UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
- --------------------------------------------------------------------------------
(Mark one)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --------- ACT OF 1934
For the quarterly period ended September 30, 1999
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
- --------------------------------------------------------------------------------
Commission File Number: 0-29582
United Community Holdings, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada 75-2300997
------ ----------
(State of incorporation) (IRS Employer ID Number)
3935 I-55 South, Jackson, MS 39212
----------------------------------
(Address of principal executive offices)
(601) 371-0009
--------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: November 2, 1999: 8,000,818
---------
Transitional Small Business Disclosure Format (check one): YES NO X
<PAGE>
United Community Holdings, Inc.
Form 10-QSB for the Quarter ended September 30, 1999
Table of Contents
Page
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 13
Part II - Other Information
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults Upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 16
2
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<TABLE>
<CAPTION>
Part 1 - Item 1 - Financial Statements
United Community Holdings, Inc.
Consolidated Balance Sheets
September 30, 1999 and 1998
(Unaudited)
ASSETS 1999 1998
------ ----------- -----------
<S> <C> <C>
Current assets
Cash on hand and in bank $ 6,624 $ 14,107
Restricted cash 14,054 21,310
Accounts receivable-at need, net of allowance
for doubtful accounts of $12,500 and $-0-, respectively 5,075 --
Other current assets 5,019 9,166
----------- -----------
Total current assets 30,772 44,583
----------- -----------
Property and equipment - at cost 2,913,033 2,761,331
Accumulated depreciation (324,077) (156,052)
----------- -----------
2,588,956 2,605,279
Land 107,580 107,580
----------- -----------
Net property and equipment 2,696,536 2,712,859
----------- -----------
Other assets
Cemetery property - at cost 1,111,506 1,079,642
Prearranged funeral contracts 1,356,841 1,150,842
Long-term receivables for cemetery property sales 395,109 365,711
Other 16,617 21,342
----------- -----------
Total other assets 2,880,073 2,617,537
----------- -----------
TOTAL ASSETS $ 5,607,381 $ 5,374,979
=========== ===========
</TABLE>
- Continued -
The accompanying notes are an integral part of these financial statements.
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
3
<PAGE>
<TABLE>
<CAPTION>
United Community Holdings, Inc.
Consolidated Balance Sheets - Continued
September 30, 1999 and 1998
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
------------------------------------ ----------- -----------
<S> <C> <C>
Current liabilities
Notes payable $ 340,946 $ 3,106,773
Cash overdraft -- --
Current maturities of long-term debt 46,203 --
Accounts payable and other accrued liabilities 94,526 37,986
----------- -----------
Total current liabilities 481,675 3,144,759
----------- -----------
Long-term liabilities
Long-term debt, net of current maturities 2,121,987 --
Deferred prearranged funeral contract revenues 1,828,204 1,426,848
Deferred cemetery property sale revenues 382,799 381,867
Shareholder loan -- --
----------- -----------
Total liabilities 4,814,665 4,953,474
----------- -----------
Commitments and contingencies
Shareholders' Equity
Common stock - $0.00001 par value
50,000,000 shares authorized. 8,000,818
shares issued and outstanding 80 80
Additional paid-in capital 2,961,425 2,143,313
Accumulated deficit (2,168,789) (1,721,888)
----------- -----------
Total shareholders' equity 792,716 421,505
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,607,381 $ 5,374,979
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
4
<PAGE>
<TABLE>
<CAPTION>
United Community Holdings, Inc.
Statements of Operations and Comprehensive Income
Nine and Three months ended September 30, 1999 and 1998
(Unaudited)
Nine months Nine months Three months Three months
ended ended ended ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Funeral revenues $ 128,559 $ 118,523 $ 42,285 $ 87,743
Cemetery sales 152,232 31,156 39,790 (42,302)
Finance charge and related revenues 4,933 15,360 1,379 4,137
----------- ----------- ----------- -----------
Total revenues 285,724 165,039 83,454 49,578
----------- ----------- ----------- -----------
Cost of sales and direct expenses
Allocated cost of cemetery
spaces and crypts 18,095 3,692 4,294 464
Cost of cemetery merchandise
and funeral services 70,602 56,808 24,318 21,171
Sales commissions 45,417 57,730 12,784 18,888
----------- ----------- ----------- -----------
Total cost of sales
and direct expenses 134,114 118,230 41,396 40,523
----------- ----------- ----------- -----------
Gross profit 151,610 46,809 42,058 9,055
----------- ----------- ----------- -----------
Operating expenses
General and administrative expenses 231,968 386,133 82,177 134,892
Interest expense 153,739 191,568 43,141 62,251
Depreciation and amortization 118,833 97,270 39,542 32,423
----------- ----------- ----------- -----------
Total operating expenses 504,540 674,971 164,860 229,566
----------- ----------- ----------- -----------
Loss from operations (352,930) (628,162) (122,802) (220,511)
Other income (expense) 10,396 1,531 327 680
----------- ----------- ----------- -----------
Loss before income taxes (342,534) (626,631) (122,475) (219,831)
Income taxes -- -- -- --
----------- ----------- ----------- -----------
Net Loss (342,534) (626,631) (122,475) (219,831)
Other comprehensive income -- -- -- --
----------- ----------- ----------- -----------
Comprehensive Loss $ (342,534) $ (626,631) $ (122,475) $ (219,831)
=========== =========== =========== ===========
Net loss per weighted-average share
of common stock outstanding - Basic $(0.04) $(0.08) $(0.02) $(0.03)
====== ====== ====== ======
Weighted-average number of shares
of common stock outstanding - Basic 8,000,818 8,000,818 8,000,818 8,000,818
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
5
<PAGE>
<TABLE>
<CAPTION>
United Community Holdings, Inc.
Statements of Cash Flows
Nine months ended September 30, 1999 and 1998
(Unaudited)
Nine months Nine months
ended ended
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net loss for the period $(342,534) $(626,631)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 120,853 97,270
Allocated cost of cemetery spaces and crypts 18,095 3,692
(Increase) Decrease in:
Accounts receivable 6,541 --
Other assets 7,702 (11,033)
Increase (Decrease) in:
Accounts payable and other accrued liabilities (15,544) (16,527)
--------- ---------
Net cash used in operating activities (204,887) (553,229)
--------- ---------
Cash flows from investing activities
Transfers (to)/from trust funds and restricted cash 38,741 3,581
Capital expenditures for property, equipment and cemetery property (83,354) (352,143)
Changes in prearranged funeral contract receivables,
net of changes in deferred funeral contract revenues 135,252 94,902
Changes in long-term receivables for cemetery property
sales, net of changes in deferred cemetery property
sale revenues (10,385) 60,132
--------- ---------
Net cash used in investing activities 80,254 (193,528)
--------- ---------
Cash flows from financing activities
Net activity on bank line of credit (24,054) 886,773
Principal paid on long-term note payable (30,371) --
Cash paid for loan fees -- (16,200)
Contributed (Repayment of) capital by shareholder 184,355 (402,854)
--------- ---------
Net cash provided by financing activities 129,930 467,719
--------- ---------
Increase in cash 5,297 (279,038)
Cash at beginning of year 1,327 293,145
--------- ---------
Cash at end of year $ 6,624 $ 14,107
========= =========
Supplemental disclosure of interest and income taxes paid
Interest paid for the period $ 151,719 $ 179,457
========= =========
Income taxes paid for the year $ -- $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
6
<PAGE>
United Community Holdings, Inc.
Notes to Consolidated Financial Statements
Note 1 - Basis of Presentation
United Community Holdings, Inc. (Company) was incorporated under the corporate
name of Professionalistics, Inc. on May 31, 1989, under the laws of the State of
Delaware, as a wholly-owned subsidiary of Halter Venture Corporation, a
publicly-owned corporation. The Company changed its name to Pacific Great China
Co., Ltd. on May 8, 1996 as a result of an action by the Company's Board of
Directors in anticipation of a business acquisition or merger transaction.
Subsequently, this anticipated business acquisition or merger transaction was
mutually canceled by both parties.
On December 17, 1998, the Company changed its state of Incorporation from
Delaware to Nevada by means of a merger with and into a Nevada corporation
formed solely for the purpose of effecting the reincorporation. The Articles of
Incorporation and Bylaws of the Nevada corporation are the Articles of
Incorporation and Bylaws of the surviving corporation. Such Articles of
Incorporation did not change the capital structure of the Company. The effect of
this action also changed the Company's name to United Community Holdings, Inc.
On November 19, 1998, the Company's then majority shareholder sold 7,200,000
shares of the 7,750,129 shares held by the then majority shareholder to an
unrelated third party in anticipation of a reverse merger transaction whereby
the Company would merge with and into a privately held operating company during
the first quarter of 1999.
On February 28, 1999, effective as of January 1, 1999, the Company exchanged
1,000 shares of restricted, unregistered common stock with its then current
majority shareholder for 100.0% of the issued and outstanding stock of Rosemont
Gardens Funeral Chapel-Cemetery, Inc. (a Mississippi corporation) (Rosemont). At
closing, Rosemont became a wholly-owned subsidiary of the Company.
Rosemont Gardens Funeral Chapel-Cemetery, Inc. (Rosemont) was originally
incorporated on March 4, 1994 under the laws of the State of Mississippi.
Rosemont's operations consist of a funeral home and cemetery operation in
Jackson, Mississippi. Rosemont personnel at the funeral service location provide
all professional services related to funerals, including the use of funeral
facilities and motor vehicles. Funeral related merchandise is sold at the
funeral service location. Rosemont sells prearranged funeral services whereby a
customer contractually agrees to the terms, conditions and price of a funeral to
be performed at an unknown future date at the time the contract is executed.
Rosemont's cemetery provides cemetery interment rights (including mausoleum
crypts and lawn spaces) and certain merchandise including stone and bronze
memorials and burial vaults. These items may be sold on either a pre-need or an
at-need basis. Rosemont personnel at the cemetery site perform interment
services and provide management and maintenance of the cemetery grounds.
The acquisition of Rosemont by the Company was accounted for as a "reverse
acquisition" with the Company being the parent company and Rosemont being a
wholly-owned subsidiary. Due to common control and ownership of the two
corporations, this transaction was accounted for on an "as-if-pooled" basis in
accordance with Interpretation #39 of Accounting Principles Board Opinion #16.
These combined entities are referred to as Company. Accordingly, the combined
financial statements of the Company and Rosemont represent the historical
consolidated financial statements as of the first day of the first period
presented.
7
<PAGE>
United Community Holdings, Inc.
Notes to Consolidated Financial Statements - Continued
Note 1 - Basis of Presentation - Continued
During interim periods, the Company follows the accounting policies set forth in
its annual audited financial statements contained as a component of its Form
10-QSB for the quarter ended March 31, 1999 as filed with the Securities and
Exchange Commission. The accompanying financial statements do not include all
disclosures required by generally accepted accounting principles. Users of
financial information provided for interim periods should refer to the annual
audited financial statements contained as a component of its Form 10-QSB for the
quarter ended March 31, 1999 when reviewing the interim financial results
presented herein.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the instructions for Form 10-QSB, are unaudited and
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, results of
operations and cash flows of the Company for the respective interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full fiscal year
ending December 31, 1999.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2 - Summary of Significant Accounting Policies
1. Cash and cash equivalents
-------------------------
The Company considers all cash on hand and in banks, certificates of deposit
and other highly-liquid investments with maturities of three months or less,
when purchased, to be cash and cash equivalents.
Cash overdraft positions may occur from time to time due to the timing of
making bank deposits and releasing checks, in accordance with the Company's
cash management policies.
2. Accounts receivable
-------------------
In the normal course of business, the Company extends unsecured credit to its
at-need customers which are regionally concentrated in and around Jackson,
Mississippi. Because of the credit risk involved, management has provided an
allowance for doubtful accounts which reflects its opinion of amounts which
will eventually become uncollectible. In the event of complete
non-performance, the maximum exposure to the Company is the recorded amount
of trade accounts receivable shown on the balance sheet at the date of
non-performance.
3. Inventory
---------
Inventory consists of funeral merchandise and cemetery property and
merchandise and are stated at the lower of cost or market, using the
first-in, first-out method.
8
<PAGE>
United Community Holdings, Inc.
Notes to Consolidated Financial Statements - Continued
Note 2 - Summary of Significant Accounting Policies - Continued
4. Property, plant and equipment
-----------------------------
Property and equipment are recorded at historical cost. These costs are
depreciated over the estimated useful lives of the individual assets,
generally four (4) to twenty-five (25) years, using the straight-line method.
Maintenance and repairs are charged to expense whereas renewals and major
replacements are capitalized. Gains and losses from disposition of property
and equipment are recognized as incurred and are included in operations.
For the nine months ended September 30, 1999 and 1998, depreciation expense
of approximately $118,626 and $96,340, respectively, was charged to
operations.
5. Funeral operations
------------------
Funeral revenue is recognized when the funeral service is performed. The
Company's trade receivables, when recorded, will consist principally of
funeral services already performed. An allowance for doubtful accounts will
be provided based on historical experience. In the event of complete
non-performance, the maximum exposure to the Company is the recorded amount
of trade accounts receivable shown on the balance sheet at the date of
non-performance.
The Company sells prearranged funeral services and funeral merchandise that
provide for the delivery of price guaranteed services and merchandise at
prices prevailing when the agreement is signed. Revenues and related costs
associated with sales of prearranged funeral contracts are deferred and later
recognized when the funeral service is actually performed. Prearranged
funeral services and merchandise are generally financed either through trust
funds or escrow accounts, depending on State Regulatory requirements,
established by the Company or through insurance. Principal amounts deposited
in trust funds or escrow accounts are available to the Company as funeral
services are performed and merchandise is delivered. These amounts may be
refundable to the customer in those situations where state law provides for
the return of those amounts under the purchaser's option to cancel the
contract. Certain jurisdictions provide for non-refundable trust funds or
escrow accounts where the Company receives such amounts upon cancellation by
the customer.
The Company recognizes as revenue on a current basis all dividends and
interest earned, and net capital gains realized, by all prearranged funeral
trust funds or escrow accounts, except in those states where earnings revert
to the customer if a prearranged funeral service or funeral merchandise
contract is canceled. Principal and earnings are withdrawn only as funeral
services and merchandise are delivered or contracts are canceled, except in
jurisdictions that permit earnings to be withdrawn currently and in
unregulated jurisdictions where escrow accounts are used.
Commissions and other related direct marketing costs relating to prearranged
funeral services and prearranged funeral merchandise sales are expensed as
paid, subject to a nominal percentage which is withheld and paid at the time
the service is performed. Other indirect costs, including telemarketing and
advertising costs, are expensed in the period when incurred.
Funeral services sold at the time of need are recorded as funeral revenue in
the period performed.
9
<PAGE>
United Community Holdings, Inc.
Notes to Consolidated Financial Statements - Continued
Note 2 - Summary of Significant Accounting Policies - Continued
6. Cemetery operations
-------------------
Cemetery revenue is accounted for in accordance with the principles
prescribed for accounting for sales of real estate. Those principles require,
among other things, the receipt of a certain portion (generally 25%) of an
installment sale price prior to recognition of any revenue or cost on a
contract. The Company recognizes income currently from unconstructed
mausoleum crypts sold to the extent the Company has available inventory.
Costs related to the sales of cemetery mausoleum or lawn crypts include
property and other costs related to cemetery development activities which are
charged to operations using the specific identification method. Allowances
for customer cancellations are provided at the date of sale based upon
historical experience. Costs related to merchandise are based on actual costs
incurred or estimates of future costs necessary to purchase the merchandise,
including provisions for inflation when required.
Pursuant to applicable state law, all or a portion of the proceeds from each
sale of cemetery merchandise may also be required to be paid into trust funds
until such merchandise is purchased by the Company for the customer. The
Company recognizes realized trust income on these merchandise trusts in
current cemetery revenues as trust earnings accrue to defray inflation costs
recognized related to the unpurchased cemetery merchandise.
Additionally, pursuant to perpetual care contracts and laws, a portion,
generally 15.0%, of the total sales price of cemetery property is deposited
into perpetual care trust funds or escrow accounts. In addition, in those
jurisdictions where trust or escrow arrangements are neither statutorily nor
contractually required, the Company typically on a voluntary basis a portion,
generally 15.0%, of the sale price into escrow accounts. The income from
these funds, which have been established in most jurisdictions in which the
Company operates cemeteries, is used for maintenance of these cemeteries, but
principal, including in some jurisdictions, net realized capital gains, must
generally be held in perpetuity. Accordingly, the trust fund corpus is not
reflected in the financial statements, except for voluntary escrow funds
established by the Company. The Company recognizes and withdraws currently
all dividend and interest income earned and, where permitted, capital gains
realized by perpetual care funds.
A portion of the sales of cemetery property and merchandise is made under
installment contracts bearing interest at 9.75%. Finance charges are
recognized as a component of cemetery revenue under the straight-line method
over the terms of the related installment receivables.
Commissions and other related direct marketing costs relating to cemetery
spaces or mausoleum crypts are expensed as paid, subject to a nominal
percentage which is withheld and paid at the time the related sales contract
service is paid in full. Other indirect costs, including telemarketing and
advertising costs, are expensed in the period when incurred.
7. Organization costs
------------------
Costs related to the formation and organization of Rosemont have been
capitalized and are being amortized over a five year period, using the
straight-line method.
10
<PAGE>
United Community Holdings, Inc.
Notes to Consolidated Financial Statements - Continued
Note 2 - Summary of Significant Accounting Policies - Continued
8. Income taxes
------------
The Company filed a separate corporate federal income tax return through
December 31, 1998. Due to the change in control occurring in 1998, the
Company has no net operating loss carryforwards available to offset financial
statement or tax return taxable income in future periods.
Rosemont, with the consent if its former sole shareholder, has elected under
the Internal Revenue Code to be taxed as an "Subchapter S corporation",
through December 31, 1998. In lieu of corporate income taxes, the shareholder
of a "Subchapter S corporation" is taxed directly on the Company's taxable
income. Accordingly, no provision, benefit or liability for income taxes is
included in the accompanying financial statements.
The Company uses the asset and liability method of accounting for income
taxes. At September 30, 1999 and 1998, respectively, the deferred tax asset
and deferred tax liability accounts, as recorded when material to the
financial statements, are entirely the result of temporary differences.
Temporary differences represent differences in the recognition of assets and
liabilities for tax and financial reporting purposes, primarily accumulated
depreciation and amortization, allowance for doubtful accounts and vacation
accruals.
As of September 30, 1999, the deferred tax asset related to the Company's
nine month 1999 consolidated net operating loss carryforward is fully
reserved.
9. Income (Loss) per share
-----------------------
Basic earnings (loss) per share is computed by dividing the net income (loss)
by the weighted-average number of shares of common stock and common stock
equivalents (primarily outstanding options and warrants). Common stock
equivalents represent the dilutive effect of the assumed exercise of the
outstanding stock options and warrants, using the treasury stock method. The
calculation of fully diluted earnings (loss) per share assumes the dilutive
effect of the exercise of outstanding options and warrants at either the
beginning of the respective period presented or the date of issuance,
whichever is later. As of September 30, 1999 and 1998, the Company had no
warrants and options outstanding which could be deemed to be dilutive.
Note 3 - Trust Funds and Restricted Cash
Pursuant to State law or Company policy, certain portions of contracts related
to the sales of prearranged funeral services and funeral merchandise and
cemetery spaces, mausoleum crypts and related merchandise are deposited into a
common trust for the period ended September 30, 1999 and in separate trusts for
the period ended September 30, 1998 to provide funds for the fulfillment of the
underlying contracts and/or perpetual care of the cemetery property.
The Company recognizes as revenue on a current basis all dividends and interest
earned, and net capital gains realized, by all prearranged funeral trust funds
or escrow accounts, except in those states where earnings revert to the customer
if a prearranged funeral service or funeral merchandise contract is canceled.
The Company recognizes realized trust income on these merchandise trusts in
current cemetery revenues as trust earnings accrue to defray inflation costs
recognized related to the unpurchased cemetery merchandise. The Company
recognizes and withdraws currently all dividend and interest income earned and,
where permitted, capital gains realized by perpetual care funds.
11
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<TABLE>
<CAPTION>
United Community Holdings, Inc.
Notes to Consolidated Financial Statements - Continued
Note 3 - Trust Funds and Restricted Cash - Continued
As of September 30, 1999 and 1998, the trust funds and resultant restricted cash
consist of the following components:
1999 1998
-------- --------
<S> <C> <C>
Trust cash $ (265) $ 43,222
Marketable securities, at fair market value 42,156 -
Unrealized (gains) losses on marketable securities 77,123 -
Amounts due to trust funds from future contract collections (104,960) (21,912)
------- ------
Restricted cash $ 14,054 $ 21,310
======= ======
Marketable securities are considered available-for-sale. All unrealized gains or
losses are excluded from earnings until such time that such gains or losses are
realized upon the sale of the underlying security. For purposes of computing
realized gains and losses, the specific identification method is used.
As of September 30, 1999 and 1998, the marketable securities held in the trust
funds consist entirely of equity securities and are summarized as follows:
1999 1998
-------- --------
Aggregate fair value $ 42,156 $ -
Gross unrealized holding gains $ - $ -
Gross unrealized holding losses $ 77,123 $ -
Amortized cost basis $119,279 $ -
</TABLE>
12
<PAGE>
Part I - Item 2
Management's Discussion and Analysis of Financial Condition and Results
of Operations
(1) Caution Regarding Forward-Looking Information
This quarterly report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the Company
or management as well as assumptions made by and information currently available
to the Company or management. When used in this document, the words
"anticipate," "believe," "estimate," "expect" and "intend" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. Such statements reflect the current view of
the Company regarding future events and are subject to certain risks,
uncertainties and assumptions, including the risks and uncertainties noted.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected or
intended. In each instance, forward-looking information should be considered in
light of the accompanying meaningful cautionary statements herein.
(2) General Information
United Community Holdings, Inc. (Company) was incorporated under the corporate
name of Professionalistics, Inc. on May 31, 1989, under the laws of the State of
Delaware, as a wholly-owned subsidiary of Halter Venture Corporation, a
publicly-owned corporation . The Company changed its name to Pacific Great China
Co., Ltd. on May 8, 1996 as a result of an action by the Company's Board of
Directors in anticipation of a business acquisition or merger transaction.
Subsequently, this anticipated business acquisition or merger transaction was
mutually canceled by both parties.
On December 17, 1998, the Company changed its state of Incorporation from
Delaware to Nevada by means of a merger with and into a Nevada corporation
formed solely for the purpose of effecting the reincorporation. The Articles of
Incorporation and Bylaws of the Nevada corporation are the Articles of
Incorporation and Bylaws of the surviving corporation. Such Articles of
Incorporation did not change the capital structure of the Company. The effect of
this action also changed the Company's name to United Community Holdings, Inc.
On November 19, 1998, the Company's then majority shareholder sold 7,200,000
shares of the 7,750,129 shares held by the then majority shareholder to an
unrelated third party in anticipation of a reverse merger transaction whereby
the Company would merge with and into a privately held operating company during
the first quarter of 1999.
On February 28, 1999, effective as of January 1, 1999, the Company exchanged
1,000 shares of restricted, unregistered common stock with its then current
majority shareholder for 100.0% of the issued and outstanding stock of Rosemont
Gardens Funeral Chapel-Cemetery, Inc. (a Mississippi corporation) (Rosemont). At
closing, Rosemont became a wholly-owned subsidiary of the Company
Rosemont Gardens Funeral Chapel-Cemetery, Inc. (Rosemont) was originally
incorporated on March 4, 1994 under the laws of the State of Mississippi.
Rosemont's operations consist of a funeral home and cemetery operation in
Jackson, Mississippi. Rosemont personnel at the funeral service location provide
all professional services related to funerals, including the use of funeral
facilities and motor vehicles. Funeral related merchandise is sold at the
funeral service location. Rosemont sells prearranged funeral services whereby a
customer contractually agrees to the terms, conditions and price of a funeral to
be performed at an unknown future date at the time the contract is executed.
Rosemont's cemetery provides cemetery interment rights (including mausoleum
crypts and lawn spaces) and certain merchandise including stone and bronze
memorials and burial vaults. These items may be sold on either a pre-need or an
at-need basis. Rosemont personnel at the cemetery site perform interment
services and provide management and maintenance of the cemetery grounds.
The acquisition of Rosemont by the Company was accounted for as a "reverse
acquisition" with the Company being the parent company and Rosemont being a
wholly-owned subsidiary. Due to common control and ownership of the two
corporations, this transaction was accounted for on an "as-if-pooled" basis in
accordance with Interpretation #39 of Accounting Principles Board Opinion #16.
These combined entities are referred to as Company. Accordingly, the combined
financial statements of the Company and Rosemont represent the historical
consolidated financial statements as of the first day of the first period
presented.
13
<PAGE>
(3) Results of Operations
The operations for the nine months ended September 30, 1999 compared to the nine
months ended September 30, 1998 show a continued maturation and market
acceptance of the products and operations of the Company's Rosemont subsidiary.
Recognized revenues for the first nine months of 1999 were approximately
$286,000 as compared to approximately $165,000 for the same period of the
preceding year. The Company recognizes revenues upon the provision of funeral
services, sale of funeral, cemetery or related merchandise or upon the receipt
of at least 25% of the initial sales price for cemetery spaces and/or crypts.
The Company incurred cost of sales and providing services of approximately
$134,000 and $118,000, respectively, for the nine months ended September 30,
1999 and 1998. Costs related to cemetery merchandise and funeral services are
recognized at the time the service is provided. Sales commissions, for both
at-need and pre-need funeral sales and sales of cemetery spaces and/or crypts,
are charged to expense, less a nominal percentage, in the month the related
contract is recorded. The allocated cost of cemetery spaces and/or crypts is
charged to operations at the time that at least 25% of the initial contract
price is received by the Company in cash. The Company realized gross profits of
approximately $152,000 (53.06%) for the nine months ended September 30, 1999 as
compared to approximately $118,000 (71.64%) for the nine months ended September
30, 1998. This change in gross profit percentage is due to management's
value-based product pricing policies to provide quality funeral and burial
services to the general public
The Company continues to monitor its expenditures for general operating
expenses, principally personnel costs and professional fees. The Company had
aggregate general and administrative expenses of approximately $232,000 for the
nine months ended September 30, 1999 as compared to approximately $386,000 for
the same period of 1998. Interest expense decreased by approximately $38,000,
from approximately $192,000 for the nine months ended September 30, 1998 to
approximately $154,000 for the nine months ended September 30, 1999. This
decrease in interest expense is directly related to the 1998 debt restructuring
of short-term borrowings into a long-term debt agreement and/or the net
retirement of amounts due on the Company's line of credit during 1999.
Depreciation and amortization is relatively constant based on the completion of
the Rosemont visitors center and related placement into service during the first
quarter of 1998 and some additions to property and equipment during 1999.
The principal source of cash to support daily operations is the collection of
contractual receivables for both prearranged funeral services and the sales of
cemetery spaces or crypts. This area continues to experience growth in the
number and dollar amount of contracts placed in effect on a cumulative basis and
the related cash flows therefrom.
Earnings per share improved from $(0.08) per share for the first nine months of
1998 to approximately $(0.04) per share for the first nine months of 1999.
(4) Liquidity and capital resources
The Company is principally dependent upon cash flows related to the collection
of long-term contract receivables related to prearranged funeral contracts and
sales of cemetery spaces and/or crypts. The Company had negative cash flows from
operations of approximately $(224,000) and $(553,000) for the first nine months
of 1999 and 1998, respectively. These deficits were supported through advances
on the Company's bank line of credit or through controlling shareholder
advances. The Company has completed the development of the initial cemetery
garden, visitors center and other funeral related buildings. The Company
continues the process of constructing Phase II to its Mausoleum and the second
and third cemetery gardens as internally generated funds and consumer demand
permits. Management is of the opinion that it has sufficient cemetery spaces and
mausoleum crypts to meet current demands and construct additional capacity
within the parameters of existing cash flows.
During the third quarter of 1998, the Company entered into a $2,220,000
long-term note payable to a bank. The note bears interest at 8.00% and is
payable in monthly installments of approximately $18,569, including interest.
Any unpaid principal and interest is due at the note's maturity in June 2003.
The note is secured by land, accounts receivable from prearranged funeral
contracts and cemetery property sales contracts and the personal guarantee of
the Company's controlling shareholder. The proceeds of this note were used to
refinance various short-term notes payable by the Company.
14
<PAGE>
The Company has identified no significant capital requirements for the current
annual period. Liquidity requirements mandated by future business expansions or
acquisitions, if any are specifically identified or undertaken, are not readily
determinable at this time as no substantive plans have been formulated by
management.
Additionally, management is of the opinion that there is additional potential
availability of incremental mortgage debt and the opportunity for the sale of
additional common stock through either private placements or secondary
offerings.
(5) Year 2000 Considerations
The Year 2000 (Y2K) date change is believed to affect virtually all computers
and organizations. The Company has undertaken a comprehensive review of its
information systems, including personal computers, software and peripheral
devices, and its general communications systems. The Company has no direct
electronic links with any customer or supplier. In addition, the Company has
held discussions with certain of its software suppliers with respect to the Y2K
date change. The Company has completed its detailed review, as a preliminary
assessment and the Company believes, as of the date of this filing, that it will
not be required to modify or replace significant portions of its computer
hardware or software and any such modifications or replacements are, or will be,
readily available. The Company has completed its detailed review by September 1,
1999 and has completed any modifications, upgrades or replacements. No
significant expenditures were required as a result of this exercise and,
accordingly, the costs associated with the Y2K date change compliance did not
have a material effect on the Company's financial position or its results of
operations.
The Company continues to monitor its significant suppliers, shippers, customers
and other external business partners related to their readiness for the Y2K date
change. However, there can be no assurance until January 1, 2000, however, that
all of the Company's systems, and the systems of its suppliers, shippers,
customers or other external business partners will function adequately.
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults on Senior Securities
None
15
<PAGE>
Item 4 - Submission of Matters to a Vote of Security Holders
The Company has held no regularly scheduled, called or special meetings of
shareholders during the reporting period.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
Form 8-K filings - None
- --------------------------------------------------------------------------------
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNITED COMMUNITY HOLDINGS, INC.
November 2 , 1999 /s/ James F. Robinson.
------- -----------------------------------
James F. Robinson
Chairman and President
November 2 , 1999 /s/ Margaret R. Lauro
------- -----------------------------------
Margaret R. Lauro
Secretary/Treasurer and
Chief Accounting Officer
16
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