UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File No 333-27037
UNITED FINANCIAL MORTGAGE CORP.
(Exact name of small business issuer as specified in its
charter)
ILLINOIS 36-3440533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Enterprise Drive,
Suite 206
Oak Brook, Illinois 60523
Issuer's telephone number: (630) 571-7222
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
Common Stock The Chicago Stock Exchange
Securities to be registered under Section 12(g) of the Act:
None
(Title of Class)
Check whether the issuer (1) filed all reports required to be
filed by section 13 or 15(d)of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was Required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 Days.
Yes ____X____ No _________
State the Number of shares outstanding of each of the issuer's
commo equity as of the last practicable date:
Oustanding
Class September 11, 1998
Common Stock, No Par Value 3,900,029
Transitional Small Business Disclosure Format (check one)
Yes ________ No ____X____
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
QUARTERLY REPORT ON FORM 10-QSB
QUARTER ENDED JULY 31, 1998
TABLE OF CONTENTS
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets (Unaudited) July 31, 1998 and July 31, 1997 3
Statement of Operations (Unaudited) - three months
Ended July 31, 1998 and 1997 5
Statement of Stockholder's Equity (Unaudited) - three
Months ended July 31, 1998 and 1997 6
Statements of Cash Flows (Unaudited) - three months
Ended July 31, 1998 and 1997 7
Notes to Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Part II OTHER INFORMATION 18
EXHIBITS 20
SIGNATURES 21
<PAGE>
<TABLE>
United Financial Mortgage Corporation
Balance Sheet
Three Months Ended Three Months Ended
July 31, 1997 July 31, 1998
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 2,105,631 $ 4,466,439
Loans Held For Sale 13,570,784 20,027,262
Mortgage Loan Investments 505,860 1,389,909
Accounts Receivable 94,894 130,242
Due From Employees 77,362 18,868
Due from Officers 45,134 67,516
Deferred Tax Asset 45,763 4,169
U.S. Savings Bond 2,000 2,000
Notes Receivable 102,450 216,000
Prepaid Expense 0 77,408
Total Current Assets 16,549,878 26,399,813
Furniture, Fixtures & Equipment
Cost 307,764 417,631
Accumulated Depreciation (165,316) (212,663)
Net Furniture, Fixtures
& Equipment 142,448 204,698
Other Assets:
Servicing Rights 0 73,475
Land Investments 0 0
Escrow Deposits 49,519 3,377
Deferred Organization Costs 105,083 0
Security Deposits 6,143 13,740
Deferred Advisor Fees 351,000 195,000
Investments 5,750 5,750
Total Other Assets 517,495 291,342
Total Assets 17,209,821 26,895,853
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corporation
Balance Sheet
Three Months Ended Three Months Ended
July 31, 1997 July 31, 1998
<S> <C> <C>
LIABILITES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts Payable $ 255,001 $ 191,699
Deferred Income 0 0
Accrued Expenses 139,157 174,920
Taxes Payable 1,019 0
Deferred Income Taxes 0 0
Escrow Payable 49,519 3,377
Notes Payable _ Current 13,832,485 20,242,662
Total Current Liabilities 14,277,181 20,612,658
Non-Current Notes Payable 334,734 23,064
Total Liabilities 14,611,555 20,635,722
Stockholders' Equity
Common Shares, 20,000,000
Authorized, No Par Value,
Shares Issued and Outstanding;
3,100,029 at July 31, 1997 and
3,900,029 at July 31, 1998. 2,382,895 6,536,403
Preferred Shares, 5,000,000
authorized, No Par Value,
213 Series A Redeemable Shares
Issued And Outstanding at July
31, 1997 and 63 Issued And
Outstanding at July 31, 1998. 1,065,000 315,000
Retained Earnings (849,629) (591,272)
Total Stockholders Equity 2,598,266 6,260,131
Total Liabilities Plus
Stockholders Equity 17,209,821 26,895,853
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corporation
Condensed Statement of Income
(Unaudited)
Three Months Ended Three Months Ended
July 31, 1997 July 31, 1998
<S> <C> <C>
Revenues:
Commissions and Fees $ 1,422,145 $ 2,249,771
Interest Income 99,098 369,532
Other Income and Expenses 0 18,683)
Total Revenues 1,521,243 2,600,620
Expenses:
Salaries & Commissions 957,189 1,546,801
Selling & Administrative 380,297 642,364
Depreciation 10,638 12,180
Interest Expense 174,009 324,737
Cost and Expense of Litigation 5,944 62,944
Total Expenses 1,528,077 2,589,026
Income (loss) Before Income Taxes 6,834) 11,594
Income Tax Provision 0 1,500
Net Income (loss) 6,834) 10,094
Less Dividends Paid on Preferred Stock 0 0
Net Income(loss) Applicable to
Common Shareholders (6,834) 10,094
Basic Net Income (loss)
Per Common Share (0.0022) 0.0027
Diluted Net Income(loss)
Per Common Share (0.0020) 0.0026
Shares used in computation of basic
Net Income Per Share 3,100,029 3,606,696
Shares used in computation of diluted
Net Income Per Share 3,342,029 3,848,696
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corporation
Statement of Stockholders Equity
Common Retained
Stock Earnings Total
<S> <C> <C> <C>
Balance, April 30, 1996 1,895,395 (187,919) 1,707,476
Issuance of 55,555 shares upon conversion
of 1995 Bridge Financing Debentures 275,000
Issuance of 42,500 shares in connection
with 1996 Financing 212,500
Net Loss for the year (654,876)
Balance, April 30, 1997 2,382,895 (842,795) 1,540,100
Net Income for the year end
April 30, 1998 241,429
Balance, April 30, 1998 2,382,895 (601,366) 1,781,529
Issuance of 800,000 shares in
Public Offering Net 4,153,508
Net Income for the period
ended July 31, 1998 10,094
Balance, July 31, 1998 6,536,403 (591,272) 5,945,131
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corporation
Statement of Cash Flows
(Unaudited)
Three Months Ended Three Months Ended
July 31, 1997 July 31, 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income or (Loss) $ (6,834) $ 10,094
Adjustments to Reconcile
Net Income To Net Cash
Provided by Operating
Activities 10,638 12,180
Depreciation
Changes In:
Prepaids & Other
Current Assets (47,521) (119,164)
Accrued Expenses & Other
Current Liabilities 28,086 (2,553)
Accounts Payable 75,018 (15,763)
Deposits (25,453) 2,261
NET CASH PROVIDED BY OPERATING
ACTIVITIES 33,934 (112,945)
CASH FLOWS FROM INVESTING ACTIVITIES
Land Sales 0 303,250
Purchase of Fixed Assets 1,006 (74,590)
Servicing Rights 0 811
Investments (5,750) 0
NET CASH PROVIDED FROM INVESTING
ACTIVITIES (4,744) 229,471
CASH FLOWS FROM FINANCING ACTIVITIES
Notes Receivable 9,313 (74,122)
Changes in Short Term Debt 0 9,135
Changes in Long Term Debt 36,342 401,936)
Officers Loans (10,107) 2,643)
Deferred Advisor Fees 39,000 39,000
Deferred Offering Expenses (10,850) 143,425
Preferred Stock Liquidation 0 750,000)
Common Stock Proceeds _ Net 0 4,153,508
Mortgage Loans Made (420,031) 6,824,748)
Changes in Bank Line of Credit 414,563 6,084,283
CASH PROVIDED (USED) BY FINANCING _____________ ______________
ACTIVITIES 58,230 2,375,902
INCREASE (DECREASE) IN CASH 87,420 2,492,428
Cash at Beginning of Period 2,018,211 1,974,011
Cash at End of Period 2,105,631 4,466,439
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
Notes to Financial Statements
July 31, 1998
(Unaudited)
Interim Financial Data
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form
10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction
with the Company's Annual Report on Form 10-KSB for the fiscal year
ended April 30, 1998. In the opinion of management, all adjustments
(consisting only of adjustments of a normal and recurring nature)
considered necessary for a fair presentation of the results of
operations have been included. Operating results for the three
month period ended July 31, 1998 are not necessarily indicative of the
results that might be expected for the year ended April 30, 1998.
Organization and Business of the Company
United Financial Mortgage Corp. is an Illinois corporation
organized on April 30, 1986 to engage in the residential mortgage banking
business. The Company is a licensed mortgage banker in the states of
Illinois, Wisconsin, Missouri, Arkansas, California,Colorado, Connecticut,
Delaware, Florida, Kentucky, Maryland, Nevada, North Carolina, Oregon,
South Carolina, Texas, Utah, Virginia, Washington and Indiana. The
Company is an approved mortgagee by the Department of Housing and Urban
Development and is qualified to originate mortgage loans insured by the
Federal Housing Administration as well as service loans for the Federal
National Mortgage Association and the Federal Home Loan Mortgage
Corporation.
Reverse Share Split
In 1995, the Company's shareholders approved a reverse split
of the Company's common shares pursuant to which each three
outstanding common shares became two common shares. The reverse split
was effective May 9, 1995. The accompanying financial statements
reflect this reverse split as of May 1, 1995.
Summary of Significant Accounting Policies
Net Income(Loss) Per Share
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share." SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Earnings per share amounts
for all periods have been presented and, where appropriate, restated
to conform to SFAS No. 128 requirements.
Use of Estimates
The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
Revenue Recognition
Revenue is recognized when loans are sold after closings.
Interest income from mortgages held by the Company and from short
term cash investments is recognized as earned.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
Commissions and Fees
Commissions and fees principally consist of premiums received
from purchasers of mortgage loans originated by the Company.
Gains (losses) from purchasing, selling, investing in or otherwise
trading in closed mortgage loans are an immaterial portion of the
Company's revenues and are included in the Statement of Income under the
item entitled Revenues: Commissions and Fees.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term
investments with original maturity of three months or less.
Accounts Receivable
Accounts receivable consist of advances made in connection with
loan origination activities.
Concentration of Credit Risk
Credit risk with respect to mortgage loan receivables and
accounts receivable is generally diversified due to the large
number of customers and the timely sale of the loans to investors,
usually within one (1) month. The Company performs extensive credit
investigation and verification procedures on loan applicants
before loans are approved and funds disbursed. In addition, each loan
is secured by the underlying real estate property. As a result, the
Company has not deemed it necessary to provide reserves for the
ultimate realization of the mortgage loan receivable.
Fixed Assets
Fixed assets consist of furniture, fixtures, equipment and
leasehold improvements and are recorded at cost and are depreciated
using the straight line method over their estimated useful lives.
Furniture, fixtures and equipment are depreciated over 5-7 years and
leasehold improvements over the shorter of the lease term or the
estimated useful life of the asset. Upon asset retirement or
other disposition, cost and the related allowance for depreciation are
removed from the accounts, and gain or loss is included in the
statement of income. Amounts expended as repairs and maintenance
are charged to operations.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments,
including cash and cash equivalents, mortgage receivables,
accounts receivables, accounts payable and notes payable, as reported in
the accompanying balance sheet, approximates fair value.
Income Taxes
The Company accounts for income taxes using the liability
method in accordance with SFAS No. 109., "Accounting for Income Taxes."
The liability method provides that deferred tax assets and liabilities
are determined based on differences between financial reporting and
tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
Notes Payable
The Company has mortgage warehouse credit facilities aggregating
$22.5 million with several commercial banks and other financial
institutions. These credit facilities are used to fund approved
mortgage loans and are collateralized by mortgage loans. The Company
is not required to maintain compensating balances.
Amounts outstanding under the various credit facilities
consist of the following:
July 31, 1998
$20 million mortgage warehouse credit facility
at a commercial bank; interest at prime; less
.75 percent expires 10/28/98 $ 19,708,909
$1.5 million mortgage warehouse credit facility
at a commercial bank; interest at prime; expired 2/14/98 239,532
The Company is currently in negotiations with the
lender and anticipates renewal of this facility.
$1 million mortgage warehouse credit facility at a
commercial bank; interest at prime; expires 10/28/98 285,086
Total $ 20,233,527
Convertible Debentures
In connection with a 1996 bridge financing during the period
from November, 1996 to March, 1997, the Company issued $425,000 of
convertible debentures with an interest rate of 10% and a maturity of
one year. The debentures were to be redeemed upon the completion of
an initial public offering before maturity. If not repaid by
maturity, the debentures were to convert to 85,000 shares of Common
Stock. The automatic conversion of the debentures was extended
until July of 1998. In July, the debentures were redeemed plus accrued
interest.
Lease Commitments
The Company conducts its operations from leased premises and with
equipment under several operating leases. Total rent expense under these
leases was approximately $74,301 for the three months ended July 31, 1998.
Future minimum rental payments for the next five years at
July 31, 1998 are as follows:
Period Ending July 31, Operating Leases
1999 $ 209,716
2000 123,613
2001 96,547
2002 94,821
2003 74,136
2004 9,900
Total Commitment $ 608,733
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
Income Taxes
The income tax provision consists of the following for the
period ended July 31:
1997 1998
Current:
Federal $ 0 $ 1,000
State 0 500
Deferred:
Federal $ 0 0
State 0 0
Total $ 0 $ 1,500
The components of the deferred tax asset (liability) are as
follows for the periods ending July 31:
1997 1998
Loss Carry-Forward $(148,564) $ 0
Accelerated depreciation 12,099 18,000
Deferred Receivables 3,368 275,000
Deferred Tax Asset (Liability) 133,097 293,000
Valuation Allowance (87,334) (288,831)
Net Deferred Tax Asset
(Liability) $ 45,763 $ 4,169
The effective tax rate for the three month periods ended July
31, 1997 and July 31, 1998 differ from the statutory Federal tax
rate of 34% due to valuation reserves on the recording tax loss
carry-forwards.
Recent Financing
1994 Private Placement
In November, 1994 the Company sold 220,000 shares of Common
Stock for an aggregate price of $2.25 per share. The net proceeds
from this financing were applied in part to offer purchasers in the
1993 Private Placement the option of selling back some or all of
their shares to the Company at the original subscription price, plus
annual compounded interest of 10% for the period held. The Company
repurchased 73,461 shares for an aggregate price of $126,371 in year
ending April 30, 1996.
In connection with the placement, the placement agent was issued,
for nominal consideration, warrants to purchase 22,000 shares of the
Company's Common Stock at an exercise price of $1.65 per share. The
warrants were exercisable for a period of five years, subject to customary
anti-dilution provisions and contain certain registration rights.
The holders of shares purchased in the 1993 Private Placement have
fully exercised their one-time right to sell their shares back to the
Company and there are no additional repurchase requirements by the
Company.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
1995 Bridge Financing
In May, 1995, the Company sold two and one-half (2-1/2) units
of a bridge financing with aggregate proceeds to the Company of
$250,000. Each unit consisted of a convertible debenture with face
value of $100,000 and 22,000 shares of Common Stock. The debentures
carried an interest rate of 10% and matured in 12 months and were to
be paid upon the effectiveness of a registration statement. If not
paid by maturity, the debentures were convertible, in the aggregate,
into 55,555 shares of Common Stock. The conversion shares were
granted certain registration rights. For accounting purposes, the
shares issued as a component of the unit were recorded at $4.50 per
share, the conversion price for the debentures. This resulted in a
like amount recorded as discount on the debentures. The discount
was amortized as interest expense over the life of the debentures.
These bonds have been converted.
The Company has reserved 110,000 shares of Common Stock for
the conversion of the debentures.
As of April 30, 1997, seventeen (17) units had been sold for
aggregate gross proceeds of $425,000. Debentures totaling $425,000
and 42,500 shares of Common Stock were issued in conjunction with the
sales. These debentures plus interest were paid off during the
quarter ended July 31, 1998.
Initial Public Offering
On May 26, 1998, the Company commenced an initial public
offering of 800,000 shares of its common stock at a price of $6.50
per share. The company granted the underwriters a 45 day option to
purchase up to an additional 120,000 shares of common stock to cover
over-allotments. The underwriters did not acquire any additional
shares of common stock pursuant to the over allotment option. The
net proceeds to the Company from the offering, were $4,158,507. The
Company intends to use the net proceeds for capital expenditures,
sales, and marketing, expansion of internal operations and working
capital and general corporate purposes.
Series A Preferred Stock
The Series A Preferred Stock is non-voting, nonparticipating and
has a liquidation preference upon dissolution of the Company of
$5,000 per share. The holders of the Preferred Stock are entitled
to a variable dividend only at the discretion of and determination by
the Board of Directors. No dividends were declared for the years
ended April 30, 1997 and 1998.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
Stockholders' Equity
Warrants
At April 30, 1998, the Company had total warrants outstanding to
purchase 242,000 shares of the Company's Common Stock. The exercise
price of the warrants range between $0.50 and $4.505 per share.
Warrants for 47,000 shares expire on the fifth anniversary of their
issuance. Warrants for 195,000 shares expire on April 30, 1999.
In certain circumstances, the warrants have certain _piggy back_ or
other registration rights. At January 31, 1998, all warrants
outstanding were exercisable.
As of November 15, 1995, an advisor to the Company was issued
warrants to purchase 195,000 shares of the Company's Common Stock at
an exercise price of $0.50 per share. The warrants are exercisable
until April 30, 1999 and contain certain registration rights.
The Company has reserved 242,000 common shares for issuance
upon exercise of all warrants.
Stock Option Plan
In December, 1993 the Company adopted the Non-Qualified and
Incentive Stock Option Plan and established the number of common
shares issuable under the plan at 500,000 shares. The exercise price
for shares under the plan is the fair market value of the Common Stock on
the date on which the option is granted. The option price is payable
either in cash, by the surrender of common shares in the Company, or a
combination of both. The aggregate number of options granted in any one
year cannot exceed 10% of the total shares reserved for issuance under
the plan. Options will be exercisable immediately, after a period of
time or in installments, and expire on, the tenth anniversary of the
grant. The plan will terminate in December, 2003.
At July 31, 1997 and July 31, 1998, the Company had not granted
any options under the Plan.
At July 31, 1998, the Company has reserved 500,000 common shares
for issuance upon exercise of all options.
Contingencies
The Company is defendant in a series of complaints related to the
operation of a branch office in Nevada. The aggregate claims are for
amounts in excess of $182,000. The Company has filed counter-claims in
certain of the instances. The Company is also defendant in another
action alleging wrongful termination where the plaintiff is seeking
damages in excess of $50,000. The Company denies any liability in the
matters, intends to vigorously defend against the allegations and has
filed counter claims in certain of these suits. The Company does not
believe the outcome of these lawsuits will have a material impact on the
financial statements.
In October, 1996 the United States District Court entered a
judgment in favor of Lawyers Title Insurance Company against the
Company in the amount of $583,049 relating to a dispute over certain
cash transfers made in the year ending April 30, 1994 These monies
were paid during the year ended April 30, 1997. There can be no
assurance that the judgment will be reversed on appeal or otherwise.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
On July 1, 1997 the United States Court of Appeals for the
Seventh Circuit issued its opinion and order affirming in part and
reversing in part the District Court's Judgment. The matter has
been remanded to the District Court with directions.
Basis of Presentation
Earnings per share is presented in accordance with the provision
of the Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" (SFAS 128), which requires the presentation of "basic" and
"diluted" earnings per share. Basic earnings per share is based on
the weighted average shares outstanding without regard for common
stock equivalents such as stock options and warrants. Diluted
earnings per share includes the effect of common stock equivalents.
The following reconciles basic earnings per share to diluted earnings
per share under the provisions of SFAS 128:
Quarter ended July 31, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic Earnings Per Share
Income Available to Common
Shareholders (6,834) 3,100,029 (0.0022)
Effect of Dilutive Securities:
Options and Warrants 242,000
Diluted Earnings Per Share
Income Available to Common
Shareholders (6,834) 3,342,029 (0.0020)
Quarter ended July 31, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic Earnings Per Share
Income Available to Common
Shareholders 10,094 3,606,696 .0027
Effect of Dilutive Securities
Options and Warrants 242,000
Diluted Earnings Per Share
Income Available to Common
Shareholders 10,094 3,848,696 .0026
<PAGE>
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This Management's Discussion and Analysis of Financial
Condition and Results of Operations includes forward-looking
statements which involve risks and uncertainties. Actual events
or results may differ materially from those discussed in forward-
looking statements as a result of certain factors.
The Company, founded in 1986, operates as a full-service
mortgage banking company engaged in the origination and sale of
first mortgage loans secured by residential real estate. On a limited
scale, the Company also originates commercial loans; and services
residential mortgage loans.
Results of Operations
Three Months Ended July 31, 1997 and 1998
Commissions and fees increased from $1,422,145 for the three
months ended July 31, 1997 to $2,249,771 for the three months ended
July 31, 1998. This percentage increase of approximately 56% is
primarily the result of an increase in the number of loan originations.
The increase in loan originations was the result of lower interest rates
and an increase in loan origination efforts.
Interest income increased from $99,098 for the three months ended
July 31, 1997 to $369,532 for the three months ended July 31, 1998.
This increase was attributable to the increase in loan originations and
higher interest income on invested capital.
Salary and commissions expenses increased from $957,189 for the
three months ended July 31, 1997 to $1,546,801 for the three months
ended July 31, 1998. The increase was attributed to two main factors.
The increased number of loan originations in the comparable time periods
and continued investment in the expansion of the Company's sales
organization.
Selling and administrative expenses increased from $380,297 for
the three months ended July 31, 1997 to $642,364 for the three months
ended July 31, 1998. This percentage increase of approximately 68%
reflected the investment in the expansion of the Company's sales
organization as well as expenses related to increased loan origination.
In addition, the expense of being a newly public company contributed to
the increase.
Depreciation expense increased slightly from $10,638 for the
three months ended July 31, 1997 to $12,180 for the three months
ended July 31, 1998. This is principally a result from the purchase
of additional computer equipment in the first quarter fiscal year
1999. This computer equipment acquisition is in line with the Company's
strategy for technological advancement and infrastructure improvements.
Interest expense increased from $174,009 for the three months
ended July 31, 1997 to $324,737 for the three months ended July 31, 1998.
This increase was the result of increased use of warehouse lines of
credit to fund the increased loan originations.
<PAGE>
As a consequence of the accounting treatment afforded to certain
equity transactions entered into by the Company regarding warrants
and other financings, the Company's results of operations include
non-cash charges against income in the three months ending July 31, 1997
and July 31, 1998, respectfully. This consists of $156,000 recorded as
advisory fees in the first quarter for 1997 and 1998.Without this
non-cash charge, net income would have been $149,000 in the first quarter
fiscal year 1998 and $166,000 in the first quarter fiscal year 1998.
During the period ended July 31, 1998, the Company sold two
properties that were foreclosed on in fiscal year 1998 in the state
of California.
Liquidity and Capital Resources
During the three months ended July 31, 1997 and July 31, 1998.,
net cash generated(used) by operating activities was $33,934 and
($112,945) respectively. Net cash generated by operating activities
decreased from first quarter 1998 to first quarter 1999 primarily
because of increased expenses associated with being a public company and
infrastructure growth, primarily to increase future loan originations.
Net cash generated (used) by investing activities increased from
($4,744) for the quarter ended July 31, 1998 to $229,471 for the
quarter ended July 31, 1998. The increase in cash provided from 1998 to
1999 is largely attributable to the sale of the foreclosed properties
from fiscal year 1998 in fiscal year 1999.
Cash flow from financing activities for the first quarter 1998 and
first quarter was $58,230 and 2,375,902 respectively. This change is
largely from the public offering common stock proceeds. Net proceeds
from the common stock sales totaled $4,153,508. A portion of these
proceeds were used to redeem certain preferred stock shares(150 shares
at $750,000) and Debenture holders($490,000).
Therefore, the net cash flow from operating, financing, and
investing activities was $8,230 for the quarter ended July 31, 1997
and $2,375,902 for the quarter ended July 31, 1998.
Capital expenditures for the quarter ended July 31, 1998 were
approximately $45,000 principally in technology and to a lesser extent
for the expansion of sales organization facilities. The Company believes
it will continue to make investments in technology in the near future to
enhance and maintain its product and service offerings. The Company
believes that such investments could aggregate $200,000 to $300,000 over
the next two years, especially in the next several quarters.
Cash flow requirements depend on the level and timing of the
Company's activities in loan origination in relation to the timing of
the sale of such loans. In addition, the Company requires cash flow
for the payment of operating expenses, interest expense, and
capital expenditures. Currently, the Company's primary sources of
funding are borrowings under warehouse lines of credit, proceeds from
the sale of loans in the secondary market and internally generated
funds. Management believes that a larger equity base resulting from the
public offering should increase the amount of credit available to the
Company.
<PAGE>
Historically, the Company has funded its growth, in large part,
from its access to lines of credit and its operating activities. The
Company has been additionally capitalized by its President, Joseph
Khoshabe, through purchases of Common Stock and Series A Preferred
Stock. Further, the Company has sold Common Stock, debentures, and
warrants during the past five years at various times, principally
to fund the costs associated with a contemplated, but uncompleted,
public offering in late fiscal 1994 and fiscal 1995.
The Company has used $750,000 of the proceeds of the offering to
redeem a portion of the Series A Preferred Shares held by the J.K.
Trust, and approximately $490,000 of the proceeds to retire certain
convertible debentures. Although the Company cannot be assured of
the availability of additional credit, the Company reasonably anticipates
that the availability of net proceeds from the public offering will
result in an increase in the availability of credit to the Company.
The long-term plans of the Company also are to engage in the
business of servicing mortgage loans. In order to engage in this
business, the Company will be required to retain the servicing rights
on the loans that it originates. Such retention will result in the
reduction in the revenue available to the Company upon the sale of
such mortgage loans. In such event, the Company will be required to
employ capital to finance the retention of servicing rights. Such
capital principally would be expended to pay the costs associated
with loan origination, such as loan officer compensation and
miscellaneous overhead expenses. However, the retention of servicing
rights also creates an asset on the Company's balance sheet.
The Company is presently in discussions with various lenders for
additional lines of credit. Management believes that the increase in
the Company's equity as a result of the public offering will enhance
the Company's ability to obtain the additional credit it will require
to increase its servicing portfolio of mortgage loans, and reduce
borrowing costs.
Industry Trends
The growth in volume that the mortgage industry has seen over the
past few years has resulted from a general downward trend in interest
rates. The Company believes that mortgage volume may tend to decrease
on a relative basis in higher interest environments. Higher interest
rates generally result in smaller mortgage companies leaving the market
resulting in potentially larger market shares for continuing mortgage
bankers. The Company believes that proceeds from the upcoming financing
will position the Company to realize opportunities in such an environment,
but there can be no assurance that it will be able to do so.
The Company also believes that the industry will continue to offer
broader and more diversified product offerings and that technology will
play an increasing part in real estate transactions. This includes
expanded use of Internet capabilities. The Company believes that the
proceeds from the public offering will allow for the necessary investments
in these technologies as part of its working capital requirements.
<PAGE>
The Company's business base is concentrated principally in the
Midwest and West. As such, the Company may be subject to the effects
of economic conditions and real estate markets specific to such locales.
Inflation and Seasonality
The Company believes the effect of inflation, other than its
potential effect on market interest rates, has been insignificant.
Seasonal fluctuations in mortgage originations generally do not usually
have a material effect on the financial condition of operations of the
Company. Due to the technological and infrastructure advancements, such
as increasing the servicing portfolio, the Company hopes to continue to
minimize seasonality fluctuations.
Accounting Developments
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 130,"Reporting
Comprehensive Income." ("SFAS 130"). SFAS 130, establishes the standards
for reporting and displaying comprehensive income and its components
(revenues, expenses, gains, and losses) as part of a full set of
financial statements. This statement requires that all elements of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The
statement is effective for fiscal years beginning after December 15,
1997. Since the standard applies only to the presentation of
comprehensive income, it will not have any impact on the Company's
results of operations, financial position or cash flows.
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 131,"Disclosures
about segments of an Enterprise and Related Information." ("SFAS 131").
SFAS 131 if effective for years beginning after December 15, 1997. SFAS
No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and financial reports. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. SFAS No. 131 is effective for financial
statements for fiscal periods beginning after December 15, 1997, and
therefore the Company {has or will} adopt the new requirements.
Management has completed its review of SFAS No. 131, but currently
doesn't record transactions on a segmented basis. Therefore, Management
doesn't view this standard as having a material effect on future
disclosures.
Year 2000 Impact
At this time, Management believes that it has addressed many of
the major year 2000 issues and does not foresee any major problems
with this issue.
<PAGE>
PART II - OTHER INFORMATION
ITEM
1. Legal Proceedings - Item 3. Entitle "Legal Proceedings" is
incorporated herein (by Reference form the
Company's Annual Report on Form 10-KSB as
Filed with the United States Securities and
Exchange Commission On July 29, 1998
2. Changes in Securities - None
(a) None
(b) None
(c) None
(d) The information in this paragraph 2 (d) relates to the
registrant's Registration Statement on Form SB-2, Registration
No. 333-20737 (the "Registration Statement"). The underwriter
(the "Underwriters") for the offering of the Securities sold
pursuant to the Registration Statement(the "Offering") was
Mills Financial Services, Inc. The Offering commenced on May
26, 1998, and terminated on June 4, 1998. The following chart
sets forth, with respect to each class of securities registered
pursuant to the Offering for the account of the registrant, the
amount sold and the aggregate offering price of the amount sold.
Aggregate Offering
Amount Aggregate Amount Price of Amount
Security Registered*** Offering Price Sold Sold to Date
Common Stock,
No Par Value
Per Share
("Common
Stock"), For
sale by the
Company. 920,000 $5,980,000 800,000 $5,200,000
*** Includes 120,000 shares of Common Stock registered pursuant to
an over-allotment option (the "Over-Allotment Option") granted to the
Underwriter, excludes additional shares of Common Stock issuable upon
exercise of certain Underwriter's Warrants, as defined in the
Registration Statement. No shares of Common Stock were sold pursuant
to the Over-Allotment Option.
<PAGE>
2. Cont.-Use of Proceeds
Aggregate Offering Price of Amount Sold $5,200,000
Less:
Underwriting Discount $520,000
Underwriting Non-Accountable Expense
Allowance $156,000
Other Expenses $370,492
Net Proceeds $4,153,508
Uses of Proceeds:
Redemption of Preferred Stock $750,000
Redemption of 1996 Debentures $488,198
Money Market Account $1,500,000
Temporary Investment $1,000,000
Working Capital and General
Corporate Purposes $ 415,310
Total Uses of Proceeds $4,153,508
3. Defaults upon Senior Securities - None
4. Submission of Matters to a vote of Security Holders
On August 25, 1998, the registrant held its annual meeting of
shareholders. Shareholder's voted to elect management's slate
of directors and approved the appointment of the Company's
independent auditors.
5. Other Information - None
6. Exhibits and Reports on form 8-K
(a) Exhibit (see exhibit list)
(b) Reports on Form 8-K - (1) The Company filed current
reports on Form 8-K on July 10, 1998 and July 24, 1998.
<PAGE>
ITEM 6(a) EXHIBIT LIST
DESCRIPTION
3.1 Amended and Restated Articles of Incorporation of the
Registrant, filed as Exhibit No.3.1
To the Registration Statement, and hereby incoporated by
reference.
3.2 Amended and Restated By-Laws of the Registrant, filed as
Exhibit No. 3.2 to the Registration
Statement, and hereby incorporated by reference
4.1 Specimen Common Stock Certificate, filed as Exhibit No. 4.1
to the Registration Statement, and Hereby incorporated by reference.
4.2 Form of Underwriter's Warrant Agreement, filed as Exhibit No.
4.2 to the Registration Statement, and hereby incorporated by
reference.
10.1 Registrant's 1993 Stock Option Plan, filed as Exhibit No. 10.1
to the Registration Statement, and Hereby incorporated by reference.
10.2 Employment Agreement between Registrant and Joseph Khoshabe dated as
of November 30, 1997 and effective as of January 1, 1998, filed as
Exhibit No. 10.4 to the Registration Statement, and hereby
incorporated by reference.
27 Financial Data Schedule
_______________________________________________________________________
Incorporated by reference refers to the registrant's Registration
Statement on Form SB-2 (no. 333/27037), which was declared effective
by the Securities Exchange Commission on May 26 1998.
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
United Financial Mortgage Corp.
September 14, 1998 By: /s/ Joseph Khoshabe
Joseph Khoshabe
Chairman and Chief
Executive Officer
September 14, 1998 By: /s/ Steve Khoshabe
Steve Khoshabe
Chief Financial Officer
September 14, 1998 By: /s/ Robert S. Luce
Robert S. Luce
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000916823
<NAME> UNITED FINANCIAL MORTGAGE CORP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 4,466,439
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,399,813
<PP&E> 417,361
<DEPRECIATION> (212,663)
<TOTAL-ASSETS> 26,895,853
<CURRENT-LIABILITIES> 20,612,658
<BONDS> 0
0
315,000
<COMMON> 6,536,403
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,895,853
<SALES> 2,249,771
<TOTAL-REVENUES> 2,600,620
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,264,289
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 324,737
<INCOME-PRETAX> 11,594
<INCOME-TAX> 1,500
<INCOME-CONTINUING> 10,094
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,094
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
