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, 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 month
(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 September 14, 1999
Common Stock, No Par Value 3,897,529
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, 1999
TABLE OF CONTENTS
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets (Unaudited) July 31, 1998 and 1999 3
Statement of Operations (Unaudited) - three months
ended July 31, 1998 and 1999 5
Statement of Stockholder's Equity (Unaudited) -
three months ended July 31, 1998 and 1999 6
Statements of Cash Flows (Unaudited) - three
months ended July 31, 1998 and 1999 7
Notes to Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Part II OTHER INFORMATION 16
EXHIBITS 17
SIGNATURES 18
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Balance Sheet
(Unaudited)
Three Months Ended Three Months Ended
July 31, 1998 July 31, 1999
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 4,466,439 $ 4,563,533
Loans Held For Sale 20,027,262 29,400,674
Mortgage Loan Investments 1,389,909 1,198,542
Accounts Receivable 130,242 271,490
Due From Employees 18,868 23,500
Due from Officers 67,516 3,439
Deferred Tax Asset 4,169 0
U.S. Savings Bonds 2,000 2,000
Notes Receivable 216,000 110,000
Prepaid Expense 77,408 229,668
Total Current Assets 26,399,813 35,802,846
Furniture, Fixtures & Equipment
Cost 417,361 694,218
Accumulated Depreciation (212,663) (308,775)
Net Furn, Fix, & Equipment 204,968 385,443
Other Assets:
Servicing Rights 73,475 295,695
Escrow Deposits 3,377 196,061
Security Deposits 13,740 17,769
Deferred Advisor Fees 195,000 39,000
Investment 5,750 5,850
Goodwill Net 0 129,139
Total Other Assets 291,342 683,514
Total Assets 26,895,853 36,871,802
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Balance Sheet
(Unaudited)
Three Months Ended Three Months Ended
July 31, 1998 July 31, 1999
<S> <C> <C>
LIABILITES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts Payable $ 191,699 $ 235,950
Accrued Expenses 174,920 177,675
Loans Payable 0 700,766
Leases Payable-Short Term 0 17,015
Deferred Income Taxes 0 270,599
Taxes Payable 0 46,145
Escrow Payable 3,377 177,972
Notes Payable - Current 20,242,662 28,560,371
Total Current Liabilities 20,612,658 30,186,494
Leases Payable-Long Term 23,064 22,943
Total Liabilities 20,635,722 30,209,437
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 6,527,278
Preferred Shares, 5,000,000
authorized, No Par Value, 63 Series
A Redeemable Shares Issued And
Outstanding at July 31, 1998
and July 31, 1999. 315,000 315,000
Retained Earnings (591,272) (179,913)
Total Stockholders Equity 6,260,131 6,662,365
Total Liabilities Plus
Stockholders Equity 26,895,853 36,871,802
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Condensed Statement of Income
(Unaudited)
Three Months Ended Three Months Ended
July 31, 1998 July 31, 1999
<S> <C> <C>
Revenues:
Commissions & Fees $ 2,249,771 $ 2,430,230
Interest Income 369,532 485,146
Other Income & Expenses (18,683) 0
Total Revenues 2,600,620 2,915,376
Expenses:
Salaries & Commissions $ 1,546,801 $ 1,559,345
Selling & Administrative 642,364 730,924
Depreciation 12,180 35,839
Interest Expense 324,737 472,764
Cost Expense Litigation 62,944 0
Total Expenses 2,589,026 2,798,872
Income (loss) Before
Income Taxes 11,594 116,505
Income Tax Provision 1,500 47,767
Net Income (loss) Applicable
To Common Shareholders 10,094 68,738
Basic Net Income (loss)
Per Common Share 0.0028 0.0176
Diluted Net Income(loss)
Per Common Share 0.0026 0.0166
Shares used in comp of
Basic Net Income Per Share 3,606,696 3,897,529
Shares used in comp of
Diluted Net Income Per Share 3,848,696 4,139,529
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Statement of Stockholders Equity
Three Months Ended July 31, 1999
(Unaudited)
<S> <C> <C> <C>
Common Retained
Stock Earnings Total
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
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Statement of Cash Flows
(Unaudited)
Three Months Ended Three Months Ended
July 31, 1998 July 31, 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income or (Loss) $ 10,094 $ 68,738
Adjustments to Reconcile Net Income
To Net Cash Provided by Op Activities
Depreciation 12,180 32,263
Changes In:
Prepaids & Other Current Assets (119,164) (18,000)
Accrued Expenses & Other Cur Liab (2,553) 128,267
Accounts Payable (15,763) 0
Deposits 2,261 (136,633)
NET CASH PROVIDED BY OPERATING
ACTIVITIES (112,945) 74,634
CASH FLOWS FROM INVESTING ACTIVITIES
Land Sales 303,250 0
Purchase of Fixed Assets (74,590) (48,699)
Goodwill 0 3,576
Investments 0 (100)
Servicing Rights 811 (109,715)
NET CASH PROVIDED FROM INVESTING
ACTIVITIES 229,471 (154,938)
CASH FLOWS FROM FINANCING ACTIVITIES
Notes Receivable (74,122) 0
Loans Payable 0 700,766
Changes in Short-Term Debt 9,135 4,720
Changes in Long-Term Debt (401,936) (8,608)
Officer Loans (2,643) 0
Deferred Advisor Fees 39,000 39,000
Deferred Offering Expenses 143,425 0
Preferred Stock Redeemed (750,000) 0
Common Stock Proceeds - Net 4,153,508 0
Mortgage Loans Made (6,824,748) 3,378,282
Changes in Bank Line of Credit 6,084,283 (3,815,261)
CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 2,375,902 298,900
INCREASE (DECREASE) IN CASH 2,492,428 218,956
Cash at Beginning of Period 1,974,011 4,344,937
Cash at End of Period 4,466,439 4,563,533
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
Notes to Unaudited Financial Statements
July 31, 1999
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 three month
period ended July 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 has
principally 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 includedin 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.
<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 is 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.
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 $130,000. The loan was made on terms
generally more favorable to the Company than 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.
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.
Servicing
During the recent period ended July 31, 1999, the Company has
continued to build a servicing portfolio. As of the balance sheet
date, the servicing portfolio was fifteen million, five hundred sixty
two thousand, nine hundred fifteen dollars (15,562,915) 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 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.
Contingencies
The Company is a defendant in a series of complaints relating to
its business activities. The aggregate amount of these claims is
approximately $300,000. 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>
United Financial Mortgage Corp.
Notes to Unaudited 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.
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:
July 31, 1999
$20 million mortgage warehouse credit facility
at a commercial bank; interest at LIBOR;
plus 160 basis points; expires 10/28/99 $ 23,171,390
$25 million mortgage warehouse credit facility
at a commercial bank; interest at LIBOR
plus 185 basis points. expires 09/99 3,872,518
$15 million mortgage warehouse credit facility
at a commercial bank; interest at LIBOR
plus 150 basis points; expires 2/2000 712,227
$2.0 million mortgage warehouse credit facility at
a commercial bank; interest at LIBOR plus
160 basis points; expires 10/28/99 804,236
Total $ 28,560,371
Retirement Plan
The Company has a 401K plan that all eligible employees may
participate in. Company contributions to the plan are discretionary.
<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 minimum rental payments
under
the Company's operating leases. Total rent expense under these
leases was approximately $80,000, for the nine months ended July 31,
1999.
Future minimum rental payments for the next five years at
July 31, 1999 are as follows:
Period Ending July 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 July 31:
1998 1999
Current:
Federal $ 1,000 $ 24,872
State 500 5,120
SubTotal 1,500 29,992
Deferred:
Federal 0 14,740
SubTotal 0 17,775
Total $ 1,500 $ 47,767
The components of the deferred tax asset (liability) are as
follows for the period ending July 31st:
1998 1999
Loss Carry-Forward 0 0
Accelerated Depreciation 18,000 25,932
Deferred Receivables 275,000 (86,678)
Deferred Tax Asset(Liab) 293,000 (60,746)
Valuation Allowance (288,831) (209,853)
Net Deferred Tax Asset
(Liability) $ 4,169 $ (270,599)
The effective tax rate for the three month periods ended July
31, 1998 and July 31, 1999: 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 July 31, 1998 and 1999.
Stockholders' Equity
Warrants
At July 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, 1999.
In certain circumstances, the warrants have certain _piggy back_ or
other registration rights.
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.
In March of 1999, the Company started a stock repurchase
program. As of July 31, 1999, the Company has purchased 2,500 shares
and has returned to `authorized but not issued' shares.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
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 July 31, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic Earnings Per Share
Income Available to Common
Shareholders 10,094 3,606,696 0.0027
Effect of Dilutive Securities
Options and Warrants 242,000
Diluted Earnings Per Share
Income Available to Common
Shareholders 10,094 3,848,696 0.0026
Period ended July 31, 1999
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic Earnings Per Share
Income Available to Common
Shareholders 68,738 3,897,529 0.0176
Effect of Dilutive Securities
Options and Warrants 242,000
Diluted Earnings Per Share
Income Available to Common
Shareholders 68,738 4,139,529 0.0166
<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 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, 1999
The three months ended July 31, 1999 was a period of
significant challenge, but reward for the Company. Despite a rising
interest rate environment, loan volume and revenues were at an all
time high.
Commission and fee revenue increased from $2,249,771 for the
three months ended July 31, 1998 to $2,430,230 for the three months
ended July 31, 1999. This percentage increase of approximately 8% is
primarily the result of an increase in the number of loan
originations. The increase in loan originations was largely the
result of new product offering by the Company.
Interest income increased from $369,532 for the three months
ended July 31, 1998 to $485,146 for the three months ended July 31,
1999. This increase was attributable to the increase in loan
originations and higher interest income on invested capital.
Salary and commissions expenses increased slightly from
$1,546,801 for the three months ended July 31, 1998 to $1,559,345 for
the three months ended July 31, 1999. The increase was attributed to
the number of loan originations in the comparable time periods.
Selling and administrative expenses increased from $642,364 for
the three months ended July 31, 1998 to $730,924 for the three months
ended July 31, 1999. This increase 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 $12,180 for the three months
ended July 31, 1998 to $35,839 for the three months ended July 31,
1999. This was principally a result of technology investments made
during fiscal year 1999. This investment is in line with the
Company's strategy of continued technological advancement and
infrastructure improvements.
Interest expense increased from $324,737 for the three months
ended July 31, 1998 to $472,764 for the three months ended July 31,
1999. 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 31,1998 and July 31, 1999, respectfully. This consists of
$39,000 recorded as advisory fees in both periods. Without this non-
cash charge, net income available to common shareholders would have
been $49,000 in the first quarter 1998 and $108,000 in the first
quarter 1999.
Liquidity and Capital Resources
During the three months ended July 31, 1998 and July 31, 1999,
net cash generated(used) by operating activities was ($112,945) and
$74,634, respectively. Net cash generated by operating activities
increased from the first three months of 1998 versus the first three
months of 1999.
Net cash generated(used) by investing activities changed from
229,471 for the three months ended July 31, 1998 to ($154,938) for
the three months ended July 31, 1999. The change from 1998 to 1999
was largely 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 period in 1999.
Cash flow from financing activities for the first quarter 1998
and first quarter 1999 was $2,375,902 and 298,900, respectively.
This change resulted largely from the net proceeds of a public
offering which occurred in early fiscal year 1999. Net proceeds from
the public offering totaled $4,146,437.
Therefore, the net cash flow from operating, financing, and
investing activities was $2,492,428 for the first quarter 1998 and
$218,596 for the first quarter 1999.
Capital expenditures for the quarter ended July 31, 1999 were
approximately $50,000, principally in technology and to a lesser
extent for the expansion of sales organization facilities. These
capital expenditures include a new loan tracking system and continue 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 quarter 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
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.
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 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.
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 July 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- 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 current reports
on Form 8-K on June 02, 1999, July 01, 1999 and July 13, 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.
September 14, 1999 By: /s/ Joseph Khoshabe
Joseph Khoshabe
Chairman and Chief Executive
Officer
September 14, 1999 By: /s/ Steve Khoshabe
Steve Khoshabe
Chief Financial Officer
September 14, 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 3-MOS
<FISCAL-YEAR-END> APR-30-1999 APR-30-2000
<PERIOD-START> MAY-01-1998 MAY-01-1999
<PERIOD-END> JUL-31-1998 JUL-31-1999
<CASH> 4,466,439 4,563,533
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 26,399,813 35,802,846
<PP&E> 417,361 694,218
<DEPRECIATION> (212,663) (308,775)
<TOTAL-ASSETS> 26,895,853 36,871,802
<CURRENT-LIABILITIES> 20,612,658 30,186,494
<BONDS> 0 0
0 0
315,000 315,000
<COMMON> 6,536,403 6,527,278
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 26,895,853 36,871,802
<SALES> 2,249,771 2,430,230
<TOTAL-REVENUES> 2,600,620 2,915,376
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,264,289 2,326,108
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 324,737 472,764
<INCOME-PRETAX> 11,594 116,505
<INCOME-TAX> 1,500 47,767
<INCOME-CONTINUING> 10,094 68,738
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,094 68,738
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