UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
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(Mark one)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
--------- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
--------- OF 1934
For the transition period from ____________ to ___________
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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)
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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: August 15, 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 June 30, 2000
Table of Contents
Page
----
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 16
Part II - Other Information
Item 1 Legal Proceedings 18
Item 2 Changes in Securities 18
Item 3 Defaults Upon Senior Securities 19
Item 4 Submission of Matters to a Vote of Security Holders 19
Item 5 Other Information 19
Item 6 Exhibits and Reports on Form 8-K 19
Signatures 19
2
<PAGE>
S. W. HATFIELD, CPA
certified public accountants
Member: American Institute of Certified Public Accountants
SEC Practice Section
Information Technology Section
Texas Society of Certified Public Accountants
Part 1 - Item 1 - Financial Statements
ACCOUNTANT'S REVIEW REPORT
--------------------------
Board of Directors and Shareholders
United Community Holdings, Inc.
We have reviewed the accompanying consolidated balance sheets of United
Community Holdings, Inc. (a Nevada corporation) and Subsidiary as of June 30,
2000 and 1999 and the accompanying consolidated statements of operations and
comprehensive income for the six and three months ended June 30, 2000 and 1999
and the accompanying consolidated statements of cash flows for the six months
ended June 30, 2000 and 1999. These financial statements are prepared in
accordance with the instructions for Form 10-QSB, as issued by the U. S.
Securities and Exchange Commission, and are the sole responsibility of the
company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression on an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
S. W. HATFIELD, CPA
Dallas, Texas
August 15, 2000
P. O. Box 820395 9002 Green Oaks Circle, 2nd Floor
Dallas, Texas 75382-0395 Dallas, Texas 75243-7212
214-342-9635 (voice) (fax) 214-342-9601
800-244-0639 [email protected]
3
<PAGE>
<TABLE>
<CAPTION>
United Community Holdings, Inc. and Subsidiary
Consolidated Balance Sheets
June 30, 2000 and 1999
(Unaudited)
ASSETS 2000 1999
------ ----------- -----------
<S> <C> <C>
Current assets
Cash on hand and in bank $ 8,840 $ 3,963
Restricted cash 101,329 21,518
Accounts receivable-at need, net of allowance
for doubtful accounts of $12,500 and $12,500, respectively 29,808 20,114
Other current assets 1,294 4,237
----------- -----------
Total current assets 141,271 49,832
----------- -----------
Property and equipment - at cost 2,949,534 2,858,186
Accumulated depreciation (454,258) (284,535)
----------- -----------
2,495,276 2,573,651
Land 107,580 107,580
----------- -----------
Net property and equipment 2,602,856 2,681,231
----------- -----------
Other assets
Cemetery property - at cost 1,107,927 1,085,724
Prearranged funeral contracts 1,345,175 1,287,530
Long-term receivables for cemetery property sales 285,885 390,501
Other 12,577 17,290
----------- -----------
Total other assets 2,751,564 2,781,045
----------- -----------
TOTAL ASSETS $ 5,495,691 $ 5,512,108
=========== ===========
</TABLE>
- Continued -
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. See Accountant's
Review Report. The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
United Community Holdings, Inc. and Subsidiary
Consolidated Balance Sheets - Continued
June 30, 2000 and 1999
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
------------------------------------ ----------- -----------
Current liabilities
Notes payable $ 300,000 $ 442,600
Current maturities of long-term debt 68,451 46,203
Accounts payable and other accrued liabilities 90,811 77,248
----------- -----------
Total current liabilities 459,262 566,051
----------- -----------
Long-term liabilities
Long-term debt, net of current maturities 2,098,021 2,132,164
Deferred prearranged funeral contract revenues 1,971,800 1,707,998
Deferred cemetery property sale revenues 395,828 375,060
Shareholder loan 179,629 --
----------- -----------
Total liabilities 5,104,540 4,781,273
----------- -----------
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 2,954,705 2,777,070
Accumulated deficit (2,563,634) (2,046,315)
----------- -----------
Total shareholders' equity 391,151 730,835
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,495,691 $ 5,512,108
=========== ===========
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. See Accountant's
Review Report. The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
United Community Holdings, Inc. and Subsidiary
Statements of Operations and Comprehensive Income
Six and Three months ended June 30, 2000 and 1999
(Unaudited)
Six months Six months Three months Three months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Funeral revenues $ 95,958 $ 86,274 $ 56,497 $ 42,883
Cemetery sales 56,209 112,443 34,852 35,147
Finance charge and related revenues 15,435 3,553 9,931 8,064
----------- ----------- ----------- -----------
Total revenues 167,602 202,270 101,280 86,094
----------- ----------- ----------- -----------
Cost of sales and direct expenses
Cost of cemetery spaces and crypts 20,452 13,801 16,381 4,669
Cost of cemetery merchandise
and funeral services 33,152 46,284 18,667 28,222
Sales commissions 16,503 32,633 8,951 18,948
----------- ----------- ----------- -----------
Total cost of sales
and direct expenses 70,107 92,718 43,999 51,839
----------- ----------- ----------- -----------
Gross profit 97,495 109,552 57,281 34,255
----------- ----------- ----------- -----------
Operating expenses
General and administrative expenses 159,260 149,791 87,788 84,125
Interest expense 125,469 110,598 66,877 59,594
Depreciation and amortization 84,267 79,291 42,134 39,542
----------- ----------- ----------- -----------
Total operating expenses 368,996 339,680 196,799 183,261
----------- ----------- ----------- -----------
Loss from operations (271,501) (230,128) (139,518) (149,006)
Other income (expense) 1,094 10,066 -- 10,000
----------- ----------- ----------- -----------
Loss before income taxes (270,407) (220,062) (139,518) (139,006)
Income taxes -- -- -- --
----------- ----------- ----------- -----------
Net Loss (270,407) (220,062) (139,518) (139,006)
Other comprehensive income -- -- -- --
----------- ----------- ----------- -----------
Comprehensive Loss $ (270,407) $ (220,062) $ (139,518) $ (139,006)
=========== =========== =========== ===========
Net loss per weighted-average share
of common stock outstanding - Basic $(0.03) $(0.03) $(0.02) $(0.02)
====== ====== ====== ======
Weighted-average number of shares
of common stock outstanding - Basic 8,000,818 8,000,818 8,000,818 8,000,818
=========== =========== =========== ===========
</TABLE>
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. See Accountant's
Review Report. The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
United Community Holdings, Inc. and Subsidiary
Statements of Cash Flows
Six months ended June 30, 2000 and 1999
(Unaudited)
Six months Six months
ended ended
June 30, June 30,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net loss for the period $(270,407) $(220,062)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 86,287 80,638
Cost of cemetery spaces and crypts 8,523 4,669
(Increase) Decrease in:
Accounts receivable (25,449) (8,498)
Other assets 7,815 8,484
Increase (Decrease) in:
Accounts payable and other accrued liabilities 2,359 (32,820)
Deferred revenues (43,139) (122,885)
--------- ---------
Net cash used in operating activities (234,011) (290,474)
--------- ---------
Cash flows from investing activities
Transfers (to)/from trust funds and restricted cash (42,409) 31,277
Capital expenditures for property, equipment and cemetery property (12,807) (10,701)
Changes in prearranged funeral contract receivables,
net of changes in deferred funeral contract revenues 167,354 110,992
Changes in long-term receivables for cemetery property
sales, net of changes in deferred cemetery property
sale revenues 80,525 104,136
--------- ---------
Net cash used in investing activities 192,663 235,704
--------- ---------
Cash flows from financing activities
Net activity on bank line of credit (100,000) 77,600
Principal (paid) received on long-term note payable (28,347) (20,194)
Principal repayments on long-term lease payables (9,677) --
Net increase in shareholder loan 179,629 --
--------- ---------
Net cash provided by financing activities 41,605 57,406
--------- ---------
Increase in cash 257 2,636
Cash at beginning of year 8,583 1,327
--------- ---------
Cash at end of year $ 8,840 $ 3,963
========= =========
Supplemental disclosure of interest and income taxes paid
Interest paid for the period $ 123,449 $ 101,157
========= =========
Income taxes paid for the year $ -- $ --
========= =========
</TABLE>
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. See Accountant's
Review Report. The accompanying notes are an integral part of these consolidated
financial statements.
7
<PAGE>
United Community Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Note A - Organization and Description of Business
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 corporate venue 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 business combination 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
The acquisition of Rosemont by the Company was accounted in accordance with the
provisions of Interpretation #39 of Accounting Principles Board Opinion #16,
whereby the combination of entities under common control are accounted for on an
"as-if-pooled" basis with the Company being the parent company and Rosemont
being a wholly-owned subsidiary. These consolidated entities are referred to as
Company. Accordingly, the consolidated financial statements of the Company and
Rosemont represent the historical consolidated financial statements as of the
first day of the first period presented.
Rosemont Gardens Funeral Chapel-Cemetery, Inc. (Company) was incorporated on
March 4, 1994 under the laws of the State of Mississippi. The Company's
operations consist of a funeral home and cemetery operation in Jackson,
Mississippi. Company 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. The Company 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.
The Company'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. Company personnel at the cemetery site perform interment services
and provide management and maintenance of the cemetery grounds.
8
<PAGE>
United Community Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements - Continued
Note A - Organization and Description of Business - Continued
During interim periods, the Company follows the accounting policies set forth in
its Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934 on Form 10-KSB filed with the U. S. Securities and Exchange Commission.
The information presented herein may not include all disclosures required by
generally accepted accounting principles and the users of financial information
provided for interim periods should refer to the annual financial information
and footnotes contained in its Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 on Form 10-KSB 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, 2000.
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 B - 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.
9
<PAGE>
United Community Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements - Continued
Note B - 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 three (3) 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 six months ended June 30, 2000 and 1999, depreciation expense of
approximately $84,267 and $79,084, 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.
10
<PAGE>
United Community Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements - Continued
Note B - 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 the Company have been
capitalized and are being amortized over a five year period, using the
straight-line method.
11
<PAGE>
United Community Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements - Continued
Note B - 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, 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 June 30, 2000 and 1999, 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 June 30, 2000 and 1999, the Company's deferred tax asset 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 June 30, 2000 and 1999, the Company
had no warrants and options outstanding which could be deemed to be
dilutive.
10. Accounting standards to be adopted
----------------------------------
Upon the adoption of a formal stock compensation plan, the Company
anticipates using the "fair value based method" of accounting for
compensation based stock options pursuant to Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation".
Under the fair value based method, compensation cost will be measured at
the grant date of the respective option based on the value of the award
and will be recognized as a charge to operations over the service period,
which will usually be the respective vesting period of the granted
option(s).
12
<PAGE>
United Community Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements - Continued
Note C - Long-Term Receivables
As of December 31, 1999, the Company's long-term receivables related to
prearranged funeral contracts and cemetery sales are anticipated to be collected
pursuant to contractually scheduled payments as follows:
Year ending
December 31, Principal due
------------ -------------
2000 $ 323,610
2001 254,629
2002 336,210
2003 184,017
2004 153,144
Thereafter 376,794
----------
Total $1,628,404
==========
Note D - Cemetery Property
Cemetery property consists of the following at June 30, 2000 and 1999,
respectively:
2000 1999
---------- ----------
Developed cemetery gardens, net of
spaces sold with revenue recognition $ 79,883 $ 89,378
Cemetery gardens in development 27,390 27,025
Mausoleum crypts, net of crypts sold 343,180 311,847
Undeveloped 657,474 657,474
---------- ----------
Total $1,107,927 $1,085,724
========== ==========
Note E - Notes payable
Notes payable consist of the following at June 30, 2000 and 1999, respectively:
2000 1999
-------- --------
$400,000 revolving line of credit payable to a bank.
Interest at the Bank's prime rate (8.50% at June 30, 2000).
Interest payable monthly. Principal and unpaid
interest due at maturity in March 2001. Secured by
land, accounts receivable from prearranged funeral
contracts and cemetery property sales contracts and
the personal guarantee of the Company's shareholder. $300,000 $442,600
-------- --------
Total notes payable $300,000 $442,600
======== ========
13
<PAGE>
<TABLE>
<CAPTION>
United Community Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements - Continued
Note F - Long-Term Debt
Long-term debt consists of the following at June 30, 2000 and 1999:
2000 1999
----------- -----------
<S> <C> <C>
$2,220,000 note payable to a bank. Interest at 8.00%.
Payable in monthly installments of approximately
$18,569, including interest. Any unpaid principal
and interest is due at maturity in June 2003. Secured
by land, accounts receivable from prearranged funeral
contracts and cemetery property sales contracts and
the personal guarantee of the Company's shareholder $ 2,132,392 $ 2,178,367
$21,082 installment note payable to a bank. Interest at
7.25%. Payable in monthly installments of approximately
$655, including interest. Final maturity in August 2002
Secured by a vehicle 15,077 --
$23,500 capital lease payable to a finance company
Interest at 15.6%. Payable in monthly installments of
approximately $539, including interest. Final maturity
in December 2003. Secured by furniture and equipment 12,099 --
$14,850 capital lease payable to a finance company
Interest at 18.9%. Payable in monthly installments of
approximately $530, including interest. Final maturity
in December 2001. Secured by furniture and equipment 6,904 --
----------- -----------
Total long-term debt 2,166,472 2,178,367
Less current maturities (68,451) (46,203)
----------- -----------
Long-term portion $ 2,098,021 $ 2,132,164
=========== ===========
Future maturities of long-term debt are as follows: Year ending
December 31, Principal due
------------ -------------
2000 $ 68,451
2001 71,133
2002 69,036
2003 1,995,876
-----------
Total $ 2,204,496
===========
</TABLE>
14
<PAGE>
United Community Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements - Continued
Note G - 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, as of December 31, 1999 and 1998 to provide funds for the
fulfillment of the underlying contracts and/or perpetual care of the cemetery
property. Separate trusts for funeral contracts, cemetery contracts and
perpetual care were maintained through December 31, 1997.
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.
As of June 30, 2000 and 1999, the trust funds and resultant restricted cash
consist of the following components:
2000 1999
-------- --------
Trust cash $ 1,338 $ -
Marketable securities, at fair market value 62,108 84,641
Unrealized (gains) losses on marketable securities 107,172 34,373
Amounts due to trust funds from future contract collections (69,289) (97,496)
-------- --------
Restricted cash $101,329 $ 21,518
======== ========
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 June 30, 2000 and 1999, the marketable securities held in the trust funds
consist entirely of equity securities and are summarized as follows:
2000 1999
-------- --------
Aggregate fair value $ 62,108 $ 84,641
Gross unrealized holding gains $ - $ -
Gross unrealized holding losses $107,172 $ 34,373
Amortized cost basis $169,280 $119,014
15
<PAGE>
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 business combination 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
The acquisition of Rosemont by the Company was accounted in accordance with the
provisions of Interpretation #39 of Accounting Principles Board Opinion #16,
whereby the combination of entities under common control are accounted for on an
"as-if-pooled" basis with the Company being the parent company and Rosemont
being a wholly-owned subsidiary. These consolidated entities are referred to as
Company. Accordingly, the consolidated financial statements of the Company and
Rosemont represent the historical consolidated financial statements as of the
first day of the first period presented.
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.
16
<PAGE>
(3) Results of Operations
Six months ended June 30, 2000 compared to the six months ended June 30, 1999
-----------------------------------------------------------------------------
The operations for the six months ended June 30, 2000 compared to the six months
ended June 30, 1999 show a continued maturation and market acceptance of the
products and operations of the Company's Rosemont subsidiary. Recognized
revenues for the first six months of 2000 were approximately $168,000 as
compared to approximately $202,000 for the comparable period of 1999. 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. Accordingly, the
Company's revenues and cash flows are dependent upon the level of need for the
Company's services and receipts on long-term contracts for the sale of cemetery
spaces/crypts.
The Company incurred cost of sales and providing services of approximately
$70,000 and $93,000, respectively, for the six months ended June 30, 2000 and
1999. 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. Total commissions expense, principally incurred
on the sales of pre-need contracts for funeral services and/or cemetery spaces
or crypts was approximately $17,000 and $33,000, respectively, during the first
six months ended June 30, 2000 and 1999.
The Company realized gross profits of approximately $97,000 (58.17%) for the six
months of 2000 as compared to approximately $110,000 (54.16%) for same period of
1999. 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 and the direct charge to operations for commissions at the
inception of a long-term receivable for either pre- need funeral services or
cemetery spaces/crypts. Periods in which there are high sales of new long-term
contracts without either the provision of funeral services or the receipt of at
least 25% of the initial contract price on cemetery spaces or crypts will cause
fluctuations and lower gross profit percentages due to the Company's revenue
recognition policies.
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 $159,000 for the
first six months of 2000 as compared to approximately $150,000 for the first six
months of 1999. Interest expense was relatively constant at approximately
$125,000 for the first six months of 2000 as compared to approximately $111,000
for the first six months of 1999. Depreciation and amortization is also
relatively constant at approximately $84,000 for the first six months of 2000 as
compared to approximately $79,000 for the first six months of 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 for the respective quarters ended June 30, 2000 and 1999 were
$(0.03) and $(0.03).
17
<PAGE>
(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 $(234,000) and $(290,000) for the six months ended
June 30, 2000 and 1999, respectively. The operating cash deficits in excess of
cash collected on long-term receivables for funeral services and/or cemetery
spaces or crypts were supported through controlling shareholder advances. The
Company completed the development of the initial cemetery garden, visitors
center and other funeral related buildings during 1998. 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.
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 was believed to affect virtually all computers
and organizations. The Company undertook a comprehensive review of its
information systems, including personal computers, software and peripheral
devices, and its general communications systems during 1999. The Company has no
direct electronic links with any customer or supplier. Additionally, the Company
held discussions with certain of its software suppliers with respect to the Y2K
date change. 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. To date, the Company has not experienced
any adverse effect from the advent of Year 2000. However, there can be no
assurance that all of the Company's systems, and the systems of its suppliers,
shippers, customers or other external business partners will not experience
unforseen problems during the Year 2000.
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
18
<PAGE>
Item 3 - Defaults on Senior Securities
None
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
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.
August 15 , 2000 /s/ James F. Robinson
-------- -------------------------------
James F. Robinson
Chairman and President
August 15 , 2000 /s/ Margaret R. Lauro
-------- -------------------------------
Margaret R. Lauro
Secretary/Treasurer and
Chief Accounting Officer
19
