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 October 31, 1999
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 common
equity as of the last practicable date:
Outstanding at
Class October 31, 1999
Common Stock, No Par Value 3,895,529
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
QUARTERLY REPORT ON FORM 10-QSB
QUARTER ENDED OCTOBER 31, 1999
TABLE OF CONTENTS
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets (Unaudited) October 31, 1998 and 1999 3
Statement of Operations (Unaudited) - six months 5
ended October 31, 1998 and 1999
Statement of Stockholder's Equity (Unaudited) - six
months ended October 31, 1998 and 1999 6
Statements of Cash Flows (Unaudited) - six months 7
ended October 31, 1998 and 1999
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 19
SIGNATURES 20
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Balance Sheet
(Unaudited)
Six Months Ended Six Months Ended
October 31, 1998 October 31, 1999
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 4,376,970 $ 4,640,467
Loans Held For Sale 28,407,731 27,514,645
Mortgage Loan Investments 994,004 944,438
Accounts Receivable 156,766 222,308
Due From Employees 30,318 42,700
Due from Officers 67,516 2,439
Deferred Tax Asset 0 0
U.S. Savings Bonds 2,000 2,000
Notes Receivable 225,200 100,000
Prepaid Expense 106,374 121,212
Total Current Assets 34,366,879 33,590,208
Furniture, Fixtures & Equipment
Cost 533,740 709,482
Accumulated Depreciation (226,043) (338,775)
Net Furn, Fix, & Equipment 307,697 370,707
Other Assets:
Servicing Rights 69,040 269,250
Escrow Deposits 5,750 197,984
Security Deposits 20,678 24,410
Deferred Advisor Fees 156,000 0
Investment 5,750 5,850
Goodwill Net 75,120 120,987
Total Other Assets 332,338 618,481
Total Assets 35,006,914 34,579,396
The accompanying Notes are an integral part of this statement
</Table)
<PAGE>
</TABLE>
<TABLE>
United Financial Mortgage Corp.
Balance Sheet
(Unaudited)
Six Months Ended Six Months Ended
October 31, 1998 October 31, 1999
<S> <C> <C>
LIABILITES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts Payable $ 215,721 $ 189,071
Accrued Expenses 82,025 137,675
Loans Payable 0 616,970
Leases Payable-Short Term 15,929 9,858
Accrued Income Taxes 0 42,960
Deferred Income Taxes 34,789 113,623
Taxes Payable 0 0
Escrow Payable 20,579 82,722
Notes Payable - Current 28,282,843 26,614,657
Total Current Liabilities 28,651,886 27,807,537
Leases Payable-Long Term 29,227 18,967
Total Liabilities 28,681,113 27,826,504
Stockholders' Equity
Common Shares, 20,000,000
Authorized, No Par Value,
Shares Issued and Outstanding;
3,900,029 at July 31, 1998
and 3,897,529 at July 31, 1999. 6,536,403 6,521,625
Preferred Shares, 5,000,000
authorized, No Par Value, 63
Series A Redeemable Shares
Issued And Outstanding at
July 31, 1998 and July 31, 1998. 315,000 315,000
Retained Earnings (525,602) (83,733)
Total Stockholders Equity 6,325,801 6,752,892
Total Liabilities Plus
Stockholders Equity 35,006,914 34,579,396
The accompanying Notes are an integral part of this statement
</Table)
<PAGE>
</TABLE>
<TABLE>
United Financial Mortgage Corp.
Condensed Statement of Income
(Unaudited)
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
Oct 31, 1998 Oct 31, 1998 Oct 31, 1999 Oct 31, 1999
<S> <C> <C> <C> <C>
Revenues:
Commissions & Fees $ 2,346,833 $ 4,596,604 $ 2,460,136 $ 4,890,367
Interest Income 346,793 716,938 432,051 917,197
Other Income & Expenses 0 (18,683) (3,395) (3,395)
Total Revenues 2,693,626 5,294,859 2,888,793 5,804,169
Expenses:
Salaries & Comm. $ 1,438,385 $ 2,983,747 1,717,511 3,276,856
Selling & Admin 815,290 1,458,214 762,960 1,493,884
Depreciation 13,379 25,559 38,152 73,991
Interest Expense 392,201 716,938 432,586 905,350
Litigation Expense (62,944) 0 0 0
Total Expenses 2,596,311 5,184,458 2,951,209 5,750,080
Income (loss) Before
Income Taxes 97,315 110,401 (62,416) 54,088
Income Tax Provision 33,289 34,789 (158,597) (110,831)
Net Income Applicable
To Common Shareholders 64,026 75,612 96,181 164,919
Basic Net Income
Per Common Share 0.0164 0.0201 0.0247 0.0423
Diluted Net Income
Per Common Share 0.0155 0.0189 0.0232 0.0399
Shares used in computation of
Basic Net Income
Per Share 3,900,029 3,757,807 3,895,529 3,895,529
Shares used in computation of
Diluted Net Income
Per Share 4,142,029 3,999,807 4,137,529 4,137,529
The accompanying Notes are an integral part of this statement
</Table)
<PAGE>
</TABLE>
<TABLE>
United Financial Mortgage Corp.
Statement of Stockholders Equity
Three Months Ended July 31, 1999
(Unaudited)
Common Retained
Stock Earnings Total
<S> <C> <C> <C>
Balance, April 30, 1999 6,529,332 (248,651) 6,280,681
Retirement of 690 Shares (2,053)
Net Income for the Period
Ended July 31, 1999 68,738
Balance, July 31, 1999 6,527,279 (179,913) 6,347,366
Retirement of 2000 Shares (5,654)
Net Income for the Period
Ended October 31, 1999 96,181
Balance, October 31, 1999 6,521,625 (83,732) 6,437,893
The accompanying Notes are an integral part of this statement
</Table)
<PAGE>
</TABLE>
<TABLE>
United Financial Mortgage Corp.
Statement of Cash Flows
(Unaudited)
Six Months Ended Six Months Ended
Oct 31, 1998 Oct 31, 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income or $ 75,612 $ 164,919
Adjustment to Reconcile Net Income
To Net Cash Provided by Op Activities
Depreciation 25,559 62,263
Changes In:
Prepaids & Other Current Assets (181,783) 131,438
Accrued Expenses & Other
Current Liabilities (42,456) (167,145)
Accounts Payable 8,259 (46,881)
Deposits (21,879) (145,198)
NET CASH PROVIDED BY OPERATING
ACTIVITIES (136,688) (604)
CASH FLOWS FROM INVESTING ACTIVITIES
Land Sales 303,250 0
Purchase of Fixed Assets (190,969) (63,963)
Goodwill (60,291) 11,728
Investments 0 (100)
Servicing Rights 5,246 (83,270)
NET CASH PROVIDED FROM INVESTING
ACTIVITIES 57,236 (135,605)
CASH FLOWS FROM FINANCING ACTIVITIES
Notes Receivable (84,322) 0
Notes Payable 0 616,970
Changes in Short-Term Debt (395,773) (2,437)
Changes in Long-Term Debt 15,929 (12,584)
Officers Loans (2,643) 0
Deferred Advisor Fees 78,000 78,000
Deferred Offering Expenses 143,425 0
Preferred Stock Redeemed (750,000) 0
Common Stock Redeemed 0 (7,707)
Common Stock Proceeds - Net 4,153,508 0
Mortgage Loans Made (14,809,312) 5,520,471
Changes in Bank Line of Credit 14,133,599 (5,750,975)
CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 2,482,411 431,739
INCREASE (DECREASE) IN CASH 2,402,959 295,529
Cash at Beginning of Period 1,974,011 4,344,937
Cash at End of Period 4,376,970 4,640,466
The accompanying Notes are an integral part of this statement
</Table)
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
Notes to Financial Statements
October 31, 1999
(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, 1999. 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
six month period ended October 31, 1999 are not necessarily indicative of
the results that might be expected for the year ended April 30, 2000.
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 Arkansas,
California, Colorado, Connecticut, Delaware, Florida, Illinois,
Indiana, Kentucky, Maryland, Missouri, Nevada, New Mexico, North
Carolina, Oregon, South Carolina, Texas, Utah, Virginia, Washington
and Wisconsin. The Company also does business in other states that do not
have mortgage banking liscensure statutes, including Idaho, Kansas,
Montana, Ohio, Oklahoma, West Virginia, and Wyoming. The Company's mortgage
banking business principally has focused on retail and wholesale residential
mortgage origination activities. The Company is expanding its mortgage
servicing activities by retaining servicing on selected loans that it
produces. The Company's principal lines of business are conducted through
the Retail Origination Division, the Wholesale Origination Division, the
Commercial Division, and the Servicing Division. The Company's
Retail and Wholesale Origination business is conducted principally in
the states of California, Illinois, Nevada, Missouri, and Florida.
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.
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.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
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.
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 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 generally is diversified due to the large number of customers
and the timely sale of the loans to investors, generally 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 receivables.
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.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
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.
Earnings (Loss) Per Common Share
Earnings(loss) per common share are calculated on net income(loss)
After the deduction for dividends paid on the Series A Preferred
Shares. The number of common shares used in the computation is based
upon the number of shares outstanding at the end of the period.
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 should not have any
impact on the Company's results of operations, financial position or cash
flows. Comprehensive income and regular income are one and the same for the
current period.
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
is 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 years
beginning after December 15, 1997, and therefore the Company has adopted
the new requirements.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
Year 2000 Impact
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Certain
computer programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process
transactions, or engage in similar business activities.
The Company has reviewed its computer systems and applications to
determine if these programs are Year 2000 compliant and if not, the efforts
that will be necessary to bring the programs into compliance. The Company
has not identified any computer system or application that, upon failure
to be year 2000 compliant, would have a material adverse impact on its
business activities or results of operations.
Notes Payable
The Company has mortgage warehouse credit facilities aggregating
$62 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:
Oct 31, 1999
$20 million mortgage warehouse credit facility
at a commercial bank; interest at LIBOR;
plus 160 basis points; expires 01/28/00 $ 20,069,585
$25 million mortgage warehouse credit facility
at a commercial bank; interest at LIBOR
plus 185 basis points. expires 09/00 336,096
$15 million mortgage warehouse credit facility
at a commercial bank; interest at LIBOR
plus 150 basis points; expires 2/2000 4,694,587
$2.0 million mortgage warehouse credit facility at
a commercial bank; interest at LIBOR plus
160 basis points; expires 01/28/00 1,620,236
Total $ 26,720,505
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
Retirement Plan
The Company has a 401K plan covering all eligible employees.
Company contributions to the plan are discretionary.
Lease Commitments
The Company conducts its operations from leased premises and has
several equipment leases as part of standard business practice. The
following table reveals the estimated minimum rental payments under the
Company's operating leases. Total rent expense under these leases was
approximately $160,000, for the six months ended October 31, 1999.
Future minimum rental payments for the next five years at
October 31, 1999 are as follows:
Period Ending Oct 31, Operating Leases
2000 $ 321,967
2001 276,870
2002 186,662
2003 84,449
2004 0
Total Commitment 869,948
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
Income Taxes
The income tax provision consists of the following for the
period ended Oct 31:
1998 1999
Current:
Federal $ 0 $ 35,625
State 0 7,335
SubTotal 0 42,960
Deferred:
Federal 23,193 (127,534)
State 11,596 (26,256)
SubTotal 34,789 (153,790)
Total 34,789 (110,831)
The components of the deferred tax asset (liability) are as
follows for the period ending October 31st:
1998 1999
Loss Carry-Forward 0 0
Accelerated Depreciation (10,626) 31,625
Deferred Receivables (478,747) (168,988)
Deferred Tax Asset(Liab) (489,373) (137,363)
Valuation Allowance 136,491 23,740
Net Deferred Tax Asset
(Liability) $ (352,882) $ (113,623)
The effective tax rates for the six month period ended
October 31, 1998 and October 31, 1999 are the statutory Federal
tax of 34% and state tax rate of 7%.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
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 dividend was declared for the periods ended October 31, 1998
and 1999.
Stockholders' Equity
Warrants
At October 31, 1999, 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 November 15,
2000. In certain circumstances, the warrants have certain "piggy
back" or other registration rights.
As of November 15, 1999, 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 November 15, 2000 and contain certain registration rights.
The Company has reserved 242,000 common shares for issuance upon
exercise of all warrants.
In March of 1999, the Company implemented a stock repurchase
program. As of October 31, 1999, the Company has purchased 4,500
shares and has returned such shares to `authorized but not issued'
shares.
Servicing
During the recent period ended October 31, 1999, the Company has
continued to build its servicing portfolio. As of the balance sheet
date, the servicing portfolio was fourteen million, one hundred seventy
one thousand, thirty six dollars (14,171,036) in residential loans.
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 options 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 may 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.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
Contingencies
The Company is a defendant in a series of complaints relating to
its business activities. The Company has aggressively defended its
position in these matters and has filed counter-claims in certain of
the cases. The Company does not believe the outcome of these lawsuits
will have a material impact on its financial statements.
Expansion
On October 9, 1998, the Company purchased certain assets of Mortgage
Service of America, Inc. for $187,291 under the purchase method of
accounting. MSA was is in the mortgage loan origination business and
originated primarily first mortgages. The purchase price was paid in cash.
Assets in the amount of $50,000 are being depreciated over their useful
lives and goodwill of $137,291 will be amortized over 15 years.
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:
Period ended October 31, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic Earnings Per Share
Income Available to Common
Shareholders 75,612 3,757,807 0.0201
Effect of Dilutive Securities 242,000
Diluted Earnings Per Share
Income Available to Common
Shareholders 75,612 3,999,807 0.0189
Period Ended October 31, 1999
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic Earnings Per Share
Income Available to Common
Shareholders 164,919 3,895,529 0.0423
Effect of Dilutive Securities 242,000
Diluted Earnings Per Share
Income Available to Common
Shareholders 164,919 4,137,529 0.0399
<PAGE>
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This Management 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 the forward-looking statements as a
result of certain factors.
The Company, founded in 1986, operates as a full-service
mortgage banking company principally 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
Six Months Ended October 31, 1999
The six month period ended October 31, 1999 was a period of
significant challenge, and reward for the Company. Despite the fact
that interest rates increased, loan volume and revenues were higher
due to prior key strategic initiatives that prepared the Company for
interest rate increases.
Commission and fee revenue increased from $4,596,604 for the
six months ended October 31, 1998 to $4,890,367 for the six months
ended October 31, 1999. This percentage increase of approximately 6.4%
primarily is the result of an increase in the number of loan originations.
The increase in loan originations was largely the result of product
offerings that met consumer demands.
Interest income increased from $716,938 for the six months
ended October 31, 1998 to $917,197 for the six months ended
October 31, 1999. This increase was attributable to the increase in
loan originations and higher interest income on invested capital.
Salary and commission expense increased from $2,983,747 for the
six months ended October 31, 1998 to $3,276,856 for the six months
ended October 31, 1999. 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 $1,458,214
for the six months ended October 31, 1998 to $1,493,884 for the six
months ended October 31, 1999. This increase reflected the increase
in loan volume and incremental expenses associated with this increase.
In addition, the continued efforts to improve infrastructure and
technology advancements have added to the increase.
Depreciation and amortization expense increased from $25,559 for
the six months ended October 31, 1998 to $73,991 for the six months ended
October 31, 1999. This principally resulted from technology investments
made during fiscal year 1999. This investment is in line with the
Company's strategy of technological advancement and infrastructure
improvements.
<PAGE>
Interest expense increased from $716,938 for the six months
ended October 31, 1998 to $905,350 for the six months ended October 31,
1999. This increase was the result of increased use of warehouse lines
of credit to fund the increased loan originations.
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 six months ending October 31,1998
and October 31, 1999, respectfully. This consists of $78,000 recorded as
advisory fees in both six month periods. Without this non-cash
charge, net income available to common shareholders would have been
$153,612 in the first six months 1998 and $242,919 in the first six
months 1999.
Liquidity and Capital Resources
During the six months ended October 31, 1998 and October 31,
1999, net cash generated(used) by operating activities was ($136,688)
and ($604), respectively. Net cash generated by operating activities
increased from the first six months of 1998 to the first six months of
1999 despite increased expenses associated with being a public company
and infrastructure growth.
Net cash generated(used) by investing activities changed from
57,236 for the six months ended October 31, 1998 to ($135,605) for
the six months ended October 31, 1999. The change from 1998 to 1999
largely was attributable to the sale of two foreclosed properties in 1998.
This was partially offset by investments in fixed assets and the increase
in retaining servicing rights on certain closed loans during the same
period in 1999.
Cash flow from financing activities for the first six months of
1998 and first six months of 1999 was $2,482,411 and 431,739, respectively.
This change resulted largely from the net proceeds of a public offering
which occurred in early fiscal year 1999.
The net cash flow from operating, financing, and investing
activities was $2,402,959 for the first six months 1998 and $295,529 for
the first six months 1999.
Capital expenditures for the six months ended October 31, 1999
were approximately $60,000, principally in technology and to a lesser
extent for the expansion of sales organization facilities. These
capital expenditures include the purchase of a new loan tracking
system that coincides with the strategy of using technology as a
competitive advantage. The Company believes it will continue to make
investments in technology in the near future to enhance and maintain its
product and service offerings.
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.
<PAGE>
During the first six months of fiscal year 2000, the Company
has continued to pursue its strategy of servicing mortgage loans. In
order to engage in this business, the Company has retained the servicing
rights on the loans that the Company originates. Such retention has
resulted in some reduction in short term cash flow available to the
Company. The Company has employed capital to finance the retention of
servicing rights. This capital principally has been expended to pay the
costs associated with loan origination, such as loan officer compensation
and miscellaneous overhead expenses. However, the retention of servicing
rights is expected to create an asset on the Company's balance sheet and
create future cash flow streams.
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. This trend has occurred as interest rates have increased.
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 which the Company will continue to
aggressively pursue.
The Company's business base is concentrated principally in the
Midwest and Western United States. 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.
Historically, seasonal fluctuations in mortgage originations
generally do not have a material effect on the financial condition
or 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.
<PAGE>
PART II - OTHER INFORMATION
ITEM
1. Legal Proceedings - Item 3. Entitle "Legal Proceedings" is
incorporated herein(by Reference from the
Company's Annual Report on Form 10-KSB as
Filed with United State Securities
Exchange Commission on October 31,1999
2. Changes in Securities - None
(a) None
(b) None
(c) None
(d) None
3. Defaults upon Senior Securities - None
4. Submission of Matters to a vote of Security Holders
On August 25, 1999, the Company held its annual meeting of
shareholders. Shareholder's voted to elect the proposed slate of
directors; approve the appointment of the Company's independent
auditors; and approve an amendment to the Stock Option Plan to
authorize the grant of options to non-employee directors.
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 August 26, 1999, August 30, 1999
and September 21, 1999.
<PAGE>
ITEM 6(a) EXHIBIT LIST
DESCRIPTION
27 Financial Data Schedule
<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.
December 15, 1999 By: /s/ Joseph Khoshabe
Joseph Khoshabe
Chairman and Chief Executive
Officer
December 15, 1999 By: /s/ Steve Khoshabe
Steve Khoshabe
Chief Financial Officer
December 15, 1999 By: /s/ Robert S. Luce
Robert S. Luce
Secretary
</TABLE>
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<ARTICLE> 5
<CIK> 0000916823
<NAME> UNITED FINANCIAL MORTGAGE CORP.
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> APR-30-1999 APR-30-2000
<PERIOD-START> MAY-01-1998 MAY-01-1999
<PERIOD-END> OCT-31-1998 OCT-31-1999
<CASH> 4,376,970 4,640,467
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 34,366,879 33,590,208
<PP&E> 533,740 709,482
<DEPRECIATION> (226,043) (338,775)
<TOTAL-ASSETS> 35,006,914 34,579,396
<CURRENT-LIABILITIES> 28,651,886 27,807,537
<BONDS> 0 0
0 0
315,000 315,000
<COMMON> 6,536,403 6,521,625
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 35,006,914 34,579,396
<SALES> 4,596,604 4,890,367
<TOTAL-REVENUES> 5,294,859 5,804,169
<CGS> 0 0
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<OTHER-EXPENSES> 4,467,520 4,844,730
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 716,938 905,350
<INCOME-PRETAX> 110,401 54,088
<INCOME-TAX> 34,789 (110,831)
<INCOME-CONTINUING> 75,612 164,919
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 75,612 164,919
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