, 1999 are as follows:
Rental expense for the current period was $16,789. The lease expires on
April 30, 2000, and calls for minimum annual rental costs of $13,860.
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. 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 was 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. As of December 31, 1999 the restricted capital account has been fully
amortized.
22
<PAGE> 25
UNITED CAPITAL INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 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 $147,000, $154,000 and $140,004 for 1999, 1998 and 1997,
respectively.
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 maintained an aggregate of approximately $2,103,660 in various
banks in excess of amounts that would be insured by the Federal Depository
Insurance Company.
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 six percent (36%) of the Company's loan portfolio
consists of loans made for the financing and purchase of Dry Cleaners and
related equipment.
23
<PAGE> 26
UNITED CAPITAL INVESTMENT CORP.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ORIGINAL
OUTSTANDING NUMBER MATURITY BALANCE
TYPE OF LOAN OF LOANS INTEREST RATE DATE OUTSTANDING
------------ -------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Dry Cleaners............................. 11 10.00%-15.00% 4-12 years $ 893,439
Restaurant............................... 11 12.50%-14.50% 4-10 years 635,378
Deli -- Grocery.......................... 7 9.50%-15.00% 4-10 years 302,597
Taxi Cabs................................ 3 8.75%-13.50% 4-15 years 111,576
Medical Clinic........................... 4 11.50%-14.00% 4-6 years 67,709
Beauty Salons............................ 3 12.00%-15.00% 4-15 years 133,267
Herb Store............................... 2 9.00%-14.00% 4-5 years 159,658
Clothing................................. 1 13.50%-15.00% 5-8 years 18,261
Sporting Goods........................... 1 15.00% 4 years 17,143
Art Supplies............................. 2 14.50% 4-6 years 19,662
Food & Bakery............................ 1 9.00% 5 years 19,119
Manufacturing............................ 1 Prime + 1.00% 15 years 58,308
Import -- Export......................... 1 12.00% 4 years 32,016
-- ----------
49 $2,468,133
== ==========
</TABLE>
24
<PAGE> 27
UNITED CAPITAL INVESTMENT CORP.
SUPPLEMENTARY INFORMATION
PER SHARE DATA AND RATIOS
FOR THE FIVE YEARS ENDED
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Investment Income............................. $ 1.87 $ 2.45 $ 2.55 $ 2.15 $ 2.36
Investment Expenses........................... (2.11) (2.22) (2.15) (1.91) (1.84)
------ ------ ------ ------ ------
Net Investment Income....................... (.24) .23 .40 .24 .52
Net Realized and Unrealized Gains and Losses
on Securities............................... (.66) (.28) (.39) -- --
Dividends..................................... (.18) (.18) (.18) .44) (.17)
------ ------ ------ ------ ------
Net Increase/Decrease in Net Asset Value...... (1.08) (.23) (.17) (.20) .35
Net Asset Value -- Beginning of Period........ $10.22 $10.45 $10.62 $10.82 $10.47
------ ------ ------ ------ ------
Net Asset Value -- End of Year................ $ 9.14 $10.22 $10.45 $10.62 $10.82
====== ====== ====== ====== ======
RATIOS
Ratio of Expenses to Average Net Assets....... 21.7% 21.8% 20.4% 17.9% 17.2%
====== ====== ====== ====== ======
Ratio of Net Investment Income to Average Net
Assets...................................... (2.4%) 2.3% 3.8% 2.2% 4.9%
====== ====== ====== ====== ======
</TABLE>
25
<PAGE> 28
The Shareholders and Board of Directors
United Capital Investment Corp.
We have examined the financial statements of United Capital Investment
Corp. for the year ended December 31, 1999, and have issued our report thereon
dated February 16, 1999. As part of our examination, we made a study and
evaluation of the Company's system of internal accounting control (which
includes the procedures for safeguarding securities) to the extent we considered
necessary to evaluate the system as required by generally accepted auditing
standards. The purpose of our study and evaluation was to determine the nature,
timing, and extent of the auditing procedures necessary for expressing an
opinion on the Company's financial statements. Our study and evaluation was more
limited than would be necessary to express an opinion on the system of internal
accounting control taken as a whole.
The management of United Capital Investment Corp. is responsible for
establishing and maintaining a system of internal accounting control. In
fulfilling this responsibility, estimates and judgments by management are
required to assess the expected benefits and related costs of control
procedures. The objectives of a system are to provide management with
reasonable, but not absolute, assurance that assets are safeguarded against loss
from unauthorized use or disposition and transactions are executed in accordance
with management's authorization and recorded properly to permit preparation of
financial statements in conformity with generally accepted accounting
principles.
Because of inherent limitations in any system of internal accounting
control, errors or irregularities may occur and may not be detected. Also,
projection of any evaluation of the system to future periods is subject to the
risk that procedures may become inadequate because of changes in conditions or
that the degree of compliance with the procedures may deteriorate.
Our study and evaluation, made for the limited purpose described in the
first paragraph, would not necessarily disclose all material weaknesses in the
system that may have existed as of December 31, 1999. Accordingly, we do not
express an opinion on the system of internal accounting control of United
Capital Investment Corp. taken as a whole. However, our study and evaluation
disclosed no condition that we believed to be a material weakness as of December
31, 1999.
This report is intended solely for the use of management and the SEC, and
should not be used for any other purpose.
Michael C. Finkelstein, CPA
New York, New York
February 16, 1999
26
<PAGE> 29
PART III. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Part I.
(b) Exhibits:
(1) Certificates of Incorporation, as amended(i)
(2) By-laws(i)
(3) Shareholder Agreement, as amended(i)
(4) Safe Box Agreement(i)
(5) Pension Plan and Profit Sharing Plans(i)
(6) SBA License(i)
---------------
(i) Incorporated by reference to Amendment No. 3 N-5 Registration Statement
dated May 1997
27
<PAGE> 30
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Amendment No. 5 to its Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, and the State of New York on 18th day of October, 2000
UNITED CAPITAL INVESTMENTS CORP.
By: /s/ PAUL LEE
------------------------------------
Paul Lee
President
28
