U.S. SECURITIES AND EXHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 333-27037
UNITED FINANCIAL MORTGAGE CORP.
(Name of small business Issuer 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 60523
Oak Brook, Illinois (Zip Code)
(Address of principal executive offices)
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 Securities 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year_____$10,896,324
The aggregate market value of the voting and non-voting common equity
held by non-affiliates was $3,900,029 on July 31, 2000.
<PAGE>
(Issuers involved in bankruptcy proceedings during the past five years)
Check whether the Issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes [ ] No [ ]
(Applicable only to corporate registrants) State the number of shares
outstanding of each of the Issuer's classes of common equity, as of the
latest practicable date. 3,900,029.
Documents incorporated by reference. If the following documents are
incorporated by reference, briefly describe them and identify the part of
the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule
424(b) or (c) of the Securities Act of 1933 (_Securities Act_). The
listed documents should be clearly described for identification purposes
(. e.g., annual report to security holders for fiscal year ended
December 24, 1990).
Transitional Small Business Disclosure Form (Check one): Yes [ ] No [X]
<PAGE>
PART I
Item 1. Description of Business
The Company was formed as an Illinois corporation in April of 1986 to
engage in the business of mortgage banking. The Company is licensed as a
mortgage banker in the states of Arkansas, California, Colorado, Delaware,
Florida, Illinois, Indiana, Kentucky, Maryland, Missouri, New Mexico,
Oregon, South Carolina, Utah, Washington, Wisconsin and Texas. The Company
also does business in other states that do not have mortgage banking
licensure statues, 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 and
the Servicing Division. The Company's Retail and Wholesale Origination
business is principally conducted in the states of Illinois, California,
Nevada, Missouri and Florida.
The loans that the Company originates and expects to service primarily
are first mortgages secured by single (one to four units) family residences,
although the Company also may originate, sell and service loans secured by
first mortgages on multi-family residential properties (more than four
units) and to a lesser extent, other mortgage assets.
The Company's loan production activities generate revenue through (i)
origination fees and gains on the sale of loans to broker-dealers and
institutional investors, and (ii) interest on mortgage loans held, or
"warehoused" from their origination or purchase until their sale to
broker-dealers and institutional investors. The Company's expanded loan
servicing division is expected to produce income from loan servicing fees.
The Company also engages in the brokerage or origination of loans on
commercial real estate, including shopping centers, office properties and
other commercial loans. The Company either brokers (e.g. arranges for loan
funding from third-party lenders) or funds and services these commercial
loans. Commercial loans may be brokered to other financial institutions,
in which case, the Company receives a negotiated fee. If the Company
originates and services a commercial loan, then revenues are earned based
upon the difference between the interest rate paid to the issuer of the
credit line and the interest rate paid by the borrower.
At this time, the Company's primary sources of loan originations are
its Wholesale and Retail Divisions. On April 30, 2000, the Company's
Retail Division operated five (5) full service retail origination offices.
At such date, the retail offices were located in three (3) states and were
staffed by approximately 50 employees, including commission-based loan
officers. The retail offices are currently located as follows: Oak Brook,
Illinois; Champaign, Illinois; Creve Coeur, Missouri; Clearwater, Florida;
and Las Vegas, Nevada. Wholesale origination principally is conducted from
the Company's offices in Oak Brook, Illinois, Lombard, Illinois, and
Irvine, California.
<PAGE>
The Company's mortgage banking activities principally focused on
retail loan origination for the period from inception through 1993.
During the period from 1994 through 1995, the Company emphasized the
wholesale origination. This emphasis resulted from a general decrease in
loan origination volume for this period. The application of additional
resources to "wholesale" loan origination during this period served to
increase the Company's loan volume. During the period from 1996 to date,
the Company has focused on retail loan origination because it is management's
experience that profit margins in retail origination generally are greater
than profits relating to wholesale activities.
The Wholesale Origination Division
Wholesale loan origination involves the funding by the Company of loans
submitted by non-affiliated mortgage brokers. The Company realizes revenues
from the sale of such loans to investors for a price greater than the amount
paid to the mortgage broker. The timing of the sale of loans to investors
and failure to comply with investor underwriting guidelines could result in
losses on loan sales. Management believes that substantially all
underwriting and related issues generally are resolved with the investor
prior to closing. It is management's experience that wholesale loan
origination tends to be less profitable on a per loan basis than retail
origination, but expansion into the wholesale sector is less costly than
retail origination because wholesale origination does not require the
establishment of costly office space and the related overhead expense. It
is management's experience that wholesale account executives generally
work from their homes or in shared office suites. This operating structure
enables the Company to quickly enter new markets.
It is management's experience that wholesale loan origination tends to
be less profitable on a per loan basis than retail origination because
wholesale loans are subject to two levels of costs, namely independent
broker compensation, and Company sales commissions paid to its personnel
for the production of the wholesale loan.
The Company's Wholesale Division, which was established in June,
1994, operates from its corporate headquarters in Oak Brook, Illinois
and Irvine, California. The Wholesale Division of the Company acquires loans
from a network of mortgage brokers and other financial intermediaries,
including banks, who are screened by the Company.
In addition to loan processing performed by the correspondent, the
Wholesale Division performs its own underwriting prior to committing to
acquire such loans. Correspondents qualify to participate in the Wholesale
Division's loan acquisition program after a review of their reputation,
mortgage lending experience and financial condition, including a review of
references and financial statements. No single correspondent accounts for
a significant portion of the Wholesale Division's mortgage loan production.
The Retail Origination Division
Retail loan origination involves the direct solicitation of realtors,
builders and prospective borrowers for the origination of mortgage loans.
The Company derives revenues from the premium that is received from the
purchaser of the loan. Generally, that premium is shared on a negotiated
basis with loan officers and others who procure the loan and assist in the
loan origination process.
<PAGE>
The Company's Retail Origination Division solicits loans directly
from consumers and through real estate brokers, builders and other real
estate professionals. In developing its retail network, the Company has
followed a strategy of establishing offices in areas where its experience
indicates strong loan demand. This gives the Company added flexibility
to open and close offices as dictated by mortgage demand.
Establishing a reputation for prompt and responsive customer service
is another integral component of the Company's marketing strategies. The
Company believes that the ability to process loan applications quickly
provides a distinct advantage over its competitors. It is management's
experience that the average period between receipt of a loan application
and the Company's lending commitment is generally less than 10 days.
The Company endeavors to process loans quickly, while maintaining
comprehensive underwriting controls through its automated techniques for
loan origination, processing, underwriting and closing. The Company's
computer system integrates the Company's loan origination activities to
expedite loan processing, and enhances its ability to respond to market
opportunities.
Quality Control of Mortgage Origination
In order to ensure that the Company originates high quality mortgage
loans, it has retained the services of a quality control company with an
industry wide reputation to conduct audits of the Company's loan
origination activities on a monthly basis. The Quality Control company
audits pursuant to contractual specifications approximately ten (10%)
percent of the aggregate retail and wholesale loans originated by the
Company on a monthly basis. The audit process includes verification of
mortgage information, including: employment status, wages/salaries;
credit standing; property appraisal; confirmation of the borrower's
savings and other assets; and compliance with other applicable
underwriting guidelines. The Quality Control company selects loan files
on a random basis. The Company receives a quality control management
report from the Quality Control company at the conclusion of each
monthly audit.
Loan Processing and Underwriting
Loan applications generally are prepared by Company loan officers and
verified by personnel in the Company's Retail Origination Division.
Verification procedures, include, among other things, obtaining: (i) written
confirmations of the applicant's income and bank deposits, (ii) a formal
credit report on the applicant from an unaffiliated credit reporting
agency, (iii) a preliminary title report, and (iv) a real estate appraisal.
Appraisals for conventional and FHA loans are prepared by third party,
unaffiliated appraisers who are pre-approved based upon their experience,
education and reputation. Completed loan applications are then transmitted
to the Company's Underwriting Department or to underwriting sub-contracting
companies who provide underwriting services to the Company. The Underwriting
Department of the Company or its sub-contractors contain experienced staff
who verify the completeness and accuracy of application information, and
determine its compliance with the Company's underwriting criteria and
those of applicable government agencies or other investors.
Underwriting criteria include loan-to-value ratios, borrower income
qualifications, investor requirements, insurance and property appraisal
requirements. The Company's underwriting guidelines for FHA, VA, FNMA
and FHLMC loans comply with the written underwriting guidelines of the
relevant agency.
<PAGE>
The Company's underwriting guidelines for "non-conforming" loans are
based upon the underwriting standards required by investors to whom such
loans are sold. "Non-Conforming" loans generally include loan products
that do not comply with the underwriting guidelines of Freddie Mac,
Fannie Mae, FHA or VA. Non-conforming loans generally are underwritten by
the Company in accordance with the underwriting guidelines of the applicable
investor who purchases the loans.
Most of the Company's underwriting personnel function independently of
the Company's loan origination personnel and do not report to any individual
directly involved in the loan origination process.
The Company's internal Quality Control Department reviews the Company's
origination activities including approximately one hundred percent (100%)
of all closed loans in order to enhance the ongoing evaluation of the
loan processing function, including employees, credit reporting agencies
and independent appraisers. In conducting such reviews, the Quality
Control Department reviews the loan applications for compliance with
federal and state lending standards, which involves a second verification
of employment prior to loan closing, reconfirmation of banking information,
and obtaining separate credit reports and property appraisals. The Quality
Control Department submits all review results directly to the president of
the Company.
Loan Commitments
Subsequent to underwriting approval, prior to loan funding, the Company
issues loan commitments to qualified applicants. Commitments indicate loan
amount, fees, funding conditions, approval expiration dates and interest
rates. Commitments providing for "fixed" interest rates beyond sixty (60)
days generally are not issued, unless the Company receives an appropriate
fee based upon the assessment of the risk associated with a longer commitment
period. Servicing compensation (based upon FNMA guidelines) generally ranges
from .25% to .50% per annum on the outstanding principal balances of the
loans. Servicing fees are collected from monthly mortgage payments. Other
sources of loan servicing revenues include late charges and use of
funds benefits.
As a servicer of mortgage loans underlying mortgage backed securities
issued by FNMA, FHLMC or other investors, the Company is obligated to make
timely payments of principal and interest to security holders, whether or
not such payments have been made by borrowers on the underlying mortgage
loans. In accordance with applicable FHA and VA guidelines, the Company
is insured by FHA against foreclosure loss on FHA loans, and the VA
guarantees against foreclosure loss on VA loans, subject to certain
limitations. Although FNMA and FHLMC are obligated to reimburse the
Company for principal and interest payments advanced by the Company
as a servicer, the funding of delinquent payments or the exercise of
foreclosure rights involves prospective costs to the Company.
<PAGE>
The Company believes that an important source for its loan-servicing
portfolio is loans produced by the Company. The servicing rights for
selected loans are retained by the Company after such loans are sold to
investors. In addition, the Company may supplement its servicing portfolio
by purchasing mortgage servicing rights relating to loans originated by
other lenders. Such purchases will be made only after the Company has
conducted a due diligence analysis of the loan portfolio.
The Company intends to provide low cost and flexible servicing
that is responsive to the needs and requirements of its customers and
investors.
Seasonality
It is management's experience that the mortgage loan origination
business is generally subject to seasonal trends. These trends reflect
the general pattern of sale and resale of homes. It is management's
experience that loan origination typically peaks during the spring and
summer seasons, and declines to lower levels from mid-November through
January. The mortgage servicing business is generally not subject to
seasonal trends.
Competition
The mortgage banking industry is highly competitive. The Company
competes with other financial institutions, such as mortgage banks, state
and national banks, savings and loan associations, savings banks, credit
unions and insurance companies, mortgage bankers and mortgage brokers.
Some of the Company's competitors have financial resources that are
substantially greater than those of the Company, including some
competitors which have a significant number of offices in areas where the
Company conducts its business. The Company competes principally by
offering loans with competitive features, by emphasizing the quality of
its service and by pricing its range of products at competitive rates.
Information published by the Mortgage Bankers Association of
America ("MBA") indicates that although the mortgage business is
competitive, it also is fragmented in that no single lender has a
significant market share of total origination volume. MBA data
indicates that overall mortgage origination volume is shared in
varying percentages among commercial banks, savings and loan and
mortgage banking companies. MBA data also indicates that historically,
mortgage banks have had an estimated twenty-thirty percent (20-30%)
share of total origination volume. Commercial banks, savings banks,
savings and loan associations and mortgage banking companies service the
bulk of residential mortgages. It is management's belief that market
share among competitors generally shifts more slowly in servicing than
in origination. Management of the Company does not anticipate any
significant changes in the market share described above in the near term.
<PAGE>
The Company's mortgage loan production activities are subject to
the Truth-in-Lending Act and Regulation Z promulgated thereunder.
The Truth-in-Lending Act contains disclosure requirements designed to
provide consumers with uniform, understandable information with respect to
the terms and conditions of loans and credit transactions in order to give
them the ability to compare credit terms. The Truth-in-Lending Act also
guarantees consumers a three day right to cancel credit transactions,
including any refinance mortgage or junior mortgage loan on a consumer's
primary residence. The Company believes that it is in substantial compliance
in all material respects with the Truth-in-Lending Act.
The Company also is required to comply with the Equal Credit Opportunity
act of 1974, as amended ("ECOA"), which prohibits creditors from
discriminating against applicants on the basis of race, color, sex, age or
marital status. Regulation B promulgated under ECOA restricts creditors
from obtaining certain types of information from loan applicants. It
also requires certain disclosures by lenders regarding consumer rights
and requires lenders to advise applicants of the reasons for any credit
denial. In instances where the applicant is denied credit or the rate or
charge for loans increases as a result of information obtained from a
consumer credit agency, another statute, the Fair Credit Reporting
Act of 1970, as amended, requires lenders to supply the applicant
with a name and address of the reporting agency.
The Federal Real Estate Settlement Procedure Act ("RESPA") imposes,
among other things, limits on the amount of funds a borrower is required
to deposit with the Company in an escrow account for the payment of taxes,
insurance premiums or other charges. The Company has policies, procedures
and systems in place to ensure compliance with RESPA.
The Company believes it is in possession of all licenses in those
states in which it does business that require such licenses, except where
the absence of such licenses is not material to the business and
operations of the Company as a whole. Conventional mortgage operations
also may be subject to state usury statutes. FHA and VA loans are exempt
from the effect of such statutes.
Item 2. Description of Property
The Company's corporate and administrative headquarters are located in
leased facilities in Oak Brook, Illinois. These facilities comprise
approximately 4,800 square feet of space in a building leased by the
Company for a ten year term at annual rate of approximately $9.50 to $15.63
per square foot, triple net, which lease expires in 2003. In addition, at
April 30, 2000, the Company leased an aggregate of approximately 4,000 square
feet in Lombard, Illinois, 1,146 square feet in Las Vegas, Nevada; 1,475
square feet in Irvine, California; and 900 square feet in St. Louis,
Missouri. The Company has no liability with respect to the lease at
Creve Coeur, Missouri. The aggregate annual lease payments on properties
leased by the Company as of April 30, 2000 was $459,783. The Company
believes that its present facilities are adequate for its current
level of operations. None of the Company's leased facilities are
leased from affiliates of the Company.
<PAGE>
The Company's corporate headquarters are located at 600 Enterprise
Drive Suite #206, Oak Brook, Illinois 60523 and its telephone number is
(630) 571-7222.
Item 3. Legal Proceedings.
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.
Item 4. Submission of Matters to a Vote of Security Holders.
On August 25, 1999, the Company conducted its Annual Meeting of
Shareholders and shareholders approved management's recommendation
regarding the election of directors, the appointment of independent
auditors and vote on an amendment to the non-qualified and incentive
stock option plan.
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
The Company's registration statement regarding 800,000 shares of Common
Stock became effective with the United States Securities and Exchange
Commission on May 26, 1998. The Company's Common Stock began trading on
May 27, 1998 at a price of $6.50 per share.
The Company's Common Stock is traded on The Chicago Stock Exchange
("CSX") under the symbol UFM.
The range of high and low sale prices of the Company's Common
Stock, as reported by the CSX from May 1, 1999 through July 15, 2000
were $1.00 and $4.12, respectively.
Holders. As of July 15, 2000, there were approximately 525
holders of record of the shares.
Dividends. The Company has never declared or paid a dividend on
its Common Stock, and management expects that a substantial portion
of the Company's earnings, if any, for the foreseeable future will be
used to expand loan origination and servicing capabilities. The
decision to pay dividends, if any, in the future is within the discretion
of the Board of Directors and will depend upon the Company's earnings, its
capital requirements, financial condition and other relevant factors such
as loan covenants or other contractual obligations.
<PAGE>
Item 6. Management Discussion and Analysis of Operations.
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 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
Two Years Ended April 30, 1999 and April 30, 2000
The fiscal year ended April 30, 2000 was a period of significant
challenge for the Company. Despite the fact that interest rates increased
as compared to the prior year, loan volume and revenues remained relatively
constant. However, the Company saw profit margins on revenue decrease
for the same period last year due to an increasing interest rate
environment. The Company believes it is still well positioned for the
future due to prior key strategic initiatives that prepared the Company
for interest rate increases.
Commission and fee revenue increased from $8,571,594 for the
twelve months ended April 30, 1999 to $9,051,395 for the twelve months
ended April 30, 2000. This is a percentage increase of approximately 5.6%.
Interest income increased from $1,457,953 for the twelve months
ended April 30, 1999 to $1,824,603 for the twelve months ended April 30,
2000. This increase was attributable to the increase in higher interest
income on invested capital.
Salary and commissions expenses increased from $4,539,018 for the
twelve months ended April 30, 1999 to $6,408,302 for the twelve months
ended April 30, 2000. The increase was attributed to two main
factors: continued investment in the expansion of the Company's sales
organization and the increasing cost of premiums paid on wholesale
originations.
Selling and administrative expenses decreased from $3,460,977
for the twelve months ended April 30, 1999 to $3,039,924 for the
twelve months ended April 30, 2000.
Depreciation and amortization expense increased from $80,704 for
the twelve months ended April 30, 1999 to $127,414 for the twelve
months ended April 30, 2000. This increase principally resulted from
technology investments made during fiscal year 1999. This investment
is in line with the Company's strategy of technological advancement
and infrastructure improvements.
Interest expense increased from $1,054,921 for the twelve
months ended April 30, 1999 to $1,439,021 for the twelve months ended
April 30, 2000. This increase was the result of the increased cost
of borrowing as a result of a higher interest rate environment.
<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 twelve months ending
April 30,1999 and April 30, 2000, respectfully. This consists of
$156,000 recorded as advisory fees in fiscal years 1999 and $78,000
for fiscal year 2000. Without this non-cash charge, net income
available to common shareholders would have been $508,715 as compared
to $352,715 in fiscal year 1999 and ($3,758) as compared to ($81,758)
in fiscal year 2000.
Liquidity and Capital Resources
During the twelve months ended April 30, 1999 and April 30,
2000, net cash generated(used) by operating activities was $435,221
and $267,329, respectively. Net cash generated by operating
activities decreased from year to year largely due to the fluctuation
in net income.
Net cash generated(used) by investing activities decreased from
($243,907) for the fiscal year ended April 30, 1999 to ($528,945) for
the fiscal year ended April 30, 2000. The change in cash from 1999
to 2000 was largely attributable to the sale of two foreclosed
properties in 1999 and the purchase of two properties in 2000. This
was partially offset by investments in fixed assets and the increase
in retaining servicing rights on certain closed loans during the time
periods.
Cash flow from financing activities for the fiscal year 1999
and fiscal year 2000 was 2,179,612 and ($477,165) respectively. This
change resulted largely from the net proceeds of a public offering
that occurred in early fiscal year 1999.
Therefore, the net cash flow from operating, financing, and
investing activities was $2,370,926 for the fiscal year ended April
30, 1999 and ($738,781) for the first the fiscal year ended April 30,
2000.
Capital expenditures for the year ended April 30, 2000 were
approximately $75,000, principally in technology and to a lesser
extent for the expansion of sales organization facilities. These
capital expenditures include a new loan tracking system that coincides
with the strategy of using technology as a competitive advantage.
The Company believes it will continue to make investments in
technology in the 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 past twelve months, 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
certain 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, 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, the short-term
effects include less origination activity and reduced margins.
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 principally is concentrated 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>
Item 7. Financial Statements
UNITED FINANCIAL MORTGAGE CORP.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
Table of Contents_____________________________________ 9
Report of Independent Certified Public Accountants___________________10
Balance Sheet at April 30, 1999 and 2000__________________________11-12
Statement of Income for the years ended
April 30, 1999 and 2000_________________________________________13
Statement of Stockholders' Equity for the years
ended April 30, 1999 and 2000___________________________________14
Statement of Cash Flows for the years
ended April 30, 1999 and 2000__________________________________ 15
Notes to Financial Statements_____________________________________16-22
<PAGE>
INDEPENDENT AUDITOR'S REPORT
UNITED FINANCIAL MORTGAGE CORP.
Financial Statements as of April 30, 1999 and April 30, 2000
together with the Independent Auditors' Report
To the Board of Directors and Stockholders of
United Financial Mortgage Corp.
We have audited the accompanying balance sheets of United Financial
Mortgage Corp. as of April 30, 1999 and April 30, 2000, and the related
statements of income, stockholders' equity and cash flows for the years
ended April 30, 1999 and April 30, 2000. These financial statements are
the responsibility of the Corporation's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
United Financial Mortgage Corp. as of April 30, 1999 and April 30,
2000 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting
principals.
CRAIG SHAFFER AND ASSOCIATES, LTD., C.P.A.
Des Plaines, Illinois
July 24, 2000
Respectfully submitted,
By: /S/ Craig Shaffer
Craig Shaffer and Associates, Ltd.
Certified Public Accountants
July 24, 2000
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Balance Sheet
Year Ended Year Ended
April 30, 1999 April 30, 2000
<S> <C> <C>
A S S E T S
Current Assets:
Cash $ 4,344,937 $ 3,606,156
Loans held for sale 33,979,554 31,641,309
Accounts Receivable 315,860 204,623
Due From Employees 14,700 12,401
Due From Officers 2,439 0
Deferred Tax Asset 0 75,079
U.S. Savings Bond 2,000 2,000
Note Receivable 110,000 125,599
Prepaid Expense 177,098 132,663
Total current assets $ 38,946,588 $ 35,799,830
Furniture, Fixtures & Equipment
Cost 645,519 705,669
Accumulated Depreciation (276,512) (365,801)
Total Furniture, Fixtures & Equipment 369,007 339,868
Other Assets:
Servicing Rights 185,980 328,574
Land Investments 0 234,507
Escrow Deposits 60,793 0
Security Deposits 16,403 23,417
Deferred Advisor Fees 78,000 0
Investments 5,750 68,472
Goodwill Net 132,715 123,562
Total Other Assets 479,641 778,532
Total Assets $ 39,795,236 $ 36,918,230
The accompanying notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Balance Sheet
LIABILITIES AND STOCKHOLDERS' EQUITY
Year Ended Year Ended
April 30, 1999 April 30, 2000
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 235,952 $ 254,793
Leases Payable-Short Term 12,295 14,093
Accrued Expenses 177,675 558,159
Taxes Payable 62,959 0
Deferred Income Taxes 270,599 0
Escrow Payable 32,892 13,627
Notes Payable - Current 32,375,632 29,568,688
Total Current Liabilities $ 33,168,004 $ 30,409,360
Leases Payable-Long Term 31,551 13,341
Total liabilities $ 33,199,555 $ 30,422,701
Stockholders Equity
Common Shares, 20,000,000 Authorized
No. Par Value, Shares Issued and
Outstanding; 3,898,219 at
April 30, 1999 and 3,900,029
at April 30, 2000. $ 6,529,332 $ 6,510,938
Preferred Shares, 5,000,000 Authorized,
No Par Value, 63 Series A Redeemable
Shares Issued And Outstanding;
value $315,000 at April 30, 1999
and April 30, 2000. $ 315,000 $ 315,000
Retained Earnings (248,651) (330,409)
Total Stockholders' Equity $ 6,595,681 $ 6,495,529
Total liabilities and
stockholders' equity 39,795,236 36,918,230
The accompanying notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Statement of Income
Year Ended Year Ended
April 30, 1999 April 30, 2000
<S> <C> <C>
Revenues:
Commissions and Fees $ 8,571,594 $ 9,051,395
Interest Income 1,457,953 1,824,603
Other Income and Expense 15,681 20,326
Net Revenue 10,045,228 10,896,324
Expenses:
Salaries & Commissions $ 4,539,018 $ 6,408,302
Selling & Administrative 3,460,977 3,039,924
Depreciation 80,704 127,414
Interest Expense 1,054,921 1,439,021
Cost and Expense of Litigation 150,000 0
Net Expense $ 9,285,620 $ 11,014,661
Income (loss) Before Income Taxes $ 759,608 $ (118,337)
Income Tax Provision 339,228 (75,079)
Net Income (loss) 420,380 (43,258)
Less Dividends Paid on Preferred Stock 67,665 38,500
Net Income (loss) Applicable to
Common Shareholders 352,715 (81,758)
Basic Net Income(loss) Per Share 0.09 (0.02)
Diluted Net Income Per Share 0.09 (0.02)
Shares used in computation of basic
net income per share 3,828,918 3,900,029
Shares used in computation of diluted
net income per share 4,070,918 4,200,029
The accompanying notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Statement of Stockholders Equity
Twelve Months Ended April 30, 2000
Common Preferred Retained
Stock Stock Earnings Total
<S> <C> <C> <C> <C>
Balance, April 30, 1999 6,529,332 315,000 (248,651) 6,280,681
Net Income for the year end
April 30, 2000 (43,258) (43,258)
Retirement of 7,070 Shares (18,394) (18,394)
Dividend Paid on Preferred Stock (38,500) (38,500)
Balance, April 30, 2000 6,510,938 315,000 (330,409) 6,495,529
The accompanying notes are an integral part of this statement
</TABLE>
<PAGE>
<TABLE>
United Financial Mortgage Corp.
Statement of Cash Flows
Year Ended Year Ended
April 30, 1999 April 30, 2000
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income or (Loss) $ 420,380 $ (39,091)
Adjustments to Reconcile Net Income
To Net Cash Provided by
Operating Activities
Depreciation 76,028 127,414
Changes In:
Prepaids & Other Current Aseets (448,852) 157,971
Accrued
Accounts Payable 28,490 18,841
Deposits (5,101) 53,779
Deferred Tax Asset 0 (75,079)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 435,221 $ 267,329
CASH FLOWS FROM INVESTING ACTIVITIES
Investments 0 (62,722)
Land Sales 303,250 (234,507)
Purchase of Fixed Assets (302,748) (89,122)
Goodwill (132,715) 0
Servicing Rights (111,694) (142,594)
NET CASH PROVIDED FROM INVESTING ACTIVITIES (243,907) (528,945)
CASH FLOWS FROM FINANCING ACTIVITIES
Notes Receivable $ 30,878 $ (15,599)
Changes in Short Term Debt 12,295 1,798
Changes in Long Term Debt (393,449) (18,210)
Officers Loans 62,434 2,439
Deferred Advisor Fees 156,000 78,000
Deferred Offering Expenses 143,425 0
Preferred Stock Redeemed (750,000) 0
Common Stock Proceeds - Net 4,146,437 0
Common Stock Repurchase 0 (18,394)
Mortgage Loans Made (19,387,131) 2,338,245
Changes in Bank Line of Credit 18,226,388 (2,806,944)
Preferred Stock Dividend (67,665) (38,500)
CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 2,179,612 (477,165)
INCREASE (DECREASE) IN CASH 2,370,926 (738,781)
Cash at Beginning of Period 1,974,011 4,344,937
Cash at End of Period 4,344,937 3,606,156
The accompanying notes are an integral part of this statement
</TABLE>
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
Notes to Audited Financial Statements
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, Missouir, 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,
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.
Reverse Share Split
In 1995, the Company's shareholders approved a reverse split of
the Company's common shares pursuant to which each three outstanding
common shares became two common shares. The reverse split was
effective May 9, 1995. The accompanying financial statements reflect
this reverse split as of May 1, 1995.
Summary of Significant Accounting Policies
Net Income(Loss) Per Share
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share." SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Earnings per share amounts for
all periods have been presented and, where appropriate, restated to
conform to SFAS No. 128 requirements.
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
Notes to Audited Financial Statements
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
Revenue Recognition
Revenue is recognized when loans are sold after closings.
Interest income from mortgages held by the Company and from short
term cash investments is recognized as earned.
Commissions and Fees
Commissions and fees principally consist of premiums received
from purchasers of mortgage loans originated by the Company. Gains
(losses) from purchasing, selling, investing in or otherwise trading
in closed mortgage loans are an immaterial portion of the Company's
revenues and are included in the Statement of Income under the item
entitled Revenues: Commissions and Fees.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term
investments with maturity of three months or less.
Accounts Receivable
Accounts receivable consist of advances made in connection with
loan origination activities.
Concentration of Credit Risk
Credit risk with respect to mortgage loan receivables and
accounts receivable 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 receivables.
Fixed Assets
Fixed assets consist of furniture, fixtures, equipment and
leasehold improvements and are recorded at cost and are depreciated
using the straight line method over their estimated useful lives.
Furniture, fixtures and equipment are depreciated over 5-7 years and
leasehold improvements over the shorter of the lease term or the
estimated useful life of the asset. Upon asset retirement or other
disposition, cost and the related allowance for depreciation are
removed from the accounts, and gain or loss is included in the
statement of income. Amounts expended as repairs and maintenance are
charged to operations.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments,
including cash and cash equivalents, mortgage receivables, accounts
receivables, accounts payable and notes payable, as reported in the
accompanying balance sheet, approximates fair value.
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
Notes to Audited 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 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. As of
August 1999, Mr. Rocco Cappiello is no longer a director of the
Company.
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 Audited Financial Statements
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:
April 30, 2000
$20 million mortgage warehouse credit facility at a
commercial bank; interest at LIBOR;
plus 160 basis points; expires 10/01/2000 $ 12,663,587
$2 million mortgage warehouse credit facility at a
commercial bank; interest at LIBOR plus
160 basis points expires 10/01/2000 1,049,236
$25 million mortgage warehouse credit facility at a
commercial bank; interest at Libor plus 150 basis
point; expires 10/08/2000 15,855,865
$2 million mortgage warehouse credit facility at a
commercial bank; interest at Prime; plus 50 basis
points; expires 10/31/2003 0
Total $ 29,568,688
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 Audited 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 $459,783 for the twelve months ended April
30, 2000.
Future minimum rental payments for the next five years at April
30, 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 April 30, 2000:
Year Ending April 30, Capital Leases
2001 17,573
2002 12,008
2003 5,415
2004 451
Total Commitment $ 35,447
Less Interest 8,013
Less Short Term 14,093
Long Term $ 13,341
Income Taxes
The income tax provision consists of the following for the
period ended April 30:
1999 2000
Current:
Federal $ 48,635 $ 0
State 14,324 0
SubTotal 62,959 0
Deferred:
Federal $ 311,221 (62,261)
State 46,200 (12,818)
SubTotal 357,421 (75,079)
Total $ 420,380 $ (75,079)
<PAGE>
United Financial Mortgage Corp.
Notes to Audited Financial Statements
The components of the deferred tax asset (liability) are as
follows for the periods ending April 30:
1999 2000
Contributions 0 1,283
Loss Carry-Forward 0 (282,627)
Accelerated Depreciation 24,415 (34,766)
Deferred Receivables (295,014) 165,951
Deferred Tax Asset
(Liability) (270,599) (150,159)
Valuation Allowance 0 (75,080)
Net Deferred Tax Asset
(Liability) $ (270,599) $ (75,079)
The effective tax rate for the years ended April 30, 1999 and
April 30, 2000: 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. A dividend of $67,665 was declared for the
year ended April 30, 1999 and $38,500 was declared for the year ended
April 30, 2000.
Stockholders' Equity
Warrants
At April 30, 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 April 30, 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.
Treasury Stock
In March of 1999, the Company commenced a stock
repurchase program. As of April 30, 2000 the Company has purchased
11,770 shares and has returned such shares to `authorized but not
issued' shares.
<PAGE>
United Financial Mortgage Corp.
Notes to Audited Financial Statements
Servicing
During the recent year ended April 30, 2000, the Company has
continued to build a servicing portfolio. As of the balance sheet
date, the servicing portfolio was seventeen million, two hundred
ninety three thousand, three hundred eighty eight dollars
(17,293,388) 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.
During the period ending April 30, 1999, the Company granted
options for a total of 74,500 shares of stock at $6.50 per share.
Mr. Steve Khoshabe, the Executive Vice President of the Company was
awarded 50,000 of these options.
During the period ending April 30, 2000 the Company granted
options for 96,500 more shares of stock at $6.50 per share.
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.
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. 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 at April 30, 2000.
<PAGE>
United Financial Mortgage Corp.
Notes to Audited 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 April 30, 1999
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic Earnings Per Share
Income Available to Common
Shareholders 352,715 3,828,917 .0921
Effect of Dilutive Securities
Options and Warrants 242,000
Diluted Earnings Per Share
Income Available to Common
Shareholders 352,715 4,070,917 .0866
Period ended April 30, 2000
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic Earnings Per Share
Income Available to Common
Shareholders (81,758) 3,900,029 (.0209)
Effect of Dilutive Securities
Options and Warrants 300,000
Diluted Earnings Per Share
Income Available to Common
Shareholders (81,758) 4,200,029 (.0194)
<PAGE>
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
Not Applicable
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
(a) Recent Sales of Unregistered Securities.
The Company has never declared or paid a dividend on its
Common Stock, and management expects that a substantial portion
of the Company's earnings, if any, for the foreseeable future
will be used to expand loan origination and servicing capabilities.
The decision to pay dividends, if any, in the future is within the
discretion of the Board of Directors and will depend upon the
Company's earnings, its capital requirements, financial condition
and other relevant factors such as loan covenants or other
contractual obligations.
(b) Use of Proceeds -N/A
Item 10. Executive Compensation
SUMMARY COMPENSATION TABLE
Annual Compensation
Other Annual
Compensation
Name and Principal Position Year Salary Bonus (1)(2)(3)(4)
Joseph Khoshabe, President 2000 $250,000 -0- $11,565
1999 $244,166 $47,561 $11,565
1998 $180,000 -0- $ 3,161
1997 $180,000 -0- $ 3,161
1996 $170,000(4) -0- $ 3,161
Steve Y. Khoshabe
Executive Vice President 2000 $ 90,000 -0- $ 3,495
1999 $ 86,500 -0- $ 3,495
1998 $ 50,063 -0- $ 2,210
1997 $ 46,093 -0- $ 2,210
1996 $ 40,393 -0- $ 2,210
_____________________
(1) Includes: $1,980 for annual disability premiums; and $9,505 for
annual health insurance premiums for Mr. Khoshabe and his
dependents.
(2) Does not include a $25,000 annual car allowance payable to Mr.
Joseph Khoshabe.
(3) Does not include a $12,000 annual car allowance payable to Steve
Khoshabe.
(4) This salary amount was not paid to Mr. Khoshabe. This salary
amount is included to satisfy applicable accounting
requirements.
<PAGE>
Items 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information known to the
Company regarding beneficial ownership of the Company's Common Stock
at the date of this Proxy Statement, by (1) each person known by the
Company to beneficially own more than 5% of the Company's Common
Stock, and (ii) the officers and directors of the Company beneficially
owning such Common Stock. The Company believes that Mr. Joseph Khoshabe
as trustee of the Joseph Khoshabe Trust, under trust agreement dated
September 22, 1995 (the "J.K. Trust"), has sole investment and voting
power with respect to the shares beneficially owned by the J.K. Trust.
Number of
Name and Address of Beneficial Owner Shares Percent Owned (1)
J.K. Trust 2,531,842 60.3%
c/o United Financial Mortgage Corp.
600 Enterprise Drive
Suite 206
Oak Brook, Illinois 60521
Rocco M. Cappiello 210,455(2) 5.0%
3123 Crestwood Drive
Northbrook, IL 60062
_________________
(1) The computations include the issuance of 300,000 shares of
Common Stock upon exercise of various outstanding warrants.
(2) Mr. Rocco M. Capiello has the right to acquire 195,000 shares,
upon exercise of a certain Advisor Warrant.
The J.K. Trust is the principal shareholder of the Company. Mr.
Joseph Khoshabe originally purchased the shares and then had them
reregistered in the name of the J.K. Trust for estate planning
purposes. Mr. Khoshabe as the trustee of the J.K. Trust is the
beneficial owner of 2,531,842 shares of the Common Stock of the
Company. In connection with the organization of the Company and its
initial capitalization, the J.K. Trust paid a total of $130,070 for
100% of the Company's common stock. Therefore, the J.K. Trust
purchased its ownership interest in the Company for $.051 per share.
<PAGE>
Item 12. Certain Relationships and Related Transactions.
The Company's Board of Directors authorized the issuance of 213
shares of Series A Non-Voting Preferred Stock ("Preferred Stock").
The outstanding shares of Preferred Stock were purchased from the
Company for total cash consideration of $1,065,000 or $5,000 per
share. The 213 shares of Preferred Stock includes 113 shares
purchased by the J.K. Trust on June 10, 1996 for a cash payment to
the Company of $565,000. The J.K. Trust purchased these shares of
Preferred stock as a capital infusion to compensate for the $565,000
judgment that was paid in connection with certain terminated
litigation matters.
On June 5, 1998, 150 shares of the Preferred Stock were redeemed
by the Company for a redemption price of $750,000 and no longer are
outstanding.
The redemption price for the Preferred Stock represents the
original purchase price for such shares. The decision to redeem the
shares by the Company was made solely by the holder of such shares,
namely Mr. Joseph Khoshabe, the President and then sole director of
the Company.
The J.K. Trust for which Mr. Joseph Khoshabe is the trustee will
continue to h old sixty-three (63) shares of Preferred Stock after
the redemption described above.
The Company may pay variable dividends with respect to the
Preferred Stock as determined by the Board of Directors of the
Company on an annual basis.
As an affiliate of the Company within the meaning of Rule 144(a)
(1), the J.K. Trust will be subject to the volume limitations of Rule
144(e) with respect to any sales by it. Generally, the maximum amount
of securities which can be sold by a control affiliate during a
three-month period pursuant to Rule 144 is limited to the greater of
one percent of the outstanding securities of the Company or the
average weekly volume traded for the four week period prior to the
date of filing the required notification of sale.
<PAGE>
SIGNATURES
In accordance with the Exchange Act, this report has been signed
below on July 31, 2000 by the following persons on behalf of the
registrant and in the capacities indicated.
Registrant: United Financial Mortgage Corp.
Directors: By: /S/ Joseph Khoshabe
Joseph Khoshabe, President,
Principal Executive Officer
and a Director
By: /S/Steve Y. Khoshabe
Steve Y. Khoshabe, Executive VP
And Principal Accounting Officer
By: /S/ John A. Clark
John A., Clark, Director
By: /S/ Bob Jones
Bob Jones, Director
By: /S/ Anthony DiMucci
Anthony DiMucci, Director
By: /S/ Robert S. Luce
Robert S. Luce,
Secretary and a Director
<PAGE>
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports of Form
8-K.
(a)(1) Financial Statements.
The following financial statements and notes thereto,
and the related Independent Auditor's Report, are
filed as part of this Form 10-K on Pages 11 to 21
hereof:
Independent Auditors' Report
Balance Sheets at April 30, 1999 and 2000
Statements of Operations for the years ended April 30,
1999 and 2000
Statements of Stockholders' Equity for the years ended
April 30, 1999 and 2000
Statements of Cash Flows for the years ended April 30,
1999 and 2000
Notes to Financial Statements
(2) Financial Statement Schedules.
All financial statement schedules have been omitted
because such schedules are not required or the
information required has been included in the
financial statements and notes thereto.
(3) Exhibits
The following exhibits are filed with this report or
incorporated by reference as set forth below.
3.1 Certificate of Incorporation of the Registrant.*
3.1.1 Certificate of Amendment of Certificate of Incorporation.*
3.2 By-laws of the Registrant.*
4.1 Description of specimen stock certificate representing
Common Stock.*
10.1.1 Employment Agreement between the Registrant and
Joseph Khoshabe.*
10.4 Non-Qualified and Incentive Stock Option Plan*
___________
*Incorporated by reference from registrant's Registration
Statement on Form SB-2 (No. 333/27037), which was declared
effective by the Securities Exchange Commission on May 26,
1998.
(b) Reports on Form 8-K
The following reports on Form 8-K have been filed by the
Company during the period covered by this report:
Form 8-K dated 06/02/99
Form 8-K dated 07/01/99
Form 8-K dated 07/13/99
Form 8-K dated 08/26/99
Form 8-K dated 08/30/99
Form 8-K dated 09/21/99
Form 8-K dated 12/22/99
Form 8-K dated 01/28/00
Form 8-K dated 03/20/00
Form 8-K dated 04/11/00
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