UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTER REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 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:
Oustanding at
Class January 31, 1999
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 JANUARY 31, 1999
TABLE OF CONTENTS
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets (Unaudited) January 31, 1999 and 1998 3
Statement of Operations (Unaudited) - nine months 5
ended January 31, 1999 and 1998.
Statement of Stockholder's Equity (Unaudited) - nine
months ended January 31, 1999 and 1998. 6
Statements of Cash Flows (Unaudited) - nine months 7
ended January 31, 1999 and 1998.
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 19
EXHIBITS 20
SIGNATURES 21
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Balance Sheet
(Unaudited)
Nine Months Ended Nine Months Ended
January 31, 1998 January 31, 1999
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,824,051 $ 4,566,202
Loans Held For Sale 8,762,730 36,974,846
Mortgage Loan Investments 1,226,484 680,629
Accounts Receivable 140,890 64,775
Due from Officers 72,452 28,725
Deferred Tax Asset 45,763 0
U.S. Savings Bond 2,000 2,000
Notes Receivable 169,830 247,944
Prepaid Expense 0 149,412
Total Current Assets 12,244,200 42,714,533
Furniture, Fixtures & Equipment
Cost 333,870 674,417
Accumulated Depreciation (187,515) (242,018)
Net Furn, Fix, & Equipment 146,355 432,399
Other Assets:
Servicing Rights 7,199 121,288
Escrow Deposits 25,613 15,843
Deferred Organization Costs 143,425 0
Security Deposits 6,143 54,724
Deferred Advisor Fees 273,000 117,000
Land Investments 303,250 0
Other Investments 5,750 5,750
Total Other Assets 764,380 314,605
Total Assets 13,154,935 43,461,537
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Balance Sheet
(Unaudited)
Nine Months Ended Nine Months Ended
January 31, 1998 January 31, 1999
<S> <C> <C>
LIABILITES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts Payable $ 184,709 $ 181,598
Accrued Expenses 157,146 15,203
Leases Payable 0 15,843
Deferred Income Taxes 0 56,977
Taxes Payable 0 7,085
Escrow Payable 50,771 17,443
Notes Payable - Current 9,517,019 36,323,024
Total Current Liabilities 9,909,645 36,617,173
Non-Current Notes Payable 425,000 0
Leases Payable 0 31,755
Total Liabilities 10,334,645 36,648,928
Stockholders' Equity
Common Shares, 20,000,000
Authorized, No Par Value,
Shares Issued and Outstanding;
3,100,029 at January 31, 1998
and 3,900,029 at
January 31, 1999. 2,382,896 6,536,403
Preferred Shares, 5,000,000 authorized,
No Par Value, 213 Series A
Redeemable Shares Issued And
Outstanding at Oct 31, 1997
and 63 Issued and Outstanding
at Oct 31, 1998. 1,065,000 315,000
Retained Earnings (627,606) (38,794)
Total Stockholders Equity 2,820,290 6,812,609
Total Liabilities Plus
Stockholders Equity 13,154,935 43,461,537
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Condensed Statement of Income
(Unaudited)
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
Jan 31, 1998 Jan 31, 1998 Jan 31, 1999 Jan 31, 1999
<S> <C> <C> <C> <C>
Revenues:
Commissions & Fees $ 1,765,551 $ 4,660,898 $ 2,451,513 $ 7,048,117
Interest Income 22,976 655,296 421,105 1,138,043
Other Income & Expenses 0 0 0 (18,683)
Total Revenues 1,788,527 5,316,194 2,872,618 8,167,477
Expenses:
Salaries & Comm. $ 980,188 $ 2,903,612 $ 1,219,225 $ 4,202,972
Selling & Admin 479,628 1,448,632 868,195 2,326,409
Depreciation 11,275 32,836 15,975 41,534
Interest Expense 269,450 688,360 214,350 931,288
Cost Expense Litigation 21,621 27,565 0 0
Total Expenses 1,762,162 5,101,005 2,317,745 7,502,203
Income (loss) Before
Income Taxes 26,365 215,189 554,873 665,274
Income Tax Provision 0 0 29,273 64,062
Net Income (loss) 26,365 215,189 525,600 601,212
Less Div. Paid on
Preferred Stock 0 0 38,791 38,791
Net Income(loss) Applicable
to Common Shareholders 26,365 215,189 486,809 562,421
Basic Net Income (loss)
Per Common Share 0.0085 0.0694 0.1248 0.1478
Diluted Net Income(loss)
Per Common Share 0.0079 0.0644 0.1155 0.1365
Shares used in comp of
Basic Net Income
Per Share 3,100,029 3,100,029 3,900,029 3,805,214
Shares used in comp of
Diluted Net Income
Per Share 3,342,029 3,342,029 4,215,529 4,120,714
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Statement of Stockholders Equity
Nine Months Ended January 31, 1999
(Unaudited)
Common Retained
Stock Earnings Total
<S> <C> <C> <C>
Balance, April 30, 1998 2,382,895 (601,366) 1,781,529
Net Proceeds From Public
Offering of 800,000 shares 4,153,508
Net Income for the period
ended January 31, 1999 601,212
Preferred Stock Dividend Paid
January 31, 1999 (38,791)
Balance, January 31, 1999 6,536,403 (38,945) 6,497,458
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Statement of Cash Flows
(Unaudited)
Nine Months Ended Nine Months Ended
Jan 31, 1998 Jan 31, 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income or (Loss) $ 215,189 $ 601,212
Adj to Reconcile Net Income
To Net Cash Provided by Op Activities
Depreciation 32,836 41,534
Changes In:
Prepaids & Other Current Assets (16,152) (66,516)
Accrued Expenses & Other Cur Liab 0 (67,298)
Accounts Payable 51,034 (25,864)
Deposits (7,297) (51,189)
NET CASH PROVIDED BY OPERATING
ACTIVITIES 275,610 431,879
CASH FLOWS FROM INVESTING ACTIVITIES
Land Sales (303,250) 303,250
Purchase of Fixed Assets (25,100) (331,646)
Servicing Rights (7,199) (47,002)
NET CASH PROVIDED FROM INVESTING
ACTIVITIES (335,549) (75,398)
CASH FLOWS FROM FINANCING ACTIVITIES
Notes Receivable (58,067) (107,066)
Changes in Long Term Debt 126,968 (393,245)
Officers Loans (37,425) (38,640)
Deferred Advisor Fees 117,000 117,000
Deferred Offering Expenses (49,192) 143,425
Preferred Stock Redeemed 0 (750,000)
Common Stock Proceeds - Net 0 4,153,508
Mortgage Loans Made 3,667,399 (23,064,052)
Changes in Bank Line of Credit (3,900,904) 22,173,780
CASH PROVIDED (USED) BY FINANCING
ACTIVITIES (134,221) 2,235,710
INCREASE (DECREASE) IN CASH (194,160) 2,591,191
Cash at Beginning of Period 2,018,211 1,974,011
Cash at End of Period 1,824,051 4,566,202
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
Notes to Financial Statements
January 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, 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 nine month period ended January 31, 1999 are not
necessarily indicative of the results that might be expected for the year
ended April 30, 1999.
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.
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 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, 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 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
$51 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:
January 31, 1999
$20 million mortgage warehouse credit facility
at a commercial bank; interest at LIBOR;
plus 160 basis points; expires 10/28/99 $ 18,861,032
$20 million mortgage warehouse credit facility at
a commercial bank; interest at LIBOR plus
185 basis points. expires 09/99 14,378,695
$10 million mortgage warehouse credit facility at
a commercial bank; interest at Prime plus
1 percent; expires 07/99 828,500
$2.5 million mortgage warehouse credit facility at
a commercial bank; interest at LIBOR; plus
160 basis points; expires 03/30/99 1,348,120
$1 million mortgage warehouse credit facility at a
commercial bank; interest at LIBOR; plus
160 basis points; expires 10/28/99 939,588
Total $ 36,355,935
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
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 minumum rental payments under
the Company's operating leases. Total rent expense under these
leases was approximately $238,909, for the nine months ended Janaury
31, 1999.
Future minimum rental payments for the next five years at
January 31, 1999 are as follows:
Period Ending January 31, Operating Leases
2000 $ 329,116
2001 246,913
2002 208,447
2003 95,721
2004 74,306
2005 9,900
Total Commitment 964,403
Income Taxes
The income tax provision consists of the following for the
period ended January 31:
1998 1999
Current:
Federal $ 0 $ 4,724
State 0 2,361
Deferred:
Federal 0 18,992
State 0 37,985
Total 0 $ 64,062
The components of the deferred tax asset (liability) are as
follows for the period ending January 31:
1998 1999
Loss Carry-Forward $(141,730) $(5,775)
Accelerated Depreciation 9,578 (14,525)
Deferred Receivables 0 (244,024)
Deferred Tax Asset(Liab) 132,152 (264,324)
Valuation Allowance (86,389) 207,347
Net Deferred Tax Asset
(Liability) $ 45,763 $(56,977)
The effective tax rate for the three month periods ended Jan 31,
1998 and Jan 31, 1999 differ from the statutory Federal tax rate
of 34% due to valuation reserves on the recording of tax loss
carry-forwards.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
Recent Financing
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 has and intends to continue 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, non-participating
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. A dividend was declared during the quarter
ended January 31, 1999. The dividend was $615.73 per share with
respect to the 63 outstanding shares, which totaled $38,791. This
dividend was applied to pay down an officer loan from previous
periods.
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 November 15, 1999.
In certain circumstances, the warrants have certain "piggy back" or
other registration rights. At January 31, 1999, 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 November 15, 1999 and contain certain registration rights.
The Company has reserved 242,000 common shares for issuance upon
exercise of all warrants.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
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 January 31, 1999, the Company has reserved 500,000
common shares for issuance upon exercise of all options.
At January 31, 1999 the Company had granted options for 73,500
shares of common stock under the plan.
Litigation
In June 1995, Lawyers Title initiated a non-wage garnishment
proceeding against the Company and its bank. Lawyers Title claimed
entitlement to monies purportedly held by the Company on the grounds
that the money was tendered to the Company by Dearborn Title in the
mistaken belief that this money was owed to the Company as a
replacement for a funding check relating to a particular real estate
refinancing transaction which had previously been returned to
Dearborn for insufficient funds.
On March 13, 1999 the matter was settled and the settlement
agreement is being prepared. The settlement does not require any
further payments by the Company.
The Company is a defendant in a series of complaints relating to
its business activities. The aggregate amount of these claims is
approximately $450,000. 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.
<PAGE>
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 January 31, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic Earnings Per Share
Income Available to
Common Shareholders 215,189 3,100,029 0.0694
Effect of Dilutive Securities
Options and Warrants 242,000
Diluted Earnings Per Share
Income Available to
Common Shareholders 215,189 3,342,029 0.0644
Period ended January 31, 1999
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic Earnings Per Share
Income Available to
Common Shareholders 562,421 3,805,214 0.1478
Effect of Dilutive Securities
Options and Warrants 315,500
Diluted Earnings Per Share
Income Available to
Common Shareholders 562,421 4,120,714 0.1365
<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
Nine Months Ended January 31, 1998 and 1999
The nine month period ended January 31, 1998 was a period of
significant accomplishment for the Company. Interest rates were
favorable, loan volume was up, and the Company completed its first
asset acquisition.
Commission and fee revenue increased from $4,890,898 for the
nine months ended January 31, 1998 to $7,048,117 for the nine months
ended January 31, 1999. This percentage increase of approximately
44% 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 $425,296 for the nine months
ended January 31, 1998 to $1,138,043 for the nine months ended
January 31, 1999. This increase was attributable to the increase in
loan originations and higher interest income on invested capital.
Salary and commissions expenses increased from $2,903,612 for
the nine months ended January 31, 1998 to $4,202,972 for the nine
months ended January 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 $1,448,632
for the nine months ended January 31, 1998 to $2,326,409 for the nine
months ended January 31, 1999. This percentage increase of
approximately 59% reflected the increase in loan volume and incremental
expenses associated with this increase . In addition, the continued
efforts in infrastructure and technology advancements have added to the
increase.
Depreciation expense increased from $32,836 for the nine months
ended January 31, 1998 to $41,534 for the nine months ended January
31, 1999. This is principally a result of technology investments
made in the first nine months of fiscal year 1999. This investment
is in line with the Company's strategy of technological advancement
and infrastructure improvements.
<PAGE>
Interest expense increased from $688,360 for the nine months
ended January 31, 1998 to $931,288 for the nine months ended January
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 nine months ending January 31,
1998 and January 31, 1999, respectfully. This consists of $117,000
recorded as advisory fees in the first nine months of 1998 and 1999.
Without this non-cash charge, net income would have been $332,189 in
the first nine months fiscal year 1998 and $679,421 in the first nine
months fiscal year 1999.
Liquidity and Capital Resources
During the nine months ended January 31, 1998 and January 31,
1999, net cash generated(used) by operating activities was $275,610
and $431,879, respectively. Net cash generated by operating
activities increased from the first nine months of 1998 to the first
nine months of 1999, despite increased expenses associated with being
a public company and infrastructure growth.
Net cash generated (used) by investing activities decreased from
($335,549) for the period ended January 31, 1998 to ($75,398) for the
period ended January 31, 1999. The increase in cash provided from
1998 to 1999 is largely attributable to the sale of two foreclosed
properties. This was partially offset by investments in fixed assets
and the increase in retaining servicing rights to certain closed
loans during the period in 1999.
Cash flow from financing activities for the first nine months of
1998 and first nine months of 1999 was ($134,221) and 2,235,710,
respectively. This change is largely from the net proceeds of the
public offering. Net proceeds from the public offering totaled
$4,153,508. A portion of these proceeds were used to redeem certain
preferred shares for $750,000 and the redemption of certain 1996
debentures.
Therefore, the net cash flow from operating, financing, and
investing activities was ($194,160) for the first nine months ended
January 31, 1998 and $2,235,710 for the first nine months ended
January 31, 1999.
Capital expenditures for the period ended January 31, 1999 were
approximately $105,000, 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.
<PAGE>
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.
During the past nine months, the Company has pursued its
strategy of servicing mortgage loans. In order to engage in this
business, the Company has retained the servicing rights on the loans
that it originates. Such retention has resulted in some reduction in
short term cash flow available to the Company upon the sale of such
mortgage loans. The Company has employed capital to finance the
retention of servicing rights. This capital principally would have
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.
The Company obtained two new credit lines and an increase to a
currently used credit line during the past nine months totalling
$32.5 million in additional loan funding capacity. The Company is
continually in discussions with various lenders for additional lines
of credit.
Acquisition
On October 9, 1998 the Company completed its first acquisition
by acquiring certain assets of Mortgage Service America, Inc., a
Lombard, Illinois Mortgage Company. Management thinks that the
transaction will serve to fulfill its growth strategies in the
wholesale business segment. The acquisition is expected to assist
the Company in the development of its servicing portfolio. In
addition, the acquisition is expected to facilitate the Company's
growth strategy into other areas.
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 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.
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.
<PAGE>
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.
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 should 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 years beginning after December 15, 1997, and therefore
the Company has adopted the new requirements.
<PAGE>
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. However, the preliminary results of this review indicate
that some of the Company's accounting and financial reporting
applications are not Year 2000 compliant. For purposes of enhancing
operating efficiencies, the Company has already undertaken a project
that will replace its core financial systems with computer software
that will better serve the Company in the future. This new software,
that is expected to be fully operational by the end of 1999, is Year
2000 compliant.
The Company is currently evaluating any necessary modifications
to other existing software programs so that these programs will
function properly with respect to dates in the year 2000. The cost
of these modifications is not expected to be material and all
conversions and modifications are expected to be completed in a
timely manner. The company will be participating in the near future
in year 2000 readiness test sponsored by the Mortgage Bankers
Association. If any issues arise from this test the company will
react in a timely manner to address these issues.
Certain Relationships and Related Transactions
On November 20, 1998 the Company completed a second mortgage
loan on the principal residence of Mr. Rocco Cappiello, a director of
the Company, in the amount of $150,000. The loan was made on terms
generally more favorable to the Company that would otherwise be
available in the competitive marketplace. Further, the Company
secured its loan position with collateral, both real and personal
property, substantially in excess of its underwriting guidelines for
other similar loans in the ordinary course of its business. The loan
was made from funds other than the net proceeds from the Company's
recently completed public offering.
On December 8, 1998, Mr. Joseph Khoshabe, as Trustee of the
Joseph Khoshabe Trust, ("Trust") granted an option to Mills Financial
Services, Inc. ("Mills") to purchase up to 300,000 of its restricted
common shares of the Company at a purchase price of $3.50 per share.
The option was granted for 45 days in consideration of Mills payment
of $25,000 to the Trust. The option expired on January 23, 1999.
<PAGE>
PART II - OTHER INFORMATION
ITEM
1. Legal Proceedings - See page 13, hereof.
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- None
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 a current
report on Form 8-K on January 28, 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.
March 16, 1999 By: /s/ Joseph Khoshabe
Joseph Khoshabe
Chairman and Chief Executive
Officer
March 16, 1999 By: /s/ Steve Khoshabe
Steve Khoshabe
Chief Financial Officer
March 16, 1999 By: /s/ Robert S. Luce
Robert S. Luce
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000916823
<NAME> UNITED FINANCIAL MORTGAGE CORP
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> APR-30-1999 APR-30-1999
<PERIOD-START> NOV-01-1998 MAY-01-1999
<PERIOD-END> JAN-31-1999 JAN-31-1999
<CASH> 4,566,202 4,566,202
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 42,714,533 42,714,533
<PP&E> 674,417 674,417
<DEPRECIATION> (242,018) (242,018)
<TOTAL-ASSETS> 43,461,537 43,461,537
<CURRENT-LIABILITIES> 36,617,173 36,617,173
<BONDS> 0 0
0 0
315,000 315,000
<COMMON> 6,536,403 6,536,403
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 43,461,537 43,461,537
<SALES> 2,451,513 7,048,117
<TOTAL-REVENUES> 2,872,618 8,167,477
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,103,395 6,570,915
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 214,350 931,288
<INCOME-PRETAX> 516,082 626,483
<INCOME-TAX> 29,273 64,062
<INCOME-CONTINUING> 486,809 562,421
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
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<NET-INCOME> 486,809 562,421
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