10QSB 1 doc1.txt FORM 10-QSB UCAP, INCORPORATED UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 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 number 0-27480 UCAP, INCORPORATED --------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Colorado 84-1325695 ----------------- ------------------- (State or Other (IRS Employer Jurisdiction of Identification No.) Incorporation or Organization) 14001 East Iliff, Suite 700 Aurora, Colorado 80014 --------------------------------------------------------- (Address of Principal Executive Offices) (303) 696-1700 --------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 The number of outstanding shares of the Registrant's Common Stock, no par value per share, were 36,613,437 on April 29, 2003. UCAP, INCORPORATED FORM 10-QSB INDEX PART I. FINANCIAL INFORMATION Page -------- Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 2003 3 and September 30, 2002 Consolidated Statement of Operations for the Six 4 Months Ended March 31, 2003 and March 31, 2002 Consolidated Statement of Stockholders' 5 Equity Consolidated Statement of Cash Flows for the Six 6 Months Ended March 31, 2003 and March 31, 2002 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial 15 Condition and Results of Operations Item 3. Controls and Procedures 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings 17 Item 2. Changes in Securities and Use of Proceeds 17 Item 3. Defaults upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security 17 Holders Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 19 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements UCAP, INCORPORATED CONSOLIDATED BALANCE SHEETS
March 31, September 30, 2003 2002 ------------ ------------ (unaudited) ASSETS Cash and cash equivalents $ 262,626 $ 258,562 Real estate held for sale 6,221,587 6,221,587 Mortgage loans held for sale, net 112,690,788 124,042,286 Property and equipment, net 1,992,455 1,264,439 Mortgage fees receivable 4,709,567 3,982,001 Investment securities 1,092,141 -- Due from related party -- 9,037 Goodwill, net 3,504,716 3,504,716 Deferred income tax benefit 1,955,000 2,500,000 Other assets 1,192,488 418,368 ------------ ------------ Total assets $133,621,368 $142,200,996 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 4,502,062 $ 4,098,034 Notes payable - warehouse line 115,092,852 125,767,938 Due to related parties and stockholders 4,775,000 3,825,000 ------------ ------------ Total liabilities 124,369,914 133,690,972 ------------ ------------ Commitments and contingencies Stockholders' equity: Preferred series B convertible stock, $1.00 par, 2,000,000 shares authorized, 0 shares and 1,650,000 shares issued and outstanding at March 31, 2003 and September 30, 2002 -- 1,650,000 Common stock, no par value, 800,000,000 shares authorized, 36,613,437 and 33,677,306 shares issued and outstanding at March 31, 2003 and September 30, 2002, respectively -- -- Additional paid in capital 11,676,584 10,200,390 Accumulated earnings (deficit) (2,425,130) (3,340,366) ------------ ------------ Total stockholders' equity 9,251,454 8,510 024 ------------ ------------ Total liabilities and stockholders' equity $133,621,368 $142,200,996 ============ ============
See accompanying notes to consolidated financial statements 3 UCAP, INCORPORATED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
Three Months Six Months Three Months Six Months Ended Ended Ended Ended March 31, March 31, March 31, March 31, 2003 2003 2002 2002 ------------ ------------- ------------ ------------- Revenue: Mortgage Brokerage Services $ 6,676,430 $ 15,359,713 $ 4,092,812 $ 9,646,758 Other ordinary income 683,337 1,325,323 -- -- ------------ ------------- ------------ ------------- Total revenue 7,359,767 16,685,036 4,092,812 9,646,758 ------------ ------------- ------------ ------------- Operating expenses: Broker commissions 1,327,870 3,147,945 884,294 2,051,575 Salaries and employee benefits 2,545,960 5,161,358 1,473,681 2,922,480 General and administrative 2,178,971 5,440,309 1,627,472 3,733,092 Professional expenses 318,639 402,451 235,988 330,719 Occupancy expense 317,536 625,639 207,454 401,159 Amortization of goodwill -- -- -- 2,417 Property taxes -- -- -- (45,358) Depreciation and amortization 108,276 165,918 30,757 67,750 ------------ ------------- ------------ ------------- Total operating expenses 6,797,251 14,943,620 4,459,646 9,463,835 ------------ ------------- ------------ ------------- Operating profit (loss) 562,516 1,741,416 (366,834) 182,924 Other expense (income): Receivership Expenses 46,361 46,361 -- -- Gain on GCA Settlement -- -- (178,573) (178,573) Settlement reimbursement -- -- (500,000) (500,000) Gain on sale of Accent Mortgage -- -- (465,095) (465,095) Debt forgiveness -- -- (282,452) (282,452) Interest income -- -- -- (288,085) Other(income) expense 37,340 37,340 ( 1,556) (181,406) Interest expense, related parties 92,505 197,479 48,440 245,491 ------------ ------------- ------------ ------------ 176,206 281,180 (1,379,235) (1,650,120) ------------ ------------- ------------ ------------ Income before income taxes 386,310 1,460,236 1,012,402 1,833,044 Income taxes (145,000) (545,000) (96,000) ------------ ------------- ------------ ------------ Net income $ 241,310 $ 915,236 $ 1,012,402 $ 1,737,044 ============ ============= ============ ============ Basic earnings per share $ 0.01 $ 0.03 $ 0.04 $ 0.07 ============ ============= ============ ============ Diluted earnings per share $ 0.01 $ 0.03 $ 0.04 $ 0.07 ============ ============= ============ ============ Weighted average shares outstanding - basic 34,615,507 33,805,229 27,912,809 26,477,257 ============ ============= ============ ============ Weighted average shares outstanding - diluted 35,282,174 34,471,896 28,098,073 26,662,521 ============ ============= ============ ============
See accompanying notes to consolidated financial statements 4 UCAP, INCORPORATED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited)
Additional Common Stock Preferred Stock Paid-in Accumulated Shares Amount Shares Amount Capital Earnings Total ----------- -------- ------- ----------- ----------- --------------- ------------ Balance at September 30, 2002 33,677,306 $ -- -- $ 1,650,000 $10,200,390 $ (3,340,366) $ 8,510,024 Common stock issued in connection with repricing agreement on UCMC acquisition 121,303 -- -- -- -- -- -- Common stock issued on preferred stock conversion 2,857,760 -- -- (1,650,000) 1,650,000 -- -- Common stock issued in settlement of debt 177,240 -- -- -- 395,431 -- 395,431 Common stock cancelled in satisfaction of collateral for note (2,400,000) -- -- -- -- -- -- Common stock issued in payment of services 100,000 -- -- -- -- -- -- Common stock issued upon exercise of warrant 2,575,000 -- -- -- 114,100 -- 114,100 Common stock cancelled upon completion of subsidiary dissolution (495,172) -- -- -- (683,337) -- (683,337) Net income -- -- -- -- -- 915,236 915,236 ---------- -------- ------- --------- ------------ ------------ ------------- Balance at March 31, 2003 36,613,437 $ -- -- $ -- $11,676,584 $ (2,425,130) $ 9,251,454 ========== ======== ======== ========== =========== ============ =============
See accompanying notes to consolidated financial statements 5 UCAP, INCORPORATED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Six Months Six Months Ended Ended March 31, March 31, 2003 2002 --------------- --------------- Cash Flows from Operating Activities: Net income $ 915,236 $ 1,737,044 Adjustments: Depreciation and amortization 165,918 67,750 Other non-cash income items (1,325,323) -- Changes in: Income tax asset 545,000 96,000 Restricted certificates of deposit -- 400,000 Accounts receivable (727,566) (228,351) Mortgage loans held for sale 11,351,497 15,109,224 Due from related party 9,037 (498,145) Other assets (683,182) 92,984 Accounts payable and accrued expenses 676,664 (795,680) Accrued interest payable (272,636) (892,723) ------------ ------------ Net cash provided by (used in) operating activities 10,654,645 15,222,079 ------------ ------------ Cash Flows from Investing Activities: Purchase of property and equipment (925,495) (259,108) Equity conversions of notes payable -- 1,452,480 ------------ ------------ Net cash provided by (used in) investing activities (925,495) 1,193,372 ------------ ------------ Cash Flows from Financing Activities: Proceeds from issuance of notes payable -- 1,250,000 Increase in additional paid in capital -- 1,389,414 Repayment of notes payable and conversions (10,675,086) (17,484,270) Increase in amounts due to related parties 950,000 120,000 ------------ ------------ Net cash provided by financing activities ( 9,725,086) (14,724,856) ------------ ------------ Net increase in cash 4,064 1,690,635 Cash and cash equivalents, at beginning of the period 258,562 850,665 ------------ ------------ Cash and cash equivalents, at end of the period $ 262,626 $ 2,541,300 ============ ============
See accompanying notes to consolidated financial statements 6 UCAP, INCORPORATED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) (Continued)
Six Months Six Months Ended Ended March 31, March 31, 2002 2001 --------------- --------------- Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 197,479 $ 245,491
See accompanying notes to consolidated financial statements 7 UCAP, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Six Months Ended March 31, 2002 (Unaudited) 1. Summary of Significant Accounting Policies Interim Reporting The accompanying unaudited interim condensed consolidated financial statements have been prepared by management in accordance with the accounting policies described in the Company's Annual Report for the year ended September 30, 2002. Certain information and footnote disclosures normally found in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended September 30, 2002. The consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and notes thereto, and the Independent Auditors' Report included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2002 (the "2002 Form 10-K"). Reference is made to the accounting policies of the Company described in the notes to consolidated financial statements included in the 2002 Form 10-K. The Company has consistently followed those policies in preparing this report. The consolidated financial statements for the six-month period ended March 31, 2003 includes the information for the segments represented by Cross Keys Capital, Inc., United Capital Mortgage Corporation and their corporate functions. The consolidation financial statements for the six-month period ended March 31, 2002 included those segments as well as the former subsidiary, Accent Mortgage Services, Inc. Accent Mortgage Services, Inc. was sold effective September 30, 2001 subject to agreements and the consent of the Court in the GCA lawsuit which concluded February 15, 2002. 8 2. Real Estate Held for Sale Real estate held for development at March 31, 2003 consists of the following: Land and real estate held for sale $ 6,221,587 ----------- $ 6,221,587 =========== 3. Mortgage Loans held for Sale, net Mortgage loans held for sale in the amount of approximately $113,000,000 represent mortgages acquired by United Mortgage resulting from its mortgage brokerage operations and is offset by corresponding notes payable under its warehouse line. 4. Goodwill Goodwill represents the excess of cost over the net assets of acquired businesses. Effective October 1, 2001, the Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets" which eliminated the requirement for systematic amortization of goodwill and replaces it with a requirement to evaluate goodwill for impairment on at least an annual basis. Prior to October 1, 2001, goodwill was being amortized by the straight-line method over periods ranging from ten to fifteen years. Goodwill at March 31, 2003, consisted of the following: Purchase of United Capital Mortgage $ 3,644,940 ----------- $ 3,644,940 Less accumulated amortization (140,225) ----------- Goodwill, net $ 3,504,715 =========== 9 5. Other Assets Other assets at March 31, 2003, consists of the following: Prepaid expenses $ 300,564 Deposits 139,229 Deferred expenses 716,279 Other 36,416 ---------- $ 1,192,488 ========== Prepaid expenses consist primarily of the unexpired portions of insurance policies purchased by the Company in the ordinary course of business and other normal business expenses paid in advance of their use. Deferred expenses represent the contested amounts in the action that the Company has filed against First Nationwide Mortgage as disclosed in note 9 to the financial statements. 6.Notes Payable - warehouse line Notes payable - warehouse line in the amount of approximately $115,000,000 represents primarily advances taken by United Mortgage under its revolving financing agreement resulting from its mortgage brokerage operations and is offset by corresponding mortgage loans held for sale, net. 10 7. Notes Payable General corporate indebtedness: Notes payable related parties: Note payable to stockholder; interest at 7.5%; due September 10, 2003; secured by mortgages on real estate $ 1,650,000 Note payable to stockholder; interest at LIBOR plus 5.0%; due December 17, 2003; convertible to Company stock; subordinated in payment to the Company's warehouse line of credit 1,000,000 Note payable to a stockholder; interest at 7.0%; due February 14, 2003; unsecured 625,000 Note payable to a stockholder; interest at 7.5%; due August 21, 2003; secured by second mortgage on real estate 350,000 Secured note payable to a stockholder, interest at 7%, due on demand. 1,150,000 ------------ Total notes payable related parties 4,775,000 ------------ Total notes payable $ 4,775,000 ============ 11 8. Stock-Based Compensation The Company periodically grants stock options to employees. Pursuant to Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, the Company accounts for stock-based compensation arrangements using the intrinsic value method. Accordingly, no compensation expense has been recorded in the Consolidated Financial Statements with respect to option grants. The Company has adopted the disclosure only provisions of Financial Accounting Standards Board No. 123, Accounting for Stock Based Compensation, as amended by Financial Accounting Standards Board Statement No. 148, Accounting for Stock Based Compensation - Transition and Disclosure, an Amendment of FASB Statement No. 123. The Company's Board of Directors and stockholders have adopted a Stock Option Plan pursuant to which certain full-time employees of the Company and its subsidiaries and affiliates are eligible to receive stock options. Had the Company elected to recognize compensation expense for stock-based Compensation using the fair value method net income, basic net income per common Share and net income per diluted common share would have been as follows (unaudited): Three Months Six Months Ended Ended March 31, March 31, 2003 2003 ------------ ------------- Net income $ 241,310 $ 915,236 Fair value method compensation Expense attributable to stock- Based compensation, net of tax -- 3,539 ------------ ------------- Pro forma net income $ 241,310 $ 911,697 ============ ============= Basic net income per common share $ 0.01 $ 0.03 ============ ============= Pro forma basic net income per Common share $ 0.01 $ 0.03 ============ ============= Net income per diluted share $ 0.01 $ 0.03 ============ ============= Pro forma net income per Diluted common share $ 0.01 $ 0.03 ============ ============= The weighted average fair value of the Company's stock options was calculated using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants: no dividend yield; expected volatility of 10.0% in 2003; risk-free interest rate of 4.0% in 2003 and expected lives of five years. The weighted average fair value of options granted during the years ended September 30, 2002, 2001 and 2000 is $0.04, $0.03 and $0.00 per share, respectively. 9. Commitments and Contingencies Legal Proceedings On March 4, 2003, United Capital Mortgage Corporation ("UCMC"), a wholly owned subsidiary of the Company, filed a complaint against Citimortgage, Inc. and First Nationwide Mortgage Corporation in the United States District Court, Eastern District of Arkansas - Western Division (No. 4-03-CV-00143 CH) alleging that Defendants breached the Mortgage Loan Purchase and Sale Agreement (the "Agreement") between UCMC and Defendants and that Defendants were negligent by executing trades under the Agreement that were not authorized by UCMC, by failing to timely confirm trades, by improperly setting off and withholding sums owed to UCMC, by rolling trades without proper authorization, by effecting unsuitable and inappropriate trades, by improperly attempting to reverse funding wires and withholding funding of loans and by failing to act in good faith. UCMC has prayed for a judgment for damages incurred in the approximate amount of $1,505,585 and for a declaratory judgment that it is not indebted to Defendant for disputed trades. On March 18, 2003, Citimortgage, Inc. filed a complaint against UCMC in the United States District Court for the District of Colorado (Case No. 03-N-0477 (MJW)) related to the above-referenced litigation. Citimortgage alleges that UCMC breached the Mortgage Loan Purchase and Sale Agreement and prays for damages in the amount of $888,327. Citimortgage further alleges that the related litigation in the United States District Court for the Eastern District of Arkansas is in an inconvenient forum. As previously reported, in May 2002, in the Superior Court of Fulton County, Georgia (GCA Strategic Investment Fund, Ltd. v. Richard Smyth, et. al. v. Lahaina Acquisitions, Inc. n/k/a UCAP Inc.) a guarantor (and third party plaintiff) was granted a summary judgment against the Company in the amount of $927,000 (the "Smyth Action"). As previously reported on its quarterly report for the quarter ended March 31, 2002, the Company settled with GCA, the plaintiff. The Company has filed a notice of appeal with the Court of Appeals of Georgia, and is seeking reversal of the judgment, but did not initially provide a supersedes bond. As a result, there was no stay of the judgment and third party plaintiffs pursued collection efforts. In connection with the Smyth Action, in December 2002, the trial court granted injunctive relief ordering the Company to turn over any United Capital Mortgage Corporation ("UCMC") stock that it may have in its possession on or before December 22, 2002. The Company filed a notice of appeal to the interlocutory injunction with the Supreme Court of Georgia and informed the court (by affidavit) that it did not have any UCMC stock in its possession because the stock had been previously been delivered as security for a loan. 12 In January 2003, the Plaintiffs filed two actions, one in the Circuit Court of Pulaski County, State of Arkansas (the "Arkansas Litigation"), and one in the Superior Court of Fulton County, State of Georgia (the "Georgia Litigation") for various equitable relief related to the judgment in the Smyth Action. On March 10, 2003, the Court in the Georgia Litigation issued an order effective on such date appointing a receiver for UCAP Incorporated, United Capital Mortgage Corp., UCMC Real Estate I, Inc., and The Accent Group, Inc. (collectively, the "Receivership Parties"). On May 1, 2003, a Consent Order was issued in the Smyth Action and the Georgia Litigation, which stayed the March 10, 2003 order of court in the Georgia Litigation and suspended the receivership and further stayed any execution of the judgment in the Smyth Action upon the posting of a bond. The bond was posted on May 2, 2003 and the consent order became effective. Additional information on the Smyth Action, Arkansas Litigation and Georgia Litigation is found in the Company's annual report on Form 10-KSB for the year ended September 30, 2002, filed with the Securities and Exchange Commission on January 15, 2003, the Company's amendment to its annual report on Form 10-KSB/A for the year ended September 30, 2002, filed with the Securities and Exchange Commission on January 29, 2003, the Company's current report on Form 8-K, filed with the Securities and Exchange Commission on February 11, 2003, the Company's quarterly report on Form 10-QSB for the quarter ended December 31, 2002, filed with the Securities and Exchange Commission on February 14, 2003, and the Company's current report on Form 8-K, filed with the Securities and Exchange Commission on March 13, 2003. 10. Segment Information Prior to October 1, 2001, the Company operated in three business segments: Mortgage Brokerage, Real Estate Development and Mortgage Banking. As reported in the Form 10-KSB filed for September 30, 2001, the mortgage brokerage segment, Accent Mortgage Services, Inc. has been sold effective September 30, 2001, subject to the required approvals and consent of the Court in relation to the GCA lawsuit. A further description of each business segment, at September 30, 2001, along with the corporate services area follows: Mortgage Banking - provides mortgage brokerage origination services to consumers through several traditional branch offices located primarily in the Aurora, Colorado area. Real Estate Development - this segment is limited to the sale of certain real estate held as inventory by the Company. Corporate - services include human resources, legal, accounting and various other of the Company's unallocated overhead charges. The accounting policies of the segments are the same as those described in Note B, "Summary of Significant Accounting Policies." The Company evaluates performance based on revenues and operating income (loss) of the respective segments. There are no intersegment revenues. 13 The following sets forth certain financial information attributable to the Company's business segments as of March 31, 2003:
Mortgage Real Estate Brokerage Development Corporate Total ------------- ------------- ------------- ------------- Revenues $ 16,001,699 $ -- $ 683,337 $ 16,685,036 Operating profit (loss) $ 1,446,989 $ (16,983) $ 311,410 $ 1,741,416 Depreciation and amortization $ 165,918 $ -- $ -- $ 165,918 Identifiable assets $ 125,004,737 $ 6,221,587 $ 1,305,960 $132,532,284 Capital expenditures $ 869,388 $ -- $ -- $ 869,388 The following sets forth certain financial information attributable to the Company's business segments as of March 31, 2002: Mortgage Real Estate Brokerage Development Corporate Total ------------- ------------- ------------- ------------- Revenues $ 9,646,758 $ -- $ -- $ 9,646,758 Operating profit (loss) $ 850,068 $ -- $ (667,144) $ 182,924 Depreciation and amortization $ 61,374 $ -- $ 6,376 $ 67,750 Identifiable assets $ 66,773,472 $ 909,481 $ 9,855,254 $ 77,538,207 Capital expenditures $ 259,108 $ -- $ -- $ 259,108
14 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of the financial condition and results of operations of the Company should be read in conjunction with the unaudited consolidated financial statements and related notes thereto included elsewhere in this report. This Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. Those statements relate to dividends; business plans, programs and trends; results of future operations; uses of future earnings; satisfaction of future cash requirements; funding of future growth; acquisition plans; and other matters. Words or phrases such as "will," "hope," "expect," "intend," "plan" or similar expressions are generally intended to identify forward-looking statements. Those statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed herein. The principal risks and uncertainties that may affect the Company's actual performance and results of operations include the following: general economic conditions and interest rates; adverse weather; changes in property taxes and energy costs; changes in federal income tax laws and federal mortgage financing programs; governmental regulation; changes in governmental and public policy; changes in economic conditions specific to one or more of the Company's markets and businesses; competition; availability of raw materials; and unexpected operations difficulties. Other risks and uncertainties may also affect the outcome of the Company's actual performance and results of operations. Readers are cautioned not to place undue reliance on the forward-looking statements made in, or incorporated by reference into, this Quarterly Report on Form 10-Q or in any document or statement referring to this Quarterly Report on Form 10-Q. Results of Operations FOR THE SIX MONTH PERIOD ENDED MARCH 31, 2003, COMPARED TO THE SIX MONTH PERIOD ENDED MARCH 31, 2002: Revenues Revenues for the six-month period ended March 31, 2003, totaled $16,685,036 compared to $9,646,758 for the six-month period ended March 31, 2002. This increase of $7,038,278 or 72.96% was due to the concentration on the mortgage banking business of United Capital Mortgage Corporation and continued development of wholesale operations. Revenues of $683,337 included for the six-month period ended March 31, 2003 represent the subsequent collection of corporate stock recovered in the completion of commitments with the dissolution of the Cross Keys Capital subsidiary. The remaining investment in Cross Keys Capital and the goodwill related to the original transaction was completely written off and reported on the Form 10-KSB that the Company filed for it's year ended September 30, 2002. The loss reported at that time totaled $758,061. Had the Company been able to recover the corporate stock at that time the net loss reported would have been $74,724. Operating Expenses Operating expenses for the six month period ended March 31, 2003 totaled $14,943,620 compared to $9,463,835 for the six-month period ended March 31, 2002. This increase of $5,479,785 or 57.90% was largely related to an increase in commissions and salaries paid due to the increase in volume of United Capital Mortgage Corporation. Administrative expenses also increased due to the commitment to develop the wholesale operation and for occupancy expenses for the physical expansion of the Company. 15 Operating Profit and Loss Operating profits for the six month period ended March 31, 2003 totaled $1,741,416 compared to an operating profit of $182,924 for the six-month period ended March 31, 2002. This increase of $1,558,492 was, in part, due to the concentration of the Company on the mortgage banking activities of United Capital Mortgage Company. Other Expense (Income) During the period ended March 31, 2003, the Company recorded expenses in connection with the receivership described in Section 8 of $46,361. The Company considers the interest income of United Capital Mortgage, $2,157,350, to be operating income within the mortgage banking segment and records that income as operating income of the segment. Net Income The Company recorded net income of $915,236 for the six-month period ended March 31, 2003 compared to net income of $1,737,044 for the six-month period ended March 31, 2002. Basic and diluted earnings per share for the six-month period ended March 31, 2003, were $0.03.and $0.03., respectively. Basic and diluted earnings per share for the six-month period ended March 31, 2002, was $0.07. 16 New Accounting Standard In June 2001, the Financial Accounting Standards Board issued Statement of Accounting Standard ("SFAS") No. 142, Goodwill and other Intangible Assets, which require that goodwill and other intangibles no longs will amortized as before. This pronouncement supersedes APB Opinion No. 17, Intangible Assets. Intangibles that will no longer be amortized must be tested on a year-to-year basis by comparing the fair values with recorded amounts. The Company has implemented this pronouncement as of October 1, 2001. Initial implementation of this pronouncement did not have a material affect on the Company's financial position. ITEM 3. Controls and Procedures (a) Evaluation of disclosure controls and procedures. Within 90 days before filing this report, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures. The Company's disclosure controls and procedures are the controls and other procedures that the Company has designed to ensure that it records, processes, summarizes and reports in a timely manner the information the Company must disclose in its reports filed under the Securities Exchange Act. Dan Moudy, President and Chief Executive Officer and J. Lynn Bradley, Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Moudy and Bradley concluded that, as of the date of their evaluation, the Company's disclosure controls and procedures were effective. (b) Internal controls. Since the date of the evaluation described above, there have not been any significant changes in the Company's internal controls or in other factors that could significantly affect those controls, including any corrective actions with regard to significant deficiencies an material weakness. 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings See Part I - "Management's Discussions and Analysis of Financial Condition and Results of Operations - Legal Proceedings". Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K A. Exhibits Exhibit No. Description of Exhibit 99.1 Certification by Dan Moudy, President and Chief Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification by J. Lynn Bradley, Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 27.1 Financial Data Schedule B. Reports on Form 8-K During the quarter ended March 31, 2003, the Company filed with the Commission the following reports on Form 8-K: Current Report on Form 8-K dated February 7, 2003 and filed with the Commission on February 11, 2003 updating the status of certain litigation. Current Report on Form 8-K dated February 11, 2003, and filed with the Commission on February 11, 2003 disclosing the resignation of a member of the Company's board of directors. Current Report on Form 8-K dated March 12, 2003, and filed with the Commission on March 13, 2003 disclosing the appointment of a receiver. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. UCAP, Incorporated (Registrant) Dated: May 14, 2003 By: /s/ Dan E. Moudy -------------------- Dan E. Moudy President and Chief Executive Officer Dated: May 14, 2003 By: /s/ J. Lynn Bradley ----------------------- J. Lynn Bradley, CPA Chief Financial Officer 19 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-QSB of UCAP Incorporated for the quarter ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof, I, Dan Moudy, President and Chief Executive Officer of registrant, certify, pursuant to 18 U.S.C. ss 1350, as adopted pursuant to ss 302 of the Sarbanes-Oxley Act of 2002, that: (1) I have reviewed this quarterly report on Form 10-QSB of UCAP Incorporated; (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in al material respects the financial condition, results of operations and cash flows of registrant as of, and for, the periods presented in this annual report; and (4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (6) The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: May 14, 2003 By: /s/ Dan Moudy ------------------ Dan Moudy President and Chief Executive Officer This certification accompanies this Quarterly Report on Form 10-QSB pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-QSB of UCAP Incorporated for the quarter ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof, I, J. Lynn Bradley, Chief Financial Office of the registrant, certify, pursuant to 18 U.S.C. ss 1350, as adopted pursuant to ss 302 of the Sarbanes-Oxley Act of 2002, that: (1) I have reviewed this quarterly report on Form 10-QSB of UCAP Incorporated; (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in al material respects the financial condition, results of operations and cash flows of registrant as of, and for, the periods presented in this annual report; and (4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (6) The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: May 14, 2003 By: /s/ J. Lynn Bradley ----------------------- J. Lynn Bradley, CPA Chief Financial Officer This certification accompanies this Quarterly Report on Form 10-QSB pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.