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, 2000
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 July 31, 2000
Common Stock, No Par Value 3,881,129
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, 2000
TABLE OF CONTENTS
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets (Unaudited) July 31, 1999 and 2000 3
Statement of Operations (Unaudited) - three months 5
ended July 31, 1999 and 2000
Statement of Stockholder's Equity (Unaudited) - three
months ended July 31, 1999 and 2000 6
Statements of Cash Flows (Unaudited) - three months
ended July 31, 1999 and 2000 7
Notes to Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Part II OTHER INFORMATION 17
EXHIBITS 18
SIGNATURES 19
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Balance Sheet
(Unaudited)
Three Months Ended Three Months Ended
July 31, 1999 July 31, 2000
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 4,563,533 $ 3,737,966
Loans Held For Sale 30,599,216 25,458,203
Accounts Receivable 271,490 423,624
Due From Employees 23,500 15,877
Due from Officers 2,439 0
Due from Affiliates 1,000 0
Deferred Tax Asset 0 20,633
U.S. Savings Bonds 2,000 3,600
Notes Receivable 110,000 128,000
Prepaid Expense 229,668 118,222
Total Current Assets 35,802,846 29,906,125
Furniture, Fixtures & Equipment
Cost 694,218 707,500
Accumulated Depreciation (308,775) (384,810)
Net Furniture, Fixtures, &
Equipment 385,443 322,690
Other Assets:
Servicing Rights 295,695 322,560
Land Investments 0 275,000
Escrow Deposits 196,061 0
Security Deposits 17,769 23,417
Deferred Advisor Fees 39,000 0
Investment 5,850 81,453
Goodwill Net 129,139 123,562
Total Other Assets 683,514 825,991
Total Assets 36,871,802 31,054,807
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, 1999 July 31, 2000
LIABILITES AND STOCKHOLDERS EQUITY
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 235,950 $ 332,793
Loans Payable 700,766 0
Accrued Expenses 177,675 511,171
Leases Payable-Short Term 17,015 13,000
Deferred Income Taxes 270,599 0
Taxes Payable 46,145 0
Escrow Payable 177,972 25,363
Notes Payable - Current 28,560,371 23,611,960
Total Current Liabilities 30,186,494 24,494,287
Leases Payable-Long Term 22,943 10,140
Total Liabilities 30,209,437 24,504,427
Stockholders' Equity
Common Shares, 20,000,000
Authorized, No Par Value,
Shares Issued and Outstanding;
3,897,529 at July 31, 1999
and 3,881,129 at July 31, 2000 6,527,278 6,494,323
Preferred Shares, 5,000,000
authorized, No Par Value, 63
Series A Redeemable Shares
Issued And Outstanding at
July 31, 1999 and July 31, 2000 315,000 315,000
Retained Earnings (179,913) (258,944)
Total Stockholders Equity 6,662,365 6,550,379
Total Liabilities Plus
Stockholders Equity 36,871,802 31,054,807
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Condensed Statement of Income
(Unaudited)
Three Months Three Months
Ended Ended
July 31, 1999 July 31, 2000
<S> <C> <C>
Revenues:
Commissions & Fees $ 2,430,230 $ 2,402,571
Interest Income 485,146 528,566
Other Income & Expenses 0 0
Total Revenues 2,915,376 2,931,137
Expenses:
Salaries & Commissions $ 1,559,345 $ 1,527,122
Selling & Administrative 730,924 723,991
Depreciation 35,839 39,009
Interest Expense 472,764 515,103
Total Expenses 2,798,872 2,805,225
Income (loss) Before
Income Taxes 116,505 125,911
Income Tax Provision 47,767 54,446
Net Income(Loss) 68,738 71,465
Less Dividends Paid on
Preferred Stock 0 0
Net Income Applicable
To Common Shareholders 68,738 71,465
Basic Net Income
Per Common Share 0.0176 0.0184
Diluted Net Income
Per Common Share 0.0166 0.0171
Shares used in computation of
Basic Net Income Per Share 3,897,529 3,881,129
Shares used in computation of
Diluted Net Income Per Share 4,139,529 4,181,129
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, 2000
(Unaudited)
Common Preferred Retained
Stock Stock Earnings Total
<S> <C> <C> <C> <C>
Balance, April 30, 2000 6,510,938 315,000 (330,409) 6,495,529
Retirement of 200 shares (16,615) (16,615)
Net Income for the Period
Ended July 31, 2000 71,465 71,465
Balance, July 31, 2000 6,494,323 315,000 (258,944) 6,550,379
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, 1999 July 31, 2000
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income or $ 68,738 $ 71,465
Adjustment to Reconcile Net Income
To Net Cash Provided by Operating
Activities
Depreciation 32,263 19,009
Changes In:
Prepaids & Other Current Assets (18,000) (209,636)
Accrued Expenses & Other
Current Liabilities 128,267 (35,252)
Accounts Payable 0 78,000
Deferred Tax Asset 0 54,446
Deposits (136,633) 0
NET CASH PROVIDED BY OPERATING
ACTIVITIES 74,634 (21,967)
CASH FLOWS FROM INVESTING ACTIVITIES
Land Sales 0 (40,493)
Purchase of Fixed Assets (48,699) (1,831)
Goodwill 3,576 0
Investments (100) (12,981)
Servicing Rights (109,715) 6,014
NET CASH PROVIDED FROM INVESTING
ACTIVITIES (154,938) (49,290)
CASH FLOWS FROM FINANCING ACTIVITIES
Notes Receivable 0 (2,401)
Notes Payable 700,766 0
Changes in Short-Term Debt 4,720 (1,093)
Changes in Long-Term Debt (8,608) (3,201)
Deferred Advisor Fees 39,000 0
Common Stock Redeemed 0 (16,615)
Mortgage Loans Made 3,378,282 6,183,106
Changes in Bank Line of Credit (3,815,261) (5,956,728)
CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 298,900 203,068
INCREASE (DECREASE) IN CASH 218,596 131,810
Cash at Beginning of Period 4,344,937 3,606,156
Cash at End of Period 4,563,533 3,737,966
The accompanying Notes are an integral part of this statement
</TABLE>
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
Notes to Financial Statements
July 31, 2000
(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, 2000.
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, 2000 are not
necessarily indicative of the results that might be expected for the year
ended April 30, 2001.
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, Washington, and Nevada.
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. In addition, the Company is approved to issue Government
National Mortgage Association securities.
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
Notes to Financial Statements
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.
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.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
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.
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.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
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.
Notes Payable
The Company has mortgage warehouse credit facilities aggregating
$49 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, 2000
$20 million mortgage warehouse credit facility
at a commercial bank; interest at LIBOR;
plus 160 basis points; expires 09/28/00 $ 9,939,170
$25 million mortgage warehouse credit facility
at a commercial bank; interest at commercial
paper rate; plus 150 basis points. expires 09/00 12,145,293
$2 million mortgage warehouse credit facility at
a commercial bank; interest at LIBOR plus
160 basis points; expires 09/28/00 1,527,497
$2 million mortgage warehouse credit facility at a
commercial bank; interest at Prime;
plus 50 basis points; expires 10/31/2003 0
Total $ 23,611,960
Retirement Plan
The Company has a 401K plan covering all eligible employees.
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 three months ended July 31, 2000.
Future minimum rental payments for the next five years at
July 31, 2000 are as follows:
Year Ending April 30, Operating Leases
2001 294,299
2002 255,269
2003 209,693
2004 124,892
2005 74,151
Total Commitment $ 958,304
Future lease payments capital leases at July 31, 2000:
Year Ending April 30, Capital Leases
2001 17,573
2002 12,008
2003 5,415
2004 451
Total Commitment $ 35,447
Less Interest 12,307
Less Short Term 13,000
Long Term $ 10,140
<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 31st:
1999 2000
Current:
Federal $ 24,872 $ 21,940
State 5,120 4,517
SubTotal 29,992 26,457
Deferred:
Federal 14,740 23,210
State 3,305 4,779
SubTotal 17,775 27,989
Total 47,767 54,446
The components of the deferred tax asset (liability) are as
follows for the period ending July 31st:
1999 2000
Loss Carry-Forward 0 75,079
Accelerated Depreciation 25,932 15,812
Deferred Receivables (86,678) (186,479)
Deferred Tax Asset(Liab) (60,746) (95,588)
Valuation Allowance (209,853) 74,955
Net Deferred Tax Asset
(Liability) $ (270,599) $ 20,633
The effective tax rates for the three month period ended July 31,
1999 and July 31, 2000 are the statutory Federal tax of 34% and
state tax rate of 7%.
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, 1999 and 2000.
<PAGE>
United Financial Mortgage Corp.
Notes to Unaudited Financial Statements
Stockholders' Equity
Warrants
At July 31, 2000, the Company had total warrants outstanding to
purchase 300,000 shares of the Company's Common Stock. The exercise price
of the warrants range between $0.50 and $7.80 per share. Warrants for
25,000 shares expire on the fifth anniversary of their issuance. Warrants
for 195,000 shares expire on November 15, 2000. Warrants for 80,000
shares expire May 2003. In certain circumstances, the warrants have
certain "piggy back" or other registration rights.
As of January 31, 2000, 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 300,000 common shares for issuance upon
exercise of all warrants.
In March of 1999, the Company implemented a stock repurchase
program. As of July 31, 2000, the Company has purchased 18,900 shares
and has returned such shares to `authorized but not issued' shares.
Servicing
During the recent period ended July 31, 2000, the Company has
continued to build its servicing portfolio. As of the balance sheet
date, the servicing portfolio was sixteen million, nine hundred seventy
six thousand, eight hundred twenty dollars (16,976,820) 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. The total number of shares granted
as of July 31, 2000 was 174,000.
Contingencies
The Company is involved in litigation in the normal course of
business. This litigation is not expected to have a material effect in
the Company's results of operations or financial condition.
<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 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.
Due to the method of accounting used by MSA, it is not possible to
present a pro forma combined financial statement. If included,
management does not believe it would present a material change to the
Company's financial statements.
Credit Risk
Financial instruments that potentially subject the Company to
credit risk include cash balances at banks that exceed the related
federal deposit insurance by $3,595,840 by July 31, 2000
<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, 1999
Income Shares Per Share
(Numerator) (Denominator) Amount
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
Period Ended July 31, 2000
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic Earnings Per Share
Income Available to
Common Shareholders 71,465 3,881,129 0.0184
Effect of Dilutive Securities
Options and Warrants 300,000
Diluted Earnings Per Share
Income Available to
Common Shareholders 71,465 4,181,129 0.0171
<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
Three Months Ended July 31, 2000
The three month period ended July 31, 2000 saw loan volume and
revenue remain relatively flat as compared to the same time period in
the previous year. Despite the fact that the Company saw profit margins
decrease as compared to the same period last year, the Company was able
to hold expenses flat. The Company plans to open new offices in the near
future.
Commission and fee revenue decreased slightly from $2,430,230
for the three months ended July 31, 1999 to $2,402,571 for the three
months ended July 31, 2000. This is a percentage decrease of
approximately 1.1%.
Interest income increased from $485,146 for the three months
ended July 31, 1999 to $528,566 for the three months ended July 31, 2000.
This increase was attributable to the increase in higher interest income
on invested capital.
Salary and commission expense decreased from $1,559,345 for the
three months ended July 31, 1999 to $1,527,122 for the three months
ended July 31, 2000. This was a decrease of approximately 2.1% despite
the Company's continued investment in the expansion of the Company's
sales organization and the increasing cost of wholesale originations
through the premiums that are paid for these originations.
Selling and administrative expenses decreased from $730,924 for
the three months ended July 31, 1999 to $723,991 for the three months
ended July 31, 2000. This decrease of 1.0% occurred despite the
continued efforts to improve infrastructure and technology advancements.
Depreciation and amortization expense increased from $35,839 for
the three months ended July 31, 1999 to $39,009 for the three months
ended July 31, 2000. This increase principally resulted from technology
investments made during the past two fiscal years. This investment is
in line with the Company's strategy of technological advancement and
infrastructure improvements.
Interest expense increased from $472,764 for the three months
ended July 31, 1999 to $515,103 for the three months ended July 31, 2000.
This increase was the result of the increased cost of borrowing as interest
rates have risen.
<PAGE>
Liquidity and Capital Resources
During the three months ended July 31, 1999 and July 31, 2000,
net cash generated(used) by operating activities was $74,634 and ($21,967),
respectively. Net cash generated by operating activities decreased from
the first three months of fiscal year 1999 to the first three months of
2000 largely due to the fluctuation in the balances in the prepaid and
other current asset accounts.
Net cash generated(used) by investing activities changed from
($154,938) for the three months ended July 31, 1999 to ($49,290) for the
three months ended July 31, 2000. The change from period to period largely
was attributable to the change in retaining servicing rights on certain
closed loans during the time periods.
Cash flow from financing activities for the first three months
of fiscal year 1999 and the first three months of fiscal year 2000 was
$298,900 and $203,068, respectively. This difference largely was a
result of the change in the amount of loans held for sale in the time
periods.
The net cash flow from operating, financing, and investing
activities was $218,596 for the first three months of fiscal year 1999
and $131,810 for the first three months of fiscal year 2000.
Capital expenditures for the period ended July 31, 2000 were
approximately $10,000, 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 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.
During the first three 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 loans that the Company originates. Such retention has resulted
in some reduction in short term cash flow available. 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, broker
commissions, 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 higher interest
rates in recent quarters have resulted in many mortgage companies
leaving the market. This benefits the Company long-term because of
less competition. However, short term effects include less origination
activity and reduced margins.
<PAGE>
The Company 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 States Securities
Exchange Commission on April 30, 2000
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 - None
<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, 2000 By: /s/ Joseph Khoshabe
Joseph Khoshabe
Chairman and Chief
Executive Officer
September 14, 2000 By: /s/ Steve Khoshabe
Steve Khoshabe
Chief Financial Officer
September 14, 2000 By: /s/ Robert S. Luce
Robert S. Luce
Secretary
